When the Environment Act finally comes fully into force next month, businesses will face a massive increase in their potential liabilities. Insurance brokers need to make their clients aware of the risks they face and to provide the risk management advice and indemnities they now require.
The Act enshrines the principle of the polluter must pay, and further ensures that every incidence of pollution will be made the responsibility of an individual or organisation. This means that, if the party responsible for contamination cannot be traced or has ceased trading, then the current occupier of the land will be obliged to clean up pollution at their premises.
In order to provide policyholders with the protection they need, underwriters have developed environmental impairment liability insurance. This covers legal liabilities under the Act and provides compensation to third parties. It also indemnifies mandatory clean-up costs for sudden and gradual pollution of the insured's own and third party sites.
The policy should be sold as an integral part of the business insurance programme to provide seamless insurance cover. Protection should extend to all sites owned and, or occupied by the insured, all activities undertaken away from the insured's premises and to all the products sold and supplied.
It is vital that such a policy is under-pinned with sophisticated, comprehensive risk management advice. Brokers should look for expert support from insurers with the skills, experience and commitment necessary to handle such a complicated and sensitive topic.
The implications of the Act makes it more important than ever to be selective with regard to the policyholders taken on. If a business is unwilling to grasp the green nettle, brokers should be alerted to the potential for future problems.
Any businessman who remains sceptical of the need to worry about environmental issues, has to to consider the penalties introduced by the Act. Non-compliance with the legislation can attract fines of up to £20,000, plus £2,000 per day at the Magistrates Court. If the case proceeds to the Crown Court, directors face unlimited fines and even imprisonment.
Under the Environment Act, local authorities are obliged to identify contaminated land and enforce clean-up operations. The Government is providing £50m to finance this activity – but that is not £50m to pay for the clean-up work. It is there to help the authorities pursue those deemed responsible and to force them to carry out the clean-up work themselves.
That figure alone gives some indication of the possible size of the problems that might lie hidden beneath our green and pleasant land.
To add further spice, the legislation is retrospective and retroactive. This means it applies to problems that already exist and to those that may come to light in the future, having been caused in the past.
This is why everyone is at risk: a business with spotless green credentials may be unwittingly sited on an old toxic dump which was created by a company that has long since ceased trading. If pollution comes to light, the current occupier of the site may well be deemed liable for the cost of reparation.
Clearly, any organisation involved in the sale, purchase and management of commercial property, from brownfield sites through to established developments, is also affected by the legislation. A company that found itself sitting on top of the aforementioned dump would soon start asking questions of its surveyors and solicitors – who would then look to their professional indemnity cover if they were found negligent.
Problems such as these can be avoided by undertaking specialist surveys of sites. An organisation such as Environmental Risk Services will provide property purchasers, surveyors and valuers with details of a location's exposure to subsidence, land-slip, pollution and contamination. This helps with the due diligence work associated with property transactions, site reclamation initiatives and property asset planning.
Companies involved in management buy-outs, mergers and acquisitions also use this sort of service to vet the green credentials of takeover targets.
More than a selling opportunity
It is not only 'inherited' contamination that can cause difficulties. Pollution likes to travel, seeping through land and poisoning water courses on journeys of many miles. If it appears in a location and the source cannot be traced, responsibility will again rest with the occupant or owner of the affected site.
The enforcement of the Environment Act should be seen as something more than an opportunity to sell additional cover to clients (although it certainly is that). Brokers must consider what position they would be in if they did not recommend such a policy to a client who subsequently fell foul of the law. The importance of this whole area should not be underestimated.
Environmental matters are likely to remain areas of key concern for politicians and the general public alike. Think about it. Can you envisage a point in the future where levels of interest in green issues are actually in decline? It is not likely.
Within this context, brokers must ensure that they are properly equipped to provide their clients with the products and support they need – and this will be done by working with insurance companies that have orientated themselves towards this area of vital importance.