Wednesday 17th July
Protection against environmental and pollution damage
The construction industry is instrumental in developing sustainable solutions to the environmental challenges presented by climate change, but it is also exposed to environmental pollution risks. Insuring against unexpected pollution incidents is a priority for many contractors because the cover offers financial protection for the clean-up, legal costs and any potential costs introduced by the Environmental Damage Regulations and other environmental laws.
The concept of environmental risk is being shaped increasingly by external parties like investors, creditors, property owners, and construction clients. Addressing environmental risk has become as much about reassuring these parties about the thoroughness of the assessment, the handling of risks, and the readiness to deal with a situation that could harm the environment and the company’s reputation as it is about the actual level of risk.
Environmental regulation and polluter fines
Environmental damage is one of the biggest construction risks due to the use of many chemicals and machinery on site. Increased responsibilities have been placed on businesses that damage the environment, leading to more prosecutions and fines. Under environmental law, the polluter pays principle is enacted to make the party responsible for producing pollution responsible for paying for the damage done to the natural environment, increasing the costs of environmental pollution incidents in construction, including the introduction of unlimited fines.
Environmental pollution insurance options for contractors
General liability insurance may not cover problems like historic contamination or liabilities under environmental law, so seeking advice on the most appropriate environmental insurance from your construction insurance broker is essential. Different environmental insurance policies cover different things, including environmental incidents, financial protection for clean-up costs and legal defence fees.
Kerry London’s Construction experts can advise and arrange the following covers:
Contractors’ Pollution Liability insurance covers environmental risks from the inception of a project through to completion. Even the best-managed projects are exposed to risks ranging from water pollution to biodiversity damage and even exacerbating historic pollution.
Environmental Impairment Liability Insurance (EIL) provides comprehensive cover against the cost of pollution claims in relation to insured sites or general business activities. EIL insures environmental risks that aren’t covered by standard public liability wordings, such as the statutory costs needed to clean up gradual or historical pollution.
EIL insurance also covers unforeseen and unexpected pollution, which can be among the most damaging and costly problems to resolve. Gradual pollution builds up on land or seeps into the water table over time, impacting business operations when least expected. The clean-up and additional repair costs can take years, resulting in significant business costs.
What kind of environmental incidents are covered?
Cover can be arranged for on-site and off-site activities, such as transportation and waste disposal. EIL insurance covers many different types of incidents, including:
- Flooding that carries toxic substances into the water system
- Gas explosions and pipe ruptures
- Hazardous spillages
- Gradual pollution/seepages of toxic chemicals/substances, e.g. from a leaking underground tank, pipe, or landfill
- Discharge of industrial wastewater, spills, odour
- Air pollution
- Poor disposal of construction waste
Is environmental insurance compulsory?
Environmental cover is usually not compulsory, but some construction contracts require contractors to have it, particularly in M&A negotiations, public sector contracts, or to satisfy permitting obligations.
What information is needed for a quote?
The information needed depends on the individual project, so the following advice is a guide:
- Details of the sites/projects to be covered and who is to be insured
- Main construction activities
- Contract value and project timescale (including a copy of the contract)
- Any risk management information
- Environmental reports (only if available)
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Kerry London is authorised and regulated by the Financial Conduct Authority. The company is a leading UK independent and Lloyd’s accredited broker, which means that we work with a wide range of niche and major insurers.
This note is not intended to give legal or financial advice, and, accordingly, it should not be relied upon for such or regarded as a comprehensive statement of the law and/or market practice in this area. In preparing this note, we have relied on information sourced from third parties, and we make no claims as to the completeness or accuracy of the information contained herein. You should not act upon information in this bulletin nor determine not to act without first seeking specific legal and/or specialist advice. We and our officers, employees or agents shall not be responsible for any loss whatsoever arising from the recipient’s reliance upon any information we provide herein and exclude liability for the content to the fullest extent permitted by law.
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