Risk management and mitigation are key parts of land and property management today. One of the mitigation measures that can enable risk scores to be reduced is the purchase of insurance against the wide variety of environmentally based claims that can arise.
One of the difficulties in pricing insurance policies is the problem in costing any remediation work that the client would have to pay for in the event of a proven environmental liability. This can arise in the case of an accident, such as spilling of a pollutant, biodiversity damage, fire, contamination of water supply, or from problems with the way the land is being used.
It is also sometimes necessary to take out a supplementary environmental damage or pollution insurance policy because of specific exclusions in the general insurance policies that are held by the land or property owner.
Remediation Costs Have Risen Significantly Both EU and UK laws have been amended recently, with the result that the potential cost of remediation has risen significantly. In both property and liability insurance policies, pollution is frequently excluded from cover. This has led to an increased recognition that environmental liability insurance is important and a growth in the availability of insurance policies that cover environmental risks. However, it is essential to take expert advice before buying a policy, as the risks covered vary widely from one policy to another.
Sometimes the landowner simply does not know the level of risk or possible pollutant involved in acquiring a site or business. However, there are large databases covering this area – it’s important to check that your insurance agent has access to one of these so that they can accurately advise you.
As noted previously, remediation costs can be hard to estimate, so you can find yourself over- or under-insuring because of a lack of clarity on how much a clean-up would cost in various circumstances. An expert insurance adviser will have computer programs that can analyse and accurately estimate remediation costs so that you can be sure you are covered for the correct amount.
There are a number of extra optional areas you may wish to cover. These range from loss of rent to reputational damage, the cost of cleaning up contamination by non-regulated materials or the transportation of possible pollutants from one place to another.
Beware a “Generalist” Approach
Unfortunately, environmental policies that are sold by non-experts can prove almost useless in practice – for instance, if they were drawn up to cover a different type of risk than the one facing the client. One of the key liabilities of a new land or property owner is that they are liable for remediation costs of any contamination on the land if the original polluter cannot be found. Furthermore, even if you contaminate only your own land, you must carry out remediation work at your expense.
Many generalist insurance agents and brokers can accidentally leave their clients without cover for losses that are contamination-related. They can believe that the pollution exclusions in general insurance policies only apply if hazardous materials or waste are being handled. But the exclusions are often far more widely drawn, and any supplementary environmental liability insurance policy needs to address this.
The wisest course is to take advice on a suitable policy from experts who understand the issues and can provide accurate evidence-based costings and recommendations.