What EIL Insurance Brokers Should Know to Win New Business
The Environmental Damage Regulations require every business to prevent environmental damage and remedy damage that has been caused. In the past, environmental damage claims have involved pollution or contamination to land, water, or property, or any resultant injury or disease.
The regulations require remediation to natural habitats, species, and protected sites, returning the environment to the condition it was in before the damage.
Sites of Specialist Scientific Interest
A business located near a site of specialist scientific interest (SSSI) or an area containing a protected species is more vulnerable if an event causing environmental damage occurs.
There are over 6,000 SSSI's in UK, with over 70% declared as internationally important for wildlife, meaning most businesses will be relatively close to one of these sites.
In order for an accurate risk assessment to be made, a customers' business must be fully understood, including geographical locations and proximity to protected areas such as water sources and SSSI's.
Property and Liability Policies
Standard property and liability policies provide limited cover for environmental damage as they exclude any incident where the proximate cause is gradual.
Property policies cover buildings, stock, machinery, and content, but not land or gardens. Meaning your own site clean-up costs will not be covered or accepted as debris removal costs.
Liability policies provide an indemnity to a policyholder against sums they are legally liable to pay as damages, in respect of accidental damage to property or injury.
Environmental Damage Liabilities
The liabilities introduced by the Environmental Damage Regulations are administrative, and not based on common or civil law. Regulators with the power to bring claims do not own the affected land, water or species and are not an injured third party.
A business that causes environmental damage is not liable under the Regulations to pay damages for losses to others but is required to remediate the damaged environment.
The costs could be enormous – not only are there requirements to remediate the contaminated land (primary remediation), the regulations also expect complementary and compensatory remediation. The intention is to make those who have caused environmental damage completely responsible.
The Bartoline Case Study is a prime example of the limitations of standard public liability insurance policies. Discover the impact that these limitations have on both the Client and Broker.
Environmental Damage Remediation
If it is not possible to fully restore the damage, the regulator can demand that additional remediation is carried out at the original or alternative site (complimentary remediation).
It can take considerable time for a damaged area to return to its previous condition. During that time the public or natural resources will be unable to benefit from their existence, compensatory remediation may also be demanded, which requires measures to be taken to compensate for these interim losses.
Two things are clear. Firstly, the costs of carrying out primary, complimentary and compensatory remediation will be high and might need to be incurred for several years before the Regulator is satisfied.
Secondly, there will be no cover for any of these costs under a standard Public Liability policy and a special Environmental Liability Insurance is necessary.
Opportunities for Brokers
The Environmental Regulations have created a new business opportunity for Brokers to provide specific environmental insurance.
Regulations create criminal liabilities on Directors and senior staff if they have not acted responsibly in avoiding environmental damage. Meaning specialist environmental insurance is essential as most businesses are vulnerable to environmental damage, and standard property and liability policies provide limited cover for these claims.
An informed broker can explain the risks of environmental liabilities imposed by the Regulations and advise the appropriate cover available under a Specialist Environmental Impairment policy.
Policies cover own, and third-party site remediation costs, the cost for work demanded by a Regulator, and indemnity for sudden and gradual incidents. Many policies also provide cover for emergency containment or preventative costs.
Directors and Officers Policies need to be checked to ensure that they cover environmental liabilities. If a client does not have this cover an explanation of the regulations could help to achieve a sale.
The Risk to Brokers
A broker who fails to advise the client about their environmental liabilities and policy limitations could receive a professional indemnity claim if a client finds they are not insured in the event of an incident.
The number of incidents where Environmental Damage Regulations apply is likely to increase over a period of time. Environmental Legislation is rising and the extent of liabilities that businesses face will become more severe.
The introduction of the Regulations represents a great opportunity for informed Brokers to win new business.
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