18.06.2024

Understanding environmental liabilities and protection for farm owners

As a farm owner, it’s crucial to be aware that businesses of all sizes can face significant environmental liabilities under the ‘polluter pays’ principle enshrined in law. This principle mandates that the polluter bears the cost of managing and remedying any environmental damage they cause.

Environmental legislation overview

Legislation requires businesses to manage chemicals, waste products, and emissions responsibly. Failure to do so can lead to strict liabilities, where businesses must cover clean-up costs, third-party damages, and legal expenses following a pollution incident, if found to be responsible. This responsibility can extend to restoring affected plants and wildlife over potentially vast areas, including waterways.

Key environmental directives for farm owners

The Environmental Protection Act 1990 established the ‘polluter pays’ principle, making polluters legally liable for environmental damage. Before this, damage was often rectified at the taxpayer’s expense.

In 2007, the EU adopted the Environmental Liability Directive, and in 2015, the UK implemented the Environmental Damage (Prevention and Remediation) Regulations, which introduced three main sanctions:

• Preventing environmental loss
• Restoring biodiversity beyond simple clean-up
• Extending restoration efforts to other sites in severe cases

Understanding Environmental Impairment Liability Insurance

Environmental Impairment Liability (EIL) insurance is designed to cover clean-up, remediation costs, and legal defences associated with environmental damage incidents. While it doesn’t cover fines, it can cover third-party costs and potentially compensate for business losses due to such incidents.

EIL insurance, combined with a robust environmental management plan, can significantly mitigate potential financial losses, and protect your farm.

Do you need EIL insurance?

While not legally required, EIL insurance provides crucial financial protection if your farm causes environmental damage. Cover includes:

• Pollution of soil, air, and water
• Offensive odours
• Oil storage leaks
• Noise pollution
• Damage to natural resources
• Fly-tipping on your property
• Third-party damages

In case of an environmental incident, EIL insurance will pay the cost of:

• Clean-up costs for your land and third-party properties
• Investigation and legal defence expenses
• Restoration of biodiversity
• Compensation for third-party injuries or business losses
• Business interruption costs
• Emergency response expenses

Public liability insurance vs. EIL insurance

Public liability cover for environmental loss is much more limited than is often thought. The main types of environmental claims that you could be faced with are:

• Civil claims, usually nuisance claims, brought by neighbours
• Statutory claims brought by regulators like the Environment Agency, which has the authority to clean up pollution and charge the costs to those responsible
• While civil claims by neighbours might be covered by a public liability policy, this is typically only if the incident was sudden and identifiable, rather than gradual pollution from something like a leaking storage tank. Remedial or preventative costs imposed by the Environment Agency are not covered under a standard public liability policy. Courts have ruled these costs represent a statutory debt, not “damages” as required by the typical public liability operative clause (Bartoline v. RSA [2006] EWHC 3598, [2008] Env LR 1).

Liability for historical environmental damage

Farm owners can be held accountable for historical contamination, even if it occurred before they acquired the land. For example, a slow diesel leak predating your ownership can leave you responsible for the clean-up and any third-party or public land restoration.

Commercial property owners and EIL insurance

If you lease property to another business, you may be liable for pollution damage if the tenant cannot be traced or lacks adequate funds or insurance. Thus, securing EIL insurance can be a prudent measure. Alternatively, commercial property leases often allow landlords to require tenants to obtain EIL insurance.

Developing an environmental risk management plan

An environmental risk management plan is vital to prevent costly pollution incidents. Under the Environmental Damage (Prevention and Remediation) Regulations 2015, businesses must take preventive action against environmental loss. Your plan should assess potential environmental hazards and outline steps to mitigate risks. Key considerations include:

• Positioning waste storage away from drains and watercourses
• Managing liquid waste drainage and disposal
• Ensuring construction work diverts flow from hazardous areas
• Controlling airborne emissions
• Storing and disposing of hazardous substances properly
• Developing a disaster recovery plan for spills or leaks

To learn more about EIL insurance and how it can protect your farm or rural business, contact your AF Insurance team by email to insurance@af.farm or call 01603 216 387.

AF Group is an appointed representative of Alan Boswell Insurance Brokers Ltd who are authorised and regulated by the Financial Conduct Authority. AF Insurance is a service provided by Alan Boswell Insurance Brokers Ltd.