Environmental insurance—advantages and disadvantages
Produced in partnership with Duncan Spencer of EDIA Ltd
Environmental insurance—advantages and disadvantages

The following Environment guidance note Produced in partnership with Duncan Spencer of EDIA Ltd provides comprehensive and up to date legal information covering:

  • Environmental insurance—advantages and disadvantages
  • Known liabilities cannot be insured
  • The cost of development cannot be insured
  • Financial strength
  • Claims management
  • Change in ownership
  • Financial provision
  • Situations where environmental insurance should always be considered

Environmental insurance is now considered a standard tool in the management of environmental risks, both for operational businesses and in many transactions and development projects.

For more on environmental insurance generally, please see Practice Notes:

  1. Environmental insurance—when is it needed?

  2. Environmental insurance—extent of coverage

  3. Environmental insurance—types

Some of the main advantages and disadvantages of environmental insurance are outlined below:

Advantages Disadvantages
Premium costs have been reduced by competition in the insurance market Known liabilities cannot be insured
Provides comfort when there are concerns over indemnity covenant strength In comparison to other types of insurance, premiums can still be seen as expensive
Can benefit multiple parties (seller, buyer, tenants, funder) and help facilitate deals Policy periods are limited in time (eg 10 or 15 years)
Policies can be obtained for specific situations (eg concerns over a contractor mobilising existing contamination) There are various exclusions in the policy wording that need careful negotiation
Addresses the concerns and uncertainties surrounding unknown contamina