The Insurance Policy that Took No Risks - On insuring Environmental Risks

Environmental damages are usually the result of recurring long-term activities. This fact raises complicated legal questions: When did the activity that caused the damage occur? When did the damage itself manifest? It is difficulties like these that make uncertain the construing of an insurance policy covering such damages (e.g. the terms "accident", "event", "damage"). Up until 1966 general insurance policies (CGL) in the U.S. covered personal and material damages incurred by "sudden and unforesee-able" accidents only. In response to customers' demand, the standard insurance policies were amended so that the term "occurrence" replaced the term "accident" and the CGL insurance policy was extended to cover damages due to long-term exposure. In 1973, as a result of the large number of claims based on this kind of insurance policy, a clause was incorporated to exclude occurrences of ongoing environmental pollution. The Courts, however, tended to construe this Exclusionary Clause narrowly, giving it force only where the insured caused the pollution knowingly and intentionally. This resulted in insurance companies going bankrupt under the weight of indemnities. And so in 1986 new insurance policies were issued that excluded absolutely all kinds of environmental damages. At the same time several companies began to issue Environmental Impairment Liability insurance policies (EIL) specifically designed to cover such risks. The 1986 Absolute Exclusion Clause was found to form an insurmountable obstacle in the way of insured companies to claim coverage of environmental damages caused by their activities. However, old insurance policies still prevail in many countries. Also, you should keep old insurance policies at hand for they might prove useful when claiming coverage of damages incurred by past activities. One may also note that recent Environmental Legislation compels producers of hazardous and toxic wastes (e.g. WWTPs, owners of underground storage tanks, certain industries) to present guarantees to cover possible environmental damages (cf. the German Environmental Liability Act, 1990).