ENVIRONMENTAL
DAMAGE
COMPENSATION
INSURER’S
PERSPECTIVE
UKELA
May 22nd 2013
1
Environmental Insurance policies
Administrative Liability
Civil / Tort Liability
Pollution Condition
Environmental Damage
3rd Party:
Bodily Injury
Property Damage
Financial losses
Statutory / Public Law offences /
Enforced by Regulatory
Authority (1st Party)
INDEMNIFICATION
• Financial
Compensation for
costs or damage
incurred
Insured Exposures
Covered Locations
Covered Operations
Transportation
Legal
Defence
Costs
REPARATION
Direct costs arising from, or reimbursement
costs to regulator for undertaking action on
insured's before for:
 On–site, off-site investigation,
remediation, removal, clean-up costs
 Emergency Costs
 Includes: ELD/EDR (Primary /
Complimentary / Compensatory)
When it goes wrong

Serious pollution incidents in the UK:
– 620 in 2011

England & Wales suffer on average two serious pollution
incidents a day

Half of all serious industrial pollution incidents caused by small
businesses*1

Environment Agency continues to call for higher fines for
environmental crimes & in 2011 started to use the new civil
sanctions regime, outside of courts.

2011 the EA fined 178 companies
– Those prosecutions lead to a total of over £3,800,000 in fines only
– Average company fine £21,600
*Where the Environment Agency (EA) was able to identify the business responsible
Source: Environment Agency, Spotlight on business 10 years of improving the environment
Environmental claims management
Loss
Emergency
Measures
Investigation of
pollution sources
Information to
Competent Authority
Environmental damage
assessment
Discussion
with Authorities
Cleanup
Works
Monitoring
Remediation and reparation
measures ordered
Discussion
with Third Parties
Loss Adjuster’s
mission
 Undertake Emergency and protection measures
 Identify pollution sources and root cause
 Validate remediation scenario
 Validate Complementary / Compensatory measures
 Clean-up monitoring and expenses management
Lawyer’s mission


Transactional phase:
Consulting / Information
Trial phase:
Counsel/ Defence / Subrogation
Typical Environmental Damages Costs
 Emergency costs
 Investigation and forensics costs
 Criminal fines or Civil sanctions
 Legal fees
 Clean-up costs
 Primary, complementary or compensatory remediation costs
 Indemnifications to victims of injuries or distress
 Indemnifications to victims of property damage
 Indemnification for disruption caused to neighbouring activities
 Own-business interruption costs
 Public relations costs
Costs of Remediation
Primary
 Removal of source of damage (e.g.,
contaminants, physical disturbance)
Complementary
measures
 Remedial actions to recover to
baseline
 Planning, engineering, implementing
Compensatory
Measures
Complementary and Compensatory
 Planning, engineering, implementing
 Monitoring
Valuation methods
 Equivalency methods (Resources/Resources - REA or Services/Services - HEA)
When remediation actions provide the same resources or services as those lost
i.e. Hectares of wetland lost = Hectares of wetland gained
 Value Equivalency methods
When cannot remediate the same resources or services, but can remediate similar
resources (focuses on human services)
i.e. Hectares of wetland lost = kilometres of forest paths
 Costs can drastically vary depending on the scenarios and proxys
 As part of the claims management, insurers have a seat on the table and are
influencing on methods / scenarios that are presented to local authorities
7
Stakeholders
 Scientists / NGOs



Scientists
NGOs
Competent
Authority
To advise on methodologies
To monitor on-going work
To assess effectiveness
 Operator / Insurer


To comply with regulation
To propose and achieve best cost
effective solution
 Competent Authority
Operator
Insurer
Work
Contractors


To get back to baseline
To validate and to control proposed
solutions
 Work Contractors


To provide feedback on feasibility
To conduct implementation of measures
within contractual agreements
8
Environmental Damage
Complex issue as it is

Collective and accumulative

Irreversible in many cases

Difficult to determine
Claims settlement issues

Civil/Tort Liabilities: Indemnifying third parties
 Monetary award to victim of a loss (bodily injury, property damage)
 Can be used how the victim wants (to repair or do something else)
 Settlement can shorten the exposure tail

Statutory Liabilities: Restoring the environment
 Remediation ‘in nature’ to repair the destroyed environment
 Expenses can run for tens of years until return to baseline
9
Conclusion
 Environmental Damage can be compensated in many ways
 Costs can vary depending on
 Jurisdiction
 How loss is valuated and the methodologies used
 Whether civil / tort and statutory liabilities are considered
 Insurers
 Have followed regulatory trends instead of resisting against them
 Are providing ad-hoc proactive products (environmental / EIL insurance)
 Are paying for claims (but did not suffer lots of ELD-type claims so far…)
Now is a good time to transfer environmental risks to insurance as affordable
wide coverage is available for what could be complex, long, and costly
proceedings and settlements over environmental damages
10
Julien Combeau
Executive Director - FINEX Global
Environmental Practice
Direct: +44(0)20 3124 8046,
Mobile: +44(0)7908 240 883,
julien.combeau@willis.com
11