The issue of compensation for clean-up costs remains unclear after the aversion of a landmark case at the court of appeal

Few would have thought that the contamination of a river in Yorkshire four years ago would have resulted in a legal dispute threatening to leave insurers with a clean-up bill reaching into the tens of millions.

Fewer still will be surprised that the case was settled out of court.

The battle between Royal & Sun Alliance (R&SA) and solvent manufacturer Bartoline involved a £622,000 clean-up bill imposed on the company by the Enivronment Agency following a fire on its premises.

R&SA argued the cost fell outside the terms of its PL policy. Bartoline sued R&SA for breach of contract but lost the case. The company then took its grievance to the Court of Appeal.

On the verge of the hearing last week, a settlement was agreed - the details of which are no less clear that the point of contention.

On the one hand, having averted setting a precedent encouraging the pursuit of PL-related environmental claims, the outcome could be hailed as a victory for insurers.

On the other, it could be seen as an aborted attempt to lend clarity to an issue that has long muddied the waters of public liability cover.

Indeed for policyholders, out of court means out of mind.

Bob Martin, director of environmental consulting and solutions at Aon commented: “It is not the specific of the Bartoline case that is important, but the doubt it raised over whether the pollution clause in a non-specific environmental policy actually affords the cover that the insureds believe they purchased.”

The situation will be exacerbated by the introduction Environmental Liability Directive, which will seek to impose heavier restrictions based upon the ethos that the “polluter pays”.

While some industry experts have called for much wider use of environmental impairment liability policies (EIL), it is highly unlikely that insurers, desperate to create a competitive edge in a soft market, would be willing to adopt such schemes or impose concrete environmental restrictions on liability and D&O policies.

Endorsements represent a much more commercially viable option for them, at least in the short term.

And with the conditions of the market dictating that the only term is the short one, the outcome is no more surprising as it is simply good business.