Environmental Impairment Liability: is the London Market prepared for climate change related claims?
Environmental Impairment Liability (EIL) policies have become a well-established, if somewhat misunderstood, product in the London Market. In this article, we consider whether EIL policies are capable of responding to climate change related risks.
EIL policies: a brief background
Before 1990, an insured could purchase a public liability (PL) policy which would not have included a pollution exclusion. Such policies were written on an occurrence basis, and responded to environmental damage occurring in the policy period – even where damage had not appeared until years later. That year, an ABI report identified that existing PL policies did not adequately deal with the issue of gradual pollution, which often takes years to become apparent.
In 1991 the ABI introduced a standard PL gradual pollution exclusion. This excluded all pollution liabilities other than those caused by a “sudden, identifiable, unintended and unexpected incident”. Thereafter, to the extent PL policies respond to environmental loss at all, it is only to cover tortious liability to third parties (whether injury, property damage or nuisance) resulting from a “sudden” loss. The 2006 case of Bartoline Limited v Royal and Sun Alliance plc & others further made clear that a standard PL policy does not cover statutory environmental liability, whether caused by a sudden or gradual cause, because the regulator’s right to reclaim the costs of remediation are not “damages”.
Since the Bartoline case, tailored EIL policies have become well established in the London Market. EIL policies provide claims made and reported cover for both sudden and gradual losses arising from “pollution conditions”. A key feature of the cover is that EIL policies respond not only to claims from third parties, but to off-site clean-up costs imposed by the regulator – including, for example, remediating biodiversity damage. Such policies may respond to own-site clean-up costs imposed by the regulator although voluntary remediation is generally excluded. In addition, EIL policies may cover civil and criminal defence costs.
The new environmental protection landscape
Since 1990, the Environment Protection Act (EPA) has governed emissions and waste management in the UK. The EPA gives effect in the UK to the European Union Waste Framework Directive.
On 30 January 2020, the UK government introduced the Environment Bill to the House of Commons; the legislation it intends to supersede European based environmental law post Brexit. Amongst other things, the Environment Bill will establish the Office for Environmental Protection which will have its own enforcement mechanism in line with the government’s vision for the environment as set out in its 25 Year Environment Plan and longer term goal to make the UK carbon neutral by 2050. The Bill was being debated at the Committee stage as of 19 March 2020 but, due to the COVID-19 crisis, all Committee sittings have been suspended until further notice. Therefore, the speed of its progression through the Houses is currently unclear.
In the global context, corporates ranging from “Big Oil” (the world’s largest oil and gas companies) to “Big Plastic” (an emerging term for the multinational corporations producing vast quantities of non-recyclable single use plastic) are facing claims making allegations in the tort of public nuisance and product liability, amongst others, regarding the role these companies have played in causing climate change and pollution.
Could EIL policies respond to climate change claims?
A typical London Market EIL policy provides, in addition to clean-up costs imposed by a regulator, covered loss suffered by a third party, in accordance with “environmental law” - however defined. Accordingly, a corporation being sued for its contribution to climate change may seek to notify its EIL insurers and seek, at the least, coverage for defence costs.
However, it is not yet clear whether the EIL policies on the market will (regardless of intention) respond to the substantive allegations of a climate change claim. EIL policies are intended to respond to identifiable pollution events, whether sudden and unexpected, or those of a long term nature, and to the clean-up or third party nuisance claims arising from them. The policy will have a specific definition of what constitutes “pollution conditions” and generally will contain a retroactive/continuity date. In the US some of the litigation has been framed in product liability terms but generally EIL policies exclude product liability.
At its broadest, the definition of “pollution conditions” will usually require there to have been a “release” or “escape” of a “pollutant” or “contaminant” onto land, groundwater or the atmosphere. At first glance, that might appear to cover a broad range of actions, for example a coal power plant which pumps carbon dioxide and methane into the atmosphere, but for there to have been “pollution conditions”, the “release” etc. must have been unintended.
Therefore, while at first glance the breadth of the definition of “pollution” might draw in a wide range of factual scenarios, not all polluting activities may be covered. Broadly, the major question in underlying climate change litigation claims is likely to be causation – i.e. whether the claimant can draw a sufficiently strong causal link between the alleged actions of the defendant insured and the alleged bodily injury or property damage. This differs significantly from a typical claim to an EIL policy where the regulator seeks clean–up for a specific instance of pollution.
Even if EIL policies are found not to respond to the substantive allegations of a climate change action, insurers could nevertheless find themselves exposed to defence costs claims as insureds look around in their insurance programmes for cover. While such claims have not yet materialised in any great number in the UK, if/when they do they are likely to consider complex, and novel, legal issues involving not just public nuisance but issues of public liability.
Insurers may therefore wish to consider whether EIL policy wordings in the London Market adequately differentiate between climate change claims and more commonplace pollution claims. While EIL policies often exclude claims arising from the insureds’ products, future policies could be more explicit in excluding climate change litigation from the coverage provided.