UK: MUDDY WATERS OF LIABILITY. - Insurance cover for cleaning up polluted land is at a premium.

Last Updated: 31 Aug 2010

Insurance cover for cleaning up polluted land is at a premium.

A lot of industrialists have lately been combing through their insurance policies to check that they are covered for the cost of cleaning up contaminated land. If they haven't done so they should lose no time - and they could well be disappointed. Pollution is a standard exclusion in all-risks policies. 'This comes as a shock to many - particularly smaller clients who have relatively more to lose,' says a Leeds-based solicitor. 'They have relied on their policies without really understanding the extent of their cover.' Pollution which has spread to a neighbouring site is not generally covered by public liability insurance - sudden and accidental damage, yes, but not creeping toxicity. If the damage occurred many years ago, some old-style public liability policies might suffice but 'the insurers will fight like hell', says Brian Street, director of ECS Underwriting, one of the few firms which arranges impairment liability insurance. 'They have not charged premiums for the risk of contamination, so they have no reserves.' To insure for the future, a clean bill of health is required.

Contaminated land has been around for a long time. Decades of pollution have muddied responsibility for who should clean up. The 1995 Environment Act ushers in a much stricter era, First, it puts the onus on local authorities to identify sites which might be causing harm. Second, it extends the search to the original polluter. But if that person cannot be found, the 'owner or occupier for the time being' is responsible. This, in the words of Morley Speed, director of general treaty brokers Gibbs Hartley Cooper, 'puts the spotlight on the innocent occupier'.

So what should the innocent - or not so innocent - company do? Take a view on the legislation itself. Some see it as potentially draconian, taking their cue from the US. ('At least we are going to inspect this toxic isle of ours,' says Street.) Others are not sure. The Department of the Environment begins consultation on the Act in January and expects the final package to be adopted in late summer. But it's the local authorities which will have to make it work. In practice, most councils are expected to reach for the register of contaminated land which they were drawing up until the Government abandoned the scheme two years ago. If a company has reason to believe it was on the register, there is probably little choice but to commission an environmental audit - which might not make comfortable reading for the company or its insurer. Then it should see whether the liability is entirely its own or whether someone else can be involved.

A purchaser of any suspicious site also needs to have an audit done. This need not be so scary. 'A number of parties with vested interests are failing to discriminate between the site which is really contaminated and the site which just needs careful treatment,' says Anthony Glossop, managing director of St Modwen Properties, which has developed a lot of brownfield sites. 'Once you've got the environmental report from the engineers, you have actually solved the problem.' Many companies are going in for a clean up without waiting for the long arm of the law. They are tending to 'do it discreetly - not clandestinely exactly but they don't publicise it', says the lawyer.

Meanwhile there are few insurers around. The Institute of Insurers says that it is 'looking at ways to promote some element of cover', but the fear is that European legislation could evolve 'taking all the worst aspects of US law'.

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