Wordings laid bare

The Umweltschadenversicherung (USV)—Insurance of Environmental Damage—model wording makes available a stand-alone coverage, which can be purchased alongside general liability and environmental liability coverage. It is designed as a special coverage for those public law liabilities that were introduced via the USV.

This specific, new liability exposure is channeled to the new coverage in two ways. First, a new exclusion contained in the general liability model wording (Section 7.10 (a) of the AHB) (re-) states that claims based upon the German Environmental Damage Act of March 30, 2007, or other national legislation implementing the Environmental Liability Directive (2004/35/EC) are not covered and excludes claims that are brought against the insured under private law in order to recover costs incurred as a result of environmental damage.

Second, the last paragraph of Section 1.1 of the USV model wording states that any claim that could also be brought in the absence of the EDA or other national laws transposing the ELD on the basis of liability provisions under private law is not covered. Such claims would remain covered under a general liability policy or an environmental liability policy, depending on the circumstances.

Scope of coverage

The way in which the coverage is structured is similar to the concept found in the environmental liability model wording, which means a modular approach and the familiar manifestation trigger ("verifiable first discovery").

The standard cover will respond to environmental damage, for example damage to protected species and natural habitats, land damage, and water damage (Section 1.1), unless the environmental damage occurs on the insured's premises (Section 10.1). Damage to ground water is also excluded from the standard cover (Section 10.2).

By specific agreement, the standard cover can be enhanced in two ways:

• Optional coverage extension 1 is meant to extend the coverage to environmental damage that occurs onsite, which also comes within the scope of the EDA. An additional option under coverage extension 1 is the inclusion of damage to ground water. This coverage extension is subject to a sublimit, which is part of, not in addition to, the general policy limit.
• Optional coverage extension 2 makes available a further enhancement of coverage in respect of environmental damage that occurs onsite. This extension affords coverage for liabilities that can be incurred under the German Federal Soil Protection Act (1998). These liabilities can go further than ELD liability inasmuch as onsite remediation may be required due to soil contamination, even though human health is not at risk. If this coverage extension is purchased, it is included within the sublimit of coverage extension 1.

The policy covers the legal obligation to remediate environmental damage pursuant to the EDA. Furthermore, coverage exists for claims against the policyholder by a public authority or a third party seeking to recover remediation costs.

In relation to protected species, natural habitats, and water, the policy covers primary, complementary and compensatory remediation (Section 5.1). Compensatory remediation is subject to a sublimit, although the model wording contains no monetary indication in this respect. Coverage is also afforded in respect of loss avoidance costs incurred in order to avert or reduce imminent environmental damage; loss avoidance costs are also sublimited (Section 9).

Within the standard cover, the risk-specific modular coverage components—risk modules—correspond to the seven risk modules that already exist in the environmental liability model wording. An additional risk module was however included in order to cater to the risk of liability under the EDA for environmental damage arising from the manufacture or supply of conventional products.

Generally, a sudden and accidental disruption of the insured's normal operations is a prerequisite of coverage (Section 3.1). This is different from the environmental liability model wording, where there is no such prerequisite, only an exclusion in respect of environmental impacts that are, in light of the insured's operations, unavoidable, necessary or expected ("normal operations").

The reason why this prerequisite was included is that there is a need for requiring the insured to show a discrete "event" in order to be able to compare the pre-damage and post-damage conditions, especially as regards protected species and habitats. It is important to understand that this prerequisite has no bearing on the nature of a discharge or escape of a pollutant. The policy does not set any criteria as respects the latter, so the discharge or escape may be of a gradual nature.

Only in relation to environmental damage arising from the manufacture or supply of conventional products (for example, products that are not environmentally relevant facilities or parts thereof) or their use does this prerequisite not apply; here, coverage hinges on the existence of a design, manufacturing or instruction defect, and coverage is limited to situations in which no development risk has materialized (Section 3.2 of the model wording).

Exclusions

USV model wording exclusions are generally in line with the exclusions found in the environmental liability model wording.

An additional exclusion pertains to environmental damage arising from the production, supply, delivery, use or dispersal of sewerage sludge, sullage, manure, plant protection products, fertilizers and biocidal products (Section 10.9). The reason for this exclusion lies in the fact that these substances are intentionally or knowingly introduced, or released into the environment in massive proportions, which means that an adverse impact on the environment is inevitable. Consistent with this reason, the exclusion will not apply where these substances are unintentionally released as a result of a sudden and accidental event, suddenly washed away by precipitation, or are blown onto neighboring land by wind.

Unlike its counterpart in the environmental liability model wording, the exclusion of losses arising from the undisrupted operations is absolute, for instance, there is no exception to the exclusion relating to development risks. This is only consistent with the coverage prerequisites outlined above.

By Mathias Schubert, vice president, corporate underwriting services, Gen Re