UKELA May 22 nd 2013

1. UKELA May 22nd 2013 • ENVIRONMENTAL DAMAGE COMPENSATION • INSURER’S PERSPECTIVE

2. Environmental Insurance policies Administrative Liability Civil / Tort Liability Pollution Condition Environmental Damage 3rd Party: Bodily Injury Property Damage Financial losses Statutory / Public Law offences / Enforced by Regulatory Authority (1st Party) • INDEMNIFICATION • Financial Compensation for costs or damage incurred • REPARATION • Direct costs arising from, or reimbursement costs to regulator for undertaking action on insured's before for: • On–site, off-site investigation, remediation, removal, clean-up costs • Emergency Costs • Includes: ELD/EDR (Primary / Complimentary / Compensatory) Legal Defence Costs Insured Exposures Covered Locations Covered Operations Transportation

3. When it goes wrong • Serious pollution incidents in the UK: • 620 in 2011 • England & Wales suffer on average two serious pollution incidents a day • Half of all serious industrial pollution incidents caused by small businesses*1 • Environment Agency continues to call for higher fines for environmental crimes & in 2011 started to use the new civil sanctions regime, outside of courts. • 2011 the EA fined 178 companies • Those prosecutions lead to a total of over £3,800,000 in fines only • Average company fine £21,600 • *Where the Environment Agency (EA) was able to identify the business responsible • Source: Environment Agency, Spotlight on business 10 years of improving the environment

4. Environmental claims management Emergency Measures Investigation of pollution sources Environmental damage assessment Cleanup Works Monitoring Information to Competent Authority Discussionwith Authorities Remediation and reparation measures ordered Discussion with Third Parties • Loss Adjuster’s mission • Undertake Emergency and protection measures • Identify pollution sources and root cause • Validate remediation scenario • Validate Complementary / Compensatory measures • Clean-up monitoring and expenses management • Lawyer’s mission • Transactional phase: Consulting / Information • Trial phase:Counsel/ Defence / Subrogation

5. Typical Environmental Damages Costs • Emergency costs • Investigation and forensics costs • Criminal fines or Civil sanctions • Legal fees • Clean-up costs • Primary, complementary or compensatory remediation costs • Indemnifications to victims of injuries or distress • Indemnifications to victims of property damage • Indemnification for disruption caused to neighbouring activities • Own-business interruption costs • Public relations costs

6. Costs of Remediation CompensatoryMeasures • Primary • Removal of source of damage (e.g., contaminants, physical disturbance) • Remedial actions to recover to baseline • Planning, engineering, implementing • Complementary and Compensatory • Planning, engineering, implementing • Monitoring Complementarymeasures

7. Valuation methods • Equivalency methods (Resources/Resources - REA or Services/Services - HEA)When remediation actions provide the same resources or services as those lost • i.e. Hectares of wetland lost = Hectares of wetland gained • Value Equivalency methods • When cannot remediate the same resources or services, but can remediate similar resources (focuses on human services) • i.e. Hectares of wetland lost = kilometres of forest paths • Costs can drastically vary depending on the scenarios and proxys • As part of the claims management, insurers have a seat on the table and are influencing on methods / scenarios that are presented to local authorities

8. Stakeholders • Scientists / NGOs • To advise on methodologies • To monitor on-going work • To assess effectiveness • Operator / Insurer • To comply with regulation • To propose and achieve best cost effective solution • Competent Authority • To get back to baseline • To validate and to control proposed solutions • Work Contractors • To provide feedback on feasibility • To conduct implementation of measures within contractual agreements

9. Environmental Damage Complex issue as it is • Collective and accumulative • Irreversible in many cases • Difficult to determine Claims settlement issues • Civil/Tort Liabilities: Indemnifying third parties • Monetary award to victim of a loss (bodily injury, property damage) • Can be used how the victim wants (to repair or do something else) • Settlement can shorten the exposure tail • Statutory Liabilities: Restoring the environment • Remediation ‘in nature’ to repair the destroyed environment • Expenses can run for tens of years until return to baseline

10. Conclusion • Environmental Damage can be compensated in many ways • Costs can vary depending on • Jurisdiction • How loss is valuated and the methodologies used • Whether civil / tort and statutory liabilities are considered • Insurers • Have followed regulatory trends instead of resisting against them • Are providing ad-hoc proactive products (environmental / EIL insurance) • Are paying for claims (but did not suffer lots of ELD-type claims so far…) Now is a good time to transfer environmental risks to insurance as affordable wide coverage is available for what could be complex, long, and costly proceedings and settlements over environmental damages

11. Julien Combeau Executive Director - FINEX Global Environmental Practice Direct: +44(0)20 3124 8046, Mobile: +44(0)7908 240 883, julien.combeau@willis.com