New environmental liabilities for EU companies The ELD applies to all businesses that operate within the EU, even if the parent company is located outside of the EU. The ELD applies to all businesses, not just those considered to be high risk or which are subject to an environmental permit. If an operator does require an environmental permit, or undertakes certain hazardous activities, the ELD typically applies on a strict liability basis, i.e. irrespective of whether the operator is negligent. All other operators will be liable for biodiversity damage (or the threat of it) where it has been caused by their negligence. If you are viewing this document on screen, click on any of the sections below to find out more, or contact your usual Marsh representative. A new piece of EU legislation, the Environmental Liability Directive (the ELD) requires companies to take action to avoid damaging the environment, and to rectify damage that they cause. Remedial measures required under the ELD are broader than that required under previous EU legislation. The ELD is based on the precautionary and polluter pays principles, whereby operators must take pro-active action to prevent environmental damage occurring, and restore the environment if they cause such damage. In both cases, the environmental regulator must be notified, and prevention/restoration plans agreed. The ELD applies to incidents that cause (or threaten to cause) water pollution or land contamination, which are liability triggers of existing environmental legislation in many EU member states. In addition, the ELD introduces a new aspect of liability for damage to protected species and natural habitats, also referred to as biodiversity damage. Under the ELD, operators must take action to remediate any significant biodiversity and environmental damage caused by their activities. Remediation could include the clean-up and restoration of affected habitats back to a baseline condition, or may even include the creation of an alternative habitat to compensate for the damage caused. This requirement applies not only to an impact caused by pollution incidents, but extends to any form of environmental damage. The ELD requires member states to encourage the uptake of insurance and other financial security measures for environmental damage. As a result, a number of member states have introduced compulsory schemes, or plan to do so in the near future. Insurance coverage for liabilities under the ELD is typically not available under standard general liability insurance policies, although in certain countries coverage may be sought through policy coverage extensions. Marsh can assist in obtaining insurance coverage for these new environmental liabilities, by accessing the specialist environmental insurance market. 1
The new directive The full title of the ELD is EU Directive 2004/35/CE on environmental liability with regard to the prevention and remedying of environmental damage. The ELD sets out the minimum requirements for member states to follow when transposing the ELD into national legislation, although certain member states have chosen to adopt more stringent measures. In most member states, the ELD applies to environmental damage caused by activities occurring after the legislation was transposed, although liability for environmental damage caused prior to the transposition may apply in certain member states. It is important to note that an existing framework of environmental legislation is already in place in all EU countries, and as such operators could face environmental liabilities under a number of different legislative regimes, not just from the implementation of the ELD. Status of implementation Although many member states failed to meet the original deadline for implementation of 30 April 2007 set by the EC, nearly all member states have now transposed the ELD into national legislation. A summary of the current status is included below (Ref 1) : Country ELD transposition complete? Date of transposition Liability under the ELD for environmental damage caused prior to transposition? Austria Yes. June 2009 Belgium Brussels Yes vember 2008 Flanders Yes December 2007 Wallonia Yes vember 2007 Bulgaria Yes April 2007 Cyprus Yes December 2007 Czech Republic Yes April 2008 Denmark Yes July 2008 Estonia Yes vember 2008 Finland Expected 2009 France Yes Legislation passed August 2008, decree passed April 2009 Yes. Liability for damage caused after 30 April 2007 Germany Yes vember 2007 Yes. Liability for damage caused after 30 April 2007 Greece Expected 2009 Hungary Yes April 2007 Ireland Yes April 2009 Italy Yes April 2006 Latvia Yes vember 2006 Lithuania Yes March 2005 Luxembourg Legislation adopted March 2009, awaiting publication. Malta Yes April 2008 Yes. Liability for damage caused after 30 April Netherlands Yes April 2008 Liability for damage caused after 30 April Poland Yes April 2007 Portugal Yes April 2008 2
Country ELD transposition complete? Date of transposition Liability under the ELD for environmental damage caused prior to transposition? Romania Yes March 2008 Slovakia Yes June 2007 Slovenia Legislation has been passed, awaiting implementation decree. Spain Yes October 2007 Liability for damage caused after 30 April Sweden Yes August 2007 United Kingdom England Yes March 2009 Scotland Yes June 2009 Wales Yes April 2009 N. Ireland Expected 2009 What is environmental damage? The ELD establishes a statutory liability framework for the following categories of environmental damage : Damage that has a significant adverse effect on protected species and natural habitats, also known as biodiversity damage. The significance of such affects is assessed against the baseline condition, taking into account factors such as the size of the population or habitat, its rarity value and its potential to recover naturally. Damage to water resources (e.g. pollution), including groundwater, rivers and other surface waters, including coastal waters, where such damage significantly adversely affects the ecological or chemical quality or classification status of the water. Land contamination that creates a significant risk of human health being adversely affected. Both the direct and indirect effects of the environmental damage must be evaluated, including the impact the damage has on other species (e.g. organisms higher up in the food chain) as well as the public amenity value of the damaged natural resources. What are protected species and habitats? Protected species and habitats are defined under the ELD as including those listed in the Wild Birds Directive (Directive 79/409/EEC) and the Habitats Directive (92/43/EEC). The Habitats Directive protects over 1,000 animals and plant species and over 200 habitat types (e.g. special types of forests, meadows, wetlands, etc.), that are of European importance. Certain member states have extended the definition to include additional species and habitats of local importance. What industries does the ELD apply to? The ELD applies to all commercial activities in the EU, both public and private sector. Environmental damage caused by activities listed in Annex III of the ELD will be subject to strict liability, whilst all other operators are only liable where damage to protected species or habitats has been caused intentionally or as a result of the operator s negligence. This is summarised below. Type of environmental damage Annex III activities Other activities Biodiversity damage Strict liability Intentional or negligent Water damage Strict liability ELD does not apply Land damage Strict liability ELD does not apply 3
Annex III activities include the following: Installations operating under an environmental permit, such as integrated pollution prevention and control (IPPC) legislation and installations subject to air emission controls. Waste management operations, including the collection, transport, recovery and disposal of waste and hazardous waste, operation of landfills and incinerators. Abstraction of, or discharges to, surface water and groundwater that require authorisation. Manufacture, use, storage and handling of pesticides, biocides and other dangerous substances Transport of dangerous goods. Use, transport or deliberate release of genetically modified organisms (GMOs). What does the ELD require an operator to do? Where there is an imminent threat of environmental damage, operators must immediately take all practicable steps to prevent environmental damage occurring, and notify the relevant authority if such actions do not eliminate this threat. If environmental damage has already occurred, further damage must be prevented, and the relevant authority notified. Failure to do so, or failure to comply with a remediation notice served by the authority, is a criminal offence under the ELD, for which, in addition to the operator, a director or other responsible employee may also be held liable. In the event that environmental damage occurs, the damaged environment (including its public amenity value) must be restored to, baseline conditions by performing primary remediation. This could include, for example, the cleanup of pollution and restocking of the affected species. If the environment cannot be fully restored, for example if the habitat has been too badly damaged, the responsible operator is required to provide an alternative habitat of equivalent value, as compensation for the damage caused. Termed complementary remediation, this could include the creation of a habitat at an alternative site. It may also be necessary to undertake interim measures, termed compensatory remediation, until other remedial measures are complete. An operator is not liable for preventative or remedial costs if they can demonstrate that the environmental damage (or threat of it) was caused by a third party, or as a result of complying with an instruction issued by a public authority. Provided the operator has not been at fault or negligent, member states may also allow defences in cases where an emission or event has been authorised by the authorities (termed the permit defence ), or where environmental damage was not expected to occur, based on the state of scientific and technical knowledge (termed the state of the art defence). Is it possible to obtain insurance cover for ELD liabilities? The new liabilities inferred under the ELD will not generally be covered under a standard general liability insurance policy, and indeed may even be specifically excluded. Certain general liability insurers have, however, developed new wordings designed to extend coverage to include ELD liabilities. Alternatively, the specialist environmental insurance market can provide comprehensive cover for environmental liabilities, including those inferred under the ELD. In addition to the full scope of primary, complementary and compensatory remediation that may be required under the ELD, it is possible to obtain cover for preventative measures that may be required. Furthermore, coverage is not limited to environmental damage caused by pollution incidents, but can include other triggers, such as the physical destruction or disturbance of habitats. 1 4 It will, of course, be necessary to comply with insurance regulations in each member state where cover is required and in certain EU member states, insurance (or at least compulsory insurances) must be purchased locally where possible. The environmental insurance market is able to offer local policies in an increasing number of EU member states However, under the EU freedom of services legislation, the use of non-admitted insurance is allowable where the insurer is located in another EU member state. Marsh can assist in developing an insurance program that complies with the requirements in each member state.
What underwriting information is required? The information required to obtain insurance coverage for ELD losses will vary, depending on the nature of the insured s business. Typical underwriting information requirements will include the following: Description and turnover of business operations undertaken by the insured, including activities at third party sites and any transportation activities. Location details of sites operated by the insured. Some of the above information is likely to be contained in property and/or casualty insurance market presentations. Insurance survey reports may also provide relevant information. The underwriting process is typically iterative, therefore additional information may be requested by underwriters. Is it compulsory to hold insurance cover? Member states are required to take measures to encourage the development of financial security instruments, such as insurance, with the aim of enabling companies to cover their responsibilities under the ELD. Certain member states have already introduced compulsory financial security schemes, or plan to do so in the near future. These are summarised below (Ref 1): Country Financial security required? Austria Belgium Bulgaria, but compulsory scheme is planned to commence by 2011 Cyprus Czech Republic, but compulsory scheme is planned to commence by 2013 for listed permitted activities Denmark Estonia Finland France Germany. However, Environmental Liability Act 1990 requires operators of certain hazardous activities to hold environmental insurance (not yet implemented by each Bundesland). Greece, but it is intended that a compulsory scheme will commence in 2010. A separate compulsory scheme is in place for waste management activities. Hungary Yes. Activities subject to IPPC permitting, including landfills, require financial security. Ireland, but permitted activities require financial security under separate legislation. Italy Draft proposal for certain hazardous activities to provide financial guarantee. Latvia Yes Lithuania Luxembourg Malta Netherlands Poland, but authorities can request financial guarantee when issuing permits. Portugal, but compulsory scheme is planned to commence in 2010 Romania, however legislation states that compulsory scheme will be introduced. Slovakia, but compulsory scheme will commence in 2012. Slovenia Yes. Bank guarantee or other form of payment security are required after environmental damage has occurred. Spain, but compulsory scheme will be brought in after 30 April 2010. Sweden Yes United Kingdom The European Commission will review progress on this issue in 2010, following which it is possible that an EU wide compulsory scheme will be introduced. 1 5
Does the national legislation vary between member states? Yes. The ELD lays down the minimum requirements that member states must adopt in national legislation. Certain member states have chosen to implement more stringent measures, for example by restricting the application of the permit and state of the art defences, expanding the range of protected species and natural habitats, or holding all operators strictly liable for biodiversity damage, rather than just operators of Annex III activities. A summary of the status of ELD transposition in individual member states is provided below. Country ELD transposition complete? Date of transposition Liability for environmental damage caused prior to transposition? Financial Security required? Liability for biodiversity damage for non- Annex III activities Austria Yes June 2009 tes: Biodiversity damage to be regulated by 9 regional Bundesländern Belgium Brussels Yes vember 2008 Fault based liability Flanders Yes December 2007 Fault based liability Wallonia Yes Fault based liability Bulgaria Yes April 2007 Fault based liability tes: Compulsory scheme due to commence by 2011 Cyprus Yes December 2007 Fault based liability Czech Republic Yes April 2008 Strict liability for all operators tes: Compulsory scheme is due to commence by 2013 for listed permitted activities Denmark Yes July 2008 Fault based liability Estonia Yes vember 2008 Fault based liability Finland Expected 2009 France Legislation passed, decree expected 2009. Fault based liability Germany Yes vember 2007 Yes. Liability for damage caused after 30 April 2007, but see notes. Fault based liability tes: Environmental Liability Act 1990 requires operators of certain hazardous activities to hold environmental insurance (not yet implemented by each Bundesland) Greece Expected 2009, Strict liability for all operators tes: It is intended that a compulsory financial security scheme will commence in 2010 Hungary Yes April 2007 Yes tes: Activities subject to IPPC permitting, including landfills, require financial security. Ireland Yes April 2009 tes: Permitted activities require financial security under separate legislation Italy Yes April 2006 Fault based liability tes: Draft proposal for certain hazardous activities to provide financial guarantee Latvia Yes vember 2006 Yes Lithuania Yes March 2005 Luxembourg Legislation adopted March 2009, awaiting publication. Malta Yes April 2008 Yes. Liability for damage caused after 30 April Netherlands Yes April 2008 Liability for damage caused after 30 April tes: Strict liability extends to certain non-annex III activities Fault based liability See notes 6
Country ELD transposition complete? Date of transposition Liability for environmental damage caused prior to transposition? Financial Security required? Liability for biodiversity damage for non- Annex III activities Poland Yes April 2007, but see notes Fault based liability tes: Authorities can request financial guarantee when issuing permits Portugal Yes April 2008, but see notes Fault based liability tes: Compulsory financial security scheme is due to commence in 2010. Romania Yes March 2008, but see notes Fault based liability tes: Legislation states that compulsory scheme will be introduced Slovakia Yes June 2007, but see notes See notes tes: Compulsory financial security scheme is due to commence in 2012. Strict liability extends to certain non-annex III activities Slovenia See notes Yes Fault based liability tes: Legislation has been passed, awaiting implementation decree. Spain Yes October 2007 Liability for damage caused after 30 April Fault based liability (see notes) tes: Decision on introduction of compulsory scheme will be made by 2010. Fault based liability for non Annex III activities extends to all types of environmental damage, not just biodiversity damage. Sweden Yes August 2007 Yes United Kingdom England Yes March 2009 Fault based liability Scotland June 2009 Fault based liability Wales Yes April 2009 Fault based liability N. Ireland Expected 2009 Fault based liability References: 1. Navigating the Environmental Liability Directive. A practical guide for insurance underwriters and claims handlers, CEA, April 2009 7
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