Case study: Leak triggers. Environmental. Liability Directive enforcement. Environmental. XL Group Insurance. The consequences:

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1 Case study: Leak triggers Liability Directive enforcement Following an oil spill on residential property, the Mid Devon District Council successfully enforced the new Damage (Prevention and Remediation) Regulations 2009 (the EDR ). A fuel company accidentally transferred oil into a disused tank, instead of into a new replacement one. Oil leaked out of the old tank, entered the ground and permeated through the walls and floor of the residential property. The kerosene fumes caused the residents to suffer from nausea, headaches and sore throats. The consequences: The Council determined that Damage had occurred as defined by the EDR given that: the damage occurred after the regulations had come into effect a hazardous substance had entered the ground the spill was caused by the fuel company none of the exemptions to the EDR applied the residents had suffered adverse health effects. After emergency action was taken to prevent further leakage, the Council liaised with the fuel company and the residents to agree on a remediation strategy. The Council felt that the enforcement procedure under the EDR certainly focused attention on dealing with the incident promptly/effectively and provided clarity as to the requirements on relevant parties.... This case study is intended to be illustrative only. The information is provided as is and without warranties of any kind, either expressed or implied. It is your responsibility to evaluate the accuracy, completeness and usefulness of any opinions, advice, or other information provided.

2 The case study demonstrates how a pollution event that initially resulted in third party damages (bodily injury and property damage) ended up as a statutory liability (remediation legal liability under the EDR). The case highlights the importance of ensuring adequate environmental insurance given that public liability policies, more often than not, only address the third party triggers and not the statutorily enforced clean-up costs. Losses arising from this scenario? Statutory Clean-up Costs Third Party Damages Own-Site Clean-up Costs Biodiversity / Habitat Damage Historical Release Gradual Release / Public liability policies vs. policies (based on a typical policy) a typical Public Liability Policy? Only if Sudden & Accidental a typical Impairment Liability Policy? XL Contacts London XL House 70 Gracechurch Street London EC3V 0XL United Kingdom Office: Fax: Zurich XL Switzerland Ltd Mythenquai 10 CH-8002 Zurich Switzerland Office: Fax: Paris 50 rue Taitbout Paris Cedex 09 France Office: Fax: xlgroup.com Sydney Level 18 1 Margaret Street Sydney NSW 2000 Australia Office: Fax: Stockholm Kungsgatan 5, 2nd floor Stockholm SE Sweden Office: Fax: Madrid Plaza de la Lealtad, 4, 1ª Planta Madrid Spain Office: Fax: coverage in any particular case will depend upon the type of policy in effect, the terms, conditions and exclusions in any such policy and the facts of each unique situation. representation is made that any specific insurance coverage would apply in the above examples. Please refer to individual policy forms for specific coverage details. This general product description is informational only. It is neither an offer to sell nor a solicitation to purchase any particular insurance product. Coverages may not be available in all jurisdictions. Products subject to legal and underwriting requirements. Specific product availability varies by global jurisdiction. is a trademark of plc companies

3 Case study: Contractor s activities pollute river A specialist hazardous waste disposal contractor polluted a tributary of the River Thames causing damage to habitat and species. The incident occurred when a contractor transporting hazardous wastes, including cleaning products and liquid soaps, occurred accidentally spilt approximately 4,500 litres of hazardous chemicals, due to a blocked dispensing pipe valve. The tanker driver cleaned up the resulting spill by washing it down a drain which unfortunately led into the Chalvey Ditch in Chippenham. The consequences: Environment Agency officers responded and found that the stream had turned blue-grey, was covered in foam and smelled of detergent. They also found a large quantity of dead fish and other affected wildlife downstream. An investigating officer said, The pollution had a devastating effect on the area. Thousands of fish were killed in the Chalvey Ditch along with an unknown number of invertebrates and it may take years to recover. The waste disposal contractor and its director were fined and ordered to pay costs and compensation totalling 60,800 for the pollution. This case shows how damage to protected species and natural habitats can trigger liability under the Liability Directive. An Impairment Liability policy would be needed to pick up any ensuing Complementary or Compensatory Damages. Losses arising from this scenario? Public liability policies vs. policies (based on a typical policy) / a typical Public Liability Policy? Statutory Clean-up Costs Third Party Damages Only if Sudden & Accidental Own-Site Clean-up Costs Biodiversity / Habitat Damage Historical Release Gradual Release Are these types of loss covered by a typical Impairment Liability Policy? This case study is intended to be illustrative only. The information is provided as is and without warranties of any kind, either expressed or implied. It is your responsibility to evaluate the accuracy, completeness and usefulness of any opinions, advice, or other information provided.

4 Case study: Mechanical failure leads to groundwater pollution An aviation fuel supplier was fined 40,000 and ordered to pay the Environment Agency over 14,000 for its costs, after severely polluting groundwater beneath Heathrow Airport with at least 139,000 litres of Jet A-1 aviation fuel. On 29 vember 2007 the supplier informed the Environment Agency of a leak in the fuel supply pipeline to aircraft stands at Heathrow s Terminal One. The supplier found the leak nine days earlier, but having tested the hydrant system and confirmed the leak, failed to notify the Environment Agency immediately. Following further examination two bolts on the hydrant attachment were found to be so badly corroded that they had caused a leak of approximately 7 litres per minute. Details regarding how long the leak had been going on for or the total volume of fuel lost were not known. All bolts and valves on that section of pipeline were subsequently replaced and the section restored to normal operation. The consequences: A specialist remediation company was called in to recover fuel and remediate the affected area. As of June 2010 over 139,000 litres had been recovered and fuel was still being recovered at a rate of litres per week. The cost of remediation was in excess of 1 million. The Environment Agency s spokesman said: Fortunately, to date, we have not seen any major impact to local rivers but jet fuel in groundwater has the potential to seriously harm the environment and water quality... Once groundwater becomes polluted it is very difficult to clean up. We hope that the fine issued will act as a prompt to [the supplier] and similar companies, reminding them of the importance of compliance and making sure that their actions do not cause harm to or damage the environment. The supplier admitted that the leak had not been detected because of a faulty 7 million automated leak detection system which had not been working for at least five months before the Environment Agency was alerted to the incident. The company had failed to put a manual testing system in place despite being aware of the malfunction. This case study is intended to be illustrative only. The information is provided as is and without warranties of any kind, either expressed or implied. It is your responsibility to evaluate the accuracy, completeness and usefulness of any opinions, advice, or other information provided.

5 This case demonstrates the significant clean-up costs associated with pollution of groundwater resources and also, how despite good intentions and risk management, operator error or mechanical error still leaves the potential for environmental damage to occur. Losses arising from this scenario? Statutory Clean-up Costs Third Party Damages Own-Site Clean-up Costs Biodiversity / Habitat Damage Historical Release Gradual Release / Public liability policies vs. policies (based on a typical policy) a typical Public Liability Policy? Only if Sudden & Accidental a typical Impairment Liability Policy? XL Contacts London XL House 70 Gracechurch Street London EC3V 0XL United Kingdom Office: Fax: Zurich XL Switzerland Ltd Mythenquai 10 CH-8002 Zurich Switzerland Office: Fax: Paris 50 rue Taitbout Paris Cedex 09 France Office: Fax: xlgroup.com Sydney Level 18 1 Margaret Street Sydney NSW 2000 Australia Office: Fax: Stockholm Kungsgatan 5, 2nd floor Stockholm SE Sweden Office: Fax: Madrid Plaza de la Lealtad, 4, 1ª Planta Madrid Spain Office: Fax: coverage in any particular case will depend upon the type of policy in effect, the terms, conditions and exclusions in any such policy and the facts of each unique situation. representation is made that any specific insurance coverage would apply in the above examples. Please refer to individual policy forms for specific coverage details. This general product description is informational only. It is neither an offer to sell nor a solicitation to purchase any particular insurance product. Coverages may not be available in all jurisdictions. Products subject to legal and underwriting requirements. Specific product availability varies by global jurisdiction. is a trademark of plc companies

6 Case study: Maintenance on storage facility Whilst undertaking routine maintenance work on a customer s site, an employee of the contractor fails to ensure that all valves are sealed prior to returning oil storage and distribution facilities back to service. As a result of just one valve being left open, a large quantity of crude oil escapes from the pipeline contaminating the surrounding area. The area surrounding the escape comprises of predominantly agricultural land however a road also passes close with the crude oil percolating under the road surface. Following notification of the incident, an XL expert attends the site and set about commencing remediation works. These include: Implementation of control measures to prevent the further spread of oil; Removal of the surface layer of polluted ground; Localised excavations and drilling to identify the maximum extent of the spillage both over surface ground and depth; Erection of rain shelter to protect site from heavy rains; Construction of ditches to collect rainwater; Excavation and removal of the polluted soil and transfer to a waste disposal facility; Bailing of ground water in order to prevent extracted soil; Restoring the polluted agricultural land; Removing and replacing the section of road covering part of the polluted area; Construction of a diversionary route whilst road out of operation; Demolition of a diversionary route and reversion of land to agriculturally viable. The XL Pollution Legal Liability policy responds to cover all of the above costs with an early interim payment made to the insured to enable works to commence immediately. Potential insured/uninsured losses in this scenario: Arising from this scenario? Covered by a typical Public Liability Policy? Statutory Clean-up Costs Covered by a typical Liability Policy? Third Party Damages (in this case the pollution was gradual) Own-Site Clean-up Costs N/A N/A Biodiversity/Habitat Damage Historical Release N/A N/A Gradual Release This case study is intended to be illustrative only. The information is provided as is and without warranties of any kind, either expressed or implied. It is your responsibility to evaluate the accuracy, completeness and usefulness of any opinions, advice, or other information provided.

7 Contractor s pollution liability These examples are intended to illustrate the wide variety of environmental exposures faced by civil engineering and building contractors and the many ways in which those exposures can arise. Herbicide run-off results in pollution claim A contractor was employed to control the vegetation along an overhead power line right of way. A herbicide was applied to reduce the vegetation, following which, a heavy rainstorm occurred and washed herbicide on to adjoining farmland. The farmer s crops and land were severely damaged and the contractor was held liable for the damages. Sewer rupture by sub-contractor results in claim against main contractor A utility contractor undertaking construction of a new overhead power line employed a sub-contractor for installation of the power poles. The sub-contractor hit an underground sewer while undertaking this work which resulted in damage to the sewer and the spillage of a significant volume of raw sewage. The utility contractor was held vicariously liable for the actions of the sub-contractor and for costs in respect of repair to the sewer and clean-up of the spilled sewage. Wetlands impacted by highway construction activities A contractor was lifting temporary barriers following completion of permanent crash barrier repairs when a crane overturned spilling hydraulic oil and diesel into a wetland area adjacent to the road. The regulator responded to complaints from members of the public of oil on the water as well as water fowl coated with oil. The contractor was liable for substantial response costs and wetlands restoration. Dewatering operation exacerbates groundwater contamination A highways contractor was constructing a road in an area where the water table was extremely shallow which necessitated extensive dewatering to allow excavation to the sub-grade level. After the dewatering wells had been drilled and pumping had been in progress for two days, the contractor detected petroleum hydrocarbon odour in the groundwater being extracted. Petroleum hydrocarbons had leaked from an underground tank near the project site into the groundwater. This was then exacerbated by the dewatering operations for the new road which was pulling the contaminated groundwater underneath the site. In a pump and treat remediation programme lasting several weeks, the contractor was required to clean up both the soil and groundwater in respect of the exacerbation of pollution conditions arising from his actions. Vandals cause fuel release Vandals broke into a contractor s establishment area overnight and broke open the dispensing valve on a mobile fuel bowser releasing over 5,000 litres of diesel into sub-soils on what hitherto had been a greenfield site. The contractor was held liable for clean-up of the resulting contamination.

8 XL Contacts London XL House 70 Gracechurch Street London EC3V 0XL United Kingdom Office: Fax: Zurich XL Switzerland Ltd Mythenquai 10 CH-8002 Zurich Switzerland Office: Fax: Paris 50 rue Taitbout Paris Cedex 09 France Office: Fax: xlgroup.com Sydney Level 18 1 Margaret Street Sydney NSW 2000 Australia Office: Fax: Stockholm Kungsgatan 5, 2nd floor Stockholm SE Sweden Office: Fax: Madrid Plaza de la Lealtad, 4, 1ª Planta Madrid Spain Office: Fax: coverage in any particular case will depend upon the type of policy in effect, the terms, conditions and exclusions in any such policy and the facts of each unique situation. representation is made that any specific insurance coverage would apply in the above examples. Please refer to individual policy forms for specific coverage details. This general product description is informational only. It is neither an offer to sell nor a solicitation to purchase any particular insurance product. Coverages may not be available in all jurisdictions. Products subject to legal and underwriting requirements. Specific product availability varies by global jurisdiction. is a trademark of plc companies