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Environmental Liability > Risks

Cleaning up today's bottom line, adding value for the future.

Environmental Liability Insurance provides an immediate and effective remedy to every existing or potential pollution situation. What cover is available?

Pollution Liability Insurance

Pollution Liability is also known by other names such as Environmental Impairment Liability ("EIL'), Contaminated Land Insurance ("CLI'), Pollution Legal Liability ("PLL"), Pollution and Remediation Legal Liability ("PARLL").

Pollution liability insurance typically protects the insured against unanticipated losses associated with 'unknown' pollution conditions.

In particular, the cover generally extends to the following:

• third party claims for damage or bodily injury
• mandated clean up costs - on or off site
• legal defence costs, costs of investigation etc

This class of environmental insurance can be further sub-divided into operational pollution coverage and historic contamination coverage.

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Operational Pollution Risks

Many commercial and industrial operations present an ongoing risk of pollution or contamination (e.g. leakage from underground storage tanks). Specialist covers are available to indemnify the insured against ongoing pollution risks resulting from unanticipated discharges, leakages or spillages etc and fill any gaps in general liability policies.

Historical Contamination Cover

Insurance can be arranged for liabilities associated with pre-existing historic contamination. Cover can also be arranged for contingent liability
exposures associated with previous divestments by the target company.

It is possible to combine both operational and historic pollution cover into a single policy.

The policies can be extended to cover consequential losses such as business interruption or economic loss associated with contamination (e.g. loss in rental income, costs of relocation, diminution in property values etc).

Pollution liability insurance can cover risk exposures associated with land that is 'already contaminated' or is likely to be. Insurers distinguish between land which is impacted with contaminants but where expert opinion suggests there is no immediate requirement for remediation and land where expert opinion suggests that immediate clean up is required to ensure compliance.

Contractors Pollution Liability

Contractors Pollution Liability is also generally known as "CPL" cover.

This is a specialist form of pollution liability insurance designed specifically to protect the pollution risks facing remediation or construction contractors that are working on sites which are potentially contaminated.

Such operations present an ongoing risk of pollution or contamination for example as a result of disturbing or remobilising existing contaminants or following unanticipated discharges, leakages or spillages etc.

Many project specifications require adequate pollution liability insurance. Contractors can arrange this on a portfolio basis or on a project by project basis.

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Professional Indemnity Insurance

Professional Indemnity or PI is also known as Professional Consultants Liability.

Most PI policies contain similar pollution exclusions to general liability policies. Specialist environmental insurers offer PI policies with no pollution exclusions and which indemnify professional advisers for claims and liabilities resulting from errors and omissions in their services.

Companies engaged in both environmental contracting and consulting operations can purchase combined CPL and PI cover.

Remediation Cost Cap Insurance

Remediation Cost Cap Insurance is also known as Stop Loss cover.

Cost cap insurance is designed to minimise the uncertainty associated with clean up projects by providing the extra funds to complete the works in the event of a cost overrun resulting from the discovery of additional contamination or under performance of the remedial technology etc.

It is often combined with a 'wrap up' cover to protect against pollution liabilities associated with the actual clean up operations and the long term effectiveness of the completed scheme.

Blended Finite Programmes

Blended Finite Programmes are also known as Alternative Risk Transfer ('ART')

Environmental insurance, like any other class of insurance, will only cover fortuitous issues for which an appropriate risk assessment can be carried out. It will not provide for unavoidable, pre-identified expenditure which is required for regulatory compliance such as remediation obligations, decommissioning/restoration liabilities etc

Cost cap policies can be used to cap these 'known' liabilities, alternatively more sophisticated composite structures (blending insurance with discounted funding techniques) can used to transfer both 'known' cost obligations and the associated 'unknown' risks (i.e. timing, cost overrun etc) into the insurance market.

Typically, these funding mechanisms involve the creation of an off-balance sheet funding vehicle. The fund (which in effect is an insurance policy for a 'known' risk) is invested in the capital markets with a target return equal to the estimated worst case remediation cost - at the end of a prescribed time limit, say, ten years.

In the event that the funds are needed within the prescribed period (i.e. to pay for mandated remediation), the insurer would provide the requisite funds. In the event that the original cost estimates were exceeded, the insurer would pay the excess.

If however the anticipated costs do not arise during the prescribed period, or the costs are less than anticipated, the accrued fund (or a proportion thereof), net of fees, is returned to the Insured.

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Warranty and Indemnity Environmental Insurance

Warranty and Indemnity is also known as Property Transfer Pollution Liability ("PTP')

The negotiation of Warranties and Indemnities form a significant part of structuring corporate transactions.

Such contractual mechanisms are regularly used to allocate liability for environmental risk. Often this issue can become a deal breaker.

This type of policy gives back to back cover for contractual liabilities flowing from indemnities and warranties. Cover is limited to liability arising from the relevant contract. The definitions and provisions of the contract are written directly into the insurance policy which removes any possibility for potential gaps in cover.

It does not automatically include any liability that the insured might have outside the terms of the relevant contract. This can be addressed separately.

This form of cover can be used to unlock negotiations and protect the balance sheet of the indemnifying party.

Secured Creditor Policies

Secured Creditor is also known as lender liability or collateral protection.

These policies protect lenders which have loans or investments backed with real estate collateral. The value of the lenders' security could be affected by environmental impairment or more significantly the lender may have a direct liability if it takes possession on foreclosure.

In the event of environmental impairment and subsequent loan default, these policies will typically pay off the outstanding loan value or the estimated clean-up costs. They also provide an element of third party cover for the lender.

The policies can be structured to cover existing loan portfolios or new loans going forward. They cover the lenders position directly and enable banks to lend on higher risk deals.

Waste Management Licences - Satisfying Financial Provision

A mechanism, which satisfies "financial provision" under a waste management licence, which offers an alternative to bank bonds or escrow, accounts. Suitable for waste management companies or those developing on or near former land fill sites.

Approved by the Environment Agency and can apply to active or closed landfills, treatment plants, waste transfer stations, incinerators, waste to energy operations.

We have put together a "guidance pack" to assist you with your Financial Provision obligations which can be downloaded. The "pack" includes information on the following:

• Product details
• Environment Agency guide to Financial Provision
• Draft Performance Agreement
• Specimen Bond and Policy wordings
• Overview of relevant legislation
• Information required for a quotation

>> Click here to download the "guidance pack" to the mechanism

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		Please note that you will need to have Adobe Acrobat installed on your computer to view the above documents. You can download it from Adobe by clicking here

Other Specialised Covers

We are able to negotiate other specialised policies which are based on the above main categories but have been refined for specific purposes such as landfills, underground fuel storage tank portfolios, asbestos removal etc.

>> Click here for some interesting facts about contamination

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