a business guide to the european union environmental liability

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  • A Business Guide to the European Union Environmental Liability Directive

    Aon Risk SolutionsEnvironmental Services Group

    Risk. Reinsurance. Human Resources.

  • 2 Bridging the Gap in Corporate Environmental Programs

  • The Environmental Liability Directive (2004/35/EC) is a legislative act of the European Union creating new and significant potential liabilities for costs, damages and losses for operators and companies regulated by the ELD. All EU members have now adopted the ELD into their national laws, making compliance unavoidable for companies operating in EU member states, regardless of where they are headquartered.

    Remediation Costs Can Be Severe

    Environmental fines and litigation costs can be considerable, including time and resources. Information on ELD costs are gathered on an ad-hoc basis because Europe currently does not have a central database to track ELD loss and damage. However, while its still too early to confirm, the costs associated with Natural Resource Damage claims in the U.S. are expected to increase significantly. It is critical to have a professionally designed risk prevention and mitigation program in order to protect a companys brand.

    The Importance of Insurance

    Financial security plays an important role in the ELD. Currently, eight EU member states have committed to imposing mandatory financial requirements on operators, and more member states are expected to join. In these member states, insurance among other instruments is accepted as financial security.

    In some member states, the adoption of the ELD is backdated to April 30, 2007, and this should operate as the assumed date for the purpose of insurance retroactive dates for all member states.

    The High Costs of Environmental Damage

    A recent investigation by the French government examined two incidents. When they occurred in 1996 and 1997, the cost of the environmental clean-up was approximately $67,000 and $16,000 USD respectively. If those incidents occurred today, under the ELD, it is estimated that the costs would be $636,000 and $6.4 million USD.

    A Business Guide to the European Union Environmental Liability Directive

    3

  • Strict Liability for Annex III

    The ELD affects all organizations with any operations in EU member states and European Economic Area countries. However, only those operations and operators described in Annex III of the ELD are under strict liability and will feel the full force of all of the liabilities, costs, damages and losses under the ELD. All others have fault-based liability.

    Annex III includes

    All operations licensed under the EU Integrated Pollution Prevention and Control Directive (2008/1/EC)

    Waste and waste management

    Mining, quarries and extractive industries

    Operations with consents to discharge to water

    Transport of hazardous materials

    The Polluter Pays

    The ELD supports the regulatory principle of the polluter pays. Annex III operators and operations must meet the legislative mandates of the ELD to prevent and mitigate the consequences of pollution and environmental damage that may result from their activities.

    Operations that intentionally or negligently cause biodiversity damage must remedy that damage in addition to any other environmental liability

    If biodiversity damage cannot be fully remedied, those liable must pay for compensatory measures

    Firms operating under specific EU environmental directives are strictly liable for a range of damage to water, land and biodiversity

    All operators must take practical steps to immediately prevent any environmental damage where there is an imminent threat

    Furthermore, Directors and Officers, including non-executive directors, may be personally liable, in addition to their companies, for non-compliance with the legislation and for failing to take appropriate action.

    4 Bridging the Gap in Corporate Environmental Programs

  • Required Remediation

    The ELD includes prescribed losses and damages related to restoring damaged environments. Specifically, the process of restoring environmental damage can involve all of the following:

    Primary

    Remediation is any remedial measure which returns the damaged natural resources and/or impaired services to, or toward, baseline condition.

    Complementary

    Remediation is any remedial measures required to compensate where primary remediation fails to fully restore damaged natural resources and/or services.

    Compensatory

    Remediation is any action taken to compensate for interim loss of natural resources and/or services that occur from the date of damage until primary remediation has achieved its full effect.

    Interim Losses

    Losses which result from the inability of damaged natural resources and/or services to perform their ecological functions, provide services to other natural resources, or provide services to the public until the primary or complementary measures have taken effect. These do not include any financial compensation to members of the public.

    Contractors Pollution Liability

    Contractors are exposed and subject to the same duty as other operators to prevent damage to the environment. In some cases contractors are potentially strictly liable, and this applies especially to those working next to waterways or other sensitive environments. Examples include surface drainage and run-off from an on-site fire, as well as the increase of existing pollution where remediating or regenerating brownfield land. Construction works can also cause non-pollution damage where, for example, actions to control groundwater levels lead to the drainage of adjacent wetlands.

    5

  • Next Steps for Companies

    Companies should consider the following options for developing an effective risk management program for the ELD which requires a high level of commitment and expertise.

    Limited or Comprehensive

    Some companies focus on discreet locations and individual facilities. Others adopt a portfolio approach including Europe as well as the rest of the world.

    Determine Liability Limits

    These amounts should be based on technical risk assessments as well as local or country requirements.

    Understand the Regulations

    ELD implementation can vary widely according to a countrys insurance laws and locally acceptable certification and, documentation processes must be considered.

    Integrate with other programs

    ELD coverage should be a fully integrated part of a companys risk management and insurance program in order to avoid coverage gaps or an overlap in programs.

    ELD Coverage Gap

    Gaps in coverage for the ELD usually involve environmental damages caused by:

    Remediation process

    Gradual events Events other than pollution, such as fire

    Are General Insurance Programs Enough for the ELD?

    Unless a specific environmental program is designed and implemented with intended coverage for environmental damage and written to respond to the national law in the country of risk, the answer is typically No.

    Even companies with existing programs or standard pollution insurance might not be covered for the liabilities stipulated under the ELD. According to a recent International Underwriting Association report entitled Environmental Risks: insured or not?, The gap between traditional insurance cover and the range of environmental liability has become uncomfortably wide and will get wider. In addition, different member states can have different requirements for compliance, including compulsory financial security.

    6 Bridging the Gap in Corporate Environmental Programs

  • How Aon Can Help

    Aons Environmental Services Group offers a full range of services to assist in assessing your exposure to environmental risk and liability under the ELD. Our specialized staff with backgrounds in legal, engineering and insurance underwriting will assist in identifying your risk by utilizing our global specialty market knowledge, we will offer options on how best to mitigate it. Our network of over 60,000 colleagues in 120 countries is available to assist.

    Working together, we can assist in the following:

    Review your current coverages

    Identify and analyze gaps in your coverage

    Provide integrated coverage for ELD

    Develop a fully coordinated global environmental master insurance program

    Transfer potential financial risk from your balance sheet to the insurance market

    Address compliance with ELD and additional evolving legislation in the environmental arena

    Enhance protection for increased litigation by environmental protection groups

    Contribute to Corporate Social

    Responsibility strategy

    Broaden protection for your directors, officers and employees

    Aon won this account by demonstrating leadership and strength in the area of Environmental Insurance to provide a program that is not only unique to our needs but also introduced a new market with strong global capabilities.

    Mr. Nathan Dreyfuss, Vice President Finance, Israel Chemicals Limited

    7

  • Contact Aon Today

    To learn how Aons Environmental Services Group can help you develop an effective, comprehensive strategy for Environmental risk management, please contact:

    North America

    John Welter +1.832.476.5730 john.welter@aon.com

    Greg Schilz +1.415.486.7652 gregory.schilz@aon.com

    Asia Pacific

    Jim Finnamore +61 3 9211.3671 jim.finnamore@aon.com.au

    Latin America

    Veronica Benzinger +1.561.253.2514 veronica.benzinger@aon.com

    U.K., Europe, Middle East & Africa

    Simon Johnson +44 (0)20.7216.3710 simon.johnson@aon.co.uk

    1 Environmental Liability Directive and Methods of Equivalency. Ins

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