Environmental Claims - the Need for Speed

Introduction

Ecologia and RSK Raw are two of the leading companies supplying environmental consultancy, remediation, and spill response services to the UK insurance industry. As part of the RSK group, we have access to the expertise of over 15,000 environmental, property and engineering specialists. Here we discuss the need for prompt action and decision making when managing environmental incidents.

Environmental claims may not be the most common reason for a policyholder to pick up the phone to their insurer; however, when they do arise, they can be far more complex than other claims to manage. If not handled effectively, an environmental claim may become protracted and costly, and can easily leave your customer feeling let down.

Many environmental claims result from leaks and spills of liquids (most typically heating oil or agricultural slurries). Part of the difficulty in managing such a claim is that there may be many stakeholders involved, including the regulators and the professionals supporting the claim within an insurer’s supply chain. Even a modest spill can significantly impact human health, building structures, contents, third-party receptors, and, of course, our wider environment.

The speed of response, the appointment of experienced and technically competent consultants / contractors, and effective, informed decision making are key to reducing the lifecycle of claims and the subsequent collective impact on the environment, consumer duty, and costs.

Getting Experts on the Ground Quickly

Environmental claims often involve pollution events, hazardous material spills, or other incidents with potential to harm the environment, building structures and human health.

Delayed action in the initial stages of an incident will have a significant impact on eventual claim quantum. Looked at another way, dealing effectively with a spill at the outset will achieve the greatest degree of cost and time mitigation for the smallest financial outlay.

Appointment of an ISAS accredited contractor at the first notification of loss, even before policy cover is fully established, is likely to benefit all parties by:

Containing the spill or pollution – mitigating against further damage.
Preventing the contamination spreading to impact third parties (e.g. into groundwater or onto neighbouring properties).
Limiting harm to wildlife and natural resources.
Ensuring that claimants feel supported during high-stress situations, thus establishing a positive relationship with the insured and fulfilling Consumer Duty.

In one claim we dealt with, oil had flowed into a pond with an outflow to a large carp pool. The fish in that pool alone were valued at over £150,000. The site was also located over a very sensitive aquifer. Thanks to prompt and effective communications between the insurer, loss adjuster, and ourselves, we deployed absorbents within hours of the first notification of loss, which contained the oil in the pond and prevented significant impact to the fishing pool. The total cost of emergency works, including urgent excavations, was £28,000. If the fishery downstream had been impacted, remediation and fish replacement / business interruption etc would likely have totalled in excess of £200,000. Costs (and potentially punitive fines) could have been significantly higher if a lack of action had also allowed the groundwater to be impacted.

Reducing Claim Spend

As a rule, the longer an environmental issue persists, the more expensive it becomes to successfully address. Reviewing our claims projects over the past couple of years, for claim durations between 1 day and 3 years and costs ranging from <£500 to greater than £250,000, there is a strong, demonstrable correlation between claim spend and claim duration. Clearly this is expected, as a larger project will inevitably take more time and resources to resolve; however, delayed decision making within the claim process can also significantly contribute to increases in spend.

Obviously, an insurer or claims professional needs time to ensure that the costs and scope of any proposed works are appropriate. However, we have seen cases where extended decision making, or breakdown in communications, have resulted in hugely, and unnecessarily, increased spend.

In one extreme example, following a leak of heating oil in an environmentally sensitive area, there was an extended delay in implementing full groundwater investigations. This resulted in an extensive plume of kerosene impacting the groundwater under a very wide area, including third-party properties. Prompt action to delineate the plume at an earlier stage could have prevented the escalation of damage beyond the property boundary, hugely reduced the scope and duration of remediation efforts, and lowered the associated administrative costs.

In another unfortunate case, communication problems between a property owner, their heating engineer, and insurer’s agents resulted in a situation where kerosene continued to leak into the building for several months unabated. We were instructed to undertake an investigation some 12 months after the leak had begun, by which time the heating oil had soaked into the building fabric and foundations across a wide area. Ultimately, due to the time lost, the oil impacted a sizeable proportion of the building fabric, resulting in estimated remedial costs in excess of £125,000. If a competent engineer or consultant had attended to the matter at the outset, only localised damage would have occurred, and disruption / costs would have been minimal.

In contrast to this, following prompt action and communication from a commercial operator upon identification of a leak of hydrotreated vegetable oil (HVO) at their depot, we rapidly attended the incident to immediately recover oil that had reached a local watercourse and to minimise any further pollution from entering the environment. This swift action from all parties helped to protect the environment from significant harm and resulted in considerable cost savings for insurers and praise from the regulator.

The above examples are quite extreme, but the same principle applies for more mundane situations. We are frequently called in to deal with hydraulic oil leaks and spills of other contaminants onto driveways and road surfaces – significant staining and permanent damage to the surfaces can often be avoided if the correct equipment and cleaning products are deployed promptly.

It’s Not All About Oil

Leaks and spills of heating oil (kerosene) and other fuels are the most frequent type of incident resulting in an environmental claim the UK, and these can be particularly devastating in a domestic property. However, the need for speed is just as critical in relation to commercial and agricultural claims.

Farm slurries, or even apparently innocuous substances such as milk, can have a devastating impact on water quality and aquatic ecology if released into rivers, streams, or groundwater. Dissolved oxygen concentrations can deplete rapidly, resulting in significant environmental damage and, potentially, fish kills on a huge scale. Urgent oxygenation of the water can be expensive to deploy but can save thousands of pounds in regulatory fines and fish restocking costs.

Conclusion

Speed of response is critical in managing environmental insurance claims effectively. It can significantly reduce the financial, legal, and reputational risks, whilst protecting the environment and public health. Prompt decision making and experienced site assessment is crucial in the initial stage of incidents to contain the situation, avoid escalation and provide reassurance to policyholders and affected third-parties.

Following emergency works, a competent, experienced response contractor can then work with insurers and policyholders to plan and undertake further remedial works proportionate to risks, and to minimise disruption, alternative accommodation and business interruption costs.