tÜ~í=Çç=éçäáÅáÉë=ÅçîÉê\Environmental insurance policies cover statutory clean-up requirements, third party claims for bodilyinjury and property damage, and associated legalexpenses, resulting from pollution or contaminationevents, whether such events are "sudden andaccidental" or "gradual" in nature. Related costs such as business interruption losses (e.g. loss of profit, loss of rental income) can also be covered.

tÜ~í=~êÉ=íÜÉ=ã~áå=éçäáÅáÉë=~î~áä~ÄäÉ\The principal environmental insurance coverages,which can be tailored to meet the specific risk, are:

– eáëíçêáÅ~ä=mçääìíáçå=`çîÉêW Arranged forliabilities associated with pre-existingcontamination (e.g. due to previous industrialoperations) or for contingent liability exposuresassociated with previous divestments.

– léÉê~íáçå~ä=mçääìíáçå=`çîÉêW Cover for on-going pollution risks, for example fromunanticipated discharges, leakages or spillages.

– `çåíê~ÅíçêDë=mçääìíáçå=iá~ÄáäáíóW Coverage forpollution liabilities associated with contractor'soperations, whether from the new incidents or themobilisation of existing contamination.

– oÉãÉÇá~íáçå=`çëí=`~éW "Stop loss" programsdesigned to protect against cost overruns oncontamination clean-up projects.

– `çãÄáåÉÇ=mêçÖê~ãë=~åÇ=iá~Äáäáíó=_ìóJçìíëWA blend of the principal coverages with a fundedelement to cover known remediation costs. Suchprograms can be structured to provide buyersand/or sellers with a long-term buy-out ofenvironmental liabilities.

tÜ~í=áë=íÜÉ=ã~ñáãìã=éÉêáçÇ=çÑ=áåëìê~åÅÉ~î~áä~ÄäÉ\For a one-off premium payment, it is currently possibleto obtain policy periods of up to ten years for historicalcontamination cover, and up to five years for "new"pollution cover. Combined programs and liability buy-outprograms offer the potential for longer policy periods.

tÜ~í=ã~êâÉí=Å~é~Åáíó=áë=~î~áä~ÄäÉ\Most environmental insurers are routinely able to offer aggregate policy limits of up to US$50,000,000(approximately £25,000,000; EUR37,000,000) per risk, with higher limits available through the use ofexcess layers.

fëåDí=íÜáë=íóéÉ=çÑ=ÅçîÉê=~î~áä~ÄäÉ=íÜêçìÖÜçíÜÉê=éçäáÅáÉë\No. Traditional insurance products provide limited, ifany, cover for pollution. At best, public liability policiesin most countries may offer cover for third party claims(although not necessarily statutory clean-up costs)arising from "sudden and accidental" pollution events.Property insurance may provide limited clean-up cover,but only if losses occur as a result of an "insuredperil". Such policies are clearly inappropriate for themajority of environmental risks, particularly thoseassociated with historic contamination which is oftenthe key concern during transactions.

Environmental InsuranceEnvironmental insurance is a specialist form of insurance providing coveragainst losses that could be incurred as a result of third party and regulatoryaction arising from pollution or contamination. It is increasingly used as aneffective mechanism to transfer environmental liabilities associated withcorporate and property transactions as well as ongoing operations.

EnvironmentalïïïKïáääáëKÅçãLÉåîáêçåãÉåí~ä

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Environmental Insurance

Consultant's professional indemnity (PI) insurancesolely provides cover for losses arising from theconsultant's negligence, and is not therefore asubstitute for environmental insurance. Environmentalinsurance can also be used to underpin or replacewarranties and indemnities, or ring-fence liabilitiesincurred via such agreements.

eçï=ãìÅÜ=ÇçÉë=ÉåîáêçåãÉåí~ä=áåëìê~åÅÉ=Åçëí\Premium levels will depend on factors such as the limit of cover required, policy deductible (or 'excess'),policy period and, of course, the nature of the risk.The environmental insurance market is currently verycompetitive, with premium levels often starting at less than £5,000 for an annual policy. For longer term policies, premiums can vary from less than 1% to approximately 4% of the policy limit.

eçï=äçåÖ=ÇçÉë=áí=í~âÉ=íç=çÄí~áå=ÉåîáêçåãÉåí~äáåëìê~åÅÉ\If necessary, environmental insurance can be procuredwithin a matter of days. Even complex risks, requiringthe review of substantial quantities of technicalinformation, are routinely placed by Willis withintransaction timescales.

tÜ~í=áåÑçêã~íáçå=áë=åÉÉÇÉÇ=íç=çÄí~áåÉåîáêçåãÉåí~ä=áåëìê~åÅÉ\Typical requirements include desk study information(e.g. environmental database reports, 'Phase 1' reports,or even perhaps just property survey reports), wherenecessary supplemented by ‘Phase 2' intrusiveinvestigations (e.g. at industrial sites with a longindustrial history). Additional information, such asenvironmental management plans, and correspondencewith environmental regulators may also be relevant.

fë=ÅçîÉê=~î~áä~ÄäÉ=Ñçê=ÄìëáåÉëë=áåíÉêêìéíáçåäçëëÉë\Yes. Business interruption (e.g. loss of rental income,loss of profits) and restoration costs (e.g. the cost ofrebuilding a property that needs to be demolished toallow remediation to take place), can be substantial,and can be covered under environmental insurancepolicies.

tÜ~í=Ü~ééÉåë=áÑ=ÉåîáêçåãÉåí~ä=äÉÖáëä~íáçåÅÜ~åÖÉë\One of the key benefits of environmental insurance,particularly long term policies, is that they are designedto respond to changing legislation and enforcementpractice, both of which are becoming increasinglystringent in many countries.

`~å=ÉåîáêçåãÉåí~ä=áåëìê~åÅÉ=éçäáÅáÉë=éêçîáÇÉÅçîÉê=Ñçê=íÜÉ=bìêçéÉ~å=råáçå=båîáêçåãÉåí~äiá~Äáäáíó=aáêÉÅíáîÉ\Yes. Cover is available for pollution liabilities facedunder the Directive, which can be broader than thosepreviously imposed under legislation in many countries.

aç=ÉåîáêçåãÉåí~ä=áåëìê~åÅÉ=éçäáÅáÉë=éêçîáÇÉÅçîÉê=Ñçê=äÉÖ~ä=ÇÉÑÉåÅÉ=Åçëíë\Yes. Even if a third party claim fails, the cost ofdefending such a claim can be substantial. This iscovered as standard under environmental insurancepolicies.

tÜ~í=Ü~ééÉåë=áÑ=íÜÉ=áåëìêÉÇ=éêçéÉêíó=çêÅçãé~åó=áë=ëçäÇ\Environmental insurers are typically willing to assignpolicies or include additional insureds upon transfer of the relevant assets or business to a new owner.

tÜó=áë=áí=áãéçêí~åí=íç=ìëÉ=~=ëéÉÅá~äáëí=ÄêçâÉêëìÅÜ=~ë=táääáë\There is simply no such thing as an "off the shelf"environmental insurance policy as they require carefulscrutiny, evaluation and negotiation with insurers toensure that the policy terms and conditions meet theclient's requirements. As a market leading broker inthis specialist field, Willis is ideally placed to deliverinnovative, robust and cost effective environmentalinsurance solutions, often working in conjunction withenvironmental consultants and legal advisers.

aç=Åä~áãë=ëìÅÅÉÉÇ\Yes. The environmental insurance market is relativelyyoung; nonetheless we are seeing a maturing claimsexperience in many countries as a result of ever morestringent environmental legislation and increasing thirdparty litigation.

a~îáÇ=_~êêTel: +44 (0)20 7975 2310barrd@willis.com

táääáë=iáãáíÉÇTen Trinity SquareLondon EC3P 3AXTel: +44 (0)20 7488 8111

www.willis.com

Willis Limited, Registered number: 181116 England and Wales. Registered address: Ten Trinity Square,London EC3P 3AX. A Lloyd's Broker. Authorised andregulated by the Financial Services Authority.

MA/5328/04/07

“We are seeing a maturing claimsexperience.”

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