Dramas such as Netflix’s Toxic Town and growing concerns over ‘forever’ PFAS chemicals have increased public awareness of the health risks of pollution and environmental damage. With tighter regulation and a growing number of legal claims and class actions, businesses are counting the cost to their finances and reputations.
Our insight below looks at different types of pollution risk, the potential liabilities, how they can impact your business, and what you can do to manage them.
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Industrial pollution isn’t just the large oil spills we see on TV. Incidents happen every day and can be caused by a wide range of activities, from excavators disturbing buried waste to chemical leaks contaminating groundwater and rivers. If a company’s activities impact rare plant or animal life in a protected area, even without pollution, they could be open to prosecution or claims for biodiversity loss.
02
You don’t need to be in heavy industry or oil and gas to be exposed to pollution risk. Even modern office buildings can sit on large amounts of buried legacy pollution from previous occupations. This historic pollution can find its way into the wider environment and cause significant damage.
03
Pollution incidents can cause damage to people and property across a wide area, far from the original source. In recent years, there have been class action claims that have run into tens or even hundreds of millions. As well as the financial risk, a pollution case can damage your reputation, your standing with funders and stakeholders, and affect your share price. In some jurisdictions, directors may be held individually responsible as they have a legal duty to report on environmental issues.
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A source of contamination, such as buried waste or leaking oil drum; a contamination pathway, by which the pollutant moves through the environment, such as through soil and into groundwater; and a receptor for the contamination to cause harm to, such as fish in a river or people breathing contaminated dust. Preventative action on any of these elements can help to mitigate your risks.
06
It is recommended to have an environmental management plan to identify how your operations could impact the environment and what actions are needed to monitor and mitigate those risks. You could also have a detailed waste management plan and an environmental impact assessment to measure potential risks to third parties and surrounding land.
07
Even the best plans can’t eliminate all pollution risks. Standard property and general liability policies typically only cover pollution caused by a sudden and accidental incident, not slow and gradual environmental damage, or historic pollution. And they only pay for third party claims, not your first party costs, either for clean-up, remediation or recovery.
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Environmental impairment liability (EIL) insurance covers pollution, no matter how long ago it was caused or how gradual its effect. It also covers first- and third-party clean-up costs, legal defence costs and directors and officers liability for environmental breaches, as well as crisis management response, site investigations and pre-incident mitigation to prevent an immediate risk of pollution.
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General insurance policies tend to have blanket exclusions against emerging environmental risks, such as the impact of emissions on climate change and biodiversity loss. These risks can be included under EIL. Policies cover longer periods – up to three years for new pollution and 10 years for historic pollution – which can help to futureproof your business against pollution risks that have yet to emerge.
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EIL policies can be customized to business needs, covering specific sites or whole portfolios. They can cover current operational risks and/or historic risks and be written to include pollution sources that are already known, as well as unknown future risks. Policies are also available for construction projects, tailored for owners and contractors, covering pollution and biodiversity damage arising from their projects.
For more information on managing your environmental and pollution risks, please contact one of our specialists below.
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