Environmental Insurance (EIL)

CONFERENCE ON THE IMPLEMENTATION OF COASTAL FACILITIES SEA POLLUTION LIABILITY

INSURANCE IN THE EU AND TURKEY

Session I: Implementation of “Coastal Facilities Sea Pollution Liability Insurance” in the European Union:

Legislative Framework, Practices in Member Countries and Conditions for (Re)insurance

Coverage

Dr Marcel Steward:

Managing Director – Environmental Division

Environmental Insurance (EIL)

Overview

• Coverage in the European Environmental Insurance Market

• Characteristics of the Environmental Insurance Market• Sudden v Gradual Pollution• Some Basic Technical Problems• The Wider Consequences of Getting it WRONG• Some Aspects of the Current Turkish Legislation• Summary


TURKISH INSURANCE MARKET

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WE ARE TRYING TO FIT ASQUARE PEG IN A ROUND HOLE


EIL MARKET CHARACTERISTICS

Cover:

• 1st Party On Site Clean-Up

• 3rd Party Bodily Injury and Property Damage

• Legal Defence Cost

• Business Interruption (Optional)

Standard Exclusions:

• 1st Party Employer Liability

• Asbestos

• Radioactive Contamination

Limits of Indemnity:

• USD 20+ million per insurer



Trigger:

• Statutory / Enforcement Authority Intervention (typical)

Policy Duration:

• Annual or Multiyear Policies Available: Historical: 1 – 10 yearsOperational: 1 - 3 years

Minimum Premiums Apply

NOT CLASSICALLY A REINSURANCE TREATY MARKET

FACULTATIVE INSURANCE AVAILABLE

‘BROKER OF RECORD’ MARKET



BROKER MARKET (Tendency):

• Technical in its underwriting

• Non – Standard Policy Wording and Coverage

• Large volume of ‘non – standard’ information disclosure

• Usually tailored policy wordings

• Maximisation of Environmental Insurance Market Resources


Environmental Impairment Liability (EIL) Insurance:

• Limited number of underwriters– Five main underwriters

– Two / Three recent joiners

• Technical Underwriting Market Generally:– Environmental Risk Management Requirement of some form

– SURVEYS ARE NOT ALWAYS NECESSARY

– Some form of ‘Risk’ Specific Information required

– Underwriters tend to be technical = few Underwriters (Human Resource)

– No ‘Rate on Line’ Available for anything other than for SIMPLE Environmental Risks


Environmental Impairment Liability (EIL) Insurance:

Total Pollution Cover compared with Sudden v Gradual Pollution

USA: Comprehensive Environmental Response,Compensation, and Liability Act (CERCLA or ‘Superfund’):1980

• Restriction of exposure of the underwriters

• NOT an inclusion of cover

• NOT Defined in a Court of Law

EIL INSURANCE MARKET WRITES: TOTAL POLLUTION COVER

Environmental Insurance (EIL)SIMPLE CASE

SAND - permeable

CLAY - impermeable

Sea / Water

Pollutant

Sudden

Claim: Sudden 100% √√ Gradual 0% X

Environmental Insurance (EIL)COMPLEX CASE

Sudden

Gradual



Gradual



Gradual

Sudden

Claim: Sudden 100% or 30% √√ Gradual 0% 0r 70% X


Gradual

Claim: Sudden 0% √√ Gradual 0% or 100% X


How CLEAN IS CLEAN?

• How Clean was the site BEFORE the Sudden Pollution Event?

• How much Pre-existing Pollution is: Gradual / Sudden?

• How Much should be cleaned up?

• How Clean should the site be AFTER Clean UP?

WHAT IS THE OVERALL OBJECTIVE?


HOW CLEAN IS CLEAN?

ReferenceStandard

Clean Ground Particles:Rocks / Pebbles / Sand Grains / Soil Particles

http://images.google.co.uk/imgres?imgurl=http://4.bp.blogspot.com/_Q1i9XO76NCs/SUFs8hiGt4I/AAAAAAAABhY/Lxba5VQGGHA/s400/UK%2BPenny.jpg&imgrefurl=http://foundmoolah.blogspot.com/2008_12_01_archive.html&usg=__4HwrEEcYB-b96SYwKHqX34ka73Y=&h=231&w=259&sz=11&hl=en&start=1&itbs=1&tbnid=gYTK5ePre5TSHM:&tbnh=100&tbnw=112&prev=/images%3Fq%3DUK%2BPENNY%26hl%3Den%26sa%3DG%26gbv%3D2%26tbs%3Disch:1


HOW CLEAN IS CLEAN?

ReferenceStandard

Polluted Ground Particles:Rocks / Pebbles / Sand Grains / Soil Particles


ReferenceStandard Actual

SizeX 10Mag.

X 40Mag.

X 200Mag.

HOW CLEAN IS CLEAN?

Key:Mag. = Magnification


HOW CLEAN IS CLEAN?


SizeX 10Mag.

X 40Mag.

X 200Mag.

?

Key:Mag. = Magnification


HOW CLEAN IS CLEAN?

?


SizePOLLUTER

X 200Mag.

STATUTOTY /ENFORCINGAUTHORITY

?


HOW CLEAN IS CLEAN?

Insurer?

?


SizePOLLUTER

X 200Mag.

STATUTOTY /ENFORCINGAUTHORITY

?


HOW CLEAN IS CLEAN?

WATER OIL WATER + OLIVE OIL


HOW CLEAN IS CLEAN?

WATER WATER + LUBRICATION

OIL

LUBRICATINGOIL


HOW CLEAN IS CLEAN?

WATER HYDROCHLORICACID

WATER +HYDROCHLORIC

ACID


SO WHAT DIFFERENCE DOES IT MAKE:

HOW CLEAN IS CLEAN?

Land Value USD +20 million USD – 52 million

ENV. INSURANCE

Prison

AvailableClaim Paid

Guilty

NOT AvailableClaim Refused

Not Guilty

Bank Invest Do Not Invest

Bank Profit Loss

Shareholder Dividend No Dividend

Seller Sale No Sale

Buyer Good Deal Rip Off

Environmental Insurance: TurkeyA.1. Subject Matter of the Insurance The Insurer hereby agrees to indemnify the insured against the legal liability to be imposed on the

insured in connection with the cleaning up expenses, expenses incurred for transportation and disposal of the collected waste matters, damages and losses arising from injury or death of third persons, and damages and losses suffered by private properties caused by a pollution or danger of pollution which takes place in the marine authorization areas of Turkey, which are comprised of internal waters, territorial waters, continental shelf, and sole economic territory of Turkey, as a result of an event attributable to the shore facility specified in the insurance policy up to the limits specified in the insurance policy in accordance with the Law No. 5312 dd. 3.3.2005 on the Principles of Responding in Emergencies to Marine Pollution Caused by Petrol and Other Harmful Substances, and Compensation of Damages and Losses

Comment:

Cleaning up TO WHAT STANDARD?

Many Env. Insurers do not cover transportation

Many Env. Insurers do not cover pollution at sea or to a limited extent only (?)

Environmental Insurance: Turkey

A.1. Subject Matter of the Insurance This insurance policy shall also cover the defenses to be made by the insured against unfair claims.

Comment:

Most General Insurance Policies ONLY Cover ‘Sudden and Accidental’ Pollution occurrences

The requirement for Environmental Insurance for Sudden and Accidental Pollution does not preclude the insured’s liability for ‘Gradual and Incremental’ Pollution

Most Pollution Events of Significant Magnitude are GRADUAL in occurrence


UK Lab. Of Government Chemists:• Measurement variation by factor of X400• Difference between + / - USD20 mill

A.2. Definitions ‘Pollution’ means contamination of sea with petroleum or other harmful substances as a result of an event to the extent it could be harmful for living resources and marine life, or human health, prevent marine activities and operations including fishery and other legitimate uses of seas, or could lead to a change in attributes of sea water, or a deterioration in the ecologic equilibrium.

QUESTION:

How is this measured?

By who?

Using What Method?


A.5. Occurrences excluded from Coverage Following claims are hereby excluded from the insurance coverage:

Claims made by the insured for damages and losses;

Comment:

Incomplete protection for the Insured and Additional Insured’s


A.6. Geographical Limits of the Insurance This insurance shall be applicable within boundaries of the application areas as well as in marine areas beyond terrestrial waters to be resolved by the Undersecretariat of Maritime based on opinions of the Ministry of Environment and Forests, Ministry of Foreign Affairs, and other relevant public bodies and entities in emergency cases to the extent required to respond to such emergencies, and diminish damages and losses which might be caused thereby.

Comment:

Environmental Insurers DO NOT Cover Marine Pollution (?) or only to a limited extent

THEREFORE – WHO IS? Is this ‘retained’?


B.05. Multiple Suffering Parties / Beneficiaries If the aggregate amount of indemnities payable to the suffering parties / beneficiaries is in excess of the coverage amount specified in the insurance contract, then amount of indemnity payable to each of the suffering parties / beneficiaries shall be reduced based on the ratio of the coverage amount to the aggregate amount of indemnities payable. In case of an occurrence where multiple persons suffer from damages and losses, the Insurer which has paid any amounts to one or more of the suffering parties / beneficiaries in excess of their actual shares in the indemnity due to lack of information about other claimers shall be relived of its liability to other suffering parties / beneficiaries.

Comment:

How Much is NOT ENOUGH to protect / compensate ‘suffering parties’? Is YTL 4, 000, 000 / USD 6,000,00 enough?


SUMMARY:

The compulsory environmental insurance coverage:

•Does not provide full protection of the insured against third party liability

•Does not protection Additional Insured’s: Former factility owners e.g. If they are the primary polluter, statututory authorities e.g. If polluting party is no longer extants / able to pay for other reasons

•Environmental Insurers do not usually provide cover for marine pollution events (at sea) – therefore who is coverinig this?

•USD 6 million: NOT a lot

•Turkish Compulsory Environmental Insurance: Covers ‘Sudden and Accidental’ Pollution Events ONLY

Environmental Insurance

• No apparent Clean Up Standard, Standard Analytical Methodology – How Clean is Clean? How Clean was it before? What is the difference?What is the objective?

Environmental Insurance - Turkey:SUMMARY:


European Environmental Impairment Liability InsuranceGeneral Summary:

•NOT a TREATY REINSURANCE MARKET

•FACULTATIVE REINSURANCE AVAILABLE

•Few Underwriters (Limited Human Resources)

•Tends to be a ‘Broker’ Market / ‘Broker of Record Letter’

• Technical Underwriting• Non-standard information disclosure• Non-standard Policy wordings


European Environmental Impairment Liability InsuranceGENERAL SUMMARY:

•Upto USD 20+ million Limits of Indemnity available from individual insurer

•Multiyear policies available:Past Pollution Events: Coverage - 1 to 10 yearsFuture Pollution Events: Coverage - 1 to 3 years

•Cover for POLLUTION EVENTS: No differentiation between ‘Sudden and Accidental’ and ‘Gradual and Incremental’ Pollution Events

•Cover for PAST POLLUTION EVENTS available


European Environmental Impairment Liability InsuranceGENERAL SUMMARY:

•Covers 1st Party Clean Up as a result of Statutory Authority Intervention or Third Party (Civil) Claims, Legal Defence Costs, Additional Insured’s, Past & Future Pollution Events and Residual Liability

•Does NOT COVER MARINE POLLUTION or TRANSPORTATION IN TOTAL


Contact Details:

Dr Marcel StewardManaging DirectorEnvironmental DivisionSwinglehurst Limited30 – 33 MinoriesLondonEC3N 1DD

Telephone: +44 (0)20 7 977 6733Mobile: +44 (0)7837 938 447Email: [email protected]

Environmental Insurance (EIL)

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