Insurance Options for Insurance Liabilities under the Directive

1. Insurance Options for Insurance Liabilities under the Directive • Jürg Busenhart • Swiss Reinsurance Company, Vice President

2. Insurance options for insurance liabilities under the ELD Congruence? Environmental LiabilityDirective Scope of insurancecoverage

3. Existing insurance products – preventing gaps and overlaps Existing insurance products General third party liability (GTPL) insurance Environmental Impairment Liability (EIL) insurance Professional indemnity (PI) insurance Motor (third party liability) insurance Aviation insurance Marine insurance Nuclear insurance Property insurance

4. General third party liability insurance Object of GTPL insurance: Legal liability of insureds to compensate third parties for injury and damage to property suffered by them=> basically limited to civil law Right of recovery for the liable operator against the insured Insured as manufacturer/importer of the defective product causing liability of the operator to remediate environmental damages (product liability) Services provided by the insured on operators property causing liability of the operator to remediate environmental damages Land damage versus loss prevention/mitigation measures

5. Environmental Impairment Liability insurance Object of EIL insurance: Legal liability of insureds to compensate third parties for injury and damage to property suffered by them as a result of a pollution event (sudden & accidental event or gradually occuring pollution)=> basically limited to civil law Right of recovery for the liable operator against the insured Services provided by the insured on operators property causing liability of the operator to remediate environmental damage Land damage versus loss prevention/mitigation measures

6. Professional indemnity insurance Object of PI insurance: Legal liability claims for negligence of professionals => basically limited to civil law Low exposed ELD activities versus higher environmental damage risks Right of recovery for the liable operator against the insured professionals Services provided by the insured on operators property causing liability of the operator to remediate environmental damage

7. Property insurance Object of property insurance: Compensation of damage to own property as a result of an insured event (e.g. fire) Remediation measures of company’s own property may include environmental damage Insurance solutions: First party clean-up cost insurance Decontamination cost endorsement

8. Other insurance solutions Motor (third party liability) insurance: Cover basically limited to civil law Marine insurance: Main focus on loading/unloading operations, port manoevres and discharge of brown waters Nuclear insurance: Environmental damage due to non-nuclear risks, e.g. changes in the quantity, quality or temperature of watercourses Insurer may wish to consider that coverage extensions in the above mentioned lines of business should be in line with GTPL/EIL solutions to avoid other gaps and overlaps

9. Environmental liability Insurance concepts Stand alone insurance concept (e.g. EIL insurance) Distinction between civil and public law based insurance cover should increase clarity Facilitates the development of solutions in response to emerging trends without hampering established client relationship Development of innovative and tailor-made solutions is more likely Duplication of claims possible, i.e. concurrence with traditional third party pollution liability covers Accumulation potential Increased administrative expenditure

10. Environmental liability Insurance concepts Integration into existing insurance solutions via endorsement (e.g. GTPL insurance) Accumulation potential under control Lower administrative expenditures Mixing different liability concepts in a single policy Separate premium allocation? Separate tracking of ELD claims? Assessment of claims development might be hampered

11. Environmental liability insured events Insurance coverage is usually limited to identified, unintended and unexpected incident(s) either: Sudden and identifiable in time (e.g. fire, explosion) => know as ‘sudden & accidental’ event Gradually occuring pollution events

12. Environmental liability Covered costs Costs for : Preventive measures Primary remediation Complementary remediation Compensatory remediation Remediation of land damage Wide field of uncertainty when trying to estimate reliably the amount of complementary and compensatory remediation, e.g. relevant threshold, assessment of damage and most efficient remediation measures

13. Environmental liability Temporal scope of cover Clear allocation of a particular loss to a specific point in time and insurance period is important The use of present-event triggers like ‘first discovery/ manifestation of damage’ or ‘claims made’ may be appropriate to cover the latent claims issue Retroactive cover back to 30 April 2007?

14. Environmental liability Geographical scope Transposition law applies to Member State territory only but potentially liable operators are also responsible for damage occuring outside home territory Transboundary/cross-border environmental damage or damage resulting from services provided outside the home country Extension of the geographical scope beyond the home territory may result in an exposure to foreign laws and court practices in a field where there may be a lack of legal clarity or certainty.

15. Environmental liability Losses arising out of defective products Direct claims of the competent authority against the manufacturer/importer depending on the definition of ‘operator’ Right of recovery for the liable operator against the manufacturer/importer of a defective product causing liability of the operator to remediate environmental damages (product liability)

16. Environmental liability Non-site-specific occupational activities Special assessment of relevant factors required due to: No knowledge 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 of the natural resources Distinction between hazardous and non-hazardous activities may not be sufficient Focus on following criterias: Insured to ensure that he is deploying experienced personnel Potential exposure arising out of activities on hazardous sites according Annex III Accumulation potential to already existing coverage

17. Environmental liability Non-site-specific occupational activities Examples: Defective construction/completed operation leading to pollution, e.g. errors in planning/supervision by architects/engineers or faulty workmanship by a contractor Accidental event during the performance of contractual activities on third party site Un-/intentional destruction of habitats or protected species in the course of an infrastructure project Direct claims of the competent authority against the contractor Right of recovery for the liable operator against the contractor

18. Environmental liability Allocation of coverage ELD-based coverage increases the risk that multiple polices might be triggered => double recovery Gradually occurring damage which might trigger several policy periods Event causing different types of damage covered under several insurance policies like: Environmental damage Damage to own property Traditional bodily injury and/or damage to tangible third party property

19. Environmental liability Sum insured Financial limits as a protection to the uncertainty the ELD creates regarding the impact on loss frequency and loss severity Costs for assessing the environmental damage and/or for legal proceedings to finally rule the liability of the operator might be substantial Underwriter may wish to consider limiting coverage either by fixing a sublimit or including costs in the sum insured or limiting them (e.g. as a percentage of the insurance limit or as fixed amount to the policy limit)

20. Environmental liability Deductible Insureds should be willing to take a financial interest in their own risk: To avoid any misuse of insurance protection To eliminate small, routine losses that are best dealt with outside insurance mechanisms Operator should not escape from proper environmental behaviour because it is cheaper to buy insurance protection than to invest in necessary maintenance measures or safety installations

21. Environmental liability Calculation of expected loss Basic information enabling the use of traditional methods of estimating loss frequency and severity are rarely available The use of claims experience is limited due to the fact that usually the claimants were compensated based on civil law for traditional damage Use of alternative methods to calculate the expected loss

22. Environmental liability Summary Insurers are well placed to identify potential overlaps, gaps or inconsistencies of coverage within existing insurance polices Underwriters may wish to consider the development of differents options, e.g. extensions of stand alone EIL concepts or GTPL solutions The solutions offered might depend on: The type and territorial scope of activities performed by an operator Cross-border damage potential Insured event and temporal scope of cover definition Risk appetite and capacity deployment

23. Environmental liability Summary It is the responsibility of individual insurers to decide whether or not to offer cover and on what basis and terms In Member States that have enacted legislation, some insurance solutions are appearing in the market A clear legal framework and a close relationship to the Directive are key to the development of sustainable insurance solutions THANK YOU FOR YOUR ATTENTION!

24. For more information www.cea.eu CEA aisbl Square de Meeûs 29 B-1000 Brussels Brussels 13 February 2008