England Establishes Environmental Damage Regulations

The European Union Environmental Liability Directive (2004/35/EC) originally agreed in 2004 finally becomes law in England on March 1, 2009 when the Environmental Damage (Prevention and Remediation) Regulations 2009 come into force. This law applies in England only (excluding the Isle of Man and the Channel Islands). There will be separate Regulations for Wales, Northern Ireland and Scotland.

The primary objective of the EU Directive and the UK Regulations is to make operators financially responsible for activities that cause damage to the environment, thereby implementing a “polluter pays” principle throughout the EU.

Highlights of the Regulations

1. The Regulations only apply to incidents or acts that take place after March 1, 2009 – there is no retroactive liability.
   
2. The Regulations apply to serious environmental damage to land, water, species and habitats, including ecosystems protected by the Birds and Habitats Directives and on Sites of Special Scientific Interest (SSSIs).
   
3. Liability is strict for parties engaged in a number of industrial and agricultural activities (listed in Annex III of the ELD). These Annex III operations are required to take immediate steps to prevent damage if there is an imminent threat and to control damage that is already occurring so as to limit its effects.
   
4. Operators engaged in the specified activities will be strictly liable for the damage they cause regardless of fault or negligence.
   
5. Procedures for appropriate remedial measures must be developed by the operator responsible for the damage.
   
6. The enforcing authority has the power to carry out necessary work if an operator cannot be found or is unable to perform his duties, and to recover its costs from the responsible operator where one is identified.
   
7. Liability for operations that are not listed in Annex III require proof of fault or negligence for environmental damage caused.

EXCEPTIONS

• Armed conflict, civil war or acts of terrorism.
• A natural phenomenon of exceptional, inevitable and irresistible character, providing the operator took all reasonable precautions to protect against damage being caused by such an event.
• Specific types of damage, such as oil pollution, diffuse events (i.e., greenhouse gas emissions) and radioactivity, which may be covered by other laws or international conventions.

Available Coverage

GENERAL LIABILITY POLICY

In the 2006 court decision, Bartoline vs. Royal Sun Alliance, it was determined that claims by regulators to recover environmental cleanup costs were not covered as damages under Bartoline’s general liability (GL) policy. As a result of this ruling, liability insurers began providing a “Bartoline extension”, covering an insured for limited costs of cleanup mandated by environmental authorities. Coverage, however, applies only to sudden and accidental pollution damage and only to “pollution” as defined in the policy (which is not as defined in the new ELD Regulations).

Therefore a standard UK GL policy, even with the Bartoline extension, will not cover all liabilities imposed by the EU Directive or the new UK Regulations. Some insurers are also developing GL wordings that clarify the underwriters’ intent to provide only the limited protection described above.

DIRECTORS’ AND OFFICERS’ (D&O) LIABILITY POLICY

Most UK D&O policies provide some limited coverage for un-reimbursed costs of individual directors and officers arising out of wrongful acts, errors or omissions related to pollution (as defined in the policy). There is no coverage for the remedial costs imposed on operators (including individuals) by the ELD Regulations.

Environmental Liability Policies
Over the past two years, environmental liability insurers in the UK have introduced coverage extensions to their existing Environmental Impairment Liability (EIL) insurance policies for the risks presented by the new ELD Regulations across Europe.

REMEDIATION
An EIL policy is the only way to effectively insure costs incurred to comply with the three categories of remediation imposed by the EU Regulations:

• Primary Remediation - Restoration of the damage.
• Complementary Remediation - Measures to compensate where Primary Remediation cannot fully restore the environment, including measures implemented at alternative sites.
• Compensatory Remediation - Measures to provide alternative natural resources while the damage is being restored.

An EIL policy can also provide coverage for the costs of claims for bodily injury, property damage or cleanup arising out a pollution event assessed against individuals, including directors, officers and employees of organizations where a release occurs. EIL policies also provide for defence costs associated with such pollution claims.

Summary

In addition to the costs of cleaning up environmental damage, corporate entities and individuals found guilty of an offense under the Regulations may be subject to fines. Responsible persons (officers, directors and employees) may also be subject to imprisonment for up to two years.
It is therefore recommend that companies purchasing UK or global environmental insurance programs review these policies carefully.