NU Online News Service, Oct. 7, 3:03 p.m. EDT
The escape of toxic sludge from a reservoir at an aluminum processing plant in Hungary is likely uninsured as the company faces total liability for an event that has wiped out all wildlife in the Marcal River, a broker with Aon said.
Simon Johnson, Aon Risk Solutions' environmental director for the United Kingdom, Europe, Middle East and Africa, said that Europe's Environmental Liability Directive (ELD) makes the company responsible for the contamination fully liable for the clean-up of the spill and any damage to the environment. He described the law as having some "extremely strong teeth" and that full liability could lead to the collapse of the company, underscoring the need for corporations to secure a comprehensive environmental insurance program.
"We don't know if they had such a policy, but we hazard to guess that they did not," Mr. Johnson told NU Online News Service.
A major reason for not having such a policy is that the law is new, he explained. While it was created in 2007, the law was not fully implemented throughout the European Union until last year. He also cited the fact that insurance penetration throughout Eastern Europe is not deep, and is just beginning to catch on.
While a commercial general liability policy has some coverage for sudden and accidental pollution, Mr. Johnson said, there are gaps in the policies covering gradual pollution and clean-up.
Hungarian officials have reportedly said the event could cost hundreds of millions of Euros to clean up, and estimates run as high as a billion or more, Mr. Johnson said.
The spill occurred Monday when a retention reservoir storing the sludge used in making aluminum gave way, letting loose a torrent of red sludge that killed four people and injured between 120 to 150 more. The four dead were believed to be drowned.
Reports say close to 16 square miles were affected by the sludge that has scarred homes, businesses and the countryside with red sediment.
The sludge is believed to carry a high alkaline content, burning the skin of those injured and, according to the BBC, killing all wildlife in the Marcal River.
The major fear is that the spill will find its way into the Danube River, spreading beyond the borders of Hungary and reaching other parts of Europe.
If that happens, other countries can seek compensation from Hungary for the clean-up, and those costs would have to be borne by the company, which The New York Times identified as the Hungarian Aluminum Production and Trade Company.
In a statement, Mr. Johnson noted that there is a "mature insurance market for this type of coverage" for up to EUR150 million for an individual risk.
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.