D&O Liability For Pollution – Is There A Case For Increased Coverage?

Author:Mr Stephen Shergold
Profession:Denton Wilde Sapte
 
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Standard D&O policies may cover the insured for the costs of defending criminal, regulatory and even civil proceedings arising out of a pollution incident. These policies are likely though to fall short of providing coverage for remediation or compensation costs arising from the same incidents. This article explores the reasons for this current position and asks whether recent changes in environmental law make a case for broadening coverage. D&O coverage for defence costsThe usual coverage offered by D&O policies probably reflects the perceived risk under both the regulatory and civil environmental liability regimes. Directors have been at risk of criminal prosecution for pollution incidents for many years. This risk of liability arises when such incidents result from a director's consent or connivance or are attributable to any neglect. Until now directors have not, though, recognised a risk of personal responsibility for remediation costs or compensation claims. As criminal fines are not insurable, it has only been defence costs that have been covered by D&O policies to date.This is not to say that this perception of risk reflects the legal position. In the 1993 case of Bruton and the National Rivers Association v. Clarke a sole trader was found personally liable for remediation costs and a compensation claim. More recently the contaminated land regime has intensified the focus on the risk of personal liability for company directors.Personal liability for environmental damageIn Bruton a pig farmer was responsible for pollution of a river following an escape of slurry. The court ordered him to pay for the environmental damage. Compensation was paid for damage to local angling and the National Rivers Association recovered its costs for cleaning up the river. The Water Resources Act 1991 gives this body (now the Environment Agency) powers to remove pollutants, remedy the effects and restore the aquatic environment of polluted watercourses. Importantly, the Environment Agency also has the power to recover these remediation costs from the polluter. It is likely that this case did not register on the radar of many company directors as it concerned a sole trader. A sole trader is the controlling mind of his company. On this basis the Environment Agency has found it more straightforward to pursue prosecutions against sole traders, typically under water or waste legislation. This can be contrasted with the difficulty of identifying the director who controlled...

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