Businesses with oil and fuel tanks are often under the misapprehension that they are fully insured against the risk of pollution by their general insurance policy. The reality is very different and many of these businesses could face catastrophic financial consequences because of gaps in their insurance cover.
The potential cost of environmental damage
Every year, around 3,000 pollution incidents involving oil and fuels are reported to the environmental regulators. Many more are not reported and simply go under the radar. The bottom line is that it costs an average of around £40,000* to clean up after an oil spill, a number that can quickly escalate to six figures if controlled ground or surface waters are impacted.
And it doesn’t stop there. Environmental Sentencing Guidelines introduced in 2014 were designed to have a real economic impact on the offender. Global law firm Clyde & Co, has recently carried out research and, based on data from the Environment Agency, found that average fines have increased from £23,731 in 2013/14 to £147,575 in 2017/18.
Businesses at risk
Businesses set in grounds, or that are located close to water or on sensitive sites such as golf clubs, sports & country clubs, hotels, schools & universities, country estates, parks, hospitals & nursing homes, and even village halls and churches are at particular risk, but all businesses with oil and fuel tanks, including those with a diesel powered generator, are at risk of a pollution incident.
How to establish if you are properly covered by your insurance
As a starting point, businesses with oil and fuel tanks should work with their insurance advisers to check their general insurance policies. Any gaps and potential for ambiguity in their cover can then be identified.
Particular attention should be paid to the following areas:
- Pollution or contamination can sometimes be excluded completely or included with a limit. Even when given, pollution or contamination cover is almost always restricted to physical loss or damage that occurs following a sudden identifiable, unintended and unexpected incident which takes place in its entirety at a specific time and place during the period of insurance.
Property & Business Interruption
- Is the land and water at your premises included within the definition of insured property in your policy? If so, for what value or limit? Generally they are not. Oil & fuel tanks and supply pipework are often located outside, if they leak or fail and pollute land and/or water (including groundwater) within your grounds, would clean up costs be covered and if so, under what circumstances?
- The costs of tracing and accessing an oil leak from a fixed oil tank used for heating purposes is often restricted to those that happen within the insured premises. Leaks from fuel tanks can be excluded.
- Damage or consequential losses caused by gradual deterioration, rust, wear and tear, etc. are generally excluded. Tank and pipe failures are often not caused by any apparent external cause.
- Business interruption losses will usually only be covered if there is an insured property damage claim for the same incident.
Third Party Liability
- Standard public liability policies are designed to cover civil law/tort liabilities rather than the somewhat different statutory environmental liabilities.
- The majority of environmental liability situations that a business is likely to encounter will involve statutory, rather than tort liabilities. Businesses with traditional public liability policies could find themselves without the cover to defend themselves in the event of an environmental incident.
- Environmental liabilities are mainly dealt with under the statutory regime; they require the polluter to clean up rather than simply compensate third parties for their loss and are:
- strict liability (no need to prove fault);
- usually triggered by environmental harm or the threat of it rather than by resulting personal injury or property damage. This makes them more flexible and more easily triggered than the more reactive tort regime;
- backed-up with criminal sanctions.
- Criminal defence costs cover is generally only provided for specified breaches such as those under health & safety regimes and are unlikely to be included for environmental liability offences.
- Even when general public liability policies are extended to cover environmental clean-up costs they often exclude any liability incurred as a result of ‘gradual’ pollution and statutory liability for:
- remediation of own site pollution;
- costs of regulator relating to own site pollution;
- biodiversity damage; and
- dealing with imminent threats of environmental harm.
Don’t assume – be sure you’re insured!
In conclusion, it is all too easy to assume that your business is covered by your existing insurance policies. Time spent now checking your existing cover will be wisely spent if it saves you the trouble and financial consequences of being hit by an expensive, and ultimately uninsured, claim, however unlikely you think that may be.