Over the past decade, environmental insurance coverage has become a major focus for many sophisticated, U.S.-based risk managers. The greater awareness of environmental coverage largely stems from the enormous financial liabilities that CERCLA, or "Superfund" began imposing on many U.S. companies in the early 1980s. That awareness has further developed as the complex web of U.S. environmental regulation and liability issues thickened over the past 25 years.
With the promulgation of absolute pollution exclusions, the insurance industry responded with a variety of specialized pollution coverages. This initial response has now grown into a thriving specialty market with close to $2 billion in annual premium. A broad array of coverage is now available to protect businesses ranging from retail gasoline stations to strip malls, from drywall contractors to chemical plants.
Until recently, most of the attention to environmental liability insurance has focused on the United States. This is not surprising, insofar as the development of environmental regulation in the United States has been well ahead of much of the industrialized world. In addition, the very active U.S. tort environment has resulted in a host of legacy issues. Based on recent legislative developments around the world, environmental liability has now gone global, and its potential impact on coverage cannot be underestimated.
The European View
The member countries of the European Union have long been leaders in the area of environmental compliance, corporate social responsibility and the integration of environmental principals into land and product lifecycle planning. Despite that, they still do not have a comprehensive framework governing retrospective pollution liability, also known as liability for "sins of the past." Without a European Union version of Superfund and the various slate laws that mirror it, U.S. companies with operations in Europe have not been forced to develop the same level of awareness of their environmental legacy, and how that legacy might translate into sterling or euros on the wrong side of the balance sheet.
That the European Union has taken some time to develop a workable pollution liability model is not surprising, as the application of Superfund in the United States-for all its progress-has been a long and drawn out process. With a sizable share of every Superfund dollar still being spent on legal fees as opposed to cleanup, an outsider looking at the current system would be well served to pay attention to its faults. In addition, whereas the United States has an industrial history dating, in most cases, no further back than the Civil War, many EU countries have areas that have been the location of polluting industries for many hundreds of years, with impacts that in some cases pre-date current national borders. These factors, along with the complexities of Grafting policy to be applied in countries as different as the United Kingdom, Belgium, Portugal and Poland, are enough to force any policy-making body to tread carefully.
Nevertheless, after many years of debate, the EU adopted sweeping environmental legislation in 2004 that holds polluters liable for environmental damage. The 25 member countries of the EU must adapt their environmental regulations or create new ones from scratch to comply with the new EU Directive on Environmental Liability. While the directive does not explicitly carry the same "joint and several" liability components as Superfund in the United States, there is clearly a solid element of retrospective liability on the part of historic polluters in the text. Thus, any risk manager whose company currently has, or has had, operations in current EU stales should be aware of the new regulatory environment.
In addition, the directive acknowledges the importance of financial security in any scheme built upon the "polluter pays" principle. Although the directive does not make environmental insurance compulsory, the EU guidance specifically calls on member states to evaluate the use of environmental insurance as a way to address these newly codified liabilities. …