Introduction
The Environmental Liability Directive (ELD) sets out requirements that EU member states must enact to prevent and remedy environmental damage. Its aim is to hold operators whose activities have caused environmental damage financially liable for remedying the damage. The underlying principle is “the polluter pays”.
The ELD introduces two types of liability:
- Strict – in respect of environmental damage caused by operators who professionally conduct potentially hazardous activities, specified in the ELD’s Annex III.
- Fault-based – in respect of environmental damage to protected species and natural habitats from all other occupational activities.
The liability introduced by the ELD is administrative and is not based on common or civil law. Claims are brought by public administrators, not by injured third parties. An operator causing environmental damage is liable not to pay compensation for losses to others but to “remediate” the damaged environment, which means:
- For protected species, natural habitats and water, to return the environment to the condition it was in before the event giving rise to the damage.
- For land, to remove the risk of human health being adversely affected.
This means that, for example, an operator could be liable to remediate land that it owns itself. If full repair or replacement is not possible, the remediation of the lost environment with identical, equivalent or similar natural assets must be undertaken. The ELD is not retrospective, so does not cover damage caused before it is due to be implemented. Defences under the ELD include:
- Third party defence: environmental damage was caused by a third party and occurred despite the fact that appropriate safety measures were in force;
- Compliance with a compulsory order defence: environmental damage resulted from compliance with a compulsory order or instruction emanating from a public authority.
- Permit defence: an emission or event is expressly authorised by, and fully in accordance with, the conditions of an authorisation given under applicable national laws which implement legislative measures specified in Annex III.
- State of the art defence: the operator can demonstrate that the activity was not considered likely to cause environmental damage according to the state of scientific and technical knowledge at the time of the event.
Key issues
Mandatory environmental liability insurance
The ELD does not require member states to make environmental liability insurance, or other financial security, mandatory for operators. However Article 14 does require member states to take measures to encourage the development of appropriate financial security instruments and markets, with the aim of enabling operators to use financial guarantees to cover their responsibilities.
Before 30 April 2010, the Commission is required to present a report on the ELD’s effectiveness, including the availability of insurance and other types of financial security for the activities covered by Annex III. If appropriate, the Commission will submit proposals for a system of harmonised mandatory financial security.
Some member states, when implementing the Directive, have made environmental liability insurance compulsory for operators, and other member states are set to move to a mandatory system over the next few years.
Availability of environmental liability insurance
The availability of insurance to cover ELD liabilities is patchy and varies from member state to member state. Provision of cover via traditional third party liability insurance is difficult, because of the different nature of ELD liability. Some Environmental Impairment Liability insurers are willing to extend policies to cover ELD liabilities, although the novelty of the ELD liability regime makes it important to understand the nature of the risks entailed.
Implementation
The ELD was due to be implemented by member states by 30 April 2007. However, many member states missed this deadline, including the UK. All member states have now implemented the ELD.
In the UK, environmental protection is a devolved competence. This means that separate regulations are made by England, Scotland, Wales and Northern Ireland. Implementation at regional level has also been a feature in some other member states: there are dangers of differences in the way it is implemented making it more difficult for insurers to offer ELD insurance in the member state concerned.
The Department for Environment, Food and Rural Affairs (DEFRA) carried out a second round of options on implementation in England and Wales in May 2008. Lloyd’s submitted a joint response with the Association of British Insurers (ABI), raising some points about the proposals. The regulations for England were subsequently finalised and came into force on 1 March 2009. Separate regulations for Wales entered into force on 6 May 2009, Scotland's regulations followed on 24 June 2009 and the regulations for Northern Ireland came into force on 24 July 2009.
Further information
Download the Directive (PDF, 148KB) Information on the Directive, available from DEFRA CEA has information on environmental liability
