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Europe: Environmental Liability Directive – the polluter pays principle

On 30 April, 2007 the European Directive 2004/35/EC, regarding the prevention and remedying of environmental damage, had to be transposed into local legislation by all European member states.

This Environmental Liability Directive is based on the ‘polluter pays’ principle, and urges operators causing environmental damage – or an imminent threat of such damage – to take more preventive measures on the one hand, and remedy the damage on the other, as monetary compensation is not allowed.
Furthermore, within a certain set of activities – so called ‘Annex III’ activities – no fault or negligence has to be established for the operator to be held liable, which is part of the reason for the ELD’s reputation as a directive of strict liability.

Unclear liability

But some seven years on, the experience of our global team of environmental adjusters tells us many ambiguities still remain, and various stakeholders are struggling with the application of the Directive. Not all operators are aware of the fact that their activity is, or is not, an Annex III activity. This is because it’s actually not a very easy area to clarify, and feedback from the competent authorities isn’t uniform, leading to confusion around liability in some cases.

In one member state, a client raised the question as to whether a diesel storage tank used to fill their fleet of lorries, would be considered an Annex III activity. We made some enquiries, and the local authorities advised it wasn’t. However, the European Commission guidance clearly states it is.
Many local authorities don’t have good knowledge of the ELD, so they either don’t apply it, or they apply it incorrectly. In one recent claim we handled, a train, carrying dangerous goods crashed, and this was followed by an explosion and a fire. The train’s toxic cargo polluted the soil around the area and contaminated a small stream.
In this instance, our view was that the circumstances of the incident meant that the ELD should apply. If our view had been upheld, it’s likely that the operator would have been liable for the cost of the clean-up.

But behind closed doors, the local authorities decided the ELD shouldn’t apply, and instead stated that national pre-existing environmental legislation would be used to assign responsibility for the accident, together with any liability for the subsequent remedial work needed. This meant the landowner had to pay for the cleanup.
We didn’t question this decision. It had little impact on how the pollution remediation was approached at a practical level. But it obviously had a huge impact on who would foot the bill.

Crossing boundaries

Such situations are further complicated when the affected property spans a regional or national boundary. Trying to determine the legislation that should apply and which of the various regulators’ demands must be complied with needs to be carefully managed by the insurers and adjusters involved.

In countries where there’s advanced environmental legislation, such as Germany or the UK, the legislation has been incorporated differently in each region. The UK has different regulators that can interpret the requirements variously. In this situation, it’s crucial to determine which regulator takes the lead in requiring the extent of necessary remediation. You could have the source of pollution in one country but due to the nature of the pollution pathways, the receptors could be in the neighbouring country.
Businesses that operate across borders must be certain they get the correct advice from their broker to ensure they have an insurance programme that will address and respond to local demands – this requires expertise and local knowledge on the part of brokers.

Within the Cunningham Lindsey group, we share experience and knowledge on this topic globally, and so come across different interpretations of the ELD by local authorities, as well as different accents, habits and interpretations of the ELD and environmental policies by local risk managers, brokers, lawyers and insurers. It’s important to understand that seemingly local customs in one member state may differ greatly from how a policy is interpreted in another.
Essentially, what’s clear is that any carrier, underwriting environmental cover, ideally should be aware of:

– The transposition into local legislation of the ELD in each country the policy is covering
– The existing environmental legislation in each country the policy is covering, as many local authorities tend to keep using this ‘old’ legislation
– Local custom regarding policy interpretation

Needless to say, when it comes to handling complex environmental claims, first-hand knowledge and experience of how and when ELD applies locally – and across a wide range of industries – is important in managing such losses smoothly and to a swift conclusion.

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