Potential risks associated with development of contaminated land have been highlighted in a number of significant previous cases, such as Redland-Crest and Corby. Furthermore, the collapse of large UK construction firm Carillion raised questions about the viability of contractor placed insurance programmes and how future liabilities, particularly around pollution and environmental damage, should be apportioned if a project stakeholder is no longer trading. The insolvency risks have inevitably been increased by COVID-19.
Even if substantial due diligence is conducted, it can still be difficult to ensure that long-tail pollution liability risks are identified and managed effectively. There are however, site and project specific insurances available to mitigate pollution, contamination and environmental damage liability risks associated with land development and contractor default.
Case Studies
Crest Nicholson Residential Limited, R (on application of) v Secretary of State for Environment, Food and Rural Affairs and Others [2010] EWCH 561 (Admin).
The Crest case involved St Leonard’s Court, an estate comprising 66 residential units near St Albans. From the 1950s to the 1980s the land housed a chemical works, which from 1980 was operated by Redland Minerals Ltd. When Crest Nicholson Residential Limited purchased the site from Redland, due diligence revealed that some contamination had occurred, although the full extent was not disclosed. Crest demolished the chemical works in 1983 in order to build St Leonard’s Court, which was finalised in 1987. In late 2000, the St Albans District Council identified a source of water contamination; bromate and bromide had leached into the soil and contaminated the water source. The Council referred the case to the Environment Agency.
The test used for establishing liability in contaminated land cases is based on whether the parties ‘’caused or knowingly permitted” the presence of a pollutant in, on or under the land. The Environment Agency served a remediation notice against both Redlands and Crest, claiming they were liable. Despite both companies appealing, the High Court refused their appeal and apportioned liability.
Redland argued that they had sold the site to Crest “with information.” However, while Redland had provided information showing contamination had occurred, the court deemed Crest could not reasonably have been aware of the extent of the contamination, nor had Redland provided information on the specific bromate contamination. Accordingly the “sold with information” test only limited their liability to some extent.
Crest was found responsible for a proportion of the liability. Despite arguing they did not “cause” the contamination, the Court ruled that a party does not have to introduce a contaminant to a site to have caused it to be in, on or under the land. A party can be found liable for contamination to land through both action and inaction. The Court held that Crest’s was liable on account of how it dealt with the redevelopment works. Crest had demolished the former factory but had knowingly left the contaminated soil exposed to further rainfall, which would have led to leaching and later, contamination.
Corby
In the 1980s, Corby Borough Council acquired a large area of contaminated land from British Steel to regenerate following the closure of the steel works. The council constructed a tip for the contaminated soils and transported hundreds of lorry loads of soil along the roads linking the former steelwork sites to the tip.
A number of children were born in the Corby area between 1986 and 1999 with deformities of their upper limbs. The mothers of these children lived close to or had contact with this area at the time of the works, which coincided with their pregnancies. The group sued Corby Borough Council for damages for personal injury allegedly caused by the council’s negligent handling of the contaminated soils (Corby Group Litigation v. Corby Borough Council [2009] EWHC 1944 (TCC)).
It is reported that the costs and settlement for the case were at least £10 million to £15 million.
Source: http://www.bailii.org/ew/cases/EWHC/Admin/2010/561.html
Lessons
These cases should serve as a warning to all organisations involved in land transactions and development projects. Whilst, usually the law works on the basis of the ‘polluter pays’ model, it could be seen in practice to apply instead on the basis of strict liability, as the responsibility to remediate contaminated land can arise without any active fault, breach of law or intention. Although not dealt with explicitly, the Court’s opinion on Redland–Crest underlined that if it is not possible to find who caused or permitted the contamination, liability can pass to the current owner and occupier. Developers and former land owners are not immune from liability for historical events, and selling / disposing of contaminated land is not necessarily a bar to future liability, even where disclosures are made.
Professional Indemnity (PI) insurance – perception or reality?
The traditional route of using contracts to transfer liability is understood but there is a limitation in this approach: insolvency. If a company no longer exists, any financial settlement is unlikely and importantly, a PI policy will no longer be in place.
For contaminated land and other developments, clients often seek consultant and contractor PI insurance as a safeguard against potential long-term residual pollution problems, often under the misapprehension that their PI insurance offers a direct benefit.
However, it is important to remember that PI insurance is negligence-based; incepted primarily for the protection of the consultant or contractor against claims of negligence during the course of their work or professional duties. The burden of proof for negligence can be onerous.
If a contract is in breach of the terms of the PI policy, the cover can be invalidated and the contractor or consultant will have to defend and settle a claim. Most consultants or contractors will have a very low credit rating when compared to insurers.
Warranty agreements usually require PI insurance for 12 years, provided it remains: ‘available at economic cost’. PI insurance is annual cover rather than one-off for the period of the contract the policy is ‘claims-made’.
This means that any claims have to be made during the policy period. If the insurance is lapsed, cancelled or non-renewed at any time, there is no cover.
Further complicating matters, the majority of environmental PI policies are placed on an ‘aggregate limits’ basis and are not ring-fenced to a particular project. If a consultant or contractor has entered into a number of agreements and suffers one or more claims during a policy period, the aggregate limit of indemnity could easily be exhausted. The question is, how can you secure a project and ring-fence liability?
Selecting technically capable and experienced advisors and contractors is one key element of risk management. This should include using a qualified insurance professional to undertake due diligence of the insurance offered before being appointed. PI insurance and other insurances will provide some protection but PI insurance and warranties are primarily based on fault and negligence, which can be difficult and costly to prove. Often consultants have to rely on incomplete regulatory guidelines. What is ‘definite’ may yet be resolved to any degree of confidence in both scientific and legal fields. The shifting sands of liability through scientific discovery and case law add to uncertainty.
Trying to protect your organisation against the wide range of risks merely through reliance on someone else’s insurance and contractual provisions is not the only, and is unlikely to be the suitable, option.
Site and Project-specific Pollution Liability insurances
Increasingly landowners and developers, rather than putting the risk onto other parties or retaining the risk, are acquiring contaminated land insurance through Pollution Liability policies, in order to obtain comprehensive long-term financial protection against environmental risks.
Policies can cover third-party claims and regulatory actions and include consequential loss, property damage, bodily injury, on and off site remediation costs and environmental (natural resources) damage.
The insurance industry is the most regulated industry for the transfer of liability. For provision of suitable long-term financial protection against the environmental risks associated with land development, project specific insurance should be the preferred method. This could be argued as the only real way of providing long-term accountable protection on a sustainable basis.
Benefits can include:
- A site specific ‘ring-fenced’ policy with long term duration of cover
- Project specific cover (contractors pollution liability cover) for the development phase based on a long-term occurrence based policy wording
- Cover for change in law and applicable regulations
- Cover for legal and technical defence costs
- Cover for emergency response and mitigation costs
- Cover can include landowners or tenants business interruption costs
- Flexibility to add additional insureds to include other stakeholders, funders, tenants and others
- The policy can be assigned with the ability to stay protected as an additional insured
- Secure credit rating with a regulated insurance company
- Accountability in the risk transfer
These are brief product descriptions only. Please refer to the policy documentation paying particular attention to the terms and conditions, exclusions, warranties, subjectivities, excesses and any endorsements.
Conditions & Limitations
This information is not intended to constitute any form of opinion or specific guidance and recipients should not infer any opinion or specific guidance from its content. Recipients should not rely exclusively on the information contained in the bulletin and should make decisions based on a full consideration of all available information. We make no warranties, express or implied, as to the accuracy, reliability or correctness of the information provided. We and our officers, employees or agents shall not be responsible for any loss whatsoever arising from the recipient’s reliance upon any information we provide and exclude liability for the statistical content to fullest extent permitted by law.
