The latest EU guidelines for environmental liability put stricter demands on companies.
Capricious nature has always been a risk for humankind. But what happens when the reverse is true?
When human activity causes damage to the environment, protection is needed for nature as well. The growth of the world economy has led to a rising concern among the general public, media, businesses and politicians about environmental damage and its effects.
One recent response by politicians has been regulatory measures. The EU Environmental Liability Directive – (ELD), passed on January 1, 2008, requires broad compensation from companies that cause environmental damage. As an important EU legal instrument based on the "polluter pays" principle, it creates a shared liability system to avoid and restore damage to animals, plants, natural biospheres, water resources and soil. It is a major new piece of legislation that requires special attention in the area of liability cover.
Various companies bear higher environmental risks than others due to their specific industries. An example is companies with facilities that produce or store toxic substances like chemicals or pesticides which, despite all security measures, might leak into the environment.
But in other areas, such as waste processing or the pharmaceutical industry, regulators have determined that operators can be held liable for damage, even in the case of not acting negligently. The same is true for sectors without this obvious potential for risks. Any industrial facility, or office building for that matter, needs to adhere to various strict guidelines for emissions.
Factories that neither work with dangerous substances nor emit pollutants may nonetheless have a negative effect on the ecosystem. A fire can damage local natural preserves, and fires frequently cause emissions that would normally not occur.
Additionally, new laws can designate further objects as environmentally damaging. "Just like an industrial facility might experience a stoppage due to a natural catastrophe, human activity can also lead to a ‘business interruption' in nature," says Jürgen Weichert, from the liability department at Allianz Global Corporate & Specialty. "Environmental liability refers to responsibility for anything that might cause that kind of interruption."
Meeting the challenge
In order to keep those interruptions as short as possible, companies are required to undertake major steps for restoration and compensation. For example, if soil is contaminated, the clean-up must ensure that every plausible risk to human health is eliminated. If water, protected species or natural habitats are affected, they must be restored to their previous condition. And if reversion is impossible at this very location, another place has to be found or created.
Of course, operators, often with the support of insurers, institute control mechanisms in order to avoid or minimize these risks and the expensive restoration measures. However, to meet the challenge of environmental damage when it happens, AGCS developed a solution called "Environmental Allianz Global Liability EU (EAGLE)" insurance.
"This new European environmental liability insurance concept enables Allianz units within the EU to react effectively to increased environmental demands," says Klaus Przybyla, AGCS Global Head of Liability.
Future risk solutions
EAGLE consists of three modules that cover civil liability, third-party liability for clean-up outside a client's own property and regulatory liability for restoring the client's property itself. It deals with gradual damages like long-term seepage as well as sudden events like spills and fires that may occur.
This cover is part of a larger initiative by AGCS and the Allianz Group to deal with the challenges of the environment and climate change. In addition to boosting public awareness and introducing further products, the Group's work includes constant risk management, consulting to prevent losses and regular risk dialogues with clients to keep them aware of the latest regulatory changes.