Risk managers, insurers oppose extension of Europe's Environmental Liability law

A review of Europe's Environmental Liability Directive is expected to produce proposals that would extend strict liability to all potential polluters, but risk managers and insurers say they prefer to see the existing law work effectively without any changes.

The directive, implemented in 2004, established a framework environmental liability regime across the European Union that is based on the principle of the polluter pays.

It has a two-tier structure, with high-risk companies such as the waste, chemical and petrochemical industries being subject to strict liability for environmental damage. Other polluters would be assessed based on their fault in causing pollution.

E.U. member states were supposed to implement the directive through national laws by 2007, but only four met the deadline due to the legislation's complexity. While it was fully transposed into member states' laws in 2010, the nations' requirements are not uniform.

The European Commission commissioned studies on the effectiveness, legal and biodiversity issues related to the directive. A report is due in April, which several industry experts say could result in proposals to extend strict liability to all polluters.

“Overall, insurers in Europe are supportive of the aims of the ELD, and we are satisfied with how the ELD stands at E.U. level,” said Carmen Bell, policy adviser for nonlife insurance at Insurance Europe, the Brussels-based body representing insurers in Europe.

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“However, there is debate about extending the regime further and whether to make financial security guarantees compulsory via the directive — moves that Insurance Europe does not support,” Ms. Bell said.

The European Commission is studying the scope of and exceptions to the directive, including whether to extend strict liability to less hazardous operators, she said.

The 2010 loss of the Deepwater Horizon oil platform in the Gulf of Mexico and subsequent pollution of the U.S. waters and coastline prompted the E.U. last June to extend the directive to offshore oil and gas operations in European waters.

Insurance Europe opposed the move, citing cleanup difficulties, the ability to competently assess damage and limited market capacity available to insure such large exposures, Ms. Bell said. It also said it thinks decisions on financial security guarantees should be left to member states.

“We do not support compulsory financial security for the ELD at an E.U. level. Though it is growing, the environmental liability market is still relatively small and niche at this time in comparison to other, more traditional markets. Such a measure would hinder the further development of this market, as a sudden surge in demand might be too much for insurers to absorb,” Ms. Bell said.

Risk managers also do not want to see changes to the directive, said Carl Leeman, chief risk officer of global logistics firm Katoen Natie, based in Antwerp, Belgium.

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“We oppose proposals to introduce compulsory insurance across Europe, and we certainly do not support proposals to extend the scope of the directive,” Mr. Leeman said.

Compulsory insurance would not be in the interest of buyers and be a disincentive to use enterprise risk management, since some companies might be tempted to rely more on their insurance, said Mr. Leeman, who also is a board member of the Federation of European Risk Management Associations and president of the International Federation of Risk and Insurance Management Associations.

“The result would be that companies that manage their environmental risks would end up paying more for their insurance as they subsidize the bad risks of others. And for those that want to insure themselves, there is already enough capacity,” Mr. Leeman said.

Insurers have responded by offering specific environmental coverage.

Some countries, such as Portugal, have extended financial security requirements to all operators, as allowed by the directive, said Cliff Warman, EMEA environment practice leader at Marsh Ltd. in London. Many Marsh clients in Portugal have purchased insurance to comply with the requirement, he said.

Eventually, all European nations could have such requirements, he said. “If you read between the lines of the directive, the intent is for member states to work towards financial security requirements as insurance markets develop.”

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“Rather than making changes, (risk managers) would much prefer to see efforts focused on creating a level playing field for environmental liability law across Europe,” Mr. Leeman said. “There are still too many differences in how the ELD has been implemented between member states.”

Member states' different interpretations have “resulted in a patchwork of environmental liability regimes across the European Union in which some are stricter than others. It has not resulted in a level playing field,” said Stephen Andrews, London-based head of environmental-EMEA at American International Group Inc.

The upcoming review will recommend options to the European Commission, but it will not make legislative proposals, said Julien Bedhouche, Brussels-based European affairs representative at FERMA. Maintaining the status quo is an option, he said.