New report warns companies of commercial consequences

New report warns companies of commercial consequences if they ignore environmental & pollution risks

New Zealand businesses and company directors face major financial consequences if they ignore environmental and pollution issues, according to a new report by Delta Insurance.

The report “Cleaning Up our Act: Embracing Environmental Risk Management” says that New Zealand, like most countries, is experiencing major environmental degradation and much of this is caused by commercial activity.

Delta Insurance General Manager Craig Kirk says: “The principle of polluter-pays is well-established in New Zealand now and businesses need to accept that if they pollute they will be held liable for cleaning up the contamination.”

According to Delta Insurance, the number and cost of prosecutions has risen dramatically but “this is just the tip of the iceberg”.

“Many pollution incidents never hit the regulatory radar and businesses are having to pay for decontamination off their balance sheet,” says Kirk.

Kirk cites one case where an employee accidentally turned on a tap on a diesel tank resulting in diesel spilling into a waterway.

“Clean-up and regeneration of vegetation took many months costing over $1m and yet there was never any formal enforcement by the regulator,” says Kirk.

The Clean Up our Act report says:

• Regulators and courts are increasingly seeking to discourage negligent behaviour by imposing more severe penalties on anyone that causes pollution or doesn’t comply with environmental legal requirements
• There has been an upward trend in legal action in the Environmental Court, with the number of filed appeals increasing by 24% over the past year
• Prosecutions under the Resource Management Act 1991 (RMA) is yielding an average fine in excess of $10,000; and with companies being fined up to a quarter of their equity in the past
• Stricter enforcement of the RMA and penalties imposed on guilty parties have in some cases amounted to hundreds of thousands of dollars
• Prosecutions of companies for environmental contamination has increased from 39 to over 100 a year on average over the last 20 years
• The costs of containing and remediating contamination may inflict a severe financial toll on the business, due to the often complex processes that are involved with cleaning up and fully remediating a site.

“Businesses are now at a far greater risk of having financial penalties imposed against them by regulators or having to pay legal damages claims and clean-up costs off the company balance sheet,” says Mr Kirk.

“Worse still, company directors are exposed to paying out of their own pockets or indeed, in serious cases, being imprisoned,” he says.

A major collaborator on Delta’s report was 4Sight Consulting, an industry-leading environmental and planning consulting firm.

4Sight Director Michael Lindgreen says: “Ultimately the best way to avoid liability from a pollution incident is to try and prevent one occurring in the first place. There are systems and processes that can be used to help reduce environmental risks however even with the best controls in place accidents still happen”.

From an insurance perspective, the report highlights the shortcomings in the coverage response from ‘traditional’ insurance policies, many of which exclude cover for pollution incidents.

“It’s clear that environmental impairment policies provide the most complete solution and are designed to not only complement but go well beyond traditional insurance,” says Kirk.

Environmental policy coverage does not draw a distinction between sudden and gradual pollution and extends to the costs of clean-up as well as third party claims and regulatory action.

“In the case of fixed site policies it can cover business interruption costs as a result of downtime from pollution events but of particular interest to some clients will be the fact that it also covers unique perils such as asbestos which are not insurable elsewhere,” says Kirk.

ENDS

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