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Environmental liability is now a core cover for construction firms

Sofia Lindroth
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Protecting the environment is an increasingly important issue for governments and regulators across the globe.

Associated legislation continues to grow in both breadth and strength, presenting new exposures and challenges for the construction sector.

While established insurance products often include some environmental extensions, these are increasingly proving insufficient for today’s project needs, meaning construction companies are frequently turning to dedicated environmental products.

Sharpening of environmental laws

Environmental protection legislation continues to gain potency on a global scale. The European Union has been a major driving force, with the 2004 Environmental Liability Directive establishing a strong ‘polluter pays’ principle.

Over the last decade, subsequent developments have mainly focused on broadening and clarifying key concepts. With a strong legal foundation in place, regulators have a fresh focus on spreading awareness of environmental law and strengthening its enforcement.

This can be seen clearly in the EU’s recently published Multi-Annual Work Programme 2017-2020, which was specifically created in response to findings of “knowledge gaps and implementation deficiencies” across member states.

As a consequence, construction companies must increasingly consider the wider impact of their activities, and face intensifying financial and reputational consequences for non-compliance.

More than just pollution

Today’s regulations are not just focused on preventing pollution, but instead tend to take a very wide view of what constitutes environmental damage.

“A policy extension or standard wording simply won’t deliver the protection you need, risking gaps and duplications in cover”

It is important for construction companies to appreciate just how wide these environmental concepts can be. Issues such as groundwater, dust and the impact on local wildlife must all be carefully assessed and managed during a project.

Just as general liability insurance has become mandatory for most project tenders, a similar trend is now emerging for environmental liability protection. Governments, financiers and lead contractors are increasingly requiring evidence of certain levels of environmental coverage before firms tender for a project.

Traditionally, the environmental concerns of these parties have been focused around the prevention and remediation of pollution events affecting the project.

However, due to a number of external environmental and economic factors, their drivers have broadened to specific protection that is unlikely to be afforded under a general liability policy. These include pre-existing conditions, debt service protection in the form of advanced loss of revenue, reputational risks and ongoing engagement with regulatory bodies.

One size doesn’t fit all

Environmental law can vary significantly between jurisdictions, and each project presents a different set of exposures. A policy extension or standard wording simply won’t deliver the protection you need, risking gaps and duplications in cover.

Due to the growing importance of these exposures, coupled with the increased availability and affordability of environmental policies, when working with construction companies I always highlight environmental liability and explain the need for dedicated cover.

Environmental insurance for the construction sector is a complex issue. If you have concerns about your coverage, we would recommend you talk to your insurer to get a better understanding of the requirements.

Sofia Lindroth is global relationship leader at Zurich Insurance (Ireland), Sweden Branch

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