ENVIRONMENTAL RISKS Covered or not?

Transcription

1 ENVIRONMENTAL RISKS Covered or not? October

2 Environmental risks Covered or not? I will never have a pollution event If I do, it won t cost anything If it does, my public liability will pay If not, what about my broker! 2

3 Making the headlines Check your cover warning over environmental directive New European directive means that polluters must pay to put right any damage they cause. As environmental liabilities grow regulators look set to get busy authorities are set to increasingly use the new tools at their disposal to enforce clean up at contaminated sites, according to experts. Brokers warned: enforce EL or risk legal action Brokers that fail to advise clients about environmental liability risks could face legal action following a government crackdown. Policyholders could sue brokers for inadequate cover provision Hungary disaster highlights need for ELD provisions Environmental insurance comes of age Environmental insurance, once labeled as difficult to obtain, data intensive and expensive, has come of age. 3

4 Environmental exposures 4

5 New pollution liabilities Pollution condition commences after policy inception Emissions to air, water, land, impact to habitats and protected species. Manufacturing, waste, chemical, food, packaging, printing, animal processing, power generation, utilities, primary metal works, ceramics, aggregates, engineering, docks etc. Size / activities / reputation / finances / risk management awareness Usually a discretionary purchase PL extensions & stand alone 1-3 years to cover operators 5

6 Historical pollution liabilities Pollution condition commences prior to policy inception Often overlooked e.g. real estate Polluter pays but not always! Contractual liabilities in sale and purchase agreement Lenders requirements Insurable interests owners, occupiers, managing agents, funders, investors, trustees Change of law / clean exit Property & real estate owners, investors, managing agents, developers, tenants Differing interests e.g. Risk transfer vs. Facilitating transactions Often a distress purchase often the easiest wins 10 year policies to cover buyers, sellers, funders etc 6

7 Contractors liabilities New pollution conditions and exacerbation of pre-existing pollution conditions Pollution conditions and / or environmental damage, e.g. roads, fire, dewatering. Blanket or project specific, claims made of claims occurring Contractors, subcontractors, authorities, landowners, lenders Increasingly a contractual requirement 1-10 years for project specific, annual for blanket 7

8 But I don t have any environmental liabilities! What was the prior use of your site? Do you store fuel? How? Do you store or handle chemicals or materials? Do your storage facilities have adequate secondary containment? When were your tanks / lines last integrity tested? What kind of wastes do you generate? Who disposes of them? Do you have third party complaints e.g. dust / odour? What are the environmental provisions in your lease / sale and purchase agreement? What are the risks to your business posed by forthcoming environmental regulations? Are there any proposals for redevelopment of adjacent land / property? Do you have plans to acquire / divest assets in the foreseeable future? Has your site been identified by the local authority as potentially contaminated land? What does your tenant do with their waste? Are the compliant? if they go bust, what state will they leave your site in? 8

9 but it won t happen to me... The Environmental agency reports two significant pollution incidents a day in the UK >40% of incidents result from equipment or control failures >10% result from fire So even sites with sophisticated risk management systems and infrastructure in place can have incidents 9

10 but it won t happen to me... Environmental liabilities have been driven by Statutory law Recent reports suggest some 17,000 (1) separate regulations governing environmental issues in force worldwide. European Commission at the forefront: Water framework directive Integrated pollution prevention and control Directive on protection of the Environment through Criminal Law (2008/99/EC) Environmental Liability Directive (2004/35/EC) The French government recently undertook a study of pollution incidents which occurred from 1996 to 1997, and then reapplied current legislation to those incidents. The study found cost of responding increased in some cases 40 times (2) (1) Insuring pollution & environmental damage. Technical Briefing, Commercial Risk Europe. (2) 10

11 Containment news September 2012 headlines Firewater Fears In Wandle After Major Fire At Sewage Works Inquiry Launched After Sewage Spill Closes 20 Kent Beaches Scarborough Pollution Kills 3000 Fish Company Bosses Count Cost After Deeside Industrial Fire EA Launch Criminal Investigation Into Dead Fish In Doe Park 100,000 Dead Fish Found In River Weaver People Jailed For Waste Crimes Trebles In Last 3 Years EA May Have Found Source Of Major River Aire 13Km Spill "Technical Issue" Causes Untreated Sewage To Be Dumped Into Sea Criminal Investigation Into Oswaldtwistle Waste Blaze Major Oil Spill Hits River Aire London Recycling Blaze Causes Firewater Run-Off Risks Mystery Of Bubbling 'Putrid' Slime On Willerby Land Chemical Clear-Up Begins At Shropshire Airfield Anglesey Ammonia Spill Leaves Four Hurt Press.Office.EIL [eilpressoffice@me.com] 11

12 Containment News October 2012 issue True cost of pollution not often reported Reported April 2010 UK Water Company fined 15k for polluting a local river Not reported: 32,600 tankering away the split chemical 8,3000 plugging the leak 26,000 fish surverys 2,271 EA costs* 63,500 restocking the stretch of river Total cost - 211,164 Environmental Agency (EA) costs these can often be significant. In may 2010, a fire at a chemical factory in Huddersfield had a bill presented of 300,000 to cover the investigation costs of the EA and HSE. Press.Office.EIL [eilpressoffice@me.com] 12

13 I don t need environmental insurance I m already covered... 13

14 Gaps in coverage Public Liability vs. Environmental Impairment Liability PL Policy EIL Policy - Regulatory Claims? No Yes - First Party Clean up? No Yes - Gradual Releases? No Yes - Env. Liability Directive? No Yes Insurers and reinsurers are increasing drawing a line between what is covered under a PL policy for environmental claims 14

15 Bartoline But I have a Bartoline extension...! The indemnity provided by this Policy in respect of any claim or claims for Bodily Injury or damage to Property caused by or contributed to by or arising out of the discharge dispersal release or escape of Pollutants into or upon land the atmosphere or any watercourse or body of water shall include Clean Up... the Insurer will not indemnify the Insured in respect of Clean Up of any site or land owned occupied leased or rented by or under the control of the Insured... Clean Up shall mean the cost of Remediation necessarily incurred by the Insured (or for which the Insured is legally liable to pay as required by any Enforcing Authority... Remediation shall mean the investigation monitoring assessment mitigation curtailment or minimisation of any discharge dispersal release or escape of Pollutants into or upon the land the atmosphere any water course or body of water which has caused significant harm or which poses a significant risk of causing further significant harm to Property not owned occupied leased or rented by or under the control of the Insured or Bodily Injury to any person but only to the extent that the Insured is required to take such action by an Enforcing Authority The indemnity provided will not apply to any liability for Clean Up costs in relation to the reinstatement or reintroduction of flora or fauna. The indemnity provided will not apply to any liability arising from Directive 2004/35/CE of the European Parliament and of the Council of 21 April 2004 on environmental liability with regard to the prevention and remedying of environmental damage...exclusion of seepage pollution or contamination other than where such seepage pollution or contamination is caused by a sudden unintended and unexpected happening during the Period of this Insurance... 15

16 Bartoline extension I have a Bartoline extension so I m covered? Still needs a third party trigger for bodily injury or property damage Doesn t cover on-site clean up Doesn t cover gradual pollution incidents Doesn t cover Environmental Liability Directive risks Requires legal liability to attach (UK environmental law works on preventative & voluntary principles) Doesn t permit admission of liability (ELD requires notification) Doesn't cover emergency costs / preventative measures So what does it cover? off-site sudden and accidental, where there is a third party claim and then a requirement to remediate to a regulatory standard 16

17 Bartoline This is an example from the library of images. If Bartoline had the Bartoline extension would they have been covered? 17

18 IUA report on environmental risks The gap between traditional insurance cover and the range of environmental liability to which an organisation is exposed has become uncomfortably wide and will get wider Insureds need to appreciate the extent of the gap When it comes specifically to environmental liabilities, public liability policies offer limited protection. Standard public liability policies were never designed to cover the range of environmental liabilities now encountered Environmental Risks: insured or not? Published by the International underwriting Association (IUA) in Association with the ABI and BIBA August

19 Case studies 19

20 Case study one Sidcot School an unlikely choice for EIL? 33,000 litres of heating oil from underground corroded pipe Major pollution alert major aquifer close to public drinking water supply boreholes (1 mile away) Water supply had to be closed off Oil discovered coming through tarmac and in nearby pond Public liability provider s loss adjuster claimed it was a gradual cause so not covered Monitoring of groundwater around Winscombe is continuing and it could be sometimes before the full extent of any contamination would be known because of the complex geology of the area. 17,000 in fines, compensation and costs. Legal action taken against broker Covered by PL Policy? Covered by PL Policy with Bartoline extension Gradual / on-site clean up / no third party claim 20

21 Case study two United Utilities one of the first ELD claims Machinery failure at a pumping station Sewage seeped into river over three days Company fined 20,000, 45,000 to restock 10,000 fish 6000 fish killed. Three mile stretch of river Seven to ten years for the river to recover Compensatory damages? Covered by PL Policy? Covered by PL Policy with Bartoline extension? Gradual / compensatory and complementary damages 21

22 Case study three Real estate an obvious choice for EIL? Office building Shaftsbury Avenue Heating oil tank in basement Ruptured pipelines Heating oil seeped beneath floating slab cause vapour in ground floor cinema Impact on lost rental income Cost 2m to remedy Came to XL Group for environmental insurance after the event Covered by PL Policy? Covered by PL Policy with Bartoline extension? Gradual / compensatory and complementary damages 22

23 Case study four Chemie-Pack fire 2011 fire Rotterdam A packer, filler and labeller of hazardous chemicals, including pesticides was completely destroyed The fire went as high as 40 metres and could be seen for some 25 miles around The disaster resulted in 35,000 square metres of contaminated water and 1,800 tons of contaminated soil Total damage caused by the fire is estimated to exceed 40 million Chemie-Pack said it is not responsible for pollution caused by the water used to douse the flames and had advised the fire service that foam should be used, which it did after the fire had raged for several hours. The water authority denies this. The Water Board estimates its costs to be 11 million to 16 million, while the Moerdijk Port Authority claimes to have incurred costs of 3 million to 5 million Covered by PL Policy? Covered by PL Policy with Bartoline extension Gradual / on-site clean up / no third party claim 23

24 What do these case studies show? I don t have any low risk environmental exposures...! Even low risk operations can give rise to costly clean up (e.g. Shaftsbury Ave real estate) But pollution won t happen to me Pollution incidents can arise from operator error, mechanical failure (e.g. United Utilities) But I m already covered! Significant gaps in coverage (e.g. Chemie-Pack) 24

25 Opportunities Environmental provides an exciting opportunity for growth Underlying market drivers should continue, and will most likely strengthen with time Need to protect your PI exposure Environmental Risks: insured or not? *Produced in conjunction with BIBA and ABI. Available for download at: 25

26 A broker s perspective 26

27 Land Based Underwriters Background Identified high risk exposure Competition in the market place Morally the right thing to do Client reaction Scheme developement of LBU Claims 27

28 THANK YOU FOR YOUR TIME AND ATTENTION Questions? Simon White Head of Underwriting, Environmental Liability Primary Casualty, International Property & Casualty Phone +44 (0)

29 About XL Group plc XL Group plc, through its subsidiaries, is a global insurance and reinsurance company providing property, casualty and specialty products to industrial, commercial and professional firms, insurance companies and other enterprises throughout the world. XL Group plc s insurance companies offer property, casualty, professional and specialty insurance products globally. Businesses that are moving the world forward choose XL as their partner. To learn more, visit xlgroup.com/insurance. XL Group plc s reinsurance companies are among the world s leading reinsurers. They offer products that include aerospace, property, casualty, marine and specialty. The world s top insurers choose XL to help move their businesses forward. To learn more, visit xlgroup.com/reinsurance. We are the organization clients look to for answers to their most complex risks and to help move their world forward. To learn more, visit xlgroup.com 29