Most businesses have energy needs. Some are heavy users and energy security has become such a priority (especially in the tech sector) that independent power generation (and the resultant need for fuel storage) has become a part of their infrastructure. As a recent Environment Agency prosecution has shown in the Ipswich Magistrates Court, any leak or discharge of contaminant into the environment (in that case the River Orwell) can have significant financial implications for the company responsible. 

The court was told that an oil separator tank was overwhelmed by heavy rain, and the resulting spillage entered the river through the storm sewers. Workers had checked the unit the night before, but an alarm had been disconnected. There were some mitigating circumstances, (exceptional weather and that speed of the clean up operation), but, imposing a fine of £30,000 and £6,600 in costs, the court found that there had been significant damage to the area and wildlife. Notably, a swan was killed and 11 others poisoned. 

It would not have been possible to insure against the risk of being prosecuted – criminal fines and associated costs are typically excluded even from specific environmental insurance policies. However the clean-up operation itself, driven by the need to comply with the Environment Agency’s order to effect clean up works was a much more significant liability (£169,000). These compliance costs not to be treated as “damages” (Bartoline v RSA – 2006), and would not therefore be covered by a standard public liability policy. 

The EU Environmental Liability Directive 2004/35/EC of the European Parliament and of the Council of 21 April 2004 introduced the “polluter pays” principle and did that with a “strict liability” footing; there is no obligation on the Environment Agency to prove fault. An unsuspecting landowner can be required to undertake those remedial works (or pay for them to be done) even where the pollution was caused by a preceding landowner. 

Businesses should be aware of the potential cost of dealing with spillage of oil, solvents or other environmentally hazardous material, above and beyond any fines or costs orders that might flow from a related prosecution. 

Standard commercial property insurance policies, would commonly exclude such risks. As also would professional negligence liability cover, and Directors & Officers Omissions (D&O) cover. Typically, losses for regulatory liability, (cost of clean up) and tort liability, (civil claims for losses), would only be covered if a special extension to a policy had been negotiated with insurers. Alternatively if a special environmental risks policy had been purchased. 

Fulfilling its role as the “Global Facilitator” the insurance market has responded to that need in typically pragmatic fashion through the provision of Environmental Risk policies covering the cost of the regulatory requirement for clean-up. Businesses organisations and individuals storing (in particular) oil on their premises may want to make that provision a key component at their next broker lead review meeting.