EBM Insights podcast series is a deep dive into current issues surrounding insurance and risk management in today’s ever-changing world.
Introduction:
In this podcast we talk with Olivia Hogan, Senior Underwriter, Environmental Liability from Markel International, about Environmental Impairment Liability (EIL) insurance.
Olivia is also the current Chair of the IUA Non-Marine Environmental Committee. The IUA Non-Marine Environmental Committee (often referred to as the Environmental Underwriting Committee) was established in 2010 as a subgroup of the Liability Underwriters’ Group to provide information on environmental liabilities and educate the market on coverage.
A transcript of this podcast is below. The complete EBM Insights podcast series is available here.
Disclaimer
In this podcast, we have provided general advice only and not personal advice. In giving this advice, we have not considered your personal circumstances.
00:00:17 Speaker 1 – Sandy Cattley (Marketing Manager, EBM)
Thank you everyone for joining us for this episode of the EBM Insights Podcast. I’m Sandy Cattley from EBM Insurance & Risk and in this series, we take a closer look at key issues shaping the insurance and risk landscapes. Today we’re discussing environmental impairment liability insurance.
Or EIL for short. With that, I’m pleased to welcome Olivia Hogan, Senior Underwriter, Environmental Liability from Markel International for today’s discussion. Welcome, Olivia.
00:00:49 Speaker 2 – Olivia Hogan (Senior Underwriter, Markel International)
Hi, Sandy. Thank you very much for having me.
00:00:52 Speaker 1 – Sandy Cattley
Thanks for joining me. Olivia, I think the perfect place to start is with an overview of what Environmental Impairment Liability Insurance is. Can you provide our listeners with a definition and what types of risks it’s designed to cover?
00:01:09 Speaker 2 – Olivia Hogan
Yes, certainly. So Environmental Impairment Liability is essentially pollution coverage. So environmental harm can be caused to the environment via land, air or water sources and this then includes consequential damage to human health, biodiversity and third party properties.
So, for environmental harm to occur, there has to be a pollution event which is typically defined as the dispersal, migration, seepage, or release of any solid, liquid, gaseous or thermal irritant. So essentially something that goes somewhere that it shouldn’t be.
Now environmental harm and pollution can occur either suddenly, so viral explosion or gradually from a leaking underground fuel tank. I think a common misconception about environmental pollution is that it has to be, you know, heavy oils, chemicals or fuels. However, there are various other things that can have a detrimental effect on the environment.
So, if we take milk, for example, if milk was to get into a watercourse, milk actually removes the oxygen from water. So, any fish that were living or breathing in that watercourse would essentially suffocate and die. So environmental is really there to fill the substantial gaps that are left by traditional liability policies, especially around that gradual element and statutory cleanup requirements.
00:02:26 Speaker 1 – Sandy Cattley
Right. Thanks for that. That was really interesting, especially around the milk analogy. So which industries or activities tend to be most exposed to environmental impairment risks today and are there any surprising ones?
00:02:44 Speaker 2 – Olivia Hogan
Yeah. So, I think most clients and companies have an environmental risk, their physical business activities will determine how big or small that risk is. So, for example, if you had a client that had perhaps one above ground storage tank that they used at their own premises to refill their own fleet of trucks, for example, they would have an environmental exposure.
But when you compare this to a refinery, the risk would be lower as obviously the refinery will have much larger quantities of bulk storage on their premises.
So, as you can imagine, like clients in the chemical manufacturing space, the oil and gas industry, so this includes pipelines, refineries, fuel farms, they all carry high environmental exposure.
Exposures coupled with waste disposal sites and the mining industry. But if we look at industries such as manufacturing, transportation or even perhaps construction companies, they also have environmental exposures. So, people always think about exposures being you know, bulk storage spills, fires or odour releases.
But if you were to look at a construction company that was excavating a Brownfield site, so a location that had a very heavy industrial past use during the course of their excavation works. If they were to disturb or mobilise any existing contamination that was at that site, this could then lead to quite a substantial pollution release itself.
So, I think it really depends on the industry we’re talking about. But to give you a few more examples, airports again being a huge industry where there’s a lot of bulk storage handled. However, if you’re in a territory or region where it’s gets quite cold and de-icing fluids are required.
De-icing fluids contain something called glycol, which if releasing to the environment again, can kill aquatic life, so there’s various examples there. I think it really depends on what the client does, but there are many industries. I think that people are quite shocked to hear how an environmental exposure, even the most maybe benign Trade. So, if you had a warehouse and you were simply storing goods in the warehouse, you weren’t manufacturing anything or you weren’t particularly storing any chemicals. Say, for example, you had a fridge in the staff room, and the fridge was to have an electrical fault, which caused a fire. The whole warehouse was to go up in flames.
If you’re working in quite an old building, the likelihood is that you’d have asbestos cladding in your roof or in your walls, so during the course of the fire the asbestos particles would disperse into the air, which would essentially trigger the environmental policy because of that definition of dispersal or release.
If those particles then ended up in, say, neighbouring gardens, the policy would trigger a cleanup requirement because we’d have to physically go out and clean up those asbestos particles. So even if you have quite a benign trade, perhaps people think you know there’s not much fuel or chemicals here. There still can be other substances or issues with, you know, older buildings or risk management processes.
00:05:33 Speaker 1 – Sandy Cattley
Thank you. That’s really, really good information. Thank you. Can you take us through the types of environmental claims you most commonly see and what typically triggers them?
00:05:47 Speaker 2 – Olivia Hogan
Yep. So, for an environmental claim to happen, for pollution to happen, three things have to occur. So, you need a source, a pathway, and then a receptor. So, the source being the source of the pollution. So, things like fire, water, bulk chemicals or even odorous materials.
And then you need a pathway. So, the means of how the source can travel. So, this is typically through river rivers, streams, groundwater in the air, and even through surface water drains on sites. And then the last thing you need is a receptor. So, who is the impacted third party?
So, if you have all of those three things, then you’ll have a claim, a pollution claim. There are occasions where perhaps you might have a source and a receptor, but if there’s no pathway, there’s no means for that pollution to go anywhere and impact anybody. You’re never going to have a claim. So, claims are very varied, and again, it depends on the customer size and the activity.
But typically, we see losses coming from the mining industry, so tailing dams, tailing storage facilities, breaches of those obviously can have devastating effects on the environment. If we look at the rail industry, train derailments are also a big one. So, if you’ve got rail cars that are transporting contaminated materials during the course of a derailment, these materials can obviously seep out into the environment.
Fire is a very common one, and I don’t think it’s specific to any trade itself. It can be in any sort of industry and impact anything. But the main key example with the fire is fire water. So, the fire brigade would come out to the site, put the fire out. However, if you had chemical solvents fuels, milk, whatever it was you had on your site that would typically then mix with the fire water, which then causes a pollution condition that fire water is now contaminative.
So, when the fire water runs off site and gets into, you know, surface water drains, the soil or the groundwater or unfortunately sometimes rivers, lakes or areas of special scientific interest. So those nature reserve areas that can be a huge a huge loss and another one which I think is quite interesting is nuisance. So, odour dust and fumes so nuisance can create an environmental loss especially if they impact communities or sensitive receptors.
So persistent odours can definitely have a detrimental effect on residents that are living nearby and under. Environmental law odour is considered a statutory nuisance, which is typically picked up by environmental policies.
00:08:11 Speaker 1 – Sandy Cattley
What role do site assessments, environmental reports or even risk engineering play in helping a business obtain cover?
00:08:20 Speaker – Olivia Hogan
Yeah, I think I think a huge part of how we underwrite is sort of based on the information we receive. So traditionally environmental insurance was around historical contamination. So, when clients were purchasing sites via M&A transactions. If a client was to purchase a location that was a heavy brownfield and had quite a history of contaminative operations on that location, the minute they purchase that site, they’ve become legally liable for contamination that exists at that location, even though they weren’t the original polluter.
So if a client is looking for historical contamination, that pre-existing element, underwriters will definitely need what we call a Phase Two report, also known as a Ground Investigation Report, really to help us get a feel for what’s in the ground at the moment where the pathways are, if it can be mobilised and to sort of assess really the level of coverage.
And to the extent, no conditions perhaps will or won’t apply. So basically, the more detail we have, the better. If we’re looking at it from an operational point of view, if we can get comfortable that the client is actively monitoring their sites for potential leaks and if they’ve got good risk management processes, for example, they could have multiple storage tanks that are underground. But if they’re quite old, if part of their risk management practises include relining those tanks, checking for corrosion frequently and undertaking site inspections, underwriters will definitely get more comfortable with that risk, which in turn can also result in cheaper insurance premiums.
I would say, though, that environmental liability and most insurance policies are definitely there to finance accidental losses as opposed to replacing those operational controls or risk management, but it kind of goes hand in hand. You know, the more information we have, the better we can access, assess the risks and then this in turn will help the client with either premiums, deductible levels, or known condition exposures.
00:10:13 Speaker 1 – Sandy Cattley
Thank you. And are there any emerging environmental risks you are watching closely, such as forever chemicals or climate driven events or even regulator changes?
00:10:26 Speaker 2 – Olivia Hogan
Yes, absolutely. So, regulation is changing and tightening all the time. Environmental regulators are powerful and very active. So, there are several of these regulatory changes that we’re watching, but also emerging risks. So, I don’t think we can have an environmental conversation without talking about PFAS (Per- and polyfluoroalkyl substances), so there is a rapid enforcement and clean up requirements, thresholds also coming into the industry at the moment, so underwriters are looking at, you know, what sort of PFAS exposures clients do have on their site.
This then helps them to determine what coverage, if any, of course can be offered climate driven pollution events such as flooding and fires are definitely increasing. We’re seeing more releases of chemicals coming from these sort of events. Electric vehicles is an interesting one.
The transition to electric vehicles definitely supports the broader sustainability objectives. However, it doesn’t eliminate pollution risk. So, we’re seeing major studies now around EV electric vehicles if they contain lithium ion batteries, they tend to burn at extremely high temperatures, which means that they spread rapidly and then they can release this metal into the environment. With that, the thermal runaway here can cause the fires to escalate a lot more quickly, and they can almost reignite after the event, even when they appear to be extinguished. So that’s one that we’re watching quite closely.
One I heard about very recently, actually is Sucralose. It’s a common artificial sweetener, so we are starting to hear rumbles of this product not actually breaking down in wastewater treatment plants. So essentially it would end up in rivers, streams, lakes and then again, once in aquatic environments, it can disrupt the ecosystems and potentially cause damage to freshwater fish.
So yeah, there are lots of angles there that we’re having to think about and watch insurers definitely have to operate in a fast evolving wrist landscape.
00:12:30 Speaker 1 – Sandy Cattley
Yeah. So yeah, constantly changing.
If there’s one piece of advice you give business owners about managing environmental risk more effectively, what would it be?
00:12:40 Speaker 2 – Olivia Hogan
I would say definitely to understand your exposures. So, knowing what materials you have, what do you store? How do you handle them? How do you dispose of them even if you don’t think they obviously look like an environmental exposure. Hopefully, some of the examples I’ve given here today show that most things can have a detrimental effect on the environment.
This, coupled with the fact that I would say definitely understand the gaps that exist between your typical sudden accidental coverage under your liability policies, definitely don’t take comfort from the fact that you have sudden accidental pollution under these policies because there are multiple gaps. So, some of these gaps are things like on site cleanup, gradual pollution, Statutory intervention and then environmental damage. These won’t be picked up under a general liability policy even if the event is a sudden accidental event.
These are gaps that just won’t be filled, so definitely understand your exposures and the gaps that exist within your current insurance policies.
00:13:34 Speaker 1 – Sandy Cattley
Thank you. Great. Thanks so much Olivia for chatting about environmental impairment liability. I think I’ll think about milk a little bit differently now after leaving some of those risks.
So, to our listeners, we hope today’s discussion leaves you with a better understanding of emerging environmental risks and how EIL cover can help protect your business. Thanks once again, Olivia.
00:13:57 Speaker 2 – Olivia Hogan
Thank you so much.
[end]
