In this issue we hear from Karl Jones of downstream fuel industry insurance specialist OAMPS, who considers the importance of definitions and how to ensure your policy meets your needs.
Pollution is always pollution, isn’t it?
From an insurance perspective, the definition of ‘pollution’ might not match your expectations of the word. So, when you’re thinking about risks and insurance, it’s important to know that your policy is probably…
• very unlikely to have cover for any liabilities resulting from gradual or historic pollution.
• very unlikely to have cover for environmental damage liability (biodiversity/natural resources restoration).
• giving limited cover for statutory pollution liabilities.
• very unlikely to have cover for the cost of remediating your own site, only that of a third party.
• providing cover that is limited to damage to third party property or injury. And only if it’s as a result of a sudden, accidental and unforeseeable event that occurred at a defined time and place.
And even if the pollution happens at a defined time and place, if you’ve not adequately maintained the equipment – whether it’s the tank, pipework, interceptors, bunds etc. – then it could hardly be considered unforeseeable, could it?
Someone has to be responsible for pollution clean up
The Environmental Protection Act 1990 (EPA) established the operation of the ‘polluter pays’ principle in the UK.
The EPA states that the responsibility for cleaning up contaminated land falls in the first instance to the person who knowingly caused, or allowed, polluting substances onto or under the land.
Unfortunately, it is not always clear when the pollution occurred or, another complication is where there may be numerous parties who all could bear responsibility. Even if the responsible party can be identified, it could be impossible to trace them, or they may not exist anymore.
So, if no such party can be found, the responsibility for the clean-up passes onto the current owner or occupier of the land. Regardless of whether they caused, or were even aware, of the pollution.
Even a tenant with a lease term over 21 years can be deemed to be the owner of a contaminated site if their landlord becomes insolvent. The tenant could be liable for any costs associated with cleaning up the contamination by virtue of a covenant in the lease to comply with all statutory requirements that arise during the term of the lease.
Knowing and permitting pollution that you didn’t cause
Classification as a “knowing permitter” – the party that assumes legal liability even though they or their organisation didn’t cause the pollution – requires knowledge of the contamination, the power and opportunity to do something about it and the failure to act.
This means that it is possible for a buyer of a contaminated site to be deemed a ‘knowing permitter’ of contamination if it undertakes environmental investigations on the site that reveal a significant possibility of harm or water pollution and fails to take preventative action.
In the event that contamination is discovered during the buyer’s due diligence process, they should ensure that arrangements are made with the seller to apportion, or deal with, any future clean-up costs and that their liability is limited as far as possible.
And it’s not just the environmental issues they need to consider; organisations could suffer irreparable damage to their reputation through adverse publicity too.
So, back to insurance, is it any help?
Businesses often believe that any pollution liabilities arising from their operations would be fully covered under their standard insurance policies.
But, following the enactment of EPA, the Association of British Insurers (ABI) put a standard exclusion in place for pollution liabilities in public liability policies.
This restricts cover to identifiable ‘sudden, accidental and unforeseeable’ pollution incidents or specified perils.
Many insurers have added additional specific exclusions for pre-existing contamination and operational pollution cover.
In essence, if the pollution cannot be attributed to an identifiable event at an identifiable place and time, then it’s unlikely the costs associated with the pollution will be insured.
Even if the event complies with the insurer’s definition of ‘pollution’, many policies will not include cover for own site clean-up costs or loss mitigating costs, so you could still be out of pocket.
This could apply to a spill following a fuel theft, for example – the thieves rarely hang around to ensure there’s no leak from the storage system they’ve just broken into. And, in our experience, the clean-up costs are often significant.
Directors and senior employees of limited companies are not immune from prosecution following a pollution event either. Most Directors’ & Officers’ liability policies now exclude claims relating to pollution. However, some policies will include indemnity for defence costs relating to legal action arising from pollution, such as the Pen Underwriting policy OAMPS Hazardous Industries can provide.
What can you do?
Aside from the obvious sound operational risk management (including suitable protections and regular maintenance of storage systems, bunding and interceptors), monitoring storage volumes closely can help identify any lack of system integrity that might lead to an uninsured claim.
There are insurance policies available that include own site clean-up costs and mitigation costs, such as the Petrochemical policy available through Pen Underwriting. This policy includes access to a 24/7 spill response helpline and crisis management experts to help manage any adverse publicity and demonstrate you’ve done all you can.
Specific Environmental Impairment Liability insurance can cover gradually occurring pollution, or liabilities arising from historic activities on sites you own or occupy.
Unfortunately, pollution incidents can, and do, happen on even the most well-managed sites and it is often not until such an incident occurs that businesses come to realise that many of the ensuing costs and losses they incur are not insured.
Understand your environmental risks
Speak with your insurance broker to discuss the solutions that would best suit the risks your business is facing.
With the potential cost of inadequate cover, it is vital that you understand your site’s pollution risks, and what you can to mitigate, and insure against, pollution liabilities.
The sole purpose of this article is to provide guidance on the issues covered. This article is not intended to give legal advice, and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and/or market practice in this area. We make no claims as to the completeness or accuracy of the information contained herein or in the links which were live at the date of publication. You should not act upon (or should refrain from acting upon) information in this publication without first seeking specific legal and/or specialist advice. OAMPS Hazardous Industries accepts no liability for any inaccuracy, omission or mistake in this publication, nor will we be responsible for any loss which may be suffered as a result of any person relying on the information contained herein.
OAMPS is part of Pen Underwriting Limited which is authorised and regulated by the Financial Conduct Authority (FCA number 314493). Registered Office: The Walbrook Building, 25 Walbrook, London EC4N SAW. Registered in England and Wales. Company Number: 5172311.