Loss Prevention Alerts

Alert No 7 - Check Your Insurance Now!

Date of Issue: 14 March, 2000

This loss prevention alert has been produced by the Loss Prevention Working Group (LPWG) of the AGS. It highlights issues that the LPWG considers may be of relevance to members. It is not intended to provide a definitive response to any issues and before taking action members should consider carefully whether they need to seek independent legal advice.

Consultants and contractors often take the view that indemnity insurance is a commodity, assuming that insurers compete only on price rather than on quality of coverage. This is a dangerous viewpoint. A failure to compare your current insurance arrangements with what is available in the market place can result in loss of business as you fail to compete with specialists who have more advantageous terms. More worryingly a failure to assess the scope of cover can result in uninsured claims.

Whilst many specialists are irked by what they see as clients' unjustified focus on insurance, remember that liability insurance is ultimately there for the specialists' protection. The purpose of this alert is to highlight some issues arising from the contaminated land regime set out at Part IIA, EPA 1990. However, specialists should consider commissioning a general audit of their insurance arrangements as part of an ongoing system of internal control and risk management, obviously ensuring, as a matter of basic due diligence, that those carrying out the audit have no incentive to promote a particular insurance scheme or product line.

The new law

On 1 April 2000 Part IIA, EPA 1990 will come into force. This is a regime for the identification and, where appropriate, remediation of contaminated land. In the first instance, liabilities and responsibilities under the Act will fall upon those who "cause or knowingly permit" contaminative substances to be present in, on or under the land. Where the causer or knowing permitter cannot be found, then liability will attach to the owner or occupier of the land.

Consultants and contractors will be well aware of the risk that their activities can cause or exacerbate a contaminated land condition. This can arise during site investigation activities, remediation work, or even structural work (for example, the construction of foundations or ground strengthening operations) where contaminated land is not a direct concern. The Environment Agency have stated that disturbance caused by site investigation boreholes, site demolition, site stripping and the construction of foundations can all cause contaminants to be released into underground aquifers. Removal of surface cover (roofs, floors, slabs etc) opens up the site and can cause pollutants to enter ground or surface water. Although the AGS and the ACE have made (what we believe to be largely successful) representations to government to attenuate some of the most onerous features of the regime, the risk of being an appropriate person remains significant.

Is there insurance cover?

Specialists will want to know whether they would be insured against a liability under the new contaminated land regime. They might focus on the terms of any pollution exclusion in their policy or provisions which aggregate the cover for pollution and contamination claims. Whilst this is important, it is not the central issue.

Specialists should check immediately to ascertain the scope of the insuring clause in their professional indemnity and public liability policies. The insuring clause sets out the primary obligation assumed by the insurer in return for the specialist's promise to pay the premium. For example, a policy may promise to indemnify the specialist against a liability to pay "damages or compensation" to a third party. This wording, although it may seem satisfactory, is in fact very restrictive.

It is important to understand the way in which the liability regime under the EPA 1990 will work. A specialist deemed to be an appropriate person will, in the first instance, be asked to enter into discussions with the regulator (the local authority or for particularly harmful sites the Environment Agency) in order to agree what steps should be taken by way of remediation. If the issue cannot be agreed then the regulator can serve a remediation notice which sets out what must be done and the time frame for the work. It is a criminal offence not to comply with the terms of a remediation notice. Where the specialist then complies with the notice the costs he incurs will not be recoverable from insurers where the indemnity is framed as an indemnity against a liability to pay "damages or compensation" to a third party. The point is that at this stage the specialist does not pay money to a third party; he is carrying out work himself and so the policy has not (to use the language of insurance) triggered.

Some policies provide an indemnity against "civil liability", or "liability at law". These wordings are much wider and will probably trigger to indemnify a specialist against the costs of complying with a remediation notice. Policies sold on a "civil liability" or "liability at law" basis are more expensive but specialists may take the view that it is worth paying the extra premium for the protection this form of cover affords.

There is no more contaminative activity than ill-conceived attempts at remediation. As AGS members know better than most, the cost of errors can be enormous.

Prepared for the Members of the AGS by Steven Francis, Dibb Lupton Alsop