Constructive criticism needed from CEA on ELD risks

Whilst Professor Fogleman said that she understood the CEA’s wishes to see the insurance market for ELD risks left to develop on its own accord, there is a long history of the public having to pay to clean up environmental damage because the companies that caused it lacked sufficient financial assets to meet those costs.

This goes against the polluter pays principle that underpins the ELD, she continued. And unless interested parties ensure that insurance cover is bought, or financial securities put in place, we may well get mandatory financial security ‘whether or not companies and the insurance market want it’, she warned.

“The CEA has come out very strongly against mandatory financial security. It said for several years that ELD liabilities were uninsurable even when London market and other EU insurers were underwriting policies to provide cover for them. The CEA has not, therefore, presented the position of the entire EU insurance market. In addition, the CEA continues to state that it is against compulsory insurance for ELD liabilities when the EU has never proposed compulsory insurance,” said the lawyer.

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And crucially there has been an absence of positive constructive statements from the CEA about alternatives to mandatory financial security, she added. Indeed, the CEA’s comments about the ELD’s uninsurability have been particularly unhelpful and may well have deterred companies from purchasing cover for ELD liabilities, despite the huge gap in their general liability policies for these risks, she continued. Other negative comments by the CEA may also have had a deterring effect on the growth of the insurance market for ELD and other environmental liabilities.

“What we need is for the CEA to get together with insurers who are underwriting policies that provide ELD cover and organisations such as FERMA, in order to come up with some new ideas and to begin constructive criticism,” she urged the insurance body. “Because unless we get not just the environmental insurance market growing but companies actually buying that insurance on an increased scale we are going to get mandatory financial security, whether or not companies and the insurance market want it.”

A major problem facing the ELD and its polluter pays principle is how to ensure that a company has adequate financial security for the costs of remediating environmental damage it has caused when those costs exceed its assets. One answer is mandatory financial security. Other answers need to be explored, said Professor Fogleman.

The CEA has argued that the market for environmental insurance should be allowed to develop independently. Whilst Professor Fogleman agrees with this in principal, she pointed out that the development of an environmental insurance market is not the purpose of the ELD. Rather its purpose and the polluter pays principle that underlies it, is to avoid environmental damage in the first place but, if such damage is caused, for the operator who causes it to pay for its remediation instead of the public. This is the issue to which the CEA should respond, she pointed out

“What we need is innovation. We have had lots of innovation by the insurance industry in developing products to cover ELD liabilities now we need innovation in finding a way to ensure that companies are going to buy those products or have other means of financial security. So that if companies and the insurance industry want to avoid an EU wide system of mandatory financial security for ELD liabilities, they can point to evidence that shows that there is no need for it,” she argued.