Businesses of all sizes and in all industries can face potential environmental liabilities under the ‘polluter pays’ principle enshrined in law.
Legislation ensures that businesses handle chemicals, waste products, and emissions with care, with a strict liability to pay for clean-up costs if a pollution incident occurs, as well as any third-party damage and legal costs.
This liability extends to paying the cost of reinstating plants and wildlife in areas affected by pollution which can stretch for hundreds of miles and includes waterways.
So, what environmental directives do business owners need to be aware of, what are they responsible for, and what insurance is available to protect them?
- What are the main environmental laws and directives?
- What is Environmental Impairment Liability insurance?
- Do I need Environmental Impairment Liability insurance?
- What industries would benefit from Environmental Impairment Liability insurance?
- Build your environmental risk management plan
The UK government and the EU have implemented a range of environmental laws over the past three decades in an effort to protect the environment.
The Environmental Protection Act 1990 introduced the ‘polluter pays’ principle, which means that the polluter is legally liable for any damage caused to the environment.
Prior to the introduction of this Act, any damage to the environment – such as waterways and areas of outstanding natural beauty – was cleaned up and restored by the authorities at the taxpayer’s expense.
The ‘polluter pays’ principle was enshrined across the EU in 2007 by the Environmental Liability Directive, while the UK passed the Environmental Damage (Prevention and Remediation) Regulations in 2015, for England, Wales, and Scotland.
This latest legislation brought three new sanctions:
- Action to prevent environmental loss;
- Action beyond clean-up to restore biodiversity;
- Action to extend restoration to another site in more serious cases.
Environmental Impairment Liability (EIL) insurance pays for the clean-up costs, remediation costs, and legal defence following a pollution or environmental damage incident.
Although it doesn’t cover fines, it can cover third-party costs for damage to neighbouring land, and potentially compensation for any loss of business suffered as a result.
EIL, when used in conjunction with a thorough environmental management plan, can mitigate potential losses and safeguard you and your business.
Although EIL insurance is not a legal requirement, there are several reasons why many businesses would benefit from taking out cover.
The most obvious is the financial protection afforded should your business cause environmental damage to the natural environment or third-party property.
What does EIL insurance cover?
EIL insurance provides cover for a range of environmental impacts, including:
- Soil, air, and water pollution
- Offensive odour
- Oil storage pollution
- Noise pollution
- Damage to natural resources
- Fly-tipping on your property
- Third-party damage
In the event of a pollution event, EIL insurance will pay for the cost of:
- Environmental clean-up of your own and third-party land
- Investigation and legal defence
- The reversal of damage to biodiversity
- Compensation for third-party bodily injury or loss of business
- Business interruption if your operations need to stop
- Emergency costs incurred responding to pollution or environmental damage
EIL insurance will provide cover for your past or current operations, or for which you retain a legal liability.
Any business that operates in an industry that deals with pollutants, such as chemicals, oil, or fuel, or deals in waste products, would benefit from EIL insurance.
For those that operate in the agriculture sector, EIL cover can be included in a standard farm insurance policy, but many other industries should consider taking out cover, including but not limited to:
- Transportation – coach, haulage, marine etc
- Waste disposal, landfill
- Property developers
- Chemical plants
Does my public liability insurance cover environmental damage?
Prior to the introduction of ‘polluter pays’ legislation, pollution clean-up and ineffective waste disposal that damaged third-party property was typically covered under public liability insurance.
However, with the introduction of strict liability for all pollution, insurers applied a standard exclusion of gradual pollution in most public liability policies.
A sudden, one-off pollution incident, such as a burst oil tank that damages a third-party property, would normally still be covered under public liability insurance, but any gradual pollution that happens over a period of time would not. Public liability would also not cover the cost of cleaning up and restoring publicly owned land or waterways.
This is why EIL insurance is essential for any business that works with possible pollutants.
Am I liable for historical environmental damage?
Contamination of yours and others’ land can happen gradually, over weeks, months, or sometimes years, and you can be held responsible for historical damage even if you bought the land years after the contamination began.
For example, if there was a slow diesel leak at a property you bought which led to the land being contaminated, you are responsible for the clean-up of your land, any affected third-party property, and publicly owned land and waterways.
Do property owners need Environmental Impairment Liability insurance?
If you are a commercial property owner who leases their property to another business, you may be pursued for the costs of damage caused by pollution if the tenant (the polluter) cannot be traced or is unable to pay because they do not have the funds or the appropriate insurance cover.
So, depending on the nature of the business you have rented out to it may well be worth taking out your own EIL insurance. Alternatively, under most commercial property leases their will be an insurance clause under which a landlord can include “any other risks which the landlord decides to insure”, and under these terms the landlord can specify that the tenant takes out EIL insurance with a suitable indemnity limit.
An environmental risk management plan has become an essential part of the business toolkit since the toughening up of environmental legislation and can help your business avoid a costly pollution incident.
As we’ve seen, under the Environmental Damage (Prevention and Remediation) Regulations of 2015, it is the responsibility of organisations to take action to prevent environmental loss, and a risk management plan allows you to assess the likelihood of your business causing harm to the environment.
Your plan should outline all the potential hazards and impacts of your business on the environment, with an action plan developed to reduce the risks.
Pay particular attention to nearby waterways, the nature and proximity of third-party properties, public footpaths, roads, and nearby areas rich in biodiversity.
When considering environmental hazards, consider:
- positioning waste storage and disposal away from drains and watercourses;
- liquid waste drainage, disposal, and storage;
- any construction work should have drains positioned to divert flow away from hazardous areas;
- airborne emissions like dust and other substances;
- hazardous substance storage, use, and disposal;
- your response to a spill or leak – do you have a disaster recovery plan?
To find out more about Environmental Impairment Liability (EIL) insurance and the type of cover that your business may benefit from, contact our team on 01603 218000.