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Environmental Insurance & Risk Management |
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Table of Contents
1. How is liability determined for a pollution event?In Ontario, liability for damages caused by a pollution event are set out in the Environmental Protection Act. There are two main sections of the act can cause concern. First, the Minister of the Environment can order the clean up of a contaminated site under the authority of the Spills section of the Environmental Protection Act. Section 97. deals with orders by the Minister. Subsection (1) of the Act states:
The above section goes on to name other parties as well, which are primarily levels of municipal government in or around the site. Items i and ii refer to those who actually caused the release of the pollutant, and are relatively obvious. The interesting item above is iii. In the event that those listed in items i and ii are no longer available to respond to the order, the responsibility for carrying out the order falls to the current owner of the property or anyone in control of it, regardless whether they had anything to do with the pollution event. Subsection (2) goes on to define what can be included in the order issued by the Minister. It states:
These are broad powers, which can force any party in ownership or control of the land to take whatever steps are required to remediate the site, regardless of whether they had anything to do with creating the contamination. These powers are made even more potent by subsections (4) which allows the Minister to issue the order “despite any Act, regulation, by-law, order, permit, approval or licence”, and (5) which allows the Minister to issue the order without affording “to any person an opportunity for a hearing”. Under Ontario’s EPA, property owners, or those who are in control of it, are absolutely liable for cleaning up the site, if the contamination is likely to cause an adverse effect. Liability is absolute under the act because they are responsible for clean up regardless of fault. The second area of concern with the Environmental Protection Act concerns apportioning of liability for pollution incidents. There are two basic models for assigning liability to multiple parties responsible for environmental contamination. The first method is several liability, in which each party is only liable for the portion that they are responsible for. The other method is joint and several, where liability is essentially apportioned based on the ability of the various parties to pay. One party, usually those with the “deepest pockets”, can be required to pay for the entire remediation cost regardless of that party’s contribution to the contamination. They are then able to seek redress from the other responsible parties, if the other parties are still accessible and solvent. Section 99. (8) of Ontario’s EPA states that where two or more parties are responsible to pay compensation under the Act, they are jointly and severally liable. Back to Top2. Why is special environmental insurance required?Standard insurance policies are meant to protect against "sudden and accidental" losses, and generally never respond to claims as a result of prolonged or repeated leakage. Thus, they are not suited to the gradual escape of pollutants from aboveground or underground storage that can cause significant groundwater or soil contamination. The dual effect of strict liability and joint and several liability imposed by the Environmental Protection Act caused insurance companies to introduce standard pollution exclusions into their policies underwritten in Canada. These exclusions removed essentially all coverage for the sudden and accidental release of pollutants into the environment. A typical exclusion reads:
To bridge these gaps in insurance protection, a number of specialty insurers developed insurance products specifically designed to manage the risk of a pollution event. Back to Top3. What if I only use small amounts of hazardous chemicals?When it comes to hazardous chemicals, "small amounts" are very much a relative term. Contaminants in the environment are generally measured in parts per million or even parts per billion. Thus, even a one litre container of solvent or other chemical has the potential to contaminate millions or even billions of litres of ground water. Many companies consider a single 250 gallon carboy of chemicals to be a small amount. Consider the cost of remediating several hundred million gallons of contaminated ground water. Back to Top4. What if my firm declares bankruptcy?If a company has insufficient insurance to address a fire loss or product liability claim, they can declare bankruptcy and the owner's personal assets would normally be protected from creditors. However, a pollution incident is one of the events where the corporate veil can be pierced. The Environmental Protection Act allows the government to force officers or directors of a firm to personally be responsible for the cost of cleaning up a contaminated site, in the event the firm itself is unable to respond. Back to Top5. What if I don't use hazardous chemicals in my operations?Most firms will have some amount of solvents or other materials that are deemed to be pollutants at their premises. However, even if there are none of these available, many products that are not hazardous in their normal state, such as plastics or tires, product very hazardous byproducts when they burn. If you are manufacturing or otherwise storing large amounts of these products, and have a fire, the liability for cleaning up resulting contamination of soil and/or groundwater could be excluded under the pollution exclusion of the standard policy. Back to Top6. Will environmental insurance help reduce the Environmental Penalties Announced by The MOE?On June 9, 2005, the Ontario Legislature passed the third reading of Bill 133, which was subsequently given royal assent and is now law. One of the major features of the new legislation is the introduction of Environmental Penalties. The Director of the MOE will have the authority to assign penalties against a company that allows an unlawful spill or emission into the environment. Penalties of up to $20,000 a day for individuals and $100,000 a day for corporations can be levied. Corporate officers and directors will also face greater personal liability and the option of jail time. Penalties may be levied within days of a spill or emission and do not require prosecution through the courts. The MOE and municipalities would be given the authority to recover their costs and expenses incurred in responding to the spill from the offending company. Although environmental insurance will not directly lessen the per day penalty that may be imposed by MOE, it can significantly reduce the overall penalty by providing immediate funds for the timely clean-up of any spill. It also appears that quick response by the offending company to effect clean-up could result in a reduced per day fine. The access to the proceeds of the insurance policy will allow the offending company to quickly address the spill and hopefully result in the lowest level of penalty being assessed. Back to TopAuthor information goes here.
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