Environmental Liability Report

The Environmental Liability Directive
Enhancing Sustainable Insurance Solutions
February 2008
Disclaimer and competition statement
The material, comments and information contained within this document are for information purposes only. The authors
offer no guarantee for the accuracy and completeness of its content. All liability for the integrity, confidentiality or timeliness
of this document or for any damages or loss resulting from the use of information herein is expressly excluded. Under no
circumstances shall the authors be liable either jointly or severally for any loss or damage arising in any way from or relating to
this document.
In preparing the material, the experts were aware of, and were committed to comply with all applicable competition laws
during the meetings held and during the meetings to come. All participants were aware of their obligations in this respect.
Minutes were taken at the meetings so that there is evidence that all restrictions under anti-trust law were duly observed.
Environmental Liability
Table of contents
1. Executive Summary 4
2. Introduction 5
2.1 The requirement to prevent 6
2.2 The defences 7
2.3 Restoration of the environment 7
3. Risk assessment, evaluation and decision on risk 8
3.1 Terms and elements of the risk assessment 9
3.2 Building the conceptual model 9
3.3 Criteria to evaluate the risk 14
3.4 Making decisions on risk 17
3.5 Summary 21
4. Possible insurance options 22
4.1 Existing insurance products - preventing gaps and overlaps 22
4.2 Environmental liability insurance – new concepts 26
4.3 Summary 37
5. Claims management 38
5.1 General remarks 38
5.2 Co-operation with the competent authority 38
5.3 Claims-handling under the insurance policy 39
5.4 Questionnaire for steps to be taken 39
5.5 Future developments 40
6. Closing remarks 41
7. Annexes 42
7.1 Directive transposition update 42
7.2 Risk mapping exercise 48
7.3 Insurance options and underwriting checklist 49
7.4 Claims management questionnaire 52
7.5 Glossary 54
7.6 References 58
7.7 List of CEA-EEWG Members 59
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1. Executive Summary
Last year, the CEA Environmental Expert Working Group launched the ‘White
Paper on Insurability of Environmental Damage’. The purpose of the White Paper
was to stimulate and further deepen the discussions with the key stakeholders
In the meantime the transposition deadline set in the ELD (i.e. April 30, 2007)
to implement this Directive into Member States law elapsed. The current status
(as per January 1, 2008) shows that less than half of the Member States have
enacted the Directive into their national law. Some States have adopted the
Directive with its full scope and some States did exceed its scope. The other
Member States are still in a transposition phase and, in most of them, draft
legislation is being discussed.
Trend is beginning to In Member States that have enacted legislation, a trend is beginning to emerge
emerge for insurance for insurance solutions to come to the market. This is particularly the case where
solutions to come in the transposition has followed the scope of the Directive very closely. There is a strong
market indication that a clear legal framework and a close relationship to the Directive is
key to the development of sustainable insurance solutions.
Further discussions on The CEA paper on ‘Enhancing sustainable insurance solutions’ is designed to
insurance-related issues are stimulate further the discussion with stakeholders on how to cope with the
needed challenges linked to the transposition of the Directive and highlights areas which
stakeholders might wish to consider in providing risk transfer solutions. This paper
covers issues in the risk selection and underwriting process which underwriters
may wish to consider when working on possible insurance solutions. Risk
selection and a sound risk assessment process are important steps in evaluating
and assessing a risk properly. A close co-operation between an operator who
wants to insure his liabilities under the Directive and the insurer is essential to
ensure that the insurer can assess the risk adequately.
ELD-type losses require new Insurance should not be viewed as a substitute for risk management. Underwriting
claims management skills a risk is not the only consideration. An effective claims management is also
essential to restore the environmental damage. Directive type losses require
new claims management skills, in particular for compensatory damage. Claims
managers may benefit in claims handling if underwriters make appropriate
inquiries to obtain relevant information during the risk assessment process.
Building up efficient The insurance industry also supports the development of an effective working
working relationships with relationship with the competent authorities who are, according to the Directive,
the competent authorities responsible for either accepting proposed preventive or remedial actions by the
responsible operator or determining their own preventive or remedial measures.
Insurance companies have a significant interest to be part of that process, in
particular in cases of cross boarder damage.
This paper is also intended to support discussions with competent authorities

to develop methods to restore environmental damage in the most effective and
cost efficient way.
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2. Introduction
With the launch of the ‘CEA White Paper on Insurability of Environmental Liability’
in January 2007, the CEA Environmental Expert Working Group stimulated the
discussions with stakeholders. This paper is meant to further deepen the dialogue
with stakeholders, with a clear focus on enhancing sustainable insurance
solutions.
This paper deals with the most important issues the insurance industry has to This paper highlights key
address when underwriting environmental risks, i.e.: insurance-related issues
• Risk assessment, evaluation and decision on risk

• Possible insurance options
• Claims management
Legal clarity and certainty is one of the prerequisites achieving that goal.
The section below highlights the greatest features of the Directive which have an
impact on the underwriting process.
At the time of writing this report, the transposition of the Environmental Liability Legal certainty remains a
Directive 2004/35/EC (the Directive) across European Member States is ongoing key prerequisite
beyond the 30 April 2007 deadline. Therefore, currently many unknowns exist
concerning for example, the manner of transposition within Member States,
the designation of competent authorities, the outcome of transposition choices
concerning issues such as ‘optional defences’ and ‘apportionment of liability’,
and the legal status of Non-Governmental Organisations (NGOs). An updated
table on the transposition status is attached in Annex 7.1.
The Directive specifically implements the ‘polluter pays principle’. Its fundamental
aim is to hold operators whose activities have caused environmental damage
financially liable for remedying the damage. It is expected that this will result in
an increased level of prevention and precaution. In addition, the Directive holds
those whose activities cause an imminent threat of environmental damage liable
to take preventive actions. Both requirements should result in a higher degree of
environmental protection throughout Europe.
For liability to be effective, polluters must be clearly identifiable. To this effect

the Directive provides for two distinct but complementary liability regimes. The
first one is a strict liability regime which applies to operators who professionally
conduct potentially hazardous activities, as defined in Annex III of the Directive.
The second liability regime applies to all other professional activities.
For insurers, the key features of the Directive are: The Directive creates new
insurable interests and a
• Administrative liability applies, i.e. it is not based on common law/civil
challenge for the insurance
law. The party entitled to claim is not the injured or damaged third
industry
party but the public administrator that has the authority to protect the
damaged natural resources and who holds an executive power to enforce its
decisions. Therefore, the position of the insured, hence that of the insurer, in
the claim is weaker than is the case with traditional liability insurance
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• The object of the claim is the remediation of damage to natural resources,

not to people, private property or economic interests. Where full repair
or replacement is not possible (i.e. primary restoration), the remediation of
the lost environmental service with identical, equivalent or similar natural
assets must be undertaken according to new procedures, rules and methods
that still have to be finalised, i.e. complementary remediation measures
• Natural resources can, at the same time, be res communes, third parties
or first-party properties
• Liability includes actions to prevent imminent losses
• The compensation of the claim is not monetary indemnity for the damage,
but remediation thereof. This is very likely to entail complex projects with
long execution periods that require very demanding and specialised
monitoring activity.
Therefore, the Directive creates new insurable interests that the insurance industry
can respond to, via new products or by extending existing ones.
The Directive is not retrospective, therefore close up any damage caused before
30 April 2007, which is the expiry of the deadline for implementation of the
Directive will not be covered by its provisions.
Public authorities will play an important role under the regime. It will be their
duty to identify potential polluters and finance, or to undertake themselves the
necessary preventive or remedial measures that the Directive requires.
Public interest groups, such as NGOs, will be able to require public authorities to
act and, if necessary, to challenge their decisions before the courts. Additionally,
the new Directive n° 2003/4/EC on public access, which became binding on
14 February 2005, gives the European public better access to environmental
information.
2.1 The requirement to prevent

It is expected that the One of the key provisions of the Directive is the requirement for operators to take
Directive will result in an preventive action where there is an imminent threat of damage. Furthermore,
increased level of prevention where the imminent threat is not dispelled despite preventive measures being
taken, the operator must inform the competent authority as soon as possible1.
Both of the liability regimes imposed by the Directive apply to the ‘imminent
threat of damage’ occurring by reason of the relevant activities. Imminent threat
of damage means: ‘a sufficient likelihood that environmental damage will occur
in the future’2.
1 Article 5
2 Article 2(9)
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2.2 The defences

Third party and compliance with a compulsory order defences
As outlined in Article 8 (3) of the Directive, an operator will not be required to

bear the cost of preventive or remedial actions taken pursuant to the Directive
where ‘he can prove that the environmental damage or imminent threat of such
damage:
• Was caused by a third party and occurred despite the fact that appropriate
safety measures were in place; or
• Resulted from compliance with a compulsory order or instruction emanating
from a public authority other than an order or instruction consequent
upon an emission or incident caused by the operator’s own activities’.
Therefore an operator will not be considered at fault or negligent for an emission

or event expressly authorised by, and fully in accordance with, the conditions of a
public authority order, as applied at the date of the emission or event.
Permit and ‘state of the art’ defences
An exemption from liability under the Directive also applies where:
• An emission or event expressly authorised by, and fully in accordance with,

the conditions of an authorisation given under applicable national laws
3
which implement the legislative measures specified in Annex III
• The operator can demonstrate that the activity was not considered likely
to cause environmental damage according to the state of scientific and
4
technical knowledge at the time of the event .
2.3 Restoration of the environment

Remedial measures covered under the Directive mean ‘any action or combination
of actions, including mitigating or interim measures to restore, rehabilitate, or
replace damaged natural resources and/or impaired services or to provide an
equivalent alternative to those resources or services as foreseen in Annex II’5.
Annex II of the Directive sets out a common framework to be followed in order to

choose the most appropriate measures to ensure the remediation of environmental
damage. These measures include:
• Primary remediation: ‘any remedial measure which returns the damaged

natural resources and/or impaired services to, or towards baseline’
• Complementary remediation: ‘any remediation measure taken in relation
to natural resources and/or services to compensate for the fact that
primary remediation does not result in fully restoring the damaged natural
resources and/or services’
• Compensatory remediation: ‘any action taken to compensate for interim
losses of natural resources and/or services that occur from the date of
damage occurring until primary remediation has achieved its full effect’.
3 Article 8 (4a)
4 Article 8 (4b)
5 Article 2 (11)
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Interim losses are losses that result from the fact that the the damaged natural
resources and/or services are not able to perform their ecological functions or
provide services to other natural resources or to the public until the primary and
complementary measures have taken effect.
3. Risk assessment, evaluation and decision on risk

Understanding The assessment of environmental risk requires a relatively complex evaluation
environmental risks before and investigation process so that appropriate decisions are made, particularly
insuring them with regard to risk estimation and management. The purpose of this section is
broadly to assist insurers with the evaluation of the risk of damage as defined
in the Directive. To achieve this aim, it provides a broad overview of existing risk
assessment concepts and methodologies applicable to the evaluation of risk of
environmental damage specified in the Directive6.
It is very important when policy is issued that the underwriter is able to assess
the risk presented. He will want to know whether the risk presented to him
is good, bad or somewhere between the two. Underwriters recognise that no
two risks are the same. Each risk will present its own individual features and
the underwriter will need to be able to assess each one carefully to help him
to decide whether or not to accept the risk, on what terms and how much
insurance he is willing to offer7.
Some of the things the underwriter will want to consider include:
• The inherent risks associated with the activities carried out at the site
• The risks associated with the plant and equipment
• The storage of chemicals and other potentially hazardous substances
• The surrounding area to see what is at risk should there be a loss, especially
in relation to habitats and sites of special or scientific interest
• Identification of pathways and receptors
• Loss history
• The history of the location, as there may be risks associated with the
cocktail effect of current use mixed with historical use
• The extent to which contamination may exist already.
Given the current transposition uncertainties, the approach to risk assessment

outlined herein should be used as a general guidance.
The following section provides an outline of the components of risk and the
conceptual model ‘source-pathway-receptor’ relationships.
6 Please note: Recital (7) of the Directive promotes the use of risk assessment procedures for the
purposes of assessing damage to land. While the concepts and methodologies outlined in this report
may also apply to some degree to such a risk assessment approach, this section is not intended to
deal specifically with the assessment of land damage.
7 CEA White Paper on Insurability of Environmental Liability, January 2007, pages 18 ff
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3.1 Terms and elements of the risk assessment

Risk is the core subject of insurance. In order to fully appreciate the characteristics What is risk?
of an insurable risk, it is necessary first to understand the nature of risk.
Risk is often described as an event, a change in circumstances, a consequence, or

a combination of these. Insurers have a particular way of viewing and analysing
risk. As insurers deal with most types of risk in society, from scientific to public
liabilities, it is more valuable for insurers to dissect the idea of risk and consider its
component parts. The main components of risk may be summarised as:
• Uncertainty
• Frequency/probability
• Severity.
Risk assessment is the scientific process of addressing the informal questions What is risk assessment?
‘how risky is it?’ or ‘what is the chance of a loss?’ Risk assessment may involve a
general or a very comprehensive investigation of all relevant sources, pathways
and receptors concerning an occupational activity.
The preliminary stage of the risk assessment may focus on the development Understanding the various
of an initial conceptual model of the occupational activity in order to evaluate stages of the risk assessment
potential attractive and unacceptable risks. During this stage, the assessor that lead to the decision to
collects and reviews all available desk-based information and may also carry out insure environmental risks
field assessments to assist with the preparation of a conceptual model. The main
stages of the risk assessment may be to:
• Establish the context and objectives for the risk assessment (section 2)
• Develop the initial conceptual model for the operator (sections 3.2 and
section 3.2.2)
• Evaluate/judge the risk (section 3.3)
• Decide on any potential unacceptable risks and further appropriate action
(section 3.4).
The risk assessment is an iterative process that may require further investigation
and assessment to revise and update the conceptual model and/or to focus the
assessment as appropriate.
3.2 Building the conceptual model

The main purpose of a conceptual model is to assist with an objective and
consistent assessment of the environmental risk associated with an activity and
to assist with the management of that risk.
3.2.1 Definition
A conceptual model may be described as a representation of a potential scenario
associated with an activity in diagrammatic or written form that shows the
possible relationships between source(s) of environmental damage, pathways
and receptors. An amended version of the definition of a conceptual model as
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defined in BS8 10175 (2001) to encapsulate the requirements of the Directive

may be proposed as:
‘A textual and/or schematic hypothesis of the nature and sources of environmental

damage (such as contamination), potential migration pathways and potential
receptors, developed on the basis of information from the preliminary investigation
and refined during subsequent phases of investigation and which is an essential
part of the risk assessment process’.
The model is initially derived from information obtained during the preliminary
desk-based investigation and is used to focus any subsequent investigation(s)
considered necessary. The results of additional field investigation can provide
data to further refine the conceptual model. Therefore, the conceptual model
is a working model to be refined and validated throughout all stages of the
investigation process. The elements as they pertain to the Directive are outlined
below.
Potential ‘sources’ of environmental damage under the Directive
In summary, the potential ‘sources’ of environmental damage covered in

the Directive apply to all occupational activities, whether private or public,
9
profit-making or non-profit making . A strict liability regime applies to those
activities listed in Annex III, whereas a fault-based liability regime applies to all
other activities.
Pathways and receptors
In terms of the Directive, a pathway may be described as a mechanism or route,

e.g. water or air, by which environmental damage to a receptor occurs.
Environmental damage as defined under the Directive means damage to receptors

identified as:
10
• Protected species and natural habitats
11
• Waters covered by the Water Framework Directive
12
• Land contamination that risks harming human health .
8 BS: British Standard

9 In accordance with Article 2(7) the Directive applies to ‘any activity carried out in the course of an
economic activity, a business or an undertaking, irrespectively of its private or public, profit or non-
profit character’. Further Article 2(7) defines an operator as ‘any natural or legal, private or public
person who operates or controls the occupational activity or, where this is provided for in national
legislation, to whom decisive economic power over the technical functioning of such an activity has
been delegated, including the holder of a permit or authorisation for such an activity or the person
registering or notifying such an activity’.
10 In Article 2 (1) and (3): The definition of protected species and natural habitats refers to species
and habitats listed in the ‘Birds Directive’ 79/409/EEC, OJ 1979 L 103/1 and the ‘Habitats Directive’
92/43/ EEC, OJ 1992 L 206/7
11 Directive 2000/60/EC Articles 2(1) and (5)
12 Article 2(1)
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3.2.2 Elements of the investigation and development of the conceptual

model
The circumstances and context of the risk assessment should determine the criteria
for evaluation, in order to achieve a practical and cost-effective assessment. A
focused investigation should be based upon a specifically designed environmental
brief that fits the underwriter’s basic model for hazard analysis. For example, BS
ISO 14015 (2001), Environmental Assessment of Sites and Organisations (EASO)
provides a detailed methodology to assist with the conduct of a systematic process
of identifying environmental aspects and environmental issues. Further, an example
of a basic model for hazard analysis is provided by Busenhart et al (2007)13.
As part of the conceptual ‘source-pathway-receptor’ model development,

the elements that may be considered for review are outlined in section 3.3.1
and the development of the conceptual model may require a detailed desk-top
investigation concerning the occupational activity and may, following further
analysis and at the discretion of the underwriter, be revised and updated with
further investigation. The primary objective of this exercise is to compile and
review information from which possible ‘source-pathway-receptor’ relationships
can be identified, as covered in the Directive. This would include an evaluation of
the potential for and/or imminent threat of adverse environmental impact from
current activities to water, land, protected species or natural habitats.
Some key benefits gained from the development of the conceptual model may There are some key benefits
be to: in the development of a
conceptual model
• Evaluate the liability status of the activity, i.e. whether the operator may
be a responsible party under the Directive and if so whether they may be
14
subject to a strict or fault-based liability regime
• In the case of providers of goods or services, evaluate whether they may
be exposed to claims issued by a responsible operator using their right of
recovery according to the Directive
• Document the ownership and operation history of the activity according
to the Directive
• Evaluate details of any pre-existing conditions and associated environmental
liabilities, i.e. retrospective liabilities in respect of the Directive transposition
date.
Key factors to be considered

There are a number of factors that may influence the risk of an activity. The Key factors gathered during
overall risk may be a complex issue to assess, given that it may arise from a the risk assessment process
wide range of possible sources. In summary, an assessment may also include may also provide useful data
factors that may be largely inherent to the process. The main factors to be taken for claims management
into consideration can be described as technical and environmental, legal and
corporate and other factors relating to management and processes. These are
described in more detail below.
13 See Busenhart, J., Baumann, P., Schauer, C., Orth, M., and Wilke, B, ‘Insuring environmental
damage in the European Union’, Technical Publishing Casualty, Swiss Reinsurance Company. (Swiss
Re Publications 2007).
14 It is proposed by Swiss Re that the differentiation between strict and fault-based liability facilitates
an initial separation of risks. The main differentiating factor is that activities that are not cited in
Annex III have a lower risk potential, Busenhart et al, 2007, section 5.
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Technical and environmental factors
• The location and geographical extent of the operation

• The specific nature of the activity, i.e.:
• Processes and associated resource requirements, for example
types of raw material, by-products and products used and stored,
material storage and handling, waste generation and handling,
transportation, etc.
• Specific details of major raw materials, by-products and products
used, stored or transported, transport mechanisms, toxicity effects
and attributes as appropriate
• Details of emissions and discharges to air, water and soil
• Environmental information concerning the site(s) of the occupational
activity and the local setting, including for example:
• Land use
• Layout of site(s), including any natural (e.g. waterways) and
man-made features, (e.g. gas, electricity, water, sewage,
telecommunications, railways)
• Site setting/local environment(s), including, for example, local and
regional hydrology, geology and hydrogeology, geochemistry and
ecological system
• Details concerning current environmental damage mitigation and
prevention measures present on-site, e.g. storage and spill containment
features
• Information concerning any pre-existing conditions and any associated
remediation or monitoring and compliance and current status, i.e. whether
completed or ongoing
• Identification of potential pathways and receptors as defined in the
Directive, i.e:
• Protected sites and habitats
• Protected species
• Water
• Land damage that creates a significant risk of human health, taking
into consideration the current and future land use
15
• Identification of human receptors
• Nearby residences and recreational facilities
• Nearby industrial, commercial and retail areas
• Schools, hospitals, institutions and other places of public assembly
• Evaluation of the preliminary source-pathway-receptor model scenario
based on the additional information review.
15 Annex II (2) requires that the remediation of land damage ‘shall ensure’ that the remediated land
‘no longer poses any significant risk of adversely affecting human health’, subject to risk assessment.
Further, Article 7(3) states that the competent authority, in making a decision regarding potential
remedial measures (i.e. including natural resources/services) shall take risks to human health into
account. On the basis of these requirements it is recommended, that potential human receptors be
included in the development of the conceptual model.
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Legal and corporate factors
• Local regulatory environment within the area of operations

• The identity and status of the operator(s) as defined in the Directive
• The corporate and management structure of the operator. This may include
the quality of the management of the risk and the competence and
authority of the person/people in charge. The higher the seniority the risk
management function is within the organisation, the greater influence it
will have to instigate actions and obtain adequate funds
• A chronology of the site/facility ownership and operation dates at least
since 30 April 2007 or the effective date of the transposition law
• History of risk assessments, understanding of the environmental risks
associated with the activities and plans for actions to minimise the risks
identified
• Implementation of a formal Environment Management System (EMS)
as described in EMAS or ISO 14000 and commitment at all levels to
implementing risk improvement measures
• Work procedures and practices
• Regular audits to monitor performance on a continuous basis and
subsequent corrective actions
• The extent to which the EMS has been externally certified or verified to
recognised standards
• Financial strength of the organisation. Companies need to be financially
sound to implement a proper risk management policy. Companies that are
struggling financially are unlikely to invest in new equipment or to maintain it
properly. Experience has shown that in difficult times risk management can
be one of the first things to be dispensed with, as it may be seen as not
adding to the profit of the organisation. The most attractive companies
for insurers will be those that are successful and will continue to invest in
safe and modern facilities and equipment
• Employee training: all employees should be given proper training in
awareness of all aspects of environmental protection; best practice needs
to be shared and implemented throughout the organisation. It is also
important for refresher training to be given so that employees can keep
their knowledge up to date
• Written procedures, widely communicated in the organisation, including
general policy, standards, templates, etc.
• Emergency plan that sets out in detail what to do in the event of an
emergency, who has responsibility for each action and stage and associated
training of employees to respond to emergencies
• Licences, permits or other environmental regulatory authorisations
pertaining to the activity
• Compliance with statutory requirements and regulations. If applicable
dates, time-frames and details concerning previous emissions, non-
compliance events, notifications or warnings from the regulatory authority,
fines or court proceedings
• Contingency plans
• Adequate testing and maintenance of plant equipment to ensure it is in
good working order.
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Other factors
In addition to relevant items that may be covered above, particular operational

aspects that may require evaluation in respect of organisations that manufacture
or distribute products or provide services such as architects, engineers etc. may
include:
• Whether any pending legal action exist and if so the nature of warranties/
representations being made
• Compliance of labelling and design standards with relevant trade or
professional standards and legislative requirements
• Product testing procedures and standards
• Experience of the manufacturer or service provider and the level of
experience of key employees
• Details of any subcontracting arrangements
• Details of discontinued products, why they were discontinued and when
• Identification of any producer responsibility issues that may arise.
3.3 Criteria to evaluate the risk

This section is intended to provide an overview of risk evaluation tools taking
into consideration the requirements of the Directive. The aim is to help insurers
to evaluate whether unacceptable exposure risks exist and, if so, what further
investigation or action may be needed.
3.3.1 Risk context

As we have seen, risk is usually expressed in terms of a combination of the
financial consequences of an event (severity), and its likelihood (probability).
Environmental risks are no exception and the underwriter will have to try to
quantify both aspects for pricing and reinsurance considerations.
3.3.2 Probability of exposure

There are three types of key factors to assess:
• Geographical data which will lead to a threat potential for water and
soil. Items to be considered are the number of protected areas in the
vicinity and distance to them, density and proximity of water bodies and
classification of areas of concern
• The transport/media
• Type of contaminant (ecotoxicological effects) and storage volume.
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Examples of rating tables are shown below:

Soil rating table
Surface
Number of
share of
Rating Potential protected Descriptions
protected
areas
area
0 Urban area without significant natural areas. 0-1%
small none Bad lands, deserts or similar areas without
0.1 significant protected species. 1-2%
0.2 below Urban areas with semi-natural areas. Meager 2-3%

very few
0.3 average landscapes with a small diversity of species. 3-5%
0.4 Mixed man-made environment with average 5-7%
average few
0.5 diversity of species. 7-10%
0.6 above Mixed man-made environment with 10-15%
some
0.7 average significant nature areas included. 15-20%
0.8 large many Natural landscapes, large forests or similar. 20-50%
0.9 Primary natural environment with large 50-75%
very large a lot
1 biodiversity. 75-100%
Water rating table

Surface
Number of
share of Underwriters may wish to
Rating Potential protected Descriptions
protected
areas consider tables of this nature
area
0 No waterbody or river near the site. No 0-1% in assessing the risk and
small none
0.1 significant waterbodies in the vicinity. 1-2% determining the expected
0.2 below No waterbody or river near the site. Some 2-3% loss to assist with the
very few
0.3 average insignificant waterbodies in the vicinity. 3-5% calculation of premiums
0.4 No waterbody or river near the site. Some 5-7%
average few
0.5 smaller waterbodies in the vicinity. 7-10%
0.6 Several smaller water bodies nearby or one 10-15%
above significant waterbody in the vicinity. River
some
0.7 average with no protected area downstream passes 15-20%
site.
Several waterbodies nearby. River on site
0.8 large many which finally leads to smaller protected areas 20-50%
downriver.
0.9 Many water bodies in the area and on site. 50-75%
very large a lot Several and significant protected areas
1 downstream. 75-100%
3.3.3 Severity of exposure

The severity in terms of environmental damage is expressed generally in monetary Expected costs are still
terms. For many lines of business, generally two factors are considered: the difficult to assess due to the
expected average claim amount when the law of large numbers can be used paucity of claims data in this
and the maximum foreseeable loss (MFL), or the most probable loss (MPL), for field
underwriting considerations.
However, neither are possible because there is no claims data from which to
calculate an average cost or predict a MFL/MPL.
It was therefore decided to look for sources of data in the United States, because
of the earlier involvement of US corporations in defining acceptable methods of
cost quantification. Information contained in a report was used as a source of
reference to assist in the preparation of this paper16.
16 ‘Total cost assessment methodology’ (the TCA report) published in July 1999 by the American
Institute of Chemical Engineers’ Center for Waste Reduction Technologies.
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Remedial costs
Remedial (site clean-up) costs could be associated with process-based releases,

transportation-based releases, and waste handling, storage and disposal practices
proposed for the new process or product. In general, remediation liability items
include site investigations, remediation of specific areas of soil contamination or
waste areas, and remediation of ground water.
A literature search was conducted by the authors of the TCA report to locate
remedial costs for sites with contaminated soil and groundwater. Average site
costs, expressed in 1997 US dollar figures, are listed in the table below and
should be adjusted for inflation.
US EPA’s estimated average site costs
Site Estimated Average Site Cost ($)

Superfund - EPA lead 10,000,000
Superfund - PRP lead 8,500,000
RCRA 14,900,000
UST 125,000
DOD 3,400,000
The US experience as a The first two lines refer to Superfund sites when remedial work is done by the
starting point: the TCA Environmental Protection Agency (EPA) where there is no potentially responsible
Report 1999 Party (PRP) or when it is done by a PRP. Although these costs do not directly relate
to the Directive because they mostly relate to historical pollution, they are a good
indication of what to expect for remedial costs.
The third line referring to remedial costs under the Resource Conservation and
Recovery Act (RCRA) is more pertinent to the Directive. It is particularly interesting
to note that these costs are in the same order of magnitude or even larger than
standard remedial costs.
The other lines indicate costs related to underground storage tanks (UST) and to
Department of Defence/military sites (DOD).
Natural Resources Damage (NRD)
There is a variety of methods to assess economic damage. NRD restoration

generally includes the cost of:
• Damage assessment
• Planning
• Restoration (to the condition that would have existed had the release not
occurred)
• The loss of the resource and/or the benefits or services derived from the
resource from the date of the damage until the full restoration of the
resource and/or the benefits or services and periodical monitoring of the
restoration progress.
The TCA report mentioned above studied a sample of 79 NRD claims in 1996. As
many as 20 sites have NRD claims in excess of $20 million (1998 figures); another
40 sites have claims between $5 million and $50 million.
16 | CEA
3.4 Making decisions on risk

This section focuses on the approach insurers may wish to take when evaluating
environmental liability and the influence of the Directive.
3.4.1 Current insurance approach in respect of environmental liability

Although there are regional differences in Member States in the provision of The insurance approach in
cover, environmental liability is effectively covered either by a GTPL policy or an respect of environmental
EIL policy. Generally GTPL cover is provided for ‘sudden and accidental’ events liability is twofold
whereas under EIL policies cover usually extends to include events that are
‘gradual’ in nature.
Underwriters from the GTPL and EIL markets take a differing approach to risk
evaluation. GTPL underwriters tend to take an actuarial view based on past losses/
claims and hazard assessment associated with the applicant’s operations. On the
other hand, the majority of EIL underwriters have a background in environmental
consultancy or engineering that imparts a level of professional judgement that
they use to assist in the determination of coverage and pricing.
The two approaches are described in more detail below:
A GTPL underwriter will review the frequency and severity of past ‘sudden and GTPL underwriters will focus
accidental’ events, extrapolating that experience in an effort to predict the scale on frequency and severity of
of future losses under the policy and the probability of those losses occurring, past events
from which a maximum possible loss can be established. This process cannot be
extended to include ELD type liabilities at the present time due to the absence
of data.
The EIL underwriting approach is based primarily on environmental risk EIL underwriters will place
assessment (source/pathway/receptor) as described in section 3.1 and 3.2 above a greater emphasis on
rather than attempting to quantify the likely impact associated with a particular assessing the probability of
event. With reference to section 3.3.1 above, it is true to say that a greater a particular event
emphasis is placed on assessing the probability of a particular event occurring,
than attempting to calculate the severity of an event. Underwriters will take the
information provided in environmental surveys supplied by the applicant and
review the risks associated with each case on its own merits. The risk assessment
approach means that there are certain key questions that underwriters will have
to satisfy themselves on, for example:
• Sensitivity of surrounding area – both human and ecological

• Applicant’s risk management procedures
• Types of materials used on site
• Ground, groundwater and surface water conditions
• Site’s historical usage
• Financial standing of the applicant
• Details of any known claims or circumstances.
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3.4.2 Implications of the Directive for underwriting methodologies

At present, it is commonly accepted by GTPL and EIL underwriters that the
techniques, approaches and therefore costs associated with the remediation of
environmental damage are well understood. Consequently, once the nature of
the incident is known, it is possible to have an idea of the likely scope and cost
of any potential primary remediation as well as the related costs associated with
evaluation of the size of the claim, i.e. environmental consultants’/engineers’
fees and legal costs.
Some concepts in the Following the introduction of the Directive, there is a degree of uncertainty in
Directive create an respect of the costs of compensation for:
uncertainty that affects the
• The inability to remediate the damaged resource to baseline through
underwriting process
primary remediation alone, i.e. complementary remediation and/or
• The loss to the environment between the point of damage and attaining
baseline conditions, i.e. interim losses associated with compensatory
remediation
• The expenses required to evaluate the extent of compensation.
This uncertainty will affect the underwriting process.
General third party liability
Use of new information As discussed above, GTPL underwriting is based at least partly on loss experience
sources for risk assessment to establish the MPL as well as the insured’s risk management practices. The
creation of compensatory and complementary remediation in the Directive creates
issues for the GTPL market in that the loss experience to be able to understand
the MPL is not readily available and therefore the approach of extrapolating from
past losses will not today produce accurate loss estimates.
A number of GTPL insurers are looking to use geographical information systems

(GIS) and hazard/industry risk assessments as a means of assisting with determining
pricing, terms and conditions but this approach, as described by Busenhart et al
(2007) and comprising the analysis below, has yet to be widely formalised:
• Assessing of the applicant’s risk management practices

• Deriving process hazards
• Identifying hazardous substances
• Identifying sensitive receptors
• Developing of incident scenarios
• Quantying of the results of those scenarios.
Environmental impairment liability
There will be a greater need to understand the sensitivity of the site environs in
terms of the types of species and the uniqueness of the habitats present but this
represents an extension of existing practice as opposed to something completely
new. Information systems such as geographical information systems are commonly
used, and other criteria such as the applicant’s risk management and the ability
of ground and groundwater conditions beneath the site to act as pathways for
pollution are already assessed as part of the underwriting approach.
18 | CEA
The approach of the competent authority should also be given consideration in

those Member States where the environmental regulatory environment is less
well established; for instance in some of the newer EU accession countries. A
number of EIL insurers are already issuing policies covering pollution-related
losses arising from the Directive in a number of European territories where the
regulatory environment is well understood and the likely volume of ELD type
losses, at least in the short term, is such that those cases are unlikely to result
in any great change in regulatory behaviour/approach. However there are
exceptions to every rule and these will have to be understood when approaching
the provision of ELD coverage across Europe. In particular, Member States that
have gone beyond the scope of the Directive in transposition may well find they
have a higher number of losses.
Section 3.2.2 ‘Key factors to be considered’ lists a range of technical and

legal criteria that underwriters are likely to require an understanding of when
considering the types of industry most likely to be affected by the Directive,
however the reader should not assume the list to be exhaustive, nor that the
whole list of requirements applies to every risk.
Case-specific underwriting
What is apparent from the types of liabilities covered by the Directive is that each
risk will have to be considered on its own merit. While it would be easier if an
average premium existed for a certain type of exposure, in reality this is unlikely
to be the case as there are too many variables involved in the assessment
process, for example:
• Type of habitat/species
• Nature of operations
• Nature of release: sudden, gradual, emissions to air, land or water
• Potential pathways: groundwater, surface water, air
• The nature of the incident that results in environmental damage: pollution
release, explosion, flood.
Risk assessment provides an appropriate framework to assess these types of risk. Future trends in case-specific
However, over time it can be anticipated that there will be a fusion between underwriting
the methods adopted by the GTPL and EIL underwriters. If, as hoped, insurance
for liabilities introduced by the Directive becomes widely available, it will not be
practical for a detailed risk assessment to be undertaken in every case, especially
for less hazardous activities where the surrounding area is not particularly exposed.
It is likely that these less hazardous risks will be more suitable for underwriting
along the traditional GTPL methods while the larger and more complex cases will
be dealt with through the EIL approach.
Implications for defence costs
It is understood that both lines of insurance provide cover for costs incurred Evaluation of costs are an
in the defence or evaluation of loss. While this may not influence how to issue for underwriters
decide on a risk directly, it is likely to have a bearing on the terms, including the
premium, that an underwriter will apply to a risk. As losses associated with the
CEA | 19
more subjective elements of the Directive (compensatory remediation) are less

well understood, it follows that determination of that loss may take longer and
have greater expense associated with it. Again, we refer to section 3.3.3 and,
in spite of the experience of NRD type losses in the US, the absence of any clear
information as to the expense required to evaluate an ELD claim. This will be an
issue that underwriters will have to consider as part of their overall view of a risk
when defining coverage and pricing.
There is always a danger that if costs threaten to spiral out of control then insurers
may offer to settle to avoid protracted litigation and evaluation. The absence of
any indication of legal and evaluation costs in section 3.3.3 suggest that this may
already be happening, which one imagines does not mirror the original intent of
the Directive.
3.3.3 Implications for operators
Guidance is already available It should not be forgotten that while there is a degree of uncertainty among
to operators to assess their insurers regarding how the Directive will work in practice, this sense of
liability and better manage uncertainty also exists for operators in terms of their liabilities and the extent
their environmental risks of coverage available for their liabilities. Ultimately, the insurance coverage
available for a specific risk and the risk management obligations that this may
impart to an operator are a matter for private discussion between insurer
and operator. However, it is suggested that where insurers identify elements
of coverage associated with the Directive that they know will require significant
improvements/investment on behalf of the operator, or indeed a specific sector,
then these are made known to operator/ industry associations at the earliest
opportunity to enable appropriate consideration.
Self-assessment of liabilities
On the basis that this paper focuses on quantification of the liabilities under the
Directive from the perspective of insurers and policy-makers, it is easy to forget
that one of the most important elements of insurability is industry’s assessment
of its own risk and the management protocols that result. A key question for
industry will be ‘what to self-insure and what to seek insurance for?’ from which
stems the question ‘what is the extent of my liability?’.
In attempting to understand the question regarding the extent of liability,

frameworks for environmental due diligence exist that could be used to assess
environmental liability associated with sites or organisations. An example of
such a framework is the ‘BS ISO 14015:2001 on Environmental Management
- Environmental Assessment of Sites and Organisations (EASO)’, which provides
guidance on identifying environmental issues and their business consequences.
While it should not be confused with regulatory compliance audits or impact
assessments (dealt with separately in the following section on risk management),
EASO covers the roles and responsibilities of the parties to the assessment and
the various stages of the assessment process: planning, information-gathering,
validation, evaluation and reporting.
20 | CEA
Risk management
Once an operator has established the extent of their own liability, then the
question of ‘what to self-insure/manage and what to seek insurance for?’
becomes relevant and the operators’ risk management will be a central part of
this assessment. To echo the comments made in section 3.3.1 and 3.3.3, risk
management requires an understanding of both probability and severity through
the operators’ ability to prevent incidents occurring but also their ability to
contain releases from a given site, should an incident occur. In broad terms there
should be an indirect correlation between the level of risk management and the
potential to incur ELD - type losses - as the level of risk management improves,
the probability of an event occurring reduces, and vice versa.
Again, guidance is available on best practice and emergency response through

‘Seveso II’ and ‘IPPC’ schemes, and the related SHAPE-RISK programme
coordinated by INERIS on behalf of the European Commission, which acts as
a knowledge-sharing forum in the health, safety and environment fields. We
would refer the reader to these and similar local guidance on the implementation
of these two Directives for further information.
3.5 Summary
The preliminary stage of the risk assessment process may focus on the development Building a conceptual model
of an initial conceptual model of the occupational activity in order to evaluate as a first step
potentially attractive and unacceptable risks. The main purpose of a conceptual
model is to assist with an objective and consistent assessment of the environmental
risk associated with a site or organisation and to assist with the management of
that risk. In particular, the development of the conceptual model should enable
identification of the major factors that may contribute to the environmental risk.
Consequently, the assessment should also assist with identifying and focusing on
improvements that may be implemented as part of the risk management process,
thereby reducing the probability of a loss from occurring17.
Once an understanding of the environmental risk is reached, a judgement as Paucity of data still an issue
to the severity and probability of the risk is necessary to enable the insurer to for underwriters as regards
evaluate the key indicators, MFL and MPL. The severity is generally expressed in environmental risks
monetary terms and currently a paucity of data exists in respect of environmental
damage costs in Europe. Some limited information may be gained from the US
experience.
For the insurer, deciding on the risk requires an evaluation of, in the first
instance, whether to insure, what elements of the risk may be insured and
the best insurance approach that may be applied, i.e. GTPL or EIL approaches.
Uncertainties in respect of the Directive may also have to be factored into the
insurer’s evaluation.
Ultimately, a robust assessment of environmental liability by an applicant/operator

will make the insurer’s decision on risk easier but this in itself does not make a
risk insurable. An operator wishing to insure against an ELD - type of liability
17 In the context of this document, a ‘loss’ may be described as an environmental damage event as
defined in the Directive.
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A robust assessment is will need to reassure insurers comfort that the probability of an event occurring
needed and insurance is low enough for insurers to at least consider the risk. Such reassurance is
should not be viewed difficult to quantify specifically but as long as the applicant can demonstrate
as a substitute for risk good risk management practices on the basis of their environmental assessment
management that not only reduces the probability of a loss occurring but mitigates the
severity of an event should something happen, then it is likely that favourable
insurance terms will be the result. Insurance should not be viewed as a substitute
for risk management.
4. Possible insurance options
4.1 Existing insurance products - preventing gaps and overlaps

Getting a good Insurers may wish to include part or full coverage for the new liability within
understanding of the the scope of existing products. However, entities that decide to do so should be
‘state of the art’ of existing aware of the possible dangers of mixing civil liability and administrative liability
insurance solutions in within a single contract and other conflicts such as the policy triggers issues
various lines of business described below when making strategic decisions that could include redefining
the boundaries of coverage.
The aim of this section is to help the insurance industry to identify the potential
overlaps, gaps or inconsistencies of coverage within the scope of the most
common products in the various European markets, to enable everyone to make
informed decisions.
The Directive does not follow the traditional lines of business definition of the
insurance markets. This is not surprising as it was not designed with insurance
in mind. All insurance solutions that potentially provide coverage for claims from
the competent authority and arising from environmental damage are under
focus, e.g. GTPL, professional indemnity, motor, aviation, marine and property
insurance.
4.1.1 General third party liability insurance

In GTPL insurance, the object of the insurance is the insured’s civil liability to
compensate third parties for injury or damage to property suffered by them, and
in some cases for financial losses incurred by them, arising from the business
activity or property ownership of the insured party.
Strict liability on the operator for damage caused by third parties
According to the Directive18, where the damage has been caused by a third party
the operator of an ‘Annex III’ activity is strictly liable but can recover the costs
from a third party. There will be circumstances where environmental damage
arises due to defects in premises or equipment operated by the insured but
where the defect is due to errors in manufacture or installation by a third party.
The rights of recovery for the liable operator against the manufacturer or installer
may well be subject to different legal systems, e.g. civil liability or principles,
18 Article 8.3
22 | CEA
resulting in the operator not being able to recover fully the loss for which he is
liable under the Directive.
Where the insured is the manufacturer or installer of a defective product or

equipment installed in third party premises he may be pursued by the operator
in civil law for the recovery of losses incurred as a result of the environmental
damage.
Liability for damages to insured’s own land
Pollution to land owned or occupied by the insured or by a third party is one of

the main areas of environmental liability. This must be considered with the fact
that GTPL insurances usually exclude damage to property owned or controlled
by the insured. This is relevant both for deciding on the coverage for costs of
remediation and of prevention of imminent damage to soil.
Where the insured operates on third party land he can be pursued in civil law
by the owner (who is liable under the Directive) for the cost of remediating the
environmental damage but only to the extent that the civil liability system in the
country concerned applies.
Position of the insured in the claim procedure
Claims conditions in GTPL policies usually impose certain duties and respon-
sibilities on an insured, according to which he has to refrain from acting in a way
that could imply he is liable. In the Directive, there are some mandatory provisions
relating to behaving and informing the competent authority that conflict with
GTPL policies but need to be recognised within a policy that applies to ELD losses
to ensure that the insured is not in breach of his contractual obligations.
Multiplicity of claims from the same event
As stated above, some events can generate environmental damage according to

the Directive and, at the same time, traditional damage to a third party property
and/or bodily injury, e.g. a fire within a privately owned forest affecting protected
species and material property.
Drafting proper provisions would help to:
• Prevent dual insurance that could lead to double recovery

• Control possible duplication of exposure in the policy(ies); even though the
two categories of claims are probably subject to different legal procedures
and come at different moments in time or even in different insurance
periods.
4.1.2 Professional indemnity
The Directive is applicable to all occupational activities. Therefore, professional
indemnity policies, which cover claims for negligence against professionals, might
be affected by the liability based on the Directive. The services rendered can
be distinguished between low exposed ELD activities like the work of lawyers,
accountants and those which pose a higher environmental damage risk like
architects, engineers or environmental consultants. Errors in planning, design or
CEA | 23
supervision as well as in consultancy might lead to environmental damage which

could result in recourse to claims by the operator. Therefore, special attention
should be paid to the existing pollution cover in the current policies offered.
4.1.3 Motor insurance

Motor third party liability insurance (MTPL) may be exposed to claims arising from
the Directive, particularly with respect to the transport of dangerous goods or
waste specified in Annex III. MTPL policies usually cover only damage caused to a
third party on a civil law basis but not all MTPL policies are precise in that respect.
In most European markets there is still uncertainty on whether ELD exposures are
covered under MTPL policies or not. Countries where policy wordings contain a
clear provision that claims based on public law are not covered, e.g. Germany,
or where court decisions confirm such an interpretation of the wording, e.g. UK,
seems to be the exception.
It is unlikely that the transposition of the Directive will result in an increase in

claims frequency, i.e. accidents with dangerous goods have always happened,
but higher claim payments can be expected in this respect, due to the greater
emphasis on restoration in the Directive.
Policyholders most at risk are enterprises and freight forwarders dealing with the
transportation of dangerous goods or waste, as specified in Annex III. Insurers
may wish to study the impact of the Directive on MTPL insurance and decide to
what extent it may affect the coverage provided and insured persons informed
accordingly of the decision.
In any case, coverage designed for this purpose should be in line with GTPL/
EIL solutions, in order to avoid other gaps/overlaps. Special attention should be
paid to activities that may be borderline in terms of which policy is the most
appropriate, such as loading/unloading operations. Similar attention should be
paid to professional or commercial activities performed using non-industrial
vehicles and even private ones.
4.1.4 Aviation insurance

Article 4 of the Directive does not mention any exception or limitation regarding
aviation activities. General liability and aviation departments could underwrite
the different activities of the aviation companies through separate policies and
should consider the impact and special nature of this liability regime when
assessing the risks attached to them and particularly try to identify potential
overlaps or accumulation of risks. It may also be necessary to draw these issues
to the attention of all transport operators, including air transport, and should be
encouraged to identify the extent of their potential liabilities, with those of the
owners of the transported goods.
4.1.5 Marine insurance

Marine activities are not fully subject to the Directive according to Article 4,
paragraphs 2 and 3, but they can be subject, to the same obligations, including
prescriptions in Annex II, within the quantitative limits of their respective
conventions. GTPL and marine underwriters should make clear the boundaries of
some operations, such as loading and unloading, port manoeuvres and discharge
24 | CEA
of brown waters, in order to avoid duplications or overlaps and adequately take

into account the Directive with its specific peculiarities. In any case, offshore
facilities and activities are not excluded from the Directive.
4.1.6 Nuclear insurance

It should be remembered that, even though nuclear insurance is not part of the
Directive, nuclear power plants also create non-nuclear risks, such as changes
in the quantity, quality or temperature of water, that are very likely to result in
potential exposures to environmental liability damage within the scope of the
Directive. Coverage designed with this purpose should be in line with GTPL/EIL
solutions in order to avoid other gaps/overlaps.
4.1.7 Property insurance

The Directive includes liability for environmental damage caused by an operator to
his own soil. Property insurance policies can be found that include some coverage
for this kind of damage. They include first-party clean-up cost insurance and
decontamination cost clauses, which provide insurance cover for the remediation
measures necessary on a company’s own site after an insured event has occurred,
e.g. a fire.
The covered scope of remediation is usually broader than the Directive requires,
i.e. restoring the original condition as opposed to the necessary measures to
eliminate any danger to human health.
Even so, in order to avoid potential gaps - and overlaps, e.g. GTPL or EIL - the
classes of events in which consequential soil pollution is covered should be
clearly determined and compared against all potential risks that could result in
soil pollution.
It should also be understood that own soil pollution can be caused by a third
party. In order to evaluate the risks, possibilities of recovering costs and potential
coverage for these claims, the third party analysis should include surrounding
activities, as well as subcontractors, tenants and clients, e.g. service company
works on oil tank and causes pollution the soil. Fire authorities can also create
soil pollution as a result of the run-off of water used to extinguish a fire.
Prior to binding the insurance cover, the risk assessment should include a close
examination of these and other risks when the clean-up of first-party premises
and property is included in the cover.
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4.2 Environmental liability insurance – new concepts

The section below outlines possible insurance options. Underwriters may wish
to consider the proposed underwriting checklist in Annex 7.3 highlighting core
elements to identify and assess environmental risks properly.
4.2.1 ‘Stand-alone’ versus integration in GTPL products

Insurance markets generally offer coverage for pollution events in two ways:
• GTPL insurance: integrated pollution extension clause or separate section

• EIL insurance: stand-alone environmental impairment liability policy.
Both approaches can be effective in binding a satisfactory level of coverage,

provided that product designers and underwriters are conscious of the implications
highlighted in the introductory remarks.
Stand-alone insurance concept
This approach allows insurance solutions to be developed without the need to

interfere with established pollution/environmental third party liability covers,
provided that the latter are properly drafted to avoid misunderstandings that
could lead to the possibility that both policies could be claimed against, in the
event of damage to natural resources.
The advantages of this approach are:
• A clear distinction between civil and public law-based insurance cover,

which should increase transparency in insurance markets
• It facilitates the development of insurance solutions that can be adapted
quickly and easily in response to emerging trends without hampering the
established client relationship
• The development of innovative, specialist and flexible solutions is more
likely as stand-alone insurance products than other solutions.
However:
• This approach could still result in the duplication of claims in cases where a
concurrence of environmental liability with traditional third party pollution
liability covers exists in the event of a loss. This would be the case if the
same pollution event triggers third party property damage and bodily
injuries as well as environmental damage
• Insurers have to take into consideration their accumulation potential - see
section 4.2.9 - in order to put in place the proper controls or establish the
proper loss accumulation limitation clauses as appropriate
• Increased administrative expenditure can be incurred by the insurer having
to issue and manage specific policies on a separate basis.
26 | CEA
In any case, in order to properly define their scope of coverage, stand-alone

policies should state clearly:
• Whether they cover only claims based on public law (e.g. Directive) or also
third party pollution/ environmental impairment based on civil liability
• Whether they cover only liability claims arising from pollution events or
from any kind of environmental impairment/damage. Most of the EIL
policies limit the coverage to pollution events at present.
Integration into existing insurance solutions via endorsement
The integration of the ELD coverage into an existing policy allows the insurer to
provide coverage for all potential claims for the same event(s) into one single
policy.
The advantages of this approach are:
• Insurers will avoid potential accumulation problems if policies state clearly

the maximum amount of cover offered for all liabilities, including such
extensions of cover
• The development costs of such a solution and the administrative expense
incurred by the insurance company in managing the policy are likely to be
much lower than in the case of stand-alone insurance products.
However the lack of statistical details, e.g. no separate premium allocation

to the ELD coverage, no separate tracking of ELD claims and no differentiation
of liability concepts may hamper proper risk assessment of claims developments.
In addition, insurers need to be alert to the dangers of mixing different policy
triggers within a single wording.
In any case, endorsements should deal clearly with the features of the Directive,
namely:
• Public law regime only; not third party liability

• It may not be possible to provide full cover for the liabilities under the
Directive
• The obligations of the insured and the rights of the insurer in the claim
procedure will be different.
Also, it must be made clear whether the coverage is limited only to pollution
events or whether it includes all kinds of environmental impairment/damage.
CEA | 27
19
4.2.2 Insured events
Apart from identifying A basic principle of an insured event is that the time of occurrence or its discovery
gaps and overlaps in must be unpredictable, and the occurrence itself must be independent of
existing insurance products, the will of the insured. Therefore, the natural scope of insurance coverage is
underwriters might review usually limited to identified, unintended and unexpected incident(s). Where the
key elements of the emissions do not meet these requirements, they can be regarded as occurring
underwriting process within the normal operations of a given activity, for example:
• Authorised emissions: liability of this kind should be attributed to the

competent authority and thus be irrelevant to the insurance
• Emissions regularly above authorised limits: when this happens in the normal
course of operations, it represents a management style that shows a disregard
for responsible behaviour towards the environment. Insurance is not a
substitute for poor risk management and is not intended to apply in such
circumstances when the cause of pollution is unexpected and unintended, it
may be classified as accidental and suitable for insurance coverage.
An accidental event causing pollution/environmental impairment can be classified

in two categories:
• Sudden and identifiable in time, like fire, explosion, collapse, flood, etc,
commonly known in the insurance market as ‘sudden and accidental’
• Unintended and unexpected remaining unnoticed, including its
consequences, over a period of time, e.g. seepage, and gradually causing
pollution up to the moment that it or its consequences are finally
discovered, usually described as ‘gradual’ although market practice in
Member States varies.
Sudden and accidental losses display some positive features that reduce some
of the difficulties of environmental risks:
• The precise timing of the event causing the emission is almost always known,
so the timeline of events leading up to the loss, and thus the coverage
period, can be objectively determined
• Putting in place measures to limit, control and repair the damage is easier
and the economical consequences are likely to be lower
• The estimation of frequency of loss events, based on existing accident data
from traditional damage, is possible for ‘sudden and accidental’ events.
Where an accidental event causes ‘gradual’ emissions, the conditions for claims
management can become much more complicated if it is not addressed in the
policy wording that:
• At the moment that pollution is discovered, the damage caused is likely to

be much more severe
• It may be difficult to allocate the emissions to a definite point in time
and this can lead to disputes over coverage and which insurance contract
should bear the claim.
19 Sudden and accidental, gradual emissions, normal operations.
28 | CEA
In any case, when designing and underwriting pollution/environmental

impairment insurance it is important to bear in mind the following:
• ‘Sudden and accidental’ is not a legal term

• Both terms ‘sudden’ and ‘accidental’ should be properly defined in the
policy in order to avoid allegations of unclear wording
• As an alternative, to add clarity to the ‘sudden and accidental’ policy
wording, the use of a time-based clause could be considered, i.e. to limit
the covered emission to a defined period (e.g. seven days) or a named
perils clause (i.e. coverage limited to named events like fire, explosion)
• The required loss experience is unlikely to be available in sufficient detail,
which means that adequate risk pricing levels will be very difficult to set
or, at least, subject to considerable uncertainty
• In accordance with the general principles of insurance, the coverage for
gradual emission is unlikely to include any liability as a result of authorised
emissions and is likely to be limited to unintended and unexpected
emissions.
4.2.3 Covered costs20
It is anticipated that policies generally will state which prevention and remediation
costs are covered and those that are not. It may also deal separately with
investigation and defence costs.
Costs for preventive measures
These are any measures taken in response to an imminent threat of environmental

damage, with a view to preventing or minimising that damage, including
emergency measures. According to the Directive, the operator is obliged,
without delay, to take the necessary preventive measures even without any prior
notification to the insurer.
The underwriter may wish
• To consider whether or not he intends to cover these costs in these

circumstances
• To apply a requirement for simultaneous notification to the insurer
• To distinguish measures that the insured should always take, as part of
his normal activity, to prevent accidents by means of using best available
techniques, performing proper maintenance and avoiding improper
procedures.
Remediation of land damage
Since land in most Member States belongs to private individuals and enterprises,
or is in public ownership, under the existing civil law liability regime these parties
are normally able to demand reimbursement of the cost of cleaning up their own
land and consequential losses in the event of contamination by a third party.
In most EU countries, GTPL or stand-alone EIL policies already provide insurance

coverage for damage to land owned by third parties, and individual insurers
20 Preventive, primary, complementary, compensatory remediation measures.
CEA | 29
and reinsurers have access to statistics and expertise in claims settlement for
this category of risk.
The same applies to measures for the prevention of impending insured damage
to persons and property when an accident has occurred (prevention21 and/or
mitigation22 costs). In practice it is anticipated that remediation measures will be
similar.
Primary remediation
This instrument is already known to public authorities as a result of existing

environmental legislation. Despite this, primary remediation of species and
habitats can be very controversial and lead to much uncertainty in terms of cost
efficiency. Exhaustive remediation programmes can be extremely expensive with
marginal environmental improvement. Therefore, in order to achieve a proper
risk assessment, premium calculation and conscious underwriting, technical
criteria should be developed to decide on the methods to be implemented and
the objectives to be achieved in case of environmental damage.
One of the alternatives to be fully or partially considered for primary remediation

is natural recovery, which can entail important cost savings in recovery cost, but
lead to longer recovery period with increasing compensatory restoration bill, as
explained below.
Complementary remediation
This is basically a new instrument for the remediation of environmental damage

but it is already known in respect of infrastructure projects (moving of existing
habitats). There are major issues still to be resolved and legal grey areas which
could well result in disputes with the authorities in the event of a loss, like those
regarding:
• The establishment of a relevant threshold

• The assessment of the damage or the appropriate remediation measures
• The determination of the extent of the loss, which also depends on how
well the baseline condition (the state of the natural resources before the
loss event occurred) was documented, or
• The evaluation of the various loss patterns in monetary terms.
21 Expenses for measures prior to occurrence of an insured event to avert or mitigate an otherwise
unavoidable instance of insured damage.
22 Expenses for measures after the occurrence of an insured event undertaken by the insured or
those acting on their behalf in order to avert or minimise insured losses (salvage expenses or loss
mitigation expenses).
30 | CEA
Compensatory remediation
These measures are not connected with the cost of restoring the baseline
condition or the original environmental benefit, but with compensation of the
loss of availability of the environmental services for the period of time needed to
recover the baseline conditions. There are no guidelines for calculating the levels
of this kind of harm so far. Insurability will be enhanced through the creation of
clear and consistent guidelines that can be applied to all Member States and all
cases of environmental damage.
As a result, the insurance industry finds a wide field of uncertainty when trying
to estimate reliably the amount of compensatory remediation due, and the
costs thereof, as a basis for premium calculation. The insurance industry awaits
the completion of the REMEDE project; the delivery of the tool box hopefully
will go a long way towards removing much of the uncertainty. However in the
meantime, the uncertainty should be considered when deciding upon binding
coverage for this category of restoration by using the various underwriting tools
at the underwriter’s disposal.
4.2.4 Temporal scope of cover23

As latent claims are a widespread issue in environmental liability, it is extremely
important to structure the cover trigger so that a particular loss can always
be clearly attributed to a specific point in time and insurance period. The use
of present-event triggers such as ‘first discovery/manifestation’ or ‘claims
made’ may be appropriate. A causation trigger, sometimes referred to as ‘acts
committed’, which relates to a point or several points in time in the past when
the damage had its origin (i.e. manifestation of environmental damage today,
caused by an emission in the past) is not appropriate. The example illustrates that
there may be years between the action or omission which caused the damage
and its manifestation. With such a causation trigger in place it might happen
that policies that have been claims-free for many years can become very claims
productive from historical activities and consequently underlying assumptions
made in assessing the risk and in calculating the expected loss turned out to be
fundamentally wrong.
Occurrence-based triggers could be appropriate to cover sudden and accidental

environmental damage if a precise definition of ‘occurrence’ is used in order to
ensure that the coverage trigger date is about co-incident with the first discovery
date of the loss.
Although the Directive is applicable for events that occurred after 30 April 2007
only, it is possible that some Member States might expand the liability regime for
earlier events. Therefore it is important to understand the extent of the exposure
and it may be advisable for the policy only to cover claims arising from an event
that occurred on or after 30 April 2007, regardless of the trigger used in the
policy.
If retroactive coverage is provided, it is suggested that the retroactive date is

fixed, taking in account the inception date of transposition law, in order to avoid
23 Causation, occurrence, first discovery/manifestation, claims made.

CEA | 31
covering events that happened before 30 April 2007 to be in accordance with

the Directive.
Where the ‘first discovery/manifestation’ or ‘claims-made principles’ are applied,

insurers need to decide to what degree cover will continue to be provided after
the expiry of the policy for insured losses which occurred during the policy period
but were not known, had not manifested themselves or for which claims were
not made by the expiry date (extended reporting period).
4.2.5 Geographical scope

Many operators have activities in more than one Member State or even further
afield and may wish to arrange their insurance on an international basis rather
than have a separate policy in each country. In addition, environmental damage
can cross international borders and therefore be dealt with wide a variety of legal
regimes.
Cross-border damage
The Directive transposition law applies to the Member State territory only. However,
potentially liable operators are not only responsible for damage occurring in their
home country. Environmental damage might also occur on a cross-border basis
involving neighbouring countries or an insured’s activities could result in liability
involving many European countries, e.g. trans-boundary pollution of watercourses
or services provided outside the home country. Underwriters may wish to consider
this fact by determining the geographical scope of an insurance solution.
According to the most recent status update on Directive transposition (see

Annex 7.1), most Member States have not yet enacted the Directive into
national law. Therefore there is a lack of legal certainty for all key stakeholders,
i.e. will Member States adopt the scope of the Directive or exceed it (e.g. non
applicability of the permit defence, introduction of proportionate liability). This
fact should be evaluated in the risk assessment and pricing process. An extension
of the geographical scope beyond the home territory has results in an exposure
to foreign laws and court practices in a field where there may be a lack of legal
clarity or certainty.
Pan-European policy/International programmes
When designing Pan-European policy/international programmes, the fact that

many of the Member States have not yet enacted the Directive has to be
taken into consideration, mainly when the Directive coverage in the master
policy includes difference in limits/conditions coverage.
Below are some questions regarding the design of products that need to be
answered when drafting this kind of programme:
• How is the geographical scope of cover defined in the master

agreement?
• Does the insurance solution cover the liability of the Directive only or does
the scope of cover goes beyond?
• What is the scope of coverage in local policies covering particular country
specific Directive transposition legislation?
32 | CEA
This is of particular relevance if an insurance solution has a reversed difference

in conditions24 provision in place to avoid going further than the intended scope
of the international programme. One should avoid importing country-specific
coverage into the pan european policy/international programme.
4.2.6 Losses arising from defective products

Insurers underwriting GTPL policies covering liability for defective products may Directive n° 1985/374
wish to consider the potential risk to the manufacturer in case is where the on liability for defective
insured is exposed to environmental liability claims from a defective product. In products and liability for
some cases, recourse claims for product liability based on civil law can include environmental damage
claims for compensation from those that are originally found liable according to
the laws transposing the Directive.
If, for example, a defective product leads to environmental damage in a

manufacturing plant, the authority may well require the operator of the plant to
carry out remediation measures. The operator may then seek recourse against the
manufacturer of the faulty product or other responsible parties (e.g. the importer
of the defective product into the EU) for financial losses such as compensatory
remediation arising from the clean-up operation. Such recourse would be based
on civil law.
Direct claims by competent authorities against the manufacturer of the defective

product might be possible, depending on the definition/interpretation of the
term ‘operator’ in the transposition law.
From an underwriting perspective, the financial loss (i.e. the cost of the
environmental damage restoration) would qualify as a ‘product liability’ claim
that, in fact, would entail the same costs and difficulties an ‘environmental claim’
for the operator, with the negative additional aspect that the liable manufacturer
of the defective equipment would usually not be considered a target in the
remediation process and therefore could have no direct control the restoration
project.
GTPL underwriters should therefore be well aware that:
• If they assess the risk of one of their clients as a manufacturer or a vendor

of products, disregarding whether he is included in Annex III or not, he can
be confronted with equivalent liability for environmental damage caused
by his client, in the event of product failure
• If they assess the risk of an operator that could cause an environmental
damage due to a failure in products or services rendered or performed by
others, the right of recourse against these others might be more difficult
under civil law. In any event, the order to undertake remediation measures
will be addressed to the operator of the facility. Finally, if the operator’s
contractor is not included as an activity in Annex III, the liability of the
contractor could be much more limited.
24 Cover purchased by a multinational company which extends insurance coverage under DIC when
a local policy offers broader coverage than the master policy.
CEA | 33
25
4.2.7 Non-site-specific occupational activities/services
Non-site-specific professional activities, such as commercial trade activities,
maintenance or clean-up services and the work of architects conducted at third
party sites can also give rise to claims under the Directive. For exemple, errors
in planning/supervision by an architect or faulty workmanship by a contractor
could lead to the collapse of a dam during the course of an operation, leading
to damage to natural resources such as watercourses as well as to protected
habitats and species.
General remarks
Non-site-specific professional activities need a special assessment for which

additional factors will be very relevant:
• No knowledge ‘a priori’ about the vulnerability of the natural resources

around the place where the activity is to be run
• No knowledge of the pre-existing conservation status (baseline) of the
natural resources
• No knowledge of the perils of the premises where the insured will be
working on
• The distinction between hazardous and non-hazardous activities according
to Annex III may not be sufficient, as different types of work can be carried
out on different sites and facilities in the course of a single period of
insurance
It is important to bear in mind that the operator of any facility listed in Annex III
can be held strictly liable for loss or damage, as well as the external contractor
who caused the environmental damage. In this case the plant operator will
have the right of recourse against the party/polluter who originally caused the
accident, i.e. the external contractor. In the same way that defective products
may be covered by the manufacturer’s product liability policy, this claim under
civil law may well be covered under the external contractor’s current GTPL policy,
without the additional exposure of the legal risk of change having to be taken
into account during the risk assessment process. When cover is extended to
incorporate these new loss categories, it is important to note that claims under
recourse proceedings can be made for damage sustained by protected species
and natural habitats (fault-based liability) as well as for water and land damage
in cases where the plant operator is strict liable according to an activity listed in
Annex III.
The underwriting process should encompass the following criteria:
• The insured ensuring that he is deploying personnel with experience in the

planned activities and has adequate (project) expertise for them
• The potential exposure arising out of activities on hazardous sites
according to Annex III
• The accumulation potential to already existing coverage for civil law based
liability, e.g. recourse of a party who had to initiate remediation measures
according to the Directive.
25 Coverage for completed operations.
34 | CEA
Construction industry including professional indemnity for architects and

engineers
There are various occasions when a contractor might become liable under the
scope of the Directive, as for example in cases of environmental damage due
to:
• Defective construction/completed operation, e.g. years after completion, a

dam collapses leading to pollution
• Errors in planning or supervision by architects/engineers
• Faulty workmanship by a contractor
• Accidental events during the performance of contractual activities
on third party sites, e.g. working on already polluted sites, causing an
explosion/fire at an existing plant or rupturing pipes/tanks leading to
pollution
• Un-/intentional destruction of habitats or protected species in the course of
an infrastructure project, e.g. construction of a motorway.
In some of these cases the contractor is liable and the competent authority
will seek remediation directly from the contractor, e.g. fault-based liability for
damage to protected species and habitats occurred during the performance of
the activity. In other cases the owner of the plant/land where the environmental
damage has its origin is liable according to the Directive and has to initiate the
remediation measures, e.g. strict liability of the owner/operator of an Annex III
activity for land and water damage as well as for damage to protected species
and habitats either caused during, or after completion of, the work. In this case
the plant operator/land owner will have the right to claim for compensation
against the party who caused the environmental damage (liability based on civil
law). The above mentioned principles also apply for the construction industry.
4.2.8 Allocation of coverage

When drafting insurance products covering liability for environmental damage, ELD-based coverage
insurers may wish to consider the potential danger of double recovery of claims increases the risk that
from the same event. This might be the case: multiple policies might be
triggered – ‘double recovery’
• For gradually occurring damage which might trigger several policy periods,
i.e. stacking of limits. An adequate definition of an insured event and
a clearly defined policy trigger (as outlined above in section 4.2.4) are
appropriate safeguards to prevent thestacking of limits
• For events that cause different types of damage covered under several
insurance policies, e.g.:
• Own property damage, first party clean-up, e.g. decontamination
costs endorsement in a fire insurance policy respectively first party
clean-up cost insurance
• Traditional damage to tangible property of third parties or bodily
injuries, e.g. GTPL or EIL insurance
• Environmental damage, e.g. GTPL or EIL insurance.
CEA | 35
While this issue exists today, providing wider or new ELD based coverage
increases the risk that multiple policies might be triggered. Double recovery might
be avoided by using an allocation of coverage clause which defines which policy
or part of coverage in the same policy will take priority. This should be reflected
in the pricing considerations if a separation is not possible.
4.2.9 Sum insured

Financial limits as a At present there is a high degree of uncertainty regarding the impact of the
protection to the uncertainty Directive on loss frequency and in particular on loss severity. There is a lack of
the Directive creates experience among all involved parties regarding the assessment and quantification
of the lost environmental service. There are various methods under discussion to
be used for the assessment of compensatory remediation but none of them have
extensive experience in Europe for the remediation of environmental damage
caused by occupational activities.
The difficulties in estimating the frequency/severity and consequently the

expected losses must be considered when setting the financial limits of the
insurance coverage provided.
Due to this uncertainty, in some instances it may necessary for large sums of money
to be spent on assessing the environmental damage and determining adequate
remediation actions. Legal proceedings might be necessary to finally rule on the
liability of the operator. Such costs might be substantial and underwriters might
wish to consider limiting coverage either by fixing a sublimit or including them in
the sum insured (e.g. stipulation of a cost-inclusive clause) or limiting them (e.g.
as a percentage of the insurance limit or fixed amount in addition to the policy
limit).
Deductible
An insured should be willing to take a financial interest in their own risk to avoid
any misuse of the insurance protection and to eliminate small, routine losses that
are best dealt with outside insurance mechanisms. It should not happen that
an operator escaps from proper environmental behaviour because it is cheaper
to buy insurance coverage than to invest in necessary maintenance measures
or safety installations. The levels of deductibles and market practice vary from
market to market.
Control of accumulation potential
The basic principle of insurance is the spread of risks and insurers need to ensure
that they are not exposed to multiple liabilities under numerous policies arising
out of the same event as this would have serious financial consequences. It is
possible that an environmental damage event might trigger several insurance
policies, (e.g. liability of policies of several operators or various insurance policies
of an individual operator). The potential accumulation of limits resulting from a
covered environmental damage might be controlled by determining the insurance
capacity to be deployed depending on the individual insurer’s portfolio mix and
its risk appetite.
Calculation of expected losses
36 | CEA
The Directive sets up a scope of liability which is in most cases new for the
insurance industry and other stakeholders. As already mentioned, basic
information enabling the use of traditional methods of estimating loss frequency
and severity are rarely available. Even though significant environmental accidents
occurred in Europe in the past (e.g. Sandoz Schweizerhalle26) the use of this
claims experience is limited due to the fact that the claimants were compensated
based on civil law for traditional damage suffered.
4.3 Summary
Insurers are best placed to identify potential overlaps, gaps or inconsistencies A clear legal framework
of coverage within existing insurance policies. All insurance solutions that and a close relationship to
potentially provide coverage for claims resulting from environmental damage the Directive is key to the
can be considered, e.g. GTPL, EIL, PI, MTPL. development of sustainable
insurance solutions
When developing new insurance products, underwriters may wish to consider
the different options, e.g. extensions of GTPL or EIL covers. However, mixing
civil liability and administrative liability within a single contract will pose some
challenges. Furthermore, the potential solutions also depend on the geographical
scope of the insured activities, policy cover and the definition of the insured
event.
It is the responsibility of individual insurers to decide whether or not to offer

cover and on what basis and terms. This will depend on their individual risk
appetite and desired portfolio mix.
In Member States that have enacted legislation, a trend is beginning to emerge

for insurance solutions to enter the market. This is particularly the case where
transposition has followed the scope of the Directive very closely. There is a strong
indication that a clear legal framework and a close relationship to the Directive is
key to the development of sustainable insurance solutions.
26 The fire in 1986 in the warehouse of Sandoz AG Schweizerhalle (Switzerland) storing agriculture
chemicals led to heavy pollution of the river Rhine – from Switzerland down to the Netherlands. The
fire water use to extinguish the discharged several tons of chemicals into the Rhine over a period of
more than 24 hours and seriously damaged the aquatic flora and fauna and killed several tons of fish.
See also CEA White Paper on Insurability of Environmental Liability, January 2007, page 14.
CEA | 37
5. Claims management
5.1 General remarks

Good underwriting is not sufficient if insurers cannot handle claims. As
section 2 above explains, the Directive requires insurance companies to acquire
new underwriting skills. In addition, they also need to develop new claims
management expertise.
New claims expertise is Insurance is a promise to pay claims in the event that the policyholder suffers
required an insured loss. It is at this moment of misfortune that the insured really needs
professional, competent and efficient claims services.
Insurers have a wealth of experience in handling claims. In the area of

environmental liability, this expertise mainly covers ‘traditional damage’, i.e.
bodily injury, property damage and some financial losses (such as loss prevention
costs). However, the Directive introduces new liabilities and remedial measures
for which the industry has very little experience. As a result, insurers need to
develop new expertise in handling the claims associated with these liabilities.
It may be helpful to develop that expertise by directing all possible ELD-cases

to a group of ELD-claims specialists to handle. This is also important where
third party damage claims may have an (ancillary) ELD-aspect, e.g. damage to
a third party property which also has an impact on the environment. This may
also be helpful in circumstances in which different types or classes of insurance
policies are involved, e.g. property or motor insurance.
5.2 Co-operation with the competent authority

Insurance industry strongly Under the Directive, the competent authority is responsible for either accepting
supports the development the proposed preventive or remedial action by the responsible operator or
of a co-operation with the determining its own preventive or remedial measures. However, insurance
competent authority companies may have a significant interest and wish to be involved in this decision
process. If they are expected to pay for losses, insurers need to be able to
exercise a degree of control over the claims. Therefore, the insurance industry
strongly supports the development of an effective working relationship with the
competent authorities to ensure that insurers are able to manage their businesses
properly and to support the competent authorities in complying with their
responsibilities. In particular, this working relationship should cover:
• The assessment of the environmental damage: has there been significant

damage according to the criteria in Annex I?
• Identification of the liable party? Who is/are the responsible operator(s)?
• Determination of the most effective and cost-efficient measures to
remediate environmental damage?
This co-operation is even more important in cases of cross-border damage that

involve more than one competent authority. This includes internal cross-border
damage, where a single Member State has delegated authority to a regional level,
or external cross-border damage, where damage originates in one Member State
but the environmental impact is spread across the neighbouring countries.
38 | CEA
5.3 Claims-handling under the insurance policy

The claims management adopted by insurers is also determined by the scope and
limits of the insurance policy:
• Scope of insurance coverage vs. liability of the insured operator

• Notification requirements upon the insured in the event of environmental
damage or imminent threat of that damage
• How are legal costs handled in the policy? Are they included in the sum
insured, within a sublimit or in addition to the sum insured?
• Which types of remediation measures are covered in the insurance policy:
primary remediation, complementary remediation and compensatory
remediation? Are any remediation measures (e.g. compensatory
remediation) subject to a sublimit?
Unlike primary and complementary remediation, which is related to the actual

recovery of the baseline condition prior to the damage, compensatory remediation
has no restorative function. These measures are not connected with the cost of
restoring the baseline condition or the original environmental benefit, but with
compensating for the loss of availability of the environmental services for the
period of time needed to recover the baseline conditions (see section 2 above).
There are at present neither guidelines on nor experience in calculating the
equivalency of this kind of harm. This is a further reason for future collaboration
between competent authorities and insurers to develop methodologies to assist
in determining and calculating the level of compensatory remediation required.
5.4 Questionnaire for steps to be taken

Annex 7.4, below provides a questionnaire that insurers may wish to consider
when assessing the nature or extent of adverse changes and determining the
appropriate steps to be taken. The questionnaire is divided into the following
steps:
5.4.1 Underwriting assessment

The risk assessment information gathered during the underwriting process may Development of standard
provide useful data for claims management. Such information is likely to cover questionnaires could help in
areas such as: the handling of claims
• Types of activities undertaken by the insured

• Assessment of the environment of the insured’s sites
• Possible measures for preventing or minimising land, water or biodiversity
damage.
A detailed risk-specific assessment of the environmental information during the

underwriting process may be of considerable value in a future loss situation in
determining, for example, the ‘baseline condition’, which under the Directive is to
be assessed on the best information available.
CEA | 39
5.4.2 Environmental damage or imminent threat of such damage

Where environmental damage has occurred or there is a threat of such damage,
an assessment of what has happened needs to be carried out and the responsible
polluter/operator needs to be identified.
5.4.3 Identification of applicable laws and competent authorities

Claims management needs to identify the applicable laws and the competent
authorities based on the extent of the loss event, e.g. a loss within one Member
State or the consequences of a transboundary loss.
5.4.4 What is possible by way of remediation?

Consider obtaining a status report on the measures the polluter/insured has
(already) initiated to prevent and/or mitigate damage to land, water or biodiversity.
If this has not already taken place, emergency steps may need to be considered
in conjunction with insurers and the competent authorities. For this purpose,
insurers may well have to recruit specialists in this area, e.g. environmental
experts and/or loss adjusters.
5.4.5 Gathering the relevant loss information

All relevant loss information needs to be put together to mate an assessment
of the damage and identifiy the emissions that have occurred and their
environmental impact. What is the current status of land, water and protected
species and habitats? Is the criteria of ‘significant damage’ fulfilled?
5.4.6 Identification and choice of remedial options

Identify and agree with the competent authority the most effective and cost
efficient measures for restoring the environment.
5.4.7 Monitor the outcome of preventive and remedial measures

Once the most appropriate restoration measures for remedying the environmental
damage have been determined, the measures need to be validated and may
be appropriate to draw up a progress report in certain cases to determine the
effectiveness of the remediation process.
5.5 Future developments

A closer co-operation As outlined above, close collaboration between underwriters and claims managers
between underwriters and is advisable in the face of the challenges presented by the Directive. Claims
claims managers is highly managers may benefit when handling claims if underwriters make appropriate
advisable inquiries to obtain relevant information available during the risk assessment
process. In addition, close collaboration between insurers and competent
authorities will also enhance the development of the claims experience needed
to cope with the challenges that ELD related claims present.
40 | CEA
6. Closing remarks
The development of sustainable insurance solutions will be improved if there is
clarity and certainty in the underlying legal framework in each Member State and
if the products can meet the criteria of insurability:
• Insurers need to set up potential methods for risk assessment and claims
management
• Establish the basis for calculating insurance costs.
Insurers may wish to consider the points raised in this paper.
The CEA EEWG also aims to extend the close co-operation with DG Environment
and to support the national transposition authorities, through the national
insurance associations, especially in the fields of:
• Sharing updates on legal and insurance-related developments within the

Member States, with a special focus on the challenges of cross-border
activities and/or damage
• Supporting the preparation of the report the Commission will have to
present before 30 April 2010
• Developing plans for co-operating with competent authorities to agree
ways to evaluate and restore environmental damage in the most effective
and cost-efficient manner, particularly in relation to cross border-events.
CEA | 41
42 | CEA
7. Annexes
7.1 Directive transposition update

Transposition State of the process/ Extent of biodiversity Exemptions: Other extensions/ Financial
Table Directive Comments on legislative process protected - State of the art restrictions security
2004/35/CE - Permit (e.g. historical
contamination)
AUSTRIA The federal law was adopted by the government on 9 May Contamination of water Terror, war, extraordinary,
2007 and is under discussion in the national parliament. and soil. Damage to natural unforeseeable and
There will be one federal law dealing with water and soil resources. inevitable events.
legislation and separate ‘Federal State, (‘Bundesländer’) Biodiversity conservation is
laws dealing with damage to protected species and part of the competences of
habitats. the Federal States.
BELGIUM Transpostion completed as regards the federal level and Flanders region will No provisions on mandatory
the Flanders and of Wallon regions; Brussels-Capital region implement the two article insurance schemes
at draft stage only. 8(4) defences while the (in line with article 14 ELD).
Wallon region will not.
BULGARIA Official draft on environmental liability dated 26 None Discussions about

September 2006 in line with the main provisions of the environmental liability being
ELD. considered a compulsory
line of insurance.
CYPRUS Transposition completed in December 2007.
CZECH Ministry of Environment produced a draft act on Decree on protection of Yes, both Draft Act: 5 options for
REPUBLIC preventing and remedying environmental damage some national protected compulsory
(May 2006) to be discussed in and approved by the species expected. insurance. Compulsory: 5
Government. If approved, then to be submitted to years after the Act goes
Parliament. into force.
DENMARK A bill was introduced in February 2007, but unexpected Extended cover to some There are other more A taskforce is set to explore
drawback in the legislative process. extent: in some respects stringent provisions, and the possibilities of insurance
the implementation of some rules are extended in options in the future.
the Directive extends use and cover.
existing rules (extended
implementation). Other
elements are identical to
the Directive.
contamination)
ESTONIA The ELD was transposed on 14 November 2007. Extended scope to all Yes, both No compulsory insurance.
species and habitats
protected under national
law.
FINLAND A group in the Ministry is still working (until March 2007) No compulsory insurance.
to complete the draft law.
A committee headed by the Environmental Ministry
delivered its report on 14 May 2007, including a draft
law. Hearings were held during summer 2007. Legislation
was discussed in parliament in autumn 2007. The
implementation date of the law is not yet known.
FRANCE The bill was proposed by the Government on 6 November The bill stipulates that The bill makes provisions: The bill also stipulates that: The bill does not stipulate
2006 (law and decree). the protected species and 1/ for the exemption for the 1/ in case of emergency, any obligation on financial
The law will be part of the French Environmental Code natural habitats will be State of the art third parties like public security.
with a new heading VI called ‘Prevention and remedying of defined in a list made by 2/ not for the emission/ bodies, public interest
environmental damage’. the MEDD. (There is no event expressly authorized. groups, NGOsh,
Expected agenda for 2008: discussions in the Parliament draft list up to now). professional syndicates,
during the 1st quarter of 2008. Readings on two separate private owners affected or
liabilities: strict liability for dangerous activities listed; and regions with a measure of
fault based liability for other professional activities. autonomy, can propose that
the competent authority
does prevention and
remediation works itself
and then seets repayment
from the operator.
2/ costs linked to informing
and consulting of the public
and 3rd parties affected are
part of the prevention and
remediation costs.
3/ contaminations caused
prior to 30 April 2007.
GERMANY The ELD was adopted in the Environmental Damage Act – Generally identical to the Competence of the Federal None No compulsory insurance
EDA (‘Umweltschadengesetz’) - promulgated on 14 May ELD, but Federal States can States. implemented in EDA.
2007 and enacted on 14 November 2007. extend.
CEA | 43
44 | CEA
contamination)
GREECE No official draft. Law preparatory Committee is still

working to complete the draft.
HUNGARY Act in force since 30 April 2007. Amendment of existing Species and habitats No exemption for the The law is now less A draft governmental
law: General Environmental Protection Act 1995 to protected under national ‘State of the art’ but for strict with regard to the Decree of October 2007
transpose the ELD. Governmental decrees expected on a law. Permit in case GMOs or definition of the liable party contains liability insurance
number of topics. untested pesticides create but more stringent with as one of the optional
future problems. Exclusions regard to defences. financial securities for
beyond war, civil war, riots, a significant part of the
and civil commotions and Annex III activities.
environmental damages
arising out of fulfillment
of court or administrative
decisions might not be
accepted.
IRELAND No public draft
ITALY The ELD (Environmental Liability Directive) was Same cover as the ELD, Yes, both In the Decree 152/2006: Art. 318, 3rd paragraph,
implemented in the Legislative Decree n. 152/2006, in the implemented in the The Annex for includes the issuing of a
6th Part; It entered into force in April 2006. 6th part of the Decree ‘occupational activities’ is decree for the definition
152/2006. missing; and development of
Liability is only for fraud or adequate guarantees for
fault (no strict liability for operators to absolve their
the occupational activity); liabilities.
There is an exclusion Only certain industries have
polluted sites where an obligation to purchase
procedures clean-up have insurance (i.e. nuclear
already been started. activity, transportation,
storage of hazardous
materials and distribution
of gas).
LATVIA Law on Environmental Liability enacted in November 2006. Insurance, bank guarantees
and other financial security.
LITHUANIA Environmental Act 24 March 2005. None No measure on financial

security.
LUXEMBURG Enactment of law is in progress.
MALTA Has not yet been transposed into Maltese legislation.

contamination)
NETHERLANDS Unexpected drawback in the legislative process. No more than ELD. Identical Extends strict liability No compulsory insurance.
to ELDH+ SSIs (national to damages caused by
protected sites). non-Annex III (water-land-
biodiversity).
POLAND Act on environmental damage prevention and its remedy Extended cover. All areas No State of the art defense No compulsory insurance
has been in force since 30 April 2007. There are two drafts protected under national (Art. 8 par. 4.b of ELD) Discretionary financial
of executive decrees on: Polish Law. Damage to the - no Permit defence security for ELD.
1) detailed criteria of environmental damage definition ground definition extended (Art. 8 par. 4.a of ELD), In cases of important
2) detailed remedy measures. for every contamination however negative impact public interest authorities
which exceeds quality on protected species can demand financial
parameters set by law. and habitats which guarantees when issuing
had been previously permission for:
identified by permission -Dust or gas emission to
for undertaking (Art. 2 the air
par. 1.a, second paragraph -Sewage emission to the
of ELD) is excluded from Water or ground
environmental damage -Waste production
definition -Integrated permission
- differences with wording Authorities must consider
of Art. 4 par. 1.b of ELD possible serious danger
- all damage caused by to the environment of
forces of nature is excluded, mentioned activities.
no additional criteria of Minister of Environmental
exceptional, inevitable Protection can issue
and irresistible character. executive decrees on:
Definition is extended for List of installations for
acts of terrorism. which mentioned financial
guarantee are compulsory
Required limits for
mentioned compulsory
guarantee
Mentioned decrees have
not been issued yet and
there are no draft.
Financial guarantees can
be in the form of cash
deposits, bank guarantees,
insurance guarantees or
insurance.
CEA | 45
46 | CEA
contamination)
PORTUGAL No public draft.
ROMANIA End of the process of internal approval in the Ministry of Financial security
Environment. The Government issued an urgent regulation compulsory.
(decree) regarding the Environmental Liability and the
prejudice and repair process. The regulation has been in
force since 29 June 2007. A very important aspect is the
fact that wide this regulation the financial (insurance,
guarantees) will be set for a place in 1 year term. The
Ministry of Environment will send the modifying project
only after all the institutions involved send feedback
regarding the financial instruments.
SLOVAKIA Transposition law effective from 1 September 2007. Mandatory financial

guarantee provisions by
2012.
SLOVENIA A study has been undertaken to identify the measures

necessary to ensure full implementation of the ELD.
contamination)
SPAIN Transposition Law was approved on October 4, 2007 in the Protected species and Permit defence and Polluted land: the concept Mandatory financial
Parliament and entered into force 24 October 2007 with a habitats include not only development risk defence includes the pollution that schemes will be established
retroactive date of 30 April 2007. those of Natura 2000 but are in place, but the can pose a threat for both in April 2010.
also the ones declared exemption is limited in two human health (directive) Three options:
by national and regional ways: and the environment. a) insurance;
authorities. - It affects recovery costs; b) bank bond;
Includes all species and not prevention. c) assets deposit.
habitats, soil, water, - The operator has to pay Amounts from €300.000
seaside, protected wild costs and then he is entitled to €20.000.000 , according
species– extended cover. to recover them from the to risk level. This is to be
public administration or a determined using a risk
third party. assessment method to be
Exclusions: war, hostile agreed by December 2008.
fire, uprising, acts of
god, national defence
and national security,
international agreements
(hydrocarbons, transport of
hazardous materials, etc.),
nuclear risks. Exemptions:
in cases 1) of exclusively
third party intervention
2) of execution a public
authority order. 3) of proof
that the diligence and
the damage is the result
of activities that were the
subject of an administrative
authorization, or 4) that
the current state of the art
could not foresee.
SWEDEN The ELD has been implemented in Swedish Law since Extended to species None.
August 1st, 2007. protected under national law.
UNITED UK Government has not yet announced its final decisions Limited cover. Government
KINGDOM on how the Directive will be implemented. National law may extend the scope of
expected to come into force autumn 2008. cover to all the sites of
special scientific interest.
Disclaimer:
All aforementioned information set up in this transposition table come from various sources. Since the content displayed therein may be incomplete or inaccurate, the CEA transposition
table can only serve as an indication of the implementation status within some Member States as at 1 January 2008. The CEA therefore explicitly declines any liability of whatsoever nature
which might arise from it.
CEA | 47
48 | CEA
7.2 Risk mapping exercise
Listed Occupational Activity Annex III Potential ELD-specific Outcomes/Issues Other Non ELD Outcomes/ Issues Notes
Landfill Operation
Scenarios of Concern
Damage or deterioration of liner or damage to leakage Impact on groundwater as defined under the WFD. Liability for property damage.
ate control system (LCS) lead to leakage. Impact on surface water as defined under the WFD. Personal Injury.
Impact on protected habitats and species as defined Economic loss.
under the Birds and Habitats Directive. Business interruption.
Damage to gas control system leads to migration of Impact on protected habitats and species as defined As above release of greenhouse gases
gas. under the Birds and Habitats Directive.
Capping material damage or deterioration. Increased leachate generation and resulting pressure As above.
on LCS may result in contaminant migration off-site
(e.g water damage).
Acceptance of unsuitable waste. Contaminant migration off-site (e.g. water damage). As above.
Non listed Occupational Activity Potential ELD-specific Outcomes/Issues Other non ELD Outcomes/ Issues Notes
Construction Stage of a Commercial Development
Scenarios of Concern
Soil excavation, handling and storage. Run-off (leachate, suspended solids). Impact to private property. A brownfield site may be subject to risk
Re-use/recovery on-site of low-level contaminated soil. Personal Injury. assessment
Existing site habitat and protected species. Economic loss. A greenfield site may provide a habitat to
Ground instability/ subsidence. a protected species
Site dewatering (temporary during construction). Water table effects (water flow direction and quantity). As above. Potential adverse impact on surrounding
Water treatment (if contaminated). habitats and species
Water/effluent discharge. If groundwater is contaminated, recovery/
Water recharge. disposal issues may arise
Waste management. Waste classification. As above. Compliance with Waste Directive and
Identification of suitable waste recovery/disposal facilities. National Regulations
Waste handling and transport.
Record management.
Construction. Potential for accidental spills. As above.

Surface run-off, e.g. truck washing.
Hydrocarbons from leaking vehicles.
Leaking storage containers.
7.3 Insurance options and underwriting checklist

7.3.1 Risk Selection
Scope of liability (all potentially affected countries, i.e. country of origin, foreign countries affected by
transboundary damage respectively product exported):
Liability regime:
O Strict liability (e.g.dangerous activities according to Annex III) or
O Fault-based liability (non-dangerous activities)?
Definition of damage:
O Damage to species and habitats protected by Natura 2000 regulation only?
O Damage to species and habitats protected by Member States regulations (beyond scope of the
Directive)?
Hazard potential (i.e. assessment of exposure level/gravity of occupational activity based on processes, uses
of harmful substances/products, waste, storage, transportation)
O High (e.g. manufacturing of chemical products, operation of landfill)
O Medium (e.g. manufacturing of food)
O Low (e.g. printing industry)
Exposure potential (i.e. number, distances and areas of relevant receptors (e.g. protected areas, water
courses) around the location, vulnerability of receptors)
Number of relevant receptors:
O None
O Few
O Many
O Lots
Distance to the next protected area (Natura 2000 areas, SAC, SPA and other nature protection areas):
O Below 500m
O 500m to 3000m
O > 3000m
Distance to the next surface water body (streams, rivers, ponds, lakes):
O Below 500m
O 500m to 3000m
O > 3000m
O Discharge of waste water (directly or indirectly, e.g. connected to a public sewage purification
plant)
Vulnerability:
O Protected species
O Endangered species (e.g. red list)
7.3.2 Existing coverages (i.e. already covered under existing insurance solutions)
Land damage:
O First party clean-up cost insurance (e.g. property insurance)
O Necessary measures to eliminate any danger to human health (loss prevention/mitigation
measures; GTPL insurance)
Restoration of damage to water courses?
O GTPL insurance
O EIL insurance
O ...
Restoration of damage to protected species and habitats (e.g. property insurance)
O GTPL insurance
O EIL insurance
O ...
Car accidents:
CEA | 49
O Motor third party liability insurance

Aeroplane accidents:
O Aviation third party liability insurance
Ship accidents:
O Marine third party liability insurance
Nuclear damage:
O Nuclear third party liability insurance
7.3.3 Scope of cover
Conceptual approach:
O Endorsement to existing insurance solution
O Stand-alone insurance solution
Insured risks/activities
O Activities listed in Annex III
O Activities non-listed in Annex III
Insured persons, premises and locations
O ...
Insured event
O Sudden and accidental event
O Named peril
O Time-based triggering event
O Gradual emission
Insured liability/costs
O Remediation of land damage
O Primary remediation
O Complementary remediation
O Compensatory remediation
O Costs for preventive measures
Scope of indemnity in time (policy trigger)
O Causation/action committed
O Occurrence
O First discovery/manifestation
O Claims made
O During the period of insurance
O Retroactive date?
O Extended reporting period?
Territorial scope of cover
O Home territory only
O Neighbouring countries
O EU Member States
O Europe
O Pan-European Policy/International programmes
Specific exclusions
O Permitted operation
O Development risk
O Intentional act
Sum insured
Compensation:
O Remediation of land damage
O Primary remediation
O Complementary remediation
O Compensatory remediation
50 | CEA
O Costs for preventive measures

Legal and other costs:
O Inclusive
O Sublimit
O In addition
Annual aggregate
O Yes, how many …?
O No
Claims series clause
O Yes With rollback provision O Yes O No
O No
Accumulation control
O No accumulation with other insurance solutions
O Accumulation possible but limited (e.g. sublimit, accumulation control clause)
CEA | 51
52 | CEA
7.4 Claims management questionnaire
Competency Questions to be answered Tools
Underwriting assessment:
Gathering information before incident occurs by risk assessment during the underwriting process
Insurer, insured Kind of business and possible activities of the insured? Developing an emergency plan together with the insured (similar to recall plan),
Assessment of the environment of the insured sites (protected areas, watercourses, including identification of the competent authorities, referring to all the insured bases/
neighbourhood/plants)? At least the policyholder should make a survey referring to his sites/plants.
site (even when policy is not-site-specific)
Which measures are possible to prevent or minimise land, water or biodiversity
damages?
Damage or possibility of damage occurring: carry out an assessment of what has happened
Insurer, Kind of activity? Underwriting information, e.g. knowledge of licensed/insured activities.

competent authority, Occupational versus non-occupational
insured/polluter, Annex III or Non-Annex III.
any other sufficient
interested party Causal link
Investigation of causal link between activity and damage including third party.
responsibility
Significance of damage
If activity is not listed in Annex III : List of practical examples of negligent

Fault or negligent activity? activities, e.g. lack of maintenance of installations.
Was the operator authorised to conduct the activity? Or was the damage in question or Systematic documentation and update of authorised activities.
the imminent threat thereof the result of certain events beyond the operators’ control?
Insurer, competent Possible damage to land, water or protected species or habitats? Documentation of data of land, water and the protected species and habitats (also
authority with using geographic information systems).
participation of the
relevant ‘nature
protection’ authority,
insured/polluter
Identification of applicable laws and competent authorities
Insurer, insured, Identify the applicable laws (including defences) and competent authorities
competent authorities (transboundary losses within the member states respectively between member states) .
Loss prevention and loss mitigation: what is possible by way of remediation?
Insurer, competent Which measures to prevent and/or mitigate land, water or biodiversity damage are Reports and other documentary evidence.
authority, insured/ possible and have been taken by the insured/polluter to date? Complete the execution of the emergency plan as a matter of urgency.
polluter Action to be taken by the insurer/insured towards the competent authority? As a secondary consideration other parties (e.g. third parties, other insurances) may
need to be involved.
Gathering of relevant loss information
Insurer, polluter/ Determination of environmental damage: Establish a catalogue of requirements for the species and habitats to make the
insured, competent Assessment of the damage/significant damage. parameters of Annex I more concrete.
authority Consider the exceptions to significant damage according to Annex I.
Which emissions occurred (substances/pollutants and quantity)? Environmental impact? Establish a list of experts who can be involved on behalf of any interested party to
ensure effective and efficient remediation measures.
Current status of land, water, protected species and natural habitats in relation to their Supplement underwriting information with the current status of land, water, protected
baseline conditions? species and natural habitats through, e.g. use of geographic information systems,
public registers.
Significant water or land damage as defined in the Directive?
Significant adverse effects on the conservation status of protected species and habitats The long-term effects of harm need to be established through the use of appropriate
as defined in the Directive? specialists (e.g. environmental, biological, ecological).
Insufficient information regarding baseline conditions. Sampling adjacent areas, historical use and other evidence available.
Identification and choice of remedial options
Insurer, competent Remediation of environmental damage, select most suitable remediation measures. Reference to Annex II and other specialists as appropriate.
authority with
relevant ‘nature
protection’ authority,
polluter/insured
Monitor the outcome of prevention and remediation measures
Insurer, competent Do the measures prove as appropriate? Reference to Annex II and other specialists as appropriate.
authority with When will the baseline condition be achieved?
relevant ‘nature
protection’, authority,
polluter/insured
CEA | 53
7.5 Glossary
Accident A sudden, unforseen and unintended event not under control of the insured,
which results in injury or damage.
Accumulation Measures to avoid ruinous exposure to a particular loss event by tracking
control all insured risks which might be subject to accumulation and ensuring that
underwriting capacity is not exceeded.
Beneficiary The person or legal entity the owner of an insurance policy names to receive
the policy benefit if the event insured against occurs.
BS British Standard are standards and information products that promote and
share best practice.
CERCLA The Comprehensive Environmental Response, Compensation, and Liability
Act (CERCLA), commonly known as ‘Superfund’, was enacted by Congress
on December 11, 1980. This law created a tax on the chemical and petroleum
industries and provided broad Federal authority to respond directly to releases
or threatened releases of hazardous substances that may endanger public
health or the environment.
Claims-made Rule which says that if a claim is made during the period when a liability
principle policy is in effect, the insurer must pay regardless of when the event causing
the claim occurred.
Deductible Amount of an insured loss specified in a policy which the insured has to bear
before the insurer provides cover.
DIC Difference in condition.
DIL Difference in limits.
EASO, The basic aim of an EASO is to establish the relationship between the
Environmental environmental aspects of an enterprise or location, and the environmental
Assessment issues (risks/opportunities) and their ensuing business consequences (financial
of Sites and or other) as part of the preparations for a proposed business transaction.
Organisations
ELD, Directive 2004/35/EC of the European Parliament and of the Council of
Environmental 21 April 2004 on environmental liability with regard to the prevention and
Liability Directive remedying of environmental damage. The Directive establishes a framework
for environmental liability based on the ‘polluter pays’ principle, with a view
to preventing and remedying environmental damage.
EIL, Under this label, it is frequently offered a third party coverage for damages
Environmental caused to third parties claimants by pollution conditions originating from the
Impairment insured plant, including mitigation costs. This type of policy, also marketed
Liability Policies as Pollution Legal Liability policy (PLL), is written on a claims- made,
manifestation or discovery basis and it generally excludes NRDs, biodiversity
damages and the on-site cleanup obligations mandated by the competent
authority.
EMS, Organisational structure, responsibilities, practice, procedures, processes and
Environmental resources for implementing and maintaining environmental management.
Management
System
54 | CEA
Exposure Susceptibility to loss; exposure is defined by the type of value exposed, as

well as the probability, severity and possible financial extent of a loss.
First discovery/ Coverage trigger that bases insurance cover on the exact time when an
manifestation injury, damage or other loss is discovered/manifested.
First Party Claim A claim made by the policyholder for reimbursement by the insurance
company.
First Party Insurance covering the expenses of restoring a polluted area owned by the
Cleanup cost insured.
insurance
GMOs Genetically Modified Organisms or genetically engineered organism (GEO)
is an organism whose genetic material has been altered using genetic
engineering techniques.
GTPL General Third Party Liability. The object of this insurance is the insured’s
third party liability in virtue of losses to a person or property caused to third
parties in relation to conducted business activity or property ownership. The
insurance may cover general third party liability of the insured as well as
professional liability.
Hazard A specific situation that increases the probability of the occurrence of loss
arising from a peril, or that may influence the extent of the loss.
INERIS, Institut French Institute for Industrial Environment and Risks. The Institute carries out
National de research on risk assessment and the evaluation of the impact of industrial
l’Environnement activities on health and the environment.
Industriel et des
Risques
Insured The person or persons (a.k.a., the policyholder(s)) whose risk of financial
loss from a peril covered by the insurance policy is protected by an insurance
policy.
Insurer The insurance company offering insurance coverage.
IPPC Integrated Pollution Prevention and Control. The ‘IPPC’ Directive Council
Directive 96/61/EC of 24 September 1996) is about minimising pollution
from various industrial sources throughout the European Union. It has been
amended four times since it entered in force and recently codified Directive
2008/1/EC.
LCS Leachate Control System.
Local policy An insurance agreement which covers local activities of an insured in a
specific state (e.g. local subsidiary of a multi-national parent company).
Master An insurance contract which covers a multi-national parent company for
agreement their international activities.
MPL Most Probable Loss.
MTPL Motor Third Party Liability. Third party liability insurance that applies to all
motorised vehicles.
NRD Natural Resource Damage. A damage affecting naturally occurring substances
that are considered valuable in their relatively unmodified natural form.
CEA | 55
Occurrence An event that results in an insured loss. In some lines of business, such as
liability, an occurrence is distinguished from accident in that the loss does
not have to be sudden and fortuitous and can result from continuous or
repeated exposure which results in bodily injury or property damage neither
expected not intended by the insured.
PI Professional Indemnity (Insurance). Professional indemnity insurance provides
insurance for businesses in the event that legal action is taken against them
by third parties claiming to have suffered a loss as a result of advice given
to them.
Policy The written statement of a contract effecting insurance, or certificates thereof,
by whatever name called, and including all clauses, riders, endorsements,
and papers attached thereto and made a part thereof.
Policy triggers Principles agreed in an insurance contract which determines the scope of
indemnity in time (e.g. first discovery/manifestation, claims made).
Product Liability Provides protection against financial loss arising out of the legal liability
Insurance incurred by a manufacturer, merchant, or distributor because of bodily injury
or property damage resulting from the use of a insured product.
Property Property insurance indemnites an insured whose property is stolen, damaged,
Insurance or destroyed by a covered peril.
Public liability A liability law which regulates the relation between governmental bodies
regime and natural or legal persons.
RCRA Resource Conservation and Recovery Act - 42 U.S.C. §§6901-6992k. This

piece of legislation aims at protecting the public from harm caused by waste
disposal, encourageing reuse, reduction, and recycling to clean up spilled or
improperly stored wastes.
Red List Also known as ‘IUCN Red List’, is an inventory of the global conservation
status of plant and animal species. There are nine categories in the IUCN
Red List system, amongst which three are considered to be ‘threatened
categories’ (Critically Endangered, Endangered and Vulnerable).
REMEDE-project Resource Equivalency Methods for Assessing Environmental Damage in the
EU. REMEDE is designed to support Annex II of the Environmental Liability
Directive which lists different methodologies that can be used for this
common framework. The goal of the REMEDE project is to develop, test and
disseminate methods for determining the scale of the remedial measures
necessary to adequately offset environmental damage.
SAC, Special Area A SAC is defined in the European Commission Habitats Directive
of Conservation (92/43/EEC), also known as the Directive on the Conservation of Natural
Habitats and of Wild Fauna and Flora. SACs complement Special Protection
Areas (see SPA below) and together form a network of protected sites across
the European Union called Natura 2000.
SHAPE-Risk Sharing Experience on Risk Management (Health, Safety and Environment),
the main objective of SHAPE-RISK is to establish the basis for a further
sustained development of European industry, and to do so by optimizing the
application of methods of risk management.
56 | CEA
Seveso II Council Directive 96/82/EC of 9 December 1996 on the control of major-

accident hazards involving dangerous substance. The Directive aims at
improving the safety of sites containing large quantities of dangerous
substances. It is named after the major industrial accident that occured July
10, 1976, in a small chemical manufacturing plant close to Milan, Italy.
SPA A Special Protection Area is a designation under the European Union directive
on the Conservation of Wild Birds (79/409/CEE). Together with Special Area
of Conservation or SACs, the SPAs form a network of protected sites across
the European Union, called Natura 2000.
Stand-alone A separate liability insurance policy for the manufacturer or supplier of goods
products policy against damage caused by their products.
Third party A party that is not a party to the insurance policy. Parties to the policy are
typically the insurer and the insured. Third parties may include private parties
and government entities enforcing regulations. A claim (e.g. a lawsuit) by an
entity against a policyholder of another company and the payment, if any,
will be made by the policyholders company or insurance policy.
Third party Insurance to indemnify the insured and other specified persons against their
Insurance legal liability towards third parties for death, injury or property damage.
WFD Water Framework Directive Directive 2000/60/EC establishes a framework
for Community action in the field of water policy to improve water quality
(including marine waters up to kilometer from shore) by 2015.
CEA | 57
7.6 References
BS 10175:2001 ‘British Standard Investigation of potentially contaminated sites – Code of practice’. ISBN
0 580 33090 7.
BS ISO 14015:2001 ‘Environmental Management – Environmental assessment of sites and organisations

(EASO)’, ISBN 0 580 38721 6.
Busenhart, J., Baumann, P., Schauer, C., Orth, M., and Wilke, B., ‘Insuring environmental damage in the
European Union’, Technical Publishing Casualty, Swiss Reinsurance Company, Swiss Re Publications 2007.
The American Institute of Chemical Engineers (AICE), Center for Waste Reduction Technologies ‘Total Cost
Assessment Methodology’ (The TCA Report, July 1999).
58 | CEA
7.7 List of CEA Environmental Expert Working Group Members
CH Mr Bernard Tettamanti UK Mr. Phil Bell

Working Group Director Group Casualty Director
Leader Casualty Products Royal & Sun Alliance
Swiss Reinsurance Company One Plantation Place
Mythenquai 50/60 30 Fenchurch Street
CH - 8022 Zurich UK - EC3M 3BD
CH Mr Jürg Busenhart UK Mr Marcus Drew

Vice President Assistant to the President
Casualty Products AIG Europe (UK) Limited
Swiss Reinsurance Company 58 Fenchurch Street,
Mythenquai 50/60 UK – London EC3M 5AB
CH - 8022 Zurich
DE Mr Nils Hellberg UK Mr Anthony Dempster

Head of Liability and Credit Partner
Insurance Department Herbert Smith LLP Exchange
GDV House Primrose Street
Willhelmstraße 43 UK – London EC2A 2HS
DE – 10117 Berlin
ES Mr José Luis De Heras Herráiz IE Ms Dawn Slevin

Manager Environmental Engineer En-
Pool Español de Riesgos vironmental Liability Service
Medioambientales, AIE (ELS) Ireland Ltd.
C/. Garcia de Paredes, 55 3 Kelso Terrace
ES - 28010 MADRID St. Mary’s Road
IE - Dundalk
FR Ms Elisabeth Abrassart- CEA Ms Hakima Ben Azzouz

Verduzier Policy Advisor – Non-life
Director Insurance
ASSURPOL Square de Meeûs 29
Tour Franklin BE – 1000 Brussels
FR - 92074 Paris la Défense
Cedex
BE Mr Pierre Sonigo CEA Ms Louise Guhmann

Secretary General Intern – Non-life Insurance
FERMA Square de Meeûs 29
Avenue Louis Gribaumont, 1 BE – 1000 Brussels
BE – 1150 Brussels
CEA | 59
60 | CEA
About CEA
CEA is the European insurance and reinsurance federation. Through its 33 member bodies, the national
insurance associations, CEA represents all types of insurance and reinsurance undertakings, e.g. pan-
European companies, monoliners, mutuals and SMEs. CEA represents undertakings which account for
approximately 94% of total European premium income. Insurance makes a major contribution to Europe’s
economic growth and development. European insurers generate premium income of €1,065bn, employ
over one million people and invest more than €6,900bn in the economy.
CEA | 61
CEA aisbl
Square de Meeûs, 29
B-1000 BRUSSELS
Tel.: +32 2 547 58 11
Fax : +32 2 547 58 19

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The Environmental Liability Directive

Enhancing Sustainable Insurance Solutions

This paper is also intended to support discussions with competent authorities

• Risk assessment, evaluation and decision on risk

For liability to be effective, polluters must be clearly identiﬁable. To this effect

• The object of the claim is the remediation of damage to natural resources,

2.1 The requirement to prevent

2.2 The defences

As outlined in Article 8 (3) of the Directive, an operator will not be required to

Therefore an operator will not be considered at fault or negligent for an emission

Permit and ‘state of the art’ defences

An exemption from liability under the Directive also applies where:

• An emission or event expressly authorised by, and fully in accordance with,

2.3 Restoration of the environment

Annex II of the Directive sets out a common framework to be followed in order to

• Primary remediation: ‘any remedial measure which returns the damaged

3. Risk assessment, evaluation and decision on risk

Some of the things the underwriter will want to consider include:

Given the current transposition uncertainties, the approach to risk assessment

3.1 Terms and elements of the risk assessment

Risk is often described as an event, a change in circumstances, a consequence, or

3.2 Building the conceptual model

deﬁned in BS8 10175 (2001) to encapsulate the requirements of the Directive

‘A textual and/or schematic hypothesis of the nature and sources of environmental

Potential ‘sources’ of environmental damage under the Directive

In summary, the potential ‘sources’ of environmental damage covered in

Pathways and receptors

In terms of the Directive, a pathway may be described as a mechanism or route,

Environmental damage as deﬁned under the Directive means damage to receptors

8 BS: British Standard

3.2.2 Elements of the investigation and development of the conceptual

As part of the conceptual ‘source-pathway-receptor’ model development,

Key factors to be considered

Technical and environmental factors

• The location and geographical extent of the operation

Legal and corporate factors

• Local regulatory environment within the area of operations

In addition to relevant items that may be covered above, particular operational

3.3 Criteria to evaluate the risk

3.3.1 Risk context

3.3.2 Probability of exposure

Examples of rating tables are shown below:

0.2 below Urban areas with semi-natural areas. Meager 2-3%

Water rating table

3.3.3 Severity of exposure

Remedial (site clean-up) costs could be associated with process-based releases,

US EPA’s estimated average site costs

Site Estimated Average Site Cost ($)

Natural Resources Damage (NRD)

There is a variety of methods to assess economic damage. NRD restoration

3.4 Making decisions on risk

3.4.1 Current insurance approach in respect of environmental liability

The two approaches are described in more detail below:

• Sensitivity of surrounding area – both human and ecological

3.4.2 Implications of the Directive for underwriting methodologies

This uncertainty will affect the underwriting process.

General third party liability

A number of GTPL insurers are looking to use geographical information systems

• Assessing of the applicant’s risk management practices

Environmental impairment liability

The approach of the competent authority should also be given consideration in

Section 3.2.2 ‘Key factors to be considered’ lists a range of technical and