the common denominator is potential
liabilities, such as penalties and fines from
regulators and having to pay significant
disposal, remediation and clean-up expenses after contamination and spillages.
They may also need to implement
costly improvements or defend against
third-party injury allegations. Other associated costs after an incident could
include significant business interruption
(BI) or supply-chain disruption, due
to being unable to operate or provide
products or services.
Based on the analysis of 100,000 insurance industry liability claims over five
years, the average cost of an environmental damage loss is $2.71m (€ 2.34mn),
according to AGCS, but this total is impacted by a number of small claims,
which reduces the average value. The reality is that large environmental liability
losses, such as pollution, are increasing,
with the mining and construction sectors
Large environmental losses can be
complex, costly and take a long time to
settle. A notable recent loss involved the
breach of an industrial dam at the Sa-marco mine in Bento Rodrigues, Brazil
in November 2015, which ranks as the
country’s worst environmental catastrophe. It killed 19 people and left a trail of
destruction for hundreds of miles. Sa-marco, and its parent companies Vale and
BHP Billiton, have been in negotiations
with Brazilian authorities ever since,
eventually signing a deal to settle a 20
billion reais [Brazilian real dollars] ($5
billion) lawsuit in June 2018.
However, this agreement sets a two-year
timeline to reach a settlement over a separate 155 billion reais ($38 billion) lawsuit,
which will remain suspended while the
parties negotiate. Samarco’s operations
have been halted since the disaster.
There has been a significant increase
in environmental exposure and claims in
countries such as Brazil, as environmental
laws are clarified and regulators become
more robust. Recent years have also seen
other costly environmental losses — in
Australia following bushfires and floods,
oil pipeline spills in Peru, and construc-
tion site flooding in Chile — all of which
resulted in large claims. Irrespective of lo-
cation, large pollution liability claims are
among some of the largest claims AGCS
has seen in the past five years.
Newer perils that companies are in-
creasingly confronted with include pub-
lic health microbial or fungi/bacterial/
spore outbreaks, non-owned liability in
which spills occur on leased-property,
waste-disposal liability and the impact
of climate change, which may cause in-
creased mold and subsurface spillages
due to excessive flooding.
While not a new peril, agricultural run-
off, such as pesticides and fertilizers seep-
ing into soil and groundwater, causing
environmental damage and other related
exposures, which can have adverse health
effects, are increasing. In the recent August
2018 U.S. ruling for a $280 million settle-
ment for a defendant, who alleged that one
of agribusiness giant Monsanto’s weed killer
products, containing glyphosate, caused
him terminal cancer. Monsanto is appeal-
ing, but this award could potentially lead to
heightened product liability litigation.
Environmental damage arising from a
cyber event is also a plausible future loss
scenario. For example, if an oil refinery
is disrupted by a cyber incident, leading
to storage failures or fires or explosions,
ensuing damage to the environment
could be one of the consequences.
Another future exposure is companies’
ability to adequately manage natural re-
sources or so-called “natural capital” risk.
Failure to do so could bring new liability
scenarios, which could wipe out profits
and impact business models, as resource
scarcity, regulatory action and pressure
from impacted communities grows.
The estimated annual cost of the top 100
environmental impacts for the global
economy in social costs, lost ecosystem
services and pollution is $4.7 trillion.