When it comes to environmental liability there is a tendency to focus too much attention purely on the Environmental Liability Directive (ELD). “It is important to look at other environmental laws as well,” says Wayne Harrington, ACE’s UK environmental practice leader. The UK, for example, had a well established tradition of environmental regulation before the ELD came along. Here the ELD has wrapped around and amended UK law, bringing together all of the disparate regulations and providing a lot of clarity. In other parts of Europe the situation is slightly different and the ELD has introduced a new set of regulations altogether.

What the ELD does do well is to focus a lot more attention on the consequences of environmental damage, says Harrington. It is a recognition that perhaps the traditional laws did not go far enough. Environmental claimants no longer have to prove fault or negligence. Instead the new regime is based on strict liability. So it is easier for stakeholders and the public to hold operators accountable if the pollution is down to them. Furthermore, the ELD introduces new legal concepts for environmental damage, including compensatory and complementary remediation. There is some confusion about how these potentially subjective concepts will be defined in reality. And how much they are likely to cost. For example, a pollution incident could fundamentally damage the environment but it may not be hugely expensive to put right. On the other hand, how does one put a price on the destruction of a species or natural habitat altogether.

The risks posed by a company to the environment may be the same wherever it has operations but the consequences of pollution are different depending on the jurisdiction. That’s because enforcement is in the hands of the local environmental authority, meaning there are huge differences between each member state (see map above). Every place in Europe has legal nuances, or types of legal defences which are either permitted or not. So far there have not been many cases to provide clarification of these matters.

Another issue that regulators are struggling with is resourcing. As public bodies reduce staff numbers it is difficult for them to enforce the rules as much as they could before. There could also be trepidation from governments to enforce environmental rules too strictly because of the tough economic climate—as witnessed in Hungary recently with the toxic sludge spill. What governments don’t want to do is put a company out of business. Risk managers may, however, see increased enforcement as the economy improves.

Fortunately companies are more aware of their environmental responsibilities than ever before. There is a slow trend in the corporate sector towards behaving more ethically and responsibly. Partly that’s because there is more reputational and shareholder pressure on them to do so.

“While companies may be more aware of environmental risk they remain confused over the consequences,” adds Harrington. “It is difficult for companies to understand clearly what the regulators will do if they are caught polluting. Or they may not be aware of what to do if they are caught or how to protect themselves financially against those consequences. Companies that pose a risk to the environment should be cash reserving adequately.”

The fact is that a lot of companies can not afford to assess their environmental risks let alone pay a premium to transfer it. In Scandinavia, the insurance manager for Scania, the truck, bus and engine maker, decided to seek an alternative form of insurance protection. “We don’t buy a specific environmental insurance policy,” says Martin Sijmons, corporate insurance manager at Scania. “We prefer to extend the coverage of our general liability policy to include sudden and accidental pollution.”

He says the emphasis is on risk avoidance rather than risk transfer.

As the economy improves it is likely to have an impact on demand for financial protection. The ELD also makes financial protection against environmental incidents compulsory in some markets, such as Spain and Portugal.

The goal for the insurance industry is to make environmental insurance the same way as all the other major insurance classes, such as Property or Directors’ & Officers’ (D&O). Harrington hopes it will become a major new class of insurance but he knows it will take time for people to get used to it. D&O was the same 10 years ago, but now virtually everyone buys it.

Environmental risk is highest for companies that have dangerous operations in close proximity to sites of special environmental significance, such as national parks or near protected species. Risk managers need to be aware of their risks and the consequences if something goes wrong. Large corporates have picked up the issues quicker. Some don’t have a choice in the matter because they are subject to financial reporting requirements that dictate they have to disclose their environmental risks. Others are less impressive. However, in the current economic climate companies may be unable to pay if the consequences of environmental pollution are severe. For these businesses, preparing appropriately in advance could be the difference between life and death.

United Kingdom

The ELD has added a “substantial layer of liability” in the UK, says Stephen Shergold, an environmental lawyer with SNR Denton. Before the ELD people were only concerned with traditional remediation costs, such as removal of pollution. Now complimentary and compensatory remediation costs can be levied as well. Those costs will depend on how the regulator chooses to enforce compensatory and complementary remediation, says Shergold.


French environmental law was well established before the ELD came along. France transposed the ELD in August 2008. Unlike in other parts of Europe, there is no legal obligation for companies to buy financial security against environmental risks. Large companies are beginning to realise that the ELD has upped their environmental exposure and therefore their insurance needs, says Dorothee Prunier, ACE’s continental manager for environmental risk. This is contributing to steady growth in the environmental insurance market.

Spain and Portugal

In Spain a dam breach at the Boliden mine near Seville in April 1998 led to one of the most harmful environmental incidents in the history of the country. Perhaps because the Boliden incident still looms so large in the Spanish collective memory, Spain has adopted the most stringent approach to the implementation of the ELD. Portugal introduced mandatory financial protection against environmental risks in January 2010. Operators are required to show proof of the insurance to the authorities.


German environmental law is mostly governed by federal acts. Administering and enforcing the law, however, is left to the 16 states, explains Freshfields Bruckhaus Deringer partner Wolf Friedrich Spieth. It is one of the hardest markets to find environmental insurance because of this patchwork of regulation,” says Ferma’s environmental expert, Pierre Sonigo. “Cover is available but generally insurers are very strict with their terms.”

Making the climate even more onerous for business, Germany is regarded as a “Environmental State”, meaning that it considers environmental protection as one of its central tasks.


Not all companies choose to buy a specific environmental insurance policy. “We would like to prevent rather than insure,” says Martin Sijmons, corporate insurance manager at Scania, the Swedish truck maker.

For the time being at least Sijmons doesn’t think the products exist that can match his company’s unique requirements. “We have to abide by the law so we have to buy environmental cover in some markets, like Spain. But the ELD has not had much of an impact in Sweden.”

Eastern Europe

Environmental liability in Easter Europe is “a bit of a mess”, says Pierre Sonigo, chair of the environmental working group for Ferma. Insurers aren’t touching the risks there, he says, because there are a host of facilities with poor safety records and environmental problems.

The CEA, the European insurance association, says that environmental liability is an emerging issue in Eastern Europe. It is a concern, though, that is likely to receive renewed attention following the toxic spill in Hungary on October 4 last year, which has been described as Europe’s worst environmental disaster.