Policy Response to recent Australian Bushfires
Following the recent bushfires in Australia, there are many environmental concerns surrounding waterway contamination due to the ash, debris and dead animals entering rivers, streams and dams that we depend upon.
The fires may also have caused pollution at residential, agricultural or commercial/industrial properties from the release of fuel, chemicals or asbestos materials from burnt assets or from the migration of contaminated fire water impacting the soil, surface water and groundwater within the boundary of such properties.
In this article, we outline what may be insured under an Environmental Impairment Liability (EIL) Insurance policy, and for those that do have a current EIL policy we outline how you might have a valid claim.
Environmental Impairment Liability Policy
Also referred to as Premises Pollution Liability policies, such policies can insure fixed premises (i.e. declared ‘Covered Locations’) and require a ‘Pollution Condition’, at or migrating from a Covered Location to respond. The deductible (the first amount of each claim the Insured must pay) is generally for each and every ‘Pollution Condition’.
While the definition for ‘Pollution Condition’ varies from policy to policy, the definitions have the same core concept: the release of a contaminant or pollutant into the environment. For example, the emission of any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapours, soot, fumes, acids, alkalis, chemicals, hazardous substances, petroleum hydrocarbons.
Therefore, if your Covered Location has pollution at or migrating from the Covered Location caused by fire, this would likely meet the Pollution Condition definition (subject to your policy terms, conditions and exclusions). The entirety of the pollution release, including a series of interrelated, associated, repeated or continuous releases, may be considered one Pollution Condition (with one deductible).
What is covered?
Typically, Premises Pollution Liability policies may cover the following losses caused by Pollution Conditions for which you are legally liable:
- Compensatory damages for Third Party Personal Injury & Property Damage
- Clean-Up Costs for Pollution Conditions at the Covered Location
- Clean-Up Costs for Pollution Conditions that have migrated from a Covered Location (e.g. neighbouring land)
- Natural Resource Damage for Pollution Conditions that are at or have migrated from a Covered Location into the natural environment (e.g. waterways, air, marine environments)
Clean-Up Costs: typically refers to costs, charges and expenses for the investigation, removal and treatment of pollution or contamination to the extent required under Environmental Law. Clean-Up Costs must usually be incurred with the insurer’s written consent.
Environmental Law: typically means federal, state, local government or other local laws, including but not limited to, statutes, rules, regulations, ordinances, guidance documents, and governmental, judicial or administrative orders and directives that are applicable to a Pollution Condition.
First Party Discovery Trigger
Many environmental insurance policies require a claim to be made against the Insured by a third party (e.g. neighbour), or a direction from the environmental regulator to clean up pollution. However, some Premises Pollution Liability policies have a ‘first party discovery’ trigger where the Insured merely has to discover the pollution during the policy period and make a claim under the policy. This is a significant policy benefit, as it means a claim from a third party or the environmental regulator is not necessarily a pre-requisite to trigger the policy. It is important to note that under this provision the Insured must usually have a legal liability to clean up the pollution, to the extent required under Environmental Law.
For example, the Insured might discover pollution at their premises which exceeds the national contaminant guidelines for human health and the environmental under NEPC’s National Environment Protection Measure 2011. This means the Insured has a legal liability to clean up the pollution because it presents an unacceptable risk to human health or the environment.
Premises Pollution Liability policies that provide ‘first party discovery’ cover will generally extend to Clean-Up Costs resulting from a pollution condition on at or under the Insured’s covered location provided the discovery is made during the Policy Period by the Insured.
Emergency Response Costs
Another key policy benefit is Emergency Response Costs, which the majority of environmental policies offer as standard cover. These generally are expenses incurred in an emergency situation to prevent or to respond to an imminent and substantial threat to human health or the environment arising from a Pollution Condition. Insurer approval is typically not required (nor a claim by an environmental regulator or third party), but the Pollution Condition and the details of the Emergency Response Costs must be notified to the insurer within the timeframe specified in the policy.
In Summary
We expect environmental liability insurance products will continue to evolve in this changing world, and in particular, innovations in parametric insurance could see it become an even more significant environmental insurance product in the future. Parametric insurance works on the basis of a pre-agreed payment for a claim guaranteed upon the occurrence of an event within a pre-defined parameter. This could be a rise in over 3 degrees in temperature or a natural disaster event for example.
Environmental threats dominate the top five long term risks by likelihood and occupy three of the top five spots by impact in this year’s Global Risk Report produced by the World Economic Forum, in conjunction with Marsh and McLennan Companies and Zurich Insurance Group. This report further identifies that failure of climate change mitigation and adaption is the number one risk by impact and number two by likelihood over the next 10 years. Environmental insurance products can play a key part in mitigation against environmental risks.
In the meantime, a current Premises Pollution Liability insurance policy can address pollution risks as outlined in this paper. Please reach out to us for help with any environmental claims, questions on your current insurance, or for any future cover you might be interested in.
For the latest environmental liability insurance market insights, please refer to our report Australian Environmental Liability Insurance Market Recap - 2020.
For more information, please contact:
Amber Lepparde - National Environmental Practice Leader
Emma Davies | Senior Account Executive, Environmental
Marsh Pty Ltd (ABN 86 004 651 512, AFSL 238983) arrange insurance and are not an insurer. This document is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. The information contained herein is based on sources we believe reliable, but we make no representation or warranty as to its accuracy. Marsh shall have no obligation to update this publication and shall have no liability to you or any other party arising out of this publication or any matter contained herein. Marsh makes no representation or warranty concerning the application of policy wordings or the financial condition or solvency of insurers or re-insurers. Marsh makes no assurances regarding the availability, cost, or terms of insurance coverage. LCPA no. 20/035.
