Chris leads our environmental practice and has worked in the environmental insurance market for the past 20 years, prior to which he worked as an environmental consultant. The Willis UK environmental practice is a team of four specialists dedicated to placing environmental risks across multiple sectors. Chris, it's really good to have you with me. Welcome.
CHRIS STRONG : Thank you.
RACHEL PHILLIPS: I guess to start off, Chris, to set the scene, we're all aware that environmental incidents can have quite a significant impact on organisations, and whether that's regulatory scrutiny and compliance, substantial financial costs, of course, involved in cleanup expenses, legal fees, and fines or operational disruption, plus, of course, reputational damage.
And standard public liability insurance policies have some limited protection for sudden and unintended incidents, but not for gradual or historic pollution. It's a subject, actually, which is not often discussed in the context of health and social care. So, Chris, what are the primary drivers of environmental risk for UK Health and social care providers?
CHRIS STRONG : Well, I guess there's lots of drivers really. And I think when we think about the sudden accidental coverage that most providers will have on their general liability policy, we often point out the difference between the gradual and the sudden accidental. But one of the main things to point out is that if you do have any kind of environmental incident at a location, your general liability policy generally only covers those third party, off-site clean up costs.
So an environmental insurance policy is aimed at covering both the off-site and the first party on-site clean up costs as well. So there's lots of gaps in existing coverage that environmental policies are aimed at covering and I guess the primary drivers as to why clients within this sector should be thinking about environmental risks or what are the drivers are, there's several really.
And if think about it from two different angles, there's the ongoing operational risk like you mentioned before, there's lots of different ways a business can actively pollute the environment, whether it's discharging waste effluent or poor raw material storage or any kind of air emissions, those types of things. There's lots of ways that businesses can impact the environment, and that's all to do with their ongoing operational exposure.
But there's also a legacy risk as well that businesses have as a result of what they may have done at that location historically, or even what the site may have been prior to them occupying the site, which as landowners, they're then liable for. So there's two main kind of ways in which you can come at environmental risks and within those, there's lots of different nuances.
RACHEL PHILLIPS: That's interesting. I guess mould also could potentially be a challenge and I'm just thinking about care home groups. But even in, I guess, hospitals and clinics, there could be the potential for that. Does that sort of feature?
CHRIS STRONG : Definitely so. We've seen in various other territories mould is a huge issue and if you think about the way mould manifests itself, it's not a sudden and accidental type of pollutant. It's a gradual thing that builds up over time and it's as a result of either poor ventilation or aging infrastructure or any kind of damp or leakage into the building, and these things can be incredibly expensive to clean up.
You have to often rip out the whole drywall building, internal structure of the building and then replace it. But also, that type of clean up costs of replacing the building fabric, but also the potential bodily injury risks as well. You can have tenants or third parties who can make claims against you as the owner of the site for health issues as well, and there's been lots of claims in the US, particularly, for indoor air quality relating to mould issues.
RACHEL PHILLIPS: Yes. And I guess when you're thinking about UK health and care sector, there's a lot of aging property, one of the biggest challenges, particularly for some of the hospitals, but perhaps not so much in the private sector as you would get in the NHS maybe. But certainly, there's the opportunity for this to happen, and, as you say, very injurious to health and for the service users and employees.
CHRIS STRONG : Exactly that. And it's not just mould. There's other airborne diseases, like Legionnaires' that if you're on a huge shared water system, it needs to be well managed. There's, especially in aging infrastructure in this country, asbestos is something to be concerned about, especially if you have a lot of contractors working on the building, which you often do at health facilities. It's very easy to inadvertently disturb asbestos, even though the mere presence of asbestos is often OK. It's not OK if that's disturbed and released into the environment.
RACHEL PHILLIPS: Of course.
CHRIS STRONG : Yeah. Indoor air quality, whether it's mould, legionnaires, asbestos, needs to be closely managed.
RACHEL PHILLIPS: Yeah. That's interesting, Chris. And I guess you'd mentioned that in terms of in the US. Are there any other lessons we can learn from countries like the US in terms of either incidents that can arise or potential costs that are associated with that?
CHRIS STRONG : Yeah, definitely. I mean, in the US at the moment, there's a big issue with a various medical sterilisation plants, where these facilities use a gas called ethylene oxide to sterilise surgical equipment and medical equipment, essentially. And if these gases are not controlled properly or not managed properly, they're easily released into the environment and historically have been just released directly into the environment.
And it's been shown that there's a potential link with ingesting ethylene oxide and cancer. And there's several medical sterilisation facilities in the US that have had large class action claims against them for alleged health impacts on the neighbouring residents and the cost of that has been ginormous. I think, there was one facility last year that I think the legal defence costs were around $90 million, and the final compensation payments were over $750 million, I think.
So we're not talking small change here, this is huge. And whilst I don't think we have a huge use of ethylene oxide in the UK, it's certainly really important to consider what potential other air emissions are discharged as part of a health sector use and how potentially they could impact human health.
RACHEL PHILLIPS: Yeah. Well, thank you. That's interesting to hear. And as you say, whilst it's typically a steam sterilisation, I think, largely in the UK, although not solely, it's worth just pointing out the over time, different sterilisation practices can come into effect. And it's worth just understanding that, and actually more just from the pure quantum of how these things can play out in terms of the residents or neighbours, so thank you for sharing that. If a health and social care provider is listening right now, which hopefully some will be, what practical steps can they take, firstly, to comfort themselves that they have captured all potential environmental risks?
CHRIS STRONG : I think, like we started off this, there's two ways of looking at environmental risks. There's the historical risk that you take on as owner of a property, and then there's the ongoing operational risk. If we look at the historical risk of a facility, then, often, sites are bought and sold or portfolios of businesses are bought and sold, and as part of that transaction, you take on, more often than not, that historical liability.
And what's really important when you're undertaking these transactions is to undertake proper environmental due diligence. And that involves employing an environmental consultant to look at the portfolio as a whole, undertaking an environmental desk study, which essentially looks at available online information, historical maps, pollution incidents in the past, and builds up a picture of how these sites may pose a threat to the environment going forward by looking at their historical use.
So I'd say proper due diligence at the point of any kind of purchase or divestment. If we're looking at the ongoing environmental risks that facilities provide, it's really having a robust environmental management plan in place and even individual locations can cause significant damage to the environment if things aren't managed properly. So you may have an in-house environmental health and safety person that can do this or you can employ contractors, consultants to help you along with that.
But essentially, that's ensuring that all the correct environmental permits are in place, ensuring that fuel and chemical storage is appropriate, all of your chemical inventory is listed as it needs to be, and things are monitored as they're supposed to be, whether that's air emissions, surface water discharges. All of these types of things form part of an environmental management plan, and it's making sure that it's robust enough to try and limit as much as possible the environmental risk. You're not going to completely eradicate environmental risk, but you can minimise it as much as possible.
RACHEL PHILLIPS: Thank you. And in terms of capturing, so they've captured all the potential environmental risks. What can the provider do to assure they've taken all necessary action, I guess, to mitigate, reduce or remove the risk? Because, to your point, perhaps you can't fully remove the risk, but in terms of that mitigation and that reduction, is there anything, practically, we can share with them to help with that?
CHRIS STRONG : There's kind of physical measures that you can put in place with regards to, say, surface water discharges. There's certain valves that you can have in drainage systems in the event of an emergency that shut off discharges to, say, surface water systems. But really, it's having that environmental management plan and a spill response plan in place that ensures that when an incident does occur, the correct people are contacted and the right process is put into place, whether that's contacting the environment agency, contacting the local neighbours to potentially, they may need to be evacuated, in a worst case scenario, or you should close their windows, that type of thing, just to limit both the environmental impacts but also the reputational impacts of the business.
RACHEL PHILLIPS: So, really manage this risk as you would any other risk as part of your overarching plan to manage risk, that's what I'm hearing. But there's some very specific things, as you said, around due diligence and around certain areas of potential spill, for example. But I guess, also, it's around that emergency response, which you've also touched upon there, Chris. So as part of your incident response preparedness, to make sure that this is captured and, as you say, the people that would need to be contacted, and the efforts that would need to be made are included in that for environment, as with every other risk.
CHRIS STRONG : Yeah, exactly. I think that's where environmental insurance comes into play, as well. It kind of covers that gap with regards to, you have the appropriate environmental management systems in place but when an incident does occur, it gives you the tools to respond to an incident quickly and swiftly, and therefore limit the costs and also have those costs covered as well.
RACHEL PHILLIPS: Thank you. And are there any particular heads of cover? We've talked briefly earlier about the fact that this provides cover for those incidents that are gradual and potentially more historic in nature, and cover liability to third parties. Are there any other particular heads of cover under a standalone environmental impairment liability insurance that you would want to just raise now, Chris, for the audience?
CHRIS STRONG : Yeah, definitely. I think one of the main heads of cover, and it's probably going to become increasingly important as time goes on, is biodiversity damage. And that protects and provides clean up costs and restoration costs to any damage to protected species or areas of outstanding natural beauty, or any kind of conservation area, or any loss of flora or fauna. So if there's a significant discharge into a river that causes a large amount of fish kills and, potentially, these fish are protected species, then it pays for the potential restoration costs for that.
So that's one important head of cover. I think another one is loss mitigation costs. So if you think about traditional policies, they respond after the incident has occurred. Often, with environmental incidents, you can almost predict that an incident may occur and therefore the policy can respond to prevent it from happening.
For example, say, there's a fire at a facility and the fire brigade comes along and pours lots of firefighting foam, which in itself is very hazardous, but also it can wash away lots of contamination from the site. Your site has a surface water drainage system that drains directly into a river. What the policy will do is pay to pump that contaminated water runoff into tankers and store it somewhere else before it gets into the drainage system and pollutes the environment.
RACHEL PHILLIPS: Excellent. Thank you. That's really helpful. So one, I guess, key takeaway for me from our discussion, Chris, is that health and social care providers clearly do have environmental considerations and no doubt are already looking at these. And those considerations, if an incident occurs, could lead to significant costs, regulatory scrutiny, as we touched upon and reputational harm.
And many, probably, will be relying solely on their public liability for limited or, indeed, arguably no protection in certain circumstances. So providers should certainly regularly review this area of risk, as you've touched upon and, as part of their management of it, consider standalone environmental impairment liability cover where they feel exposed to residual risk. Would that be fair?
CHRIS STRONG : Yeah, very fair. I think it's quite a simple process to put coverage in place, and definitely, it's very simple to get quotes to understand what the potential costs are for this. And it's definitely worth exploring, because there are gaps in traditional insurance policies, whether that's property, general liability, or anything else, really. And environmental policies are really designed to fill those gaps and those gaps are only going to broaden as environmental legislation broadens.
RACHEL PHILLIPS: Of course. And I would probably hazard a guess that many health and social care providers don't really have this on their radar in the same way as other risks, and they possibly aren't aware of the limitations of their current covers, as well, around public liability. But I may be wrong. But that would be my guess, having spoken to many of them.
CHRIS STRONG : Yeah. I definitely agree with that. I think, if you look at the US, it's widely bought by the sector. But yeah, elsewhere, I think, it's less known about.
RACHEL PHILLIPS: Well, thank you. Well, hopefully after today, it's more known about, with the providers that listen in. So Chris, thank you. It's been a pleasure chatting with you today on the Anatomy of Risk.
CHRIS STRONG : Thank you very much. I've really enjoyed it.
RACHEL PHILLIPS: Thank you. Thanks, Chris. And thank you for listening to this podcast from Willis, a WTW business.
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