New environmental liability rules could catch you out. Steve Coates from Allianz advises
By DoctorBiz Last Updated: 7:36PM GMT 16 Mar 2009
Q: I run a small waste management company in Yorkshire and I've heard that a new environmental liability directive came into force on 1 March. What are the implications for me and what precautions should I take?
A: The Environmental Liability Directive sets out requirements that member states must enact to prevent and remedy environmental damage, specifically damage to habitats and species protected by EC law. It aims to hold companies, whose activities have caused environmental damage, financially liable for remedying the damage.
The existing UK pollution liability regime, which includes the Environmental Protection Act 1990, already imposes significant responsibilities on polluters. The directive extends the liability of polluters beyond property damage and into areas of environmental damage and un-owned property such as rivers, countryside and wildlife.
If you or your workforce causes any environmental damage, the new directive imposes a wide range of responsibilities and will cost your company money if you are responsible for a pollution incident. Alarmingly, research commissioned by Allianz has shown that 77 per cent of businesses are unaware of the new law and its implications. It is therefore crucial that businesses talk to their brokers to fully understand the insurance cover that is required and make sure suitable cover is in place.
A proposal to make it compulsory for operators to take out insurance was not included in the final version of the directive. Instead, it suggests that member states encourage the use and development of insurance products or other forms of financial security. The implications are that traditional liability policies are ill-equipped to meet the challenges posed by the new legislation because of the different nature of directive's liability. Therefore, those companies in the UK who rely on existing public liability may find their policy does not provide the protection they require.
A standard public liability policy, for instance, will cover an insured party's legal liability to pay damages to a third party for accidental injury, damage to property, nuisance or interference with some other right. Although statutory clean costs and remediation are likely to be the most costly aspect of many pollution incidents, a standard public liability policy will not normally cover these costs.
Provision of cover via traditional third party liability insurance is difficult; some liability insurers might be willing to extend policies to cover certain directive liabilities, although a proper environmental liability policy will usually provide a more cost-effective solution.
Businesses need to take relevant steps to understand how their activities might expose them to the risk of pollution. Risks must be assessed and understood from which risk management techniques can be deployed to remove or reduce the risk. Insurance arrangements should be re-evaluated in the light of the more onerous responsibilities placed on businesses to ensure cover remains appropriate. Your insurance broker/adviser should be able to provide advice on cover available.
Steve Coates, head of Property & Casualty, Allianz