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Environmental Insurance (EIL)

CONFERENCE ON THE IMPLEMENTATION OF COASTAL FACILITIES SEA POLLUTION LIABILITY INSURANCE IN THE EU AND TURKEY

cameron-thomas
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Environmental Insurance (EIL)

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  1. CONFERENCE ON THE IMPLEMENTATION OF COASTAL FACILITIES SEA POLLUTION LIABILITY INSURANCE IN THE EU AND TURKEY Session I: Implementation of “Coastal Facilities Sea Pollution Liability Insurance” in the European Union: Legislative Framework, Practices in Member Countries and Conditions for (Re)insurance Coverage Dr Marcel Steward: Managing Director – Environmental Division

  2. EnvironmentalInsurance(EIL) Overview • Coverage in the European Environmental Insurance Market • Characteristics of the Environmental Insurance Market • Sudden v Gradual Pollution • Some Basic Technical Problems • The Wider Consequences of Getting it WRONG • Some Aspects of the Current Turkish Legislation • Summary

  3. EnvironmentalInsurance(EIL) INSURANCE Environmental TURKISH INSURANCE MARKET WE ARE TRYING TO FIT A SQUARE PEG IN A ROUND HOLE

  4. EnvironmentalInsurance(EIL) EIL MARKET CHARACTERISTICS Cover: • 1st Party On Site Clean-Up • 3rd Party Bodily Injury and Property Damage • Legal Defence Cost • Business Interruption (Optional) Standard Exclusions: • 1st Party Employer Liability • Asbestos • Radioactive Contamination Limits of Indemnity: • USD 20+ million per insurer

  5. EnvironmentalInsurance(EIL) EIL MARKET CHARACTERISTICS Trigger: • Statutory / Enforcement Authority Intervention (typical) Policy Duration: • Annual or Multiyear Policies Available: Historical: 1 – 10 years Operational: 1 - 3 years Minimum Premiums Apply NOT CLASSICALLY A REINSURANCE TREATY MARKET FACULTATIVE INSURANCE AVAILABLE ‘BROKER OF RECORD’ MARKET

  6. EnvironmentalInsurance(EIL) EIL MARKET CHARACTERISTICS BROKER MARKET (Tendency): • Technical in its underwriting • Non – Standard Policy Wording and Coverage • Large volume of ‘non – standard’ information disclosure • Usually tailored policy wordings • Maximisation of Environmental Insurance Market Resources

  7. EnvironmentalInsurance(EIL) Environmental Impairment Liability (EIL) Insurance: • Limited number of underwriters • Five main underwriters • Two / Three recent joiners • Technical Underwriting Market Generally: • Environmental Risk Management Requirement of some form • SURVEYS ARE NOT ALWAYS NECESSARY • Some form of ‘Risk’ Specific Information required • Underwriters tend to be technical = few Underwriters (Human Resource) • No ‘Rate on Line’ Available for anything other than for SIMPLE Environmental Risks

  8. EnvironmentalInsurance(EIL) Environmental Impairment Liability (EIL) Insurance: TotalPollutionCovercompared with Suddenv GradualPollution USA: Comprehensive Environmental Response,Compensation, and Liability Act (CERCLA or ‘Superfund’):1980 • Restriction of exposure of the underwriters • NOT an inclusion of cover • NOT Defined in a Court of Law EILINSURANCEMARKETWRITES: TOTALPOLLUTIONCOVER

  9. EnvironmentalInsurance(EIL)SIMPLECASE Claim: Sudden 100%√ Gradual 0% X Sudden Sea / Water SAND - permeable Pollutant CLAY - impermeable

  10. EnvironmentalInsurance(EIL)COMPLEXCASE Claim: Sudden 30%√ Gradual 70% X Sudden Gradual

  11. EnvironmentalInsurance(EIL)COMPLEXCASE Claim: Sudden 0%√ Gradual 100% X Gradual

  12. EnvironmentalInsurance(EIL)COMPLEXCASE Claim: Sudden 100% or 30%√ Gradual 0% 0r 70% X Sudden Gradual

  13. EnvironmentalInsurance(EIL)COMPLEXCASE Claim: Sudden 0%√ Gradual 0% or 100% X Gradual

  14. EnvironmentalInsurance(EIL) How CLEAN IS CLEAN? • How Clean was the site BEFORE the Sudden Pollution Event? • How much Pre-existing Pollution is: Gradual / Sudden? • How Much should be cleaned up? • How Clean should the site be AFTER Clean UP?WHAT IS THE OVERALL OBJECTIVE?

  15. EnvironmentalInsurance(EIL) HOW CLEAN IS CLEAN? Reference Standard Clean Ground Particles:Rocks / Pebbles / Sand Grains / Soil Particles

  16. EnvironmentalInsurance(EIL) HOW CLEAN IS CLEAN? Reference Standard Polluted Ground Particles:Rocks / Pebbles / Sand Grains / Soil Particles

  17. EnvironmentalInsurance(EIL) HOW CLEAN IS CLEAN? Reference Standard Actual Size X 10 Mag. X 40 Mag. X 200 Mag. Key: Mag. = Magnification

  18. EnvironmentalInsurance(EIL) HOW CLEAN IS CLEAN? ? Reference Standard Actual Size X 10 Mag. X 40 Mag. X 200 Mag. Key: Mag. = Magnification

  19. EnvironmentalInsurance(EIL) HOW CLEAN IS CLEAN? ? ? Reference Standard Actual Size POLLUTER X 200 Mag. STATUTOTY / ENFORCING AUTHORITY

  20. EnvironmentalInsurance(EIL) HOW CLEAN IS CLEAN? ? ? Reference Standard Actual Size POLLUTER X 200 Mag. STATUTOTY / ENFORCING AUTHORITY Insurer?

  21. EnvironmentalInsurance(EIL) HOW CLEAN IS CLEAN? WATER WATER + OLIVE OIL OIL

  22. EnvironmentalInsurance(EIL) HOW CLEAN IS CLEAN? WATER + LUBRICATION OIL WATER LUBRICATING OIL

  23. EnvironmentalInsurance(EIL) HOW CLEAN IS CLEAN? WATER HYDROCHLORIC ACID WATER +HYDROCHLORIC ACID

  24. EnvironmentalInsurance(EIL) HOW CLEAN IS CLEAN? SO WHAT DIFFERENCE DOES IT MAKE:

  25. EnvironmentalInsurance:Turkey A.1. Subject Matter of the Insurance The Insurer hereby agrees to indemnify the insured against the legal liability to be imposed on the insured in connection with the cleaningupexpenses, expenses incurred for transportation and disposal of the collected waste matters, damages and losses arising from injury or death of third persons, and damages and losses suffered by private properties caused by a pollution or danger of pollution which takes place in the marine authorization areas of Turkey, which are comprised of internal waters, territorial waters, continental shelf, and sole economic territory of Turkey, as a result of an event attributable to the shore facility specified in the insurance policy up to the limits specified in the insurance policy in accordance with the Law No. 5312 dd. 3.3.2005 on the Principles of Responding in Emergencies to Marine Pollution Caused by Petrol and Other Harmful Substances, and Compensation of Damages and Losses Comment: Cleaning up TO WHAT STANDARD? Many Env. Insurers do notcover transportation Many Env. Insurers do notcover pollution at sea or to a limited extent only (?)

  26. EnvironmentalInsurance:Turkey A.1. Subject Matter of the Insurance This insurance policy shall also cover the defenses to be made by the insured against unfair claims. Comment: Most General Insurance Policies ONLY Cover ‘Sudden and Accidental’ Pollution occurrences The requirement for Environmental Insurance for Sudden and Accidental Pollution does not preclude the insured’s liability for ‘Gradual and Incremental’ Pollution Most Pollution Events of Significant Magnitude are GRADUAL in occurrence

  27. EnvironmentalInsurance:Turkey A.2. Definitions ‘Pollution’ means contamination of sea with petroleum or other harmful substances as a result of an event to the extent it could be harmful for living resources and marine life, or human health, prevent marine activities and operations including fishery and other legitimate uses of seas, or could lead to a change in attributes of sea water, or a deterioration in the ecologic equilibrium. QUESTION: How is this measured? By who? Using What Method? • UK Lab. Of Government Chemists: • Measurement variation by factor of X400 • Difference between + / - USD20 mill

  28. EnvironmentalInsurance:Turkey A.5. Occurrences excluded from Coverage Following claims are hereby excluded from the insurance coverage: Claims made by the insured for damages and losses; Comment: Incomplete protection for the Insured and Additional Insured’s

  29. EnvironmentalInsurance:Turkey A.6. Geographical Limits of the Insurance This insurance shall be applicable within boundaries of the application areas as well as in marine areas beyond terrestrial waters to be resolved by the Undersecretariat of Maritime based on opinions of the Ministry of Environment and Forests, Ministry of Foreign Affairs, and other relevant public bodies and entities in emergency cases to the extent required to respond to such emergencies, and diminish damages and losses which might be caused thereby. Comment: Environmental Insurers DO NOT Cover Marine Pollution (?) or only to a limited extent THEREFORE – WHOIS? Is this ‘retained’?

  30. EnvironmentalInsurance:Turkey B.05. Multiple Suffering Parties / Beneficiaries If the aggregate amount of indemnities payable to the suffering parties / beneficiaries is in excess of the coverage amount specified in the insurance contract, then amount of indemnity payable to each of the suffering parties / beneficiaries shall be reduced based on the ratio of the coverage amount to the aggregate amount of indemnities payable. In case of an occurrence where multiple persons suffer from damages and losses, the Insurer which has paid any amounts to one or more of the suffering parties / beneficiaries in excess of their actual shares in the indemnity due to lack of information about other claimers shall be relived of its liability to other suffering parties / beneficiaries. Comment: How Much is NOTENOUGH to protect / compensate ‘suffering parties’? Is YTL 4, 000, 000 / USD 6,000,00 enough?

  31. EnvironmentalInsurance:Turkey • SUMMARY: • The compulsory environmental insurance coverage: • Does not provide full protection of the insured against third party liability • Does not protection Additional Insured’s: Former factility owners e.g. If they are the primary polluter, statututory authorities e.g. If polluting party is no longer extants / able to pay for other reasons • Environmental Insurers do not usually provide cover for marine pollution events (at sea) – therefore who is coverinig this? • USD 6 million: NOT a lot • Turkish Compulsory Environmental Insurance: Covers ‘Sudden and Accidental’ Pollution Events ONLY

  32. Environmental Insurance Environmental Insurance - Turkey: SUMMARY: • No apparent Clean Up Standard, Standard Analytical Methodology – How Clean is Clean? How Clean was it before? What is the difference?What is the objective?

  33. Environmental Insurance • European Environmental Impairment Liability Insurance • General Summary: • NOT a TREATY REINSURANCE MARKET • FACULTATIVE REINSURANCE AVAILABLE • Few Underwriters (Limited Human Resources) • Tends to be a ‘Broker’ Market / ‘Broker of Record Letter’ • Technical Underwriting • Non-standard information disclosure • Non-standard Policy wordings

  34. Environmental Insurance • European Environmental Impairment Liability Insurance • GENERAL SUMMARY: • Upto USD 20+ million Limits of Indemnity available from individual insurer • Multiyear policies available:Past Pollution Events: Coverage - 1 to 10 yearsFuture Pollution Events: Coverage - 1 to 3 years • Cover for POLLUTIONEVENTS: No differentiation between ‘Sudden and Accidental’ and ‘Gradual and Incremental’ Pollution Events • Cover for PAST POLLUTION EVENTS available

  35. Environmental Insurance • European Environmental Impairment Liability Insurance • GENERAL SUMMARY: • Covers 1st Party Clean Up as a result of Statutory Authority Intervention or Third Party (Civil) Claims, Legal Defence Costs, Additional Insured’s, Past & Future Pollution Events and Residual Liability • Does NOT COVER MARINE POLLUTION or TRANSPORTATION IN TOTAL

  36. Environmental Insurance Contact Details: Dr Marcel Steward Managing Director Environmental Division Swinglehurst Limited 30 – 33 Minories London EC3N 1DD Telephone: +44 (0)20 7 977 6733 Mobile: +44 (0)7837 938 447 Email: marcel.steward@swinglehurst.co.uk

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