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Environmental insurance
The increase in environmental legislation means that the potential for environmental risk is a growing area of concern. Concerns focus on the extent of any liabilities arising from:
compliance, or
clean up costs
Types of insurance
There are two main types of policies - policies for:
pre-existing contamination (known as property transfer policies), and
operational risks
They are both site-specific (ie provide cover only to sites listed in the policy). During the policy period, the policy can be changed by the insured to include or delete sites as he acquires or disposes of them.
The policy periods for:
property transfer policies can be of up to 10 years
operational risks can be of up to 3 years
Environmental insurance policies operate on a claims-made-and-reported basis (ie a claim needs to be made against the insured, and the insured needs to report that claim to the insurer within the policy period).
Extent of insuranceProperty transfer policy
The property transfer policy offers cover to liabilities that arise from contamination on the insured’s site. This is usually used in a transaction so to allow:
the seller to sell free of any liabilities associated with the site, and
the buyer to avoid inheriting any liabilities from contamination caused by the seller or his predecessor
However, for the risk of liability to be covered, the insured must:
not have known about the contamination, or
have disclosed the contamination to the insurer before the start of the policy
Insurers usually provide cover for disclosed contamination only for risk of liabilities arising from it during the policy period.
The risks covered by a property transfer policy include:
third-party bodily injury and property damage
cost of remediating on-site and off-site contamination
personal liability of directors and officers for the above risks, and
associated legal defence costs
The policy can be extended to also include:
business interruption costs
loss of rental income
decrease in the value of first-party or third-party property
relocation costs due to contamination and remediation works
Operational risks policy
The operational risks policy offers cover for losses that arise from a contamination incident at the insured’s site during the policy period. This is usually taken up by contractors, who are apprehensive that their activities may cause a contamination.
The risks covered by an operational risks policy include:
third-party bodily injury and property damage
cost of remediating on-site and off-site contamination, and
associated legal defence costs
The policy can be extended to also include:
business interruption costs
decrease in the value of first-party or third-party property
loss of rental income
natural resource damage
relocation costs due to contamination and remediation works
Further cover can also include liabilities under the Environmental Liabilities Directive.
However, the courts have been strict in interpreting the wording of an insurance policy concerning contamination liabilities. In Bartoline v Royal & Sun Alliance Insurance [2007] All ER (D) 59 (Mar) the High Court held that an insurance policy covering 'damages' did not encompass liabilities for the cost of remediation imposed under statutory remediation notices. Due to this decision, some insurers have amended their policies so that cover can include losses arising from statutory notices.
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