April 07 2008
Over six months after the implementation period set by the EU Environmental Liability Directive (2004/35/EC), the Environmental Damages Act finally entered into force on November 14 2007
The directive imposes liability on industrial operators for damage caused to the environment; EU member states were required to implement it nationally by April 30 2007. The federal government approved the draft act implementing the directive in September 2006. It was passed by Parliament in March 2007 and entered into force in November 2007. Compared with the draft approved in September 2006, the final version contains a significant change regarding insurance obligations. However, this does not seem to have had a significant impact on the predicted development of new insurance policies.
Although the directive does not impose a duty to take out insurance with respect to operators' potential liability, it requires that member states “take measures to encourage the development of financial security instruments and markets by the appropriate economic and financial operators”.
The draft act empowered the federal government to enact provisions regarding the duty of all responsible persons or companies to provide for financial security instruments, but this provision was deleted in the final version. Nevertheless, the Association of the Insurance Industry has prepared draft general insurance terms as the basis for the insurance policy terms to be offered by insurance companies.
Under the existing scheme, which was developed in relation to civil law damage claims under the Environmental Liability Act, liability insurance for the Environmental Damages Act is likely to cover only environmental damage caused by the disruption of operations. As a consequence, environmental damage caused in the course of normal (and permitted) plant operations is not covered under the policies offered. Furthermore, the general insurance terms contain a long list of environmental damages which would not be covered under a standard insurance policy, including, for example: (i) damage to groundwater (companies will likely try to rely on their existing polices which provide cover for groundwater damage); and (ii) damage to real estate owned by the policyholder (although insurance companies will likely offer additional insurance packages to cover such liability).
According to press releases, several insurance companies have already incorporated environmental damage insurance into the insurance programmes that cover liability under the act. A number of large companies operating in several European countries have begun to take out environmental damage insurance. At present, it is difficult to predict what impact the act will have on liability and, consequently, how large the environmental damage insurance market will be.
Furthermore, uncertainty remains regarding elements of the act itself and this is still affecting the development of the insurance market. For example, it remains unclear on what basis environmental damages under the act will be quantified, particularly in cases of damage to biodiversity. Moreover, contrary to the position taken by other member states, including France, Spain and - in current proposals - the United Kingdom, the act does not release operators from liability if the emission which caused the environmental damage was permitted. Whether this will be the case in Germany depends on the discretion of the federal states, which have not finally decided how to handle this question.
For further information on this topic please contact David Elshorst at Clifford Chance LLP by telephone (+49 69 71 99 01) or by fax (+49 69 71 99 4000) or by email (firstname.lastname@example.org).
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