With more businesses operating globally and environmental restrictions tightening, environmental-coverage gaps could leave risk managers vulnerable, Aon executives say.
Michael R. Szot, executive vice president, practice leader, Aon Risk Solutions Environmental Services Group, and Gregory Schilz, managing director, Aon Risk Solutions Environmental, told NU at the Risk and Insurance Management Society (RIMS) conference here that he is surprised by the number of organizations that are potentially exposed.
International programs are "adopting what the U.S. has had for years with Superfund," Szot tells NU. The Environmental Liability Directive (ELD), a legislative act of the European Union, creates new and significant potential liabilities for costs, damages and losses for operators and companies regulated by the ELD, Aon says.
All EU members have adopted the ELD into their national laws. This means that companies operating in EU member states must comply—regardless of where they are headquartered, Aon says.
Szot points out that the coverage gap exists with the remediation portion of the law. Companies now are required to restore any biodiversity damage to original condition. This is where organizations believe they are covered, but they don't realize the massive measures and expense required to restore an environment.
Schilz points out that most policies do not cover restoration, but that many of their clients believe they are covered. In fact, a number of companies have relied on their umbrella excess policies.
"The liabilities in case of an event could shut companies down," he says.
No longer can a U.S. company open a factory or other subsidiary in another country and expect lower environmental standards, Aon points out, noting that laws are getting much stricter. China, in fact, has criminalized environmental liability.
The ELD supports the regulatory principle that "the polluter pays," Aon says.
Aon advises risk managers to develop an effective risk-management program for the ELD by determining their liability limits, understanding the regulations and integrating ELD coverage with their risk-management and insurance program to avoid coverage gaps.
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