Insurance Options for Insurance Liabilities under the Directive

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Insurance Options for Insurance Liabilities under
the Directive

• Jürg Busenhart
• Swiss Reinsurance Company, Vice President

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Insurance options for insurance liabilities under
the ELD
Congruence?
Environmental LiabilityDirective
Scope of insurancecoverage
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Existing insurance products preventing gaps and
overlaps

• Existing insurance products
• General third party liability (GTPL) insurance
• Environmental Impairment Liability (EIL)
  insurance
• Professional indemnity (PI) insurance
• Motor (third party liability) insurance
• Aviation insurance
• Marine insurance
• Nuclear insurance
• Property insurance

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General third party liability insurance

• Object of GTPL insurance
• Legal liability of insureds to compensate third
  parties for injury and damage to property
  suffered by themgt basically limited to civil
  law
• Right of recovery for the liable operator against
  the insured
• Insured as manufacturer/importer of the
  defective product causing liability of the
  operator to remediate environmental damages
  (product liability)
• Services provided by the insured on operators
  property causing liability of the operator to
  remediate environmental damages
• Land damage versus loss prevention/mitigation
  measures

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Environmental Impairment Liability insurance

• Object of EIL insurance
• Legal liability of insureds to compensate third
  parties for injury and damage to property
  suffered by them as a result of a pollution event
  (sudden accidental event or gradually occuring
  pollution)gt basically limited to civil law
• Right of recovery for the liable operator against
  the insured
• Services provided by the insured on operators
  property causing liability of the operator to
  remediate environmental damage
• Land damage versus loss prevention/mitigation
  measures

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Professional indemnity insurance

• Object of PI insurance Legal liability claims
  for negligence of professionals gt basically
  limited to civil law
• Low exposed ELD activities versus higher
  environmental damage risks
• Right of recovery for the liable operator against
  the insured professionals
• Services provided by the insured on operators
  property causing liability of the operator to
  remediate environmental damage

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Property insurance

• Object of property insurance Compensation of
  damage to own property as a result of an insured
  event (e.g. fire)
• Remediation measures of companys own property
  may include environmental damage
• Insurance solutions
• First party clean-up cost insurance
• Decontamination cost endorsement

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Other insurance solutions

• Motor (third party liability) insurance
• Cover basically limited to civil law
• Marine insurance
• Main focus on loading/unloading operations, port
  manoevres and discharge of brown waters
• Nuclear insurance
• Environmental damage due to non-nuclear risks,
  e.g. changes in the quantity, quality or
  temperature of watercourses
• Insurer may wish to consider that coverage
  extensions in the above mentioned lines of
  business should be in line with GTPL/EIL
  solutions to avoid other gaps and overlaps

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Environmental liability Insurance concepts

• Stand alone insurance concept (e.g. EIL
  insurance)
• Distinction between civil and public law based
  insurance cover should increase clarity
• Facilitates the development of solutions in
  response to emerging trends without hampering
  established client relationship
• Development of innovative and tailor-made
  solutions is more likely
• Duplication of claims possible, i.e. concurrence
  with traditional third party pollution liability
  covers
• Accumulation potential
• Increased administrative expenditure

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Environmental liability Insurance concepts

• Integration into existing insurance solutions via
  endorsement (e.g. GTPL insurance)
• Accumulation potential under control
• Lower administrative expenditures
• Mixing different liability concepts in a single
  policy
• Separate premium allocation?
• Separate tracking of ELD claims?
• Assessment of claims development might be
  hampered

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Environmental liability insured events

• Insurance coverage is usually limited to
  identified, unintended and unexpected
  incident(s) either
• Sudden and identifiable in time (e.g. fire,
  explosion) gt know as sudden accidental
  event
• Gradually occuring pollution events

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Environmental liability Covered costs

• Costs for
• Preventive measures
• Primary remediation
• Complementary remediation
• Compensatory remediation
• Remediation of land damage
• Wide field of uncertainty when trying to estimate
  reliably the amount of complementary and
  compensatory remediation, e.g. relevant
  threshold, assessment of damage and most
  efficient remediation measures

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Environmental liability Temporal scope of cover

• Clear allocation of a particular loss to a
  specific point in time and insurance period is
  important
• The use of present-event triggers like first
  discovery/ manifestation of damage or claims
  made may be appropriate to cover the latent
  claims issue
• Retroactive cover back to 30 April 2007?

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Environmental liability Geographical scope

• Transposition law applies to Member State
  territory only but potentially liable operators
  are also responsible for damage occuring outside
  home territory
• Transboundary/cross-border environmental damage
  or damage resulting from services provided
  outside the home country

Extension of the geographical scope beyond the
home territory may result in an exposure to
foreign laws and court practices in a field where
there may be a lack of legal clarity or certainty.
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Environmental liability Losses arising out of
defective products

• Direct claims of the competent authority against
  the manufacturer/importer depending on the
  definition of operator
• Right of recovery for the liable operator
  against the manufacturer/importer of a
  defective product causing liability of the
  operator to remediate environmental damages
  (product liability)

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Environmental liability Non-site-specific
occupational activities

• Special assessment of relevant factors required
  due to
• No knowledge about the vulnerability of the
  natural resources around the place where the
  activity is to be run
• No knowledge of the pre-existing conservation
  status of the natural resources
• Distinction between hazardous and non-hazardous
  activities may not be sufficient
• Focus on following criterias
• Insured to ensure that he is deploying
  experienced personnel
• Potential exposure arising out of activities on
  hazardous sites according Annex III
• Accumulation potential to already existing
  coverage

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Environmental liability Non-site-specific
occupational activities

• Examples
• Defective construction/completed operation
  leading to pollution, e.g. errors in
  planning/supervision by architects/engineers or
  faulty workmanship by a contractor
• Accidental event during the performance of
  contractual activities on third party site
• Un-/intentional destruction of habitats or
  protected species in the course of an
  infrastructure project
• Direct claims of the competent authority against
  the contractor
• Right of recovery for the liable operator
  against the contractor

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Environmental liability Allocation of coverage

• ELD-based coverage increases the risk that
  multiple polices might be triggered gt double
  recovery
• Gradually occurring damage which might trigger
  several policy periods
• Event causing different types of damage covered
  under several insurance policies like
• Environmental damage
• Damage to own property
• Traditional bodily injury and/or damage to
  tangible third party property

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Environmental liability Sum insured

• Financial limits as a protection to the
  uncertainty the ELD creates regarding the impact
  on loss frequency and loss severity
• Costs for assessing the environmental damage
  and/or for legal proceedings to finally rule the
  liability of the operator might be substantial
• Underwriter may wish to consider limiting
  coverage either by fixing a sublimit or
  including costs in the sum insured or limiting
  them (e.g. as a percentage of the insurance
  limit or as fixed amount to the policy limit)

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Environmental liability Deductible

• Insureds should be willing to take a financial
  interest in their own risk
• To avoid any misuse of insurance protection
• To eliminate small, routine losses that are best
  dealt with outside insurance mechanisms

Operator should not escape from proper
environmental behaviour because it is cheaper to
buy insurance protection than to invest in
necessary maintenance measures or safety
installations
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Environmental liability Calculation of expected
loss

• Basic information enabling the use of
  traditional methods of estimating loss frequency
  and severity are rarely available
• The use of claims experience is limited due to
  the fact that usually the claimants were
  compensated based on civil law for traditional
  damage
• Use of alternative methods to calculate the
  expected loss

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Environmental liability Summary

• Insurers are well placed to identify potential
  overlaps, gaps or inconsistencies of coverage
  within existing insurance polices
• Underwriters may wish to consider the
  development of differents options, e.g.
  extensions of stand alone EIL concepts or GTPL
  solutions
• The solutions offered might depend on
• The type and territorial scope of activities
  performed by an operator
• Cross-border damage potential
• Insured event and temporal scope of cover
  definition
• Risk appetite and capacity deployment

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Environmental liability Summary

• It is the responsibility of individual insurers
  to decide whether or not to offer cover and on
  what basis and terms
• In Member States that have enacted legislation,
  some insurance solutions are appearing in the
  market

A clear legal framework and a close relationship
to the Directive are key to the development of
sustainable insurance solutions
THANK YOU FOR YOUR ATTENTION!
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