The Polar Bear and the Pipeline

How ESG is making Environmental Liability insurance more mainstream

Robert Wade is Environmental Underwriter Manager for The Hartford Syndicate at Lloyd’s. His underwriting specialism is creating bespoke policies to protect the investments, operations and reputations of companies, should they cause environmental damage in the course of doing business. And it’s taken him to some pretty unusual claims' scenarios.

“One of the strangest claims I’ve come across was from a Canadian oil producer,” Rob told us. “They found that a polar bear, possibly attracted by the bright colours of a valve, had gnawed away at it until it opened, causing a significant spillage. Their Environmental Liability insurance policy paid for the clean-up.”

So we asked Rob a few more questions about this emerging class of insurance:

Why is Environmental Liability insurance growing in profile?

“Environmental insurance used to be reserved for specialist companies from sectors like primary manufacturing, chemical production and water treatment. Now, because of Environmental and Social Governance (ESG), it’s becoming a much more mainstream client requirement.

“Legislation around the world has pushed corporate responsibility for an organisation’s environmental footprint up to Board level. Companies are now expected – and often mandated – to publicly identify and manage their environmental risks and report on their performance.

“That spotlight means that Environmental Liability insurance is a key part of global operations. We provide protection for well-run companies who are on top of their environmental performance, so that they can respond, should an unforeseen crisis occur. Some investors will now insist a target company or a project they are funding has Environmental Liability insurance before they will get involved.”

What kind of events does this insurance cover?

“It’s often something catastrophic, like a fire or a mechanical breakdown that creates air pollutants, or soil contamination. It might be ageing equipment that has allowed some kind of chemical or solvent to leak into ground-water for years without any obvious means of detection. It might be operator error, where a tank is accidentally over-filled, causing an explosion. Or, who knows, it might be interference from a polar bear!”

How do you assess suitability for coverage?

“The main emphasis here is that we only work with well-run companies. When Bellwood Prestbury ask us to insure a client, we have a high level of confidence that they will already have vetted them, but we still do our own due diligence. As well as looking at the environmental risks of their operation, we’ll also analyse company performance and reports, and check their reputation with local communities.

“For companies operating in more remote situations, Google Maps is often my first port of call. It’s amazing how much you can tell about how well a site is being run by zooming in on the grounds. For example, if an aluminium processing plant shows evidence of orange discolouration in the surrounding earth, that’s almost certainly a sign that it’s not being operated to the highest standards.”

What does Environmental Liability insurance cover?

“Primarily, Environmental Liability insurance covers the cost of reparations to the environment and compensation for any people, organisations or properties adversely affected. Policies also cover the costs of experts who can help manage reputational damage.

“One of the most important provisions is that it gives each client access to environmental experts who will take charge of any clean-up operation. That can be highly technical. In the case of oil spills it’s relatively easy to remove oil from water because it floats. If you have a solvent leakage, it can soak through concrete and contaminate water courses. And that needs to be monitored for years after the event was first detected.

“These experts will also help to mitigate risks and ensure that lessons are learned, so that the situation can be avoided in the future.”

So claims can be complex? And expensive?

“Yes. The actual environmental incident, where it is and who is impacted, all add to the complexity. For example, one claim in the Arctic was so remote, it cost millions of dollars just to ship the equipment needed to remediate and make the site safe.

“Recent claims have involved a landfill site where excessive rain caused toxic liquid waste to run-off into a river. A heli-skiing site at a ski resort where a tank leaked, allowing diesel to spill down the mountain. And a Middle Eastern chemical plant facing a class action from nearby residents who claim that the plant's processes were causing sickness in the local population.

“And it’s not just heavy industry. There was a claim against a dentist practice in a US shopping centre from a woman who worked nearby, who claimed that fumes from its dental processes were making her ill.”

How do you work with Bellwood Prestbury?

“We work with Bellwood Prestbury to arrange bespoke Environmental Liability insurance for a wide range of their clients in remote and challenging places. For example, one of their clients works on a UN contract to store and distribute fuel required for operations around Mogadishu in Somalia.

“Because we have a strong working relationship, that makes it easier to assess the risks and arrive at a comprehensive policy that really protects their client for precisely the risks they need.”

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