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

The following Environment practice 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—advantages and disadvantages

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:

AdvantagesDisadvantages
Premium costs have been reduced by competition in the insurance marketKnown liabilities cannot be insured
Provides comfort when there are concerns over indemnity covenant strengthIn 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 contamination (eg the environmental report or remediation may have missed significant parts of the contamination)An insurer may require the insured to carry out environmental investigations or additional monitoring before taking out the policy
Provides cover for pollution liabilities that are excluded from public liability policiesProducts are highly variable and so needs support from specialist insurance broker for placement

Some of these issues are explored further below.

Known liabilities cannot

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