Industrial pollution is costing more than the insurers reckoned.
And we will all have to pay.
Over the last few years pollution has become the biggest headache
for insurers around the world. Changes in the law, American court
decisions and a greater willingness to sue by individuals and
environmental lobby groups have meant that many insurance companies
have been faced with frighteningly huge bills.
Automatic provision
Many claims bedevilling insurance
underwriters at Lloyds of London arise from the 1950's to 1970's
when pollution cover was provided automatically as an addition
to a standard insurance policy. The underwriters had no idea
of what would come: a rash of old cases of industrial and chemical
pollution. Many of these claims were from the USA where the principle
of "strict liability" applies. A company can be liable for pollution
on its land even if it was unaware of it and had not owned the
land when the pollution occurred. On the basis of strict liability
many millions of dollars have been paid out to claimants, although
more recently some American court rulings have gone the insurers'
way. Insurers are now beginning to make provisions for 30 and
40 year old liabilities.
Strict liability
Many environmentalists in Europe favour the strict liability
ruling as they think it will discourage companies from polluting
land irresponsibly and might even enhance their efficiency. Various
European countries, including Italy, Greece and Holland, have
signed a convention on environmental pollution, embodying the
principle of strict liability. It has not yet been imposed on
the whole of the European Union.
The UK, which does not apply the strict liability principle,
maintains the legal position that if future pollution could not
reasonably be foreseen on the basis of diligent research and
best current knowledge, the owner of the land could not be held
responsible. British environmentalists are campaigning for strict
liability and also support the introduction of a national register
of contaminated land.
Joint and several liability
In the USA the principle
of joint and several liability is wreaking even more damage to
insurers. This principle means that if, say, a chemical factory
fouls a field, not only the chemical company but also its directors,
bankers and investors can be held liable. And each can be obliged
to pay the full damages for the pollution, granting the victims
damages of many times what they originally applied for.
To respond to this, a "super fund" in the States has been set
up - financed by levies on industry and insurers, to cope with
environmental pollution claims on an industry-wide basis.
Such a draconian principle as joint and several liability has
pushed insurers to even more caution. They are reluctant to provide
blanket cover for unforeseen environmental damage under a general
protection policy. Premium rates have soared and policies are
much more restrictively worded.
Industry suffers
As well as rising costs for insurance cover, manufacturing companies
fear that multinationals will be tempted to set up in places
such as Bhopal in India where companies are not obliged to pay
heavily for environmental damage - or even the death of workers.
There is a growing worry that increasing environmental constraints
could damage the competitive position of companies in Europe.
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