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Environmental Impairment Liability Insurance

In 2015, the EPA published its Guidance on Financial Provision for Environmental Liabilities. The main requirements stated in this guidance are that financial provisions are; secure, sufficient and available when required.

The EPA states that in principle, Environmental Impairment Liability (EIL) Insurance is a suitable financial instrument to cover the potential costs of environmental liabilities. However, EIL Insurance must cover “the full costs of responding and remedial measures if an incident occurs at a licenced facility” as stated in the 2015 guidance.

The 2015 guidance also states that EIL Insurance must “ring-fence the policy limits to the licensee’s operation of the licensed facility having regard to the risk values identified in the licensee’s Environmental Liability Risk Assessment (ELRA) report”.

This additional guidance from the EPA is in response to two issues that have arisen in the context of ring-fencing EIL Insurance.

The first issue concerns licensed facilities that are a sub-set of a broader business which has other facilities or activities that are not subject to the licence. In this instance, the EIL Insurance cover for the licensed facility/activity must be ring-fenced from the cover for the other elements of the business. This is to ensure that the costs associated with remedial measures associated with environmental liabilities are not diluted by the other elements of the business.

Secondly, this additional guidance addresses instances where the EIL Insurance covers liabilities other than environmental response and remedial measures, (e.g. personal injury, damage to private property, economic liabilities such as business interruption and legal fees/penalties). In order to ensure that there is no risk of dilution by these additional liabilities, the cover for environmental response and remedial measures must be ring-fenced from the cover for other liabilities.

Both of these issues may be addressed through a stand-alone EIL Insurance policy, which is limited to the environmental response and remedial measures associated with an incident at the licenced facility to the amount determined by ELRA.

The full EPA guidance can be viewed at the link below:

Additional Guidance on Financial Provision for Environmental Impairment Liability Insurance 2016

October 2016