The Environmental Liability Directive – what does it mean for business?
19 August 2008
A poll by international surveyors ICM of 1,000 UK adults earlier this summer reveals that 52% of respondents think the government’s main priority should be tackling environmental issues. Furthermore, 63% said they would support the introduction of green taxes and 30% thought this additional toll should be levied despite the current economic outlook.
Defra states that it is taking steps to adapt to climate change and reduce the risk posed by global warming to people and trade in the UK. One course of action is the impending Environmental Liability Directive. This directive seeks to prevent and remedy the effects of environmental damage, and reinforces the polluter pays principle, which makes operators financially liable for threats of or actual damage.
A key feature of the directive is its introduction of two types of liability: fault-based and strict liability. The former refers to damage caused to protected species and natural habitats from occupational activities, while strict liability deals with environmental harm resulting from a specific range of occupational pursuits.
Steve Foulsham of the British Insurance Brokers Association explains that the government's decision to legislate on climate change will not only please the electorate but will also help business. He says that insurance firms have been reluctant to offer environmental liability insurance in the UK while there is a lack of legislation on the matter.
"I think the government is concerned that the insurance market should develop to enable businesses to protect themselves ... because existing public liability clauses do not normally cover any regular operating or any environmental exposure, apart from that which is accidental," Foulsham explains.
Currently, in the UK firms are only covered for environmental damage which happens suddenly and is unintended and unexpected. The Association of Insurance and Risk Managers (Airmic) reports that the Bartoline incident in 2003 "muddied" the waters. Damaging substances belonging to the firm were washed into a nearby river, while the fire service extinguished a blaze at the company's chemical plant. The Environment Agency cleared up the damage and billed Bartoline for £700,000. Although the incident was sudden, unintended and unexpected it was not covered under the firm's insurance policy as no-one had sued it for tort. Airmic concludes: "Repaying the agency for the clean-up was not covered."
As the new directive will make businesses more accountable for their actions, it may also encourage the insurance market to become engaged, as previously grey areas will be clarified. Foulsham says: "Major organisations in key industries, like fertiliser manufacturers and those in the petrol and chemical industries, have environmental liability insurance in place already. However SMEs, which have previously been considered low risk, may want to consider these issues following the introduction of the new directive.”
With environmental responsibility at the forefront of the public consciousness and on the cusp of being enshrined in law, we can expect to see a wider range of firms undertaking risk assessments to find out what their particular risks may be.
Last updated on 11 Aug 2008
