< Study Room | 07.03.2017

Protecting the environment remains a serious business

Protecting the environment remains a serious business

Environmental protection has risen up the political agenda for many years, culminating in the EU’s Environmental Liability Directive. But how has this affected the insurance market? The Journal takes a look…

The main aim of the Environmental Liability Directive (ELD) is to establish a new kind of civil law mechanism based on the ‘polluter pays’. Operators that cause a risk of ‘significant’ damage or cause ‘significant’ damage to land, water or biodiversity will have a duty to try and stop that damage occurring or, where damage does occur, a duty to reinstate the environment.

Although the Directive came into force in 2009, there has been uneven uptakes of the rules across the EU and in 2014, the European Commission was expected to report back. That has been delayed by two years and it was only in 2016 that the Commission finally adopted its findings. According to the

Commission, the key findings emerging from this report are that the Directive has improved:

  • The standards of prevention and restoration of environmental damage
  • The application of the ‘polluter pays’ principle
  • Strict liability across the EU for environmental damage
  • EU-wide liability for biodiversity damage
  • Public participation and access to justice for people affected and nongovernmental organisations

It admitted, however, that uptake remains uneven and it intends to improve that in the near future.


With the UK set to leave the EU, Marsh looked at the possible impact on this sector.

Its report states: “Several multinational companies buying environmental insurance to cover sites and operations in multiple jurisdictions have chosen to place an environmental master policy, with specific local policies in local countries where the regulations demand.

“As such, the master policy will usually act as an umbrella policy and will be sitting on a difference in conditions and difference in limits basis above the local policies. For sites and operations in the EU, this requirement has been facilitated by using the freedom of service (FOS) regulations to allow all sites in Europe to be covered under a single policy.

“When the UK leaves the EU, the FOS directive may no longer apply and access to the single market will have to be renegotiated during the transitional period. FOS is the right to provide business services on a cross-border basis within the EU. For insurance contracts, in particular, this means that a contract can be underwritten in an EU member country that is different from that in which the risk is located.

“These contracts – which are commonly used by multinational companies as a means to secure locally admitted coverage in multiple EU countries – could be affected.”

Source: Marsh


Environmental impairment liability (EIL) provides broad coverage for losses arising from sudden pollution or gradual seepage released from the insured location, as a key component for anyone looking to insure construction of a community renewable energy system above and beyond standard public liability cover. Cover offered:

  • Contractors’ pollution liability
  • Contaminated land liability insurance
  • Operational pollution insurance
  • Damage to ecosystems

EIL insurance can form part of a contractual obligation in the construction phase or as part of a tenancy agreement for a renewable energy project during the operational phase.

  • EIL provides cover for potential claims from regulatory bodies and third parties
  • EIL cover includes liabilities arising from the implementation of the EU Environmental Liability Directive
  • EIL cover includes cover for onsite clean-up costs as required by environmental law
  • EIL cover includes third-party and regulatory claims from contractors’ pollution risks from the contractors’ work either disturbing pre-existing contamination or from their own source.

Source: Naturesave Insurance


In the UK, the rules came into force in 2009 and affect businesses of all sizes, with the risk for owners and directors that they will go to jail in the wake of a pollution incident.

For insurers, the Directive gave a much needed fillip to the sector. And a recent report from Marsh shows the uptake of environmental cover has risen across Europe.

It reveals: “There has been a marked increase in the number of companies purchasing environmental impairment liability (EIL) cover across Europe in recent years. From a regulatory perspective, the implementation of the Environmental Liability Directive in the EU has had the greatest impact on companies operating in the region.

“The ELD has imposed new liabilities for environmental damage on many companies operating within the EU, as it requires them to not only prevent, but also to remedy, any significant environmental damage that has been caused. Th is has led to a rise in EIL insurance being sought to cover potential new environmental liabilities.”

The broker adds: “Today, companies also have a greater understanding of the gaps in traditional types of insurance cover with respect to pollution, largely due to several high profile claims. Consequently, clients have sought out EIL policies to protect against these types of exposures, which include cover for third-party bodily injury and property damage resulting from gradual pollution, first-party clean-up, business interruption and the costs to undertake preventative measures, among others.”


The report notes that the buying patterns of those mid-sized companies purchasing EIL cover have also changed, with a general marked increase in the average limits of indemnity sought between 2011 and 2015. While there was a dip in the average limits of indemnity being obtained by mid-sized companies across Europe in 2015, it would appear that they are continuing the steady upward trend that has taken place since 2011, during which time they have risen from an average of €6.9m to a little under €7.9m (peaking at nearly €8.4m in 2014).

Another broker, JLT, suggests: “Th e traditional view among businesses has been that only a limited set of companies such as those dealing in chemical production, utilities and waste management are likely to have any significant exposure to environmental liability. With new statutory provisions recently enforced across the EU and an increasing trend of large group litigations against many spheres of industry, this is simply no longer the case.”


  • The Environmental Liability Directive (ELD) has the objective of making operators of activities that cause environmental damage financially liable for that damage (the ‘polluter pays’ principle). It imposes duties on operators of economic activities to take immediate steps to prevent damage if there is an imminent threat and to control damage that is occurring, so as to limit its effects;
  • The ELD came into force in 2009, having been approved in 2004;
  • The UK brought the Directive into law in March 2009;
  • It covers spill and firewater containment. Spills covers all manner of things while firewater covers any water that runs off , which has been used to contain a fire;
  • The ELD has been amended three times to include the management of waste from the extractive industries; the safety of off shore oil and gas operations; and the geological storage of carbon dioxide;
  • It applies to businesses of all sizes and directors of off ending firms can go to jail.

Source: UK government, Scottish government and the EU


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