Background

In the early 1990s, the Association of British Insurers' (ABI) introduced the gradual pollution liability exclusion, which was quickly adopted by insurers participating in third party liability (TPL) insurance. This followed a spate of claims, particularly involving gradual seepage pollution, a loss type that many insurers felt arose from poor housekeeping as opposed to an unforeseeable accidental event.

The ABI exclusion sought to limit TPL coverage to liabilities arising from “a sudden, identifiable, unintended and unexpected incident, which takes place in its entirety at a specific time and place”.  This removed coverage for claims arising from all gradual pollution or seepage liabilities, something the ABI was keen to promote as a clarification as opposed to a reduction in cover.  The other area addressed by the standard exclusion was conversion of the limit of indemnity to an aggregate limit as opposed to any one occurrence.

Examples of environmental losses

To provide clarity, below are examples of sudden and gradual pollution events:

Sudden and accidental pollution

A site compound houses a large diesel tank to refuel the construction plant and equipment being used to deliver the project.  A failure to observe the site traffic management plan results in a near miss between a delivery vehicle and a site forklift.  In avoiding the collision, the forklift hits the diesel tank and a large volume escapes into a local watercourse.  The liability for remediation has arisen from a sudden and accidental event and is therefore covered under a TPL policy.

Gradual pollution

A different site has a similar set up for diesel storage.  The site management fails to consider the maintenance requirements of the tank or monitor the level of diesel it contains.  The steel tank corrodes over time and diesel gradually seeps from the tank and pollutes an aquifer, contaminating drinking water.  In these circumstances, the ABI exclusion would apply as the pollution would not be considered as having arisen from “a sudden, identifiable, unintended and unexpected incident which takes place in its entirety at a specific time and place”.

Subsequent developments

From the early 1990s onwards, cover for gradual pollution has only been available through specialist environmental impairment liability (EIL) products.  In more recent years, further developments to confirm the extent of cover provided by TPL policies helped to clarify the difference between TPL and EIL insurances.

Bartoline Limited v Royal & Sun Alliance Insurance plc and Heath Lambert Limited

The first of these cases involved a fire at industrial premises owned by Bartoline.  Fire-fighting measures included the use of chemicals and foams that resulted in pollution of local watercourses.  The Environment Agency (EA) carried out emergency clean-up works and issued Bartoline with mandatory works notices for other clean-up operations.
The EA invoiced Bartoline for the cost of its operations, and when combined with Bartoline’s own costs for compliance with the works notices, the total was almost £800,000.  This was presented to Bartoline’s TPL insurer, RSA, who declined the claim on the basis that this was a statutory debt as opposed to tortious damages.  In the ensuing legal action, the court found in favour of RSA.

Environmental Liability Directive 2004

The EU Environmental Liability Directive (ELD) was introduced to establish a common framework across the EU for preventing and remedying environmental damage.  This legislation, which at the time of writing still applies in the UK, introduced some additional classes of statutory liability to sit alongside primary remediation (i.e. the measures implemented to clean up following pollution events).  These are as follows:

Complementary remediation

If the polluted site or area cannot be returned to its original “baseline” condition, the remediation can occur at an alternative site. For example, if polluted wetlands cannot be fully reinstated, remediation can take place through the establishment of an alternative habitat.

Compensatory remediation

These are interim measures utilised whilst primary remediation measures have yet to take full effect.

Differences between TPL & EIL cover

TPL pollution cover has evolved in recent years. For example, following the Bartoline case, many insurers amended their pollution wordings to include statutory liabilities, as well as damages. However, there remain a number of areas in which EIL insurance provides coverage unavailable under a TPL policy:

• gradual pollution is covered under EIL policies, yet excluded under TPL policies
• own site clean-up costs - TPL insurance deals with losses from third parties and the polluter’s own site falls outside this scope.  EIL will indemnify for both own and third party remediation from either gradual or sudden and accidental pollution events
• complementary and compensatory damages arising under the ELD can only be covered under a specialist EIL policy.
  
  

What should I do if I am faced with potential environmental liabilities?

• Engage with a specialist broker that fully understands your risk and the market.
• Understand your current coverage. Do you have TPL cover that includes statutory debt?
• Work with your broker to understand the environmental risks and the cover available under TPL and EIL policies.
• Establish whether the limited TPL insurance is sufficient or whether enhanced EIL insurance is required.
  
  

For more information and to discuss environmental liability cover for your construction project, do not hesitate to get in touch.