international: Insurance Adds Security To U.K Risk Mangement Plands

Leonard R. Olsen, Jr.

For businesses in the United Kingdom, failing to appreciate environmentalism's significance can present risks ranging from legal liability for environmental damage to bad publicity for environmental incidents to trade lost to competitors with "greener" credentials.

U.K. waste management companies are no exception. For example, next year's implementation of the Environment Act of 1995's contaminated land provisions could result in a quantum leap in environmental liability exposure.

For the first time, local authorities will be required to review the land in their jurisdictions to identify and force clean-up any contamination. As a result, off-site migration of pollutants from a landfill is more likely to be discovered and brought to legal action. And yet, insurance coverage for environmental liability resulting from gradual pollution is excluded from most general liability insurance policies.

However, the United Kingdom's developing Environmental Impairment Liability (EIL) insurance market now provides coverage of those risks. The new Environment Act, growing environmentalism, more litigation and regulations from Brussels all contribute to environmental liability's changing landscape, according to John Warr, an insurance broker for Fielding Smeaton Jones Ltd., Headquarters.

"The standard cover in public liability (PL) policies is no longer sufficient for many firms," he continued. "Prudent risk managers and environmentally-sensitive directors want full EIL coverage. And now the marketplace can supply it."

For Grundon Group, Ewelme, Oxfordshire - landfilling, incineration and recyclers of industrial, commercial and special wastes - pollution insurance is a necessary piece of its multi-faceted policy to protect the environment. Historically, the company bought only standard PL policies. Yet, since 1991, these policies typically have excluded all environmental liability except that which is sudden, identifiable, unintended and unexpected and which takes place in its entirety at a specific time and place during the policy period.

That's a lot of exclusion and exposure, especially in an industry where environmental liability may be the biggest threat. As a result, Grundon significantly expanded its pollution/legal liability insurance to include all third-party risks, whether gradual, sudden and accidental or something in between.

"We wanted to cover our third-party environmental liability exposure," said Derek Steggall, Grundon's finance director and company secretary. "We didn't want to have to worry about the limiting and sometimes difficult distinction between gradual pollution, and sudden and accidental pollution."

Mersey Waste Ltd., operator of a landfill at Billinge Hill near Liverpool, England, also is taking advantage of the trend towards modern, broad-based EIL insurance. Currently, its landfill burns methane to generate electricity. Like other stand-along EIL covers, Mersey's policy insures against gradual as well as sudden and accidental pollution.

The company sought this coverage "because it provides a level of security and sustainability beyond that available in standard PL policies," according to Rob Allan, Mersey Waste's finance and marketing director. Although the Billinge Hill landfill is older, it still qualifies for EIL because it is well-run, well-maintained and because its collateral operations, such as burning methane, does not interfere with the coverage's availability.

Full-cover EIL insurance also can help in the permitting of new landfills and other waste management facilities. Both The Environment Agency, headquarters, and local regulators are now more knowledgeable about the realities and fine-points of public liability policies. In many cases, standard PL policies are no longer acceptable to these licensing authorities.

But financial loss and the bottomline are not the only reasons to be environmentally proactive. Today's foresightful companies know that sound environmental practices and an active public relations program make good business sense. Grundon, for example, meets regularly with its local communities to brief them on on-going operations and future plans and to provide a forum for questions and concerns. In addition, Grundon helps fund local improvement projects.

Prevention also is key and is significantly less expensive than the claim's cost. Many companies' top executives are recognizing that comprehensive risk management programs are most effective if developed prior to losses.

Companies that consistently stress safety training as part of their corporate culture are well-rewarded by a reduction in risk. "Risk managers are not just insurance buyers. They consistently seek professional guidance to improve their overall approach to safety," said John Lawson of P.W. Creamer, headquarters.

"Comprehensive environmental insurance must be coupled with greater awareness of and training for environmental risks in order to provide the full package of protection demanded by today's prudent managers," he continued.

Furthermore, a willingness to be open and honest about corporate efforts is necessary as most risk management programs are likely to be shared with the community and the press.

Aggressive management in conjunction with insurance, loss control and claims management is crucial to minimizing environmental exposure and liability.