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The importance of environmental liability

Scott Brown
Scott has 15 years experience in development and retention of commercial insurance business. Working closely with clients across a range of trades and sectors including renewable energy, liability insurance, business interruption and much more.

Following consultation earlier this year, the EA have updated their enforcement and sanctions guidelines. Their core enforcement principles are here to stay, but they’re making their guidelines more transparent and clearer than before.

What changes have the Environment Agency made to their guidelines?

The EA has combined the current Enforcement and sanctions guidance (ESG) and Enforcement and sanctions statement (ESS) into a new shorter document called the Enforcement and sanctions policy (ESP). The ESP doesn’t introduce any radical changes, but does include:

  1. New guidance on Enforcement Undertaking (EU) - an offender must specify what they intend to do to benefit or improve the harmed environment where restoration isn’t possible.

     

  2. The ability to publish enforcement responses - the EA may now publish rejected EUs where an appeal has been determined, or the time for appealing has passed. After 12 months the EA may also publish information about penalties

     

  3. A new method of calculating Variable Monetary Penalties - the ESP now refers to the Definitive Sentencing Guidelines for Environmental Offences (Definitive Guideline). These guidelines have resulted in the largest environmental fines ever seen in the UK. For example Thames Water’s record fine of £20.3 million in 2017 for leaks of untreated sewage.[1]

Why are the Environment Agency’s changes being made?

The ESP will be more accessible, avoid duplication of information and provide clear guidelines on the potential sanctions that may be imposed. This will make it easier for businesses at risk to understand the EA’s approach to enforcement.

How do the changes to the Environment Agency’s guidelines affect your business?

The market for Environmental Impairment Liability insurance has seen an increase in the frequency and complexity of claims year on year. A key driver for this has been inadequate waste management processes in the construction sector. And the emerging exposure of fire risks due to climate change and habitat management practices.[2]

Although fines aren’t usually covered, liability to third parties and the cost of remediating the damaged habitat is. Insurers bring in specialist teams and consultants to manage the claims process on the client’s behalf. With the EA using the Definitive Guideline more often, a specific policy of this type is becoming a necessity for businesses with these potential environmental exposures.

It’s also worth considering that the ‘polluter pays’ principle of the Environmental Liability Directive isn’t always upheld. Often the source of the pollution can’t be identified or has come from a previous tenant and is not traceable. Liability in these cases will fall on the property owner. This is because local authorities have little funding to pay for clean-up costs themselves.

What we’ve seen from insurers is that environmental liability isn’t exclusive to high risk businesses with an obvious potential to pollute.

How can you protect your business from environmental liabilities?

Environmental liabilities are often difficult to manage. They can take a long time to resolve and may need extensive technical input. It’s also not always possible to resolve them once and for all by paying money to the affected parties.

Without professional help the handling of an environmental liability event could be time-consuming and expensive. By getting the right expert advice you can ensure risks are identified and managed, which in turn will help to prevent losses and insurance claims.


[1] https://www.theguardian.com/environment/2017/mar/22/thames-water-hit-with-record-fine-for-huge-sewage-leaks

[2] https://www.aig.co.uk/insights/environmental-claims-burning-issue

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