France: Changes to environmental liability insurance

Law No. 2016-1087 on the recapture of biodiversity, nature and landscapes, has introduced new legislation in Articles 1246-1252 and 2226-1 of the Civil Code regarding environmental liability. The Law was published on 9 August 2016 and was effective from the same date. It sits alongside existing legislation on this subject in the Environment Code, which remains in effect.

Managing agents will need to review their existing liability policy wordings to ensure that they are aligned to the new provisions in the Civil Code, both if it is intended to cover environmental liabilities and if it is intended to exclude them.

The definition of “environmental loss” in the Civil Code is “a non-negligible [i.e., significant] violation to the elements or functions of ecosystems or to the collective benefits drawn by humans from the environment”.

A determination as to whether a violation to the environment is significant, and thus falls within the above definition, can be made by a court of law. The scope of the definition of environmental loss is wider than those commonly used in policy wordings for extensions or exclusions relating to environmental damage.

Any person that is liable for an environmental loss is obliged to remedy it. Liability for environmental loss is based on negligence, which includes vicarious liability. When a person is found liable, the priority will be for the environmental loss to be addressed by remedial action. The cost of this will be paid by the defendant to the claimant, or, if the claimant cannot perform the remedial action, the money will be paid to the State to undertake the work. Monetary damages may also be awarded to the claimant. A claimant is able to claim for prevention and mitigation costs but it does not have to prove that these have been reasonably incurred. Compensation cannot be awarded under the Civil Code and under Environment Code in respect of the same loss.

The parties who are permitted to bring a claim for environmental loss are:

• Any individual or legal person with the legal capacity and interest to do so
• The French State
• The French Biodiversity Agency
• Local municipal authorities
• Associations whose role is to protect the environment and that were established at least five years before the commencement of the litigation

The limitation period for claims for environmental loss is 10 years from the date the claimant became aware, or should have become aware, of the occurrence of the loss. Note that the limitation period for claims made under the Environment Code has been reduced from 30 years to 10 years so that it is line with the limitation period for environmental losses made under the Civil Code.

The new provisions for environmental loss in the Civil Code apply to losses that occurred before 9 August 2016 as well as losses that occur after that date. However, they do not apply if the loss was already subject to litigation on that date. Therefore, environmental loss claims under the Civil Code may be made on insurance contracts that incepted before 9 August 2016 and were written on an occurrence basis.

Managing agents are strongly advised to review their policy wordings that include third party liability cover to ensure that they are aligned to the new definition of environmental loss and the compensation arrangements that may be awarded for such losses. The following products are likely to be affected:

• Homeowners’ liability
• Motor third party liability
• Public and products liability
•  Environmental liability
• D&O
• Agricultural liability
• Public liability for local municipal authorities
• Property owners’ liability

Managing agents may wish to consider the following points:

• Whether it is intended to include or exclude cover for environmental loss, as per the scope of the new definition in the Civil Code
• Whether the existing definition of ‘environmental damage’, ‘environmental loss’ or similar in the policy wording should be amended
• Whether the policy covers material damage or pure financial loss or both
• Whether there are adequate subrogation rights to another party
• Whether cover for environmental loss should be provided as an extension to a general liability policy or under a standalone environmental liability policy. This may depend on the nature of the insured’s risk.

Managing agents are advised to seek appropriate legal advice where necessary.