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Environmental Risk management and Insurance products Case Study The below scenario is sourced from the EPA’s consultation document on the Irish Regulations(1) .The scenario effectively outlines the potential cost implications introduced by the Directive. The primary intention of the Directive is pollution prevention. Proactive risk management as well as the correct financial tools are necessary for companies to address their environmental liabilities. The costs incurred by the operator in this situation are not generally covered by general insurance polices. This highlights the need for companies to invest in purchasing environmental impairment liability coverage to address the potential environmental exposures. Scenario ‘ABC Healthcare’ (the ‘operator’) is a large pharmaceutical manufacturing facility with significant solvent and chemical usage and storage on site in a designated tank farm. The company operates under an IPPC licence from the EPA. The facility is situated above a locally important fractured bedrock aquifer with moderate groundwater vulnerability (6 metres of clayey subsoil) that is used as a local water supply for a small town in Ireland. During a routine refilling of toluene from a road tanker to the tank farm via an underground pipeline, level meters on the tanks indicated that 3,000 litres of toluene were unaccounted for and have possibly leaked to the ground from a rupture in the underground pipeline. In this case, while the ground was contaminated shortly after the incident, the aquifer has not yet been contaminated. However, if the ground contamination is not addressed, contamination of the aquifer is likely to occur causing a significant risk to human health (toluene is toxic in that it is known to pose a risk to unborn children). In this case there is an imminent threat of damage.

imminent threat. The facility operates under an environmental management system, which includes provision for an emergency response procedure, and a range of planned immediate actions are undertaken to limit and contain the contamination. The supplier immediately shuts down the filling operation and evacuates all solvent from the pipeline. The pipeline is tagged off and isolated to prevent further use. A specialist contractor is brought to the site to immediately start excavating the area around the underground pipe. The operator commences excavation of the contaminated soil which is quarantined for future treatment. The EPA is immediately notified by the operator’s environmental manager with details of the nature of the incident and the measures taken up to that point to contain the contamination. The EPA issues a direction instructing the operator to quantify the extent of toluene that has entered the ground, continue the excavation of the contaminated soil and assess the potential for contamination of the aquifer. The local authority and the company’s insurers are also notified by the operator.

Damage Description Threat of damage can be linked directly to the operator (ABC Healthcare) by means of the solvent plume. Toluene entered the ground and sufficiently likely to enter the aquifer if not addressed, creating the ‘imminent threat’. If toluene enters the aquifer, then there is a clear risk to human health based on the toxicological properties of the contaminant, legally requiring ABC Healthcare to clean up the spill.

Remediation The EPA issued a direction to the operator to identify and implement the necessary preventive measures to address the imminent threat of damage within 2 weeks of the incident. The operator engaged consultants to assess the options for remediation and submitted a report detailing the preferred option to the EPA. The operator issued a proposed remediation strategy that built on the immediate action undertaken and included a monitoring protocol. The operator proposed to excavate fully the soil where the spill occurred within 2 weeks of the date of the incident. In addition, the company proposed installing groundwater monitoring and abstraction wells in the spill zone and immediately down gradient to monitor the impact on the aquifer and prevent the toluene from entering the groundwater.

Immediate Action In line with obligations under the Regulations the operator takes the necessary preventive measures to reduce the

Costs The total costs incurred by ABC Healthcare include costs for downtime, consultant’s fees (reporting and assessment),

Policy Trigger Need for clean up of pollution conditions on site to stop imminent threat of further damage onsite &off site. This operator falls into the strict liability regime as defined by the Directive (IPPC licence operation listed in Schedule 3).


contractor fees (soil excavation) and waste treatment fees (contaminated soil). In addition, the EPA costs incurred during the investigation including administration time, consultant’s fees, etc. must be met. The total cost incurred by the company for the investigation and remediation strategy would be estimated to amount to €300,000. The costs could have amounted to over €3 million if the threat had not been prevented and resulted in the contamination of the public water supply making is unfit for human consumption. These costs would have included provision of a temporary alternative water supply, a permanent alternative water supply, remediation of the groundwater and soil, EPA costs, public relations, etc.

The extent of the incident was limited through effective and immediate actions. Proactive risk management limited the duration of the incident, the costs and minimised the risks. These preventative costs, and onsite remediation costs are not generally covered by general insurances policies. An environmental impairment product covers the damages outlined below, covering the companies ability to effectively remediate current damage and prevent further damages and costs to the company. In conclusion, a company must now assess their environmental liabilities in a new light and ensure that the correct financial provisions are in place.

Environmental Liability Regulations– Guidance document , 2010 , The Environmental Protection Agency Chartis Insurance Ireland Ltd. is regulated by the Central Bank of Ireland


Should you have any enquiries regarding Chartis Insurance Environmental Offerings contact: Zana Wright, Environmental Liability P: 01 2081400 Direct Dial: 01 2084948.

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