ACE European Group UMAL Environmental Liability May 2009 Tom Hillier Senior Underwriter – UK & Ireland

ACE European Group 2 Content  Environmental Market Focus  Operational Pollution Risk  Traditional Insurance Solutions  ACE Environmental Solutions  Considerations

ACE European Group 3 Environmental Market Focus (1)  UK industrial history Legacy of contaminated land Significant unknown pollution conditions  Transactional business – key market driver Property Development M&A / Corporate Investment Commercial Lending Pension / Investment Funds  Typical ‘EIL’ Solutions Long-term policies Cover for legacy liabilities

ACE European Group 4 Environmental Market Focus (2)  Issues Created High premium costs Complex wordings Difficult placement process  The Result Limited access for the client majority Slow market growth Lack of innovation in products and distribution Environmental insurance not on the broker/client radar

ACE European Group 5 What’s driving our focus on this?  Public awareness & media – Reputation  Financiers  Corporate Governance  UK Legislation Part IIA of Environmental Protection Act Water Resources Act  European Legislation Numerous EU Directives – waste, water, hazardous substances – and the most important: EU Environmental Liability Directive (ELD)

ACE European Group 6 Am I exposed to environmental risk?  Environmental risk is often associated with: Contaminated land and our industrial past ‘Heavy’ industries like chemicals, metals & waste Large-scale disasters  In reality, few companies have no such risk: If you own or operate or buy and sell property If you redevelop ‘brownfield’ land If you use or produce potentially contaminative materials If you create waste (solid, liquid or gaseous) …then you have an environmental risk

ACE European Group 7 Operational Pollution Risk u EU Environmental Liability Directive (ELD) n Transposed into English law through new regime - Environmental Damage (Prevention and Remediation) March 2009 – Wales and Scotland to follow soon n Prospective only – operational risks Reinforces ‘polluter pays principle’ Damage to land and water Damage to natural habitats & protected species (Biodiversity) Main implications Strict Liability for ‘regulated’ industries Imminent threat & preventative measures Reporting requirement for operators Reporting opportunity for ‘interest groups’ Complementary & Compensatory Remediation

ACE European Group 8 What if I’m not a ‘regulated’ business?  Focus is on significant environmental damage  Only ‘regulated trades will be strictly liable, but these regulations do not introduce environmental liability – it already exists!  Existing environmental legislation: is wide-reaching and well established; covers impacts to land, water, air and natural resources already; is more stringent in many areas than the new regs; includes both historical and operational pollution impacts; can hold any type of business liable can already impose significant clean-up costs

ACE European Group 9 So what are the consequences?  Civil/tort liabilities Claims for damages from third parties Bodily injury & property damage Nuisance ….can result in compensation payments & legal costs  Regulatory action Government bodies have enforcement powers Human health & Local Authorities Land, air and water - Environment Agency ….can lead to significant clean-up costs and associated expenses

ACE European Group 10 Am I not already insured against pollution?  ABI Pollution exclusion early 1990s  Property Insurance No cover for historical pollution Land is not usually ‘insured property’ No contaminated soils in debris removal Possible ‘buy back’ of land cover: Still no cover if gradual Still requires physical loss – no DISCOVERY  Liability Insurance No cover for historical pollution No cover for gradual pollution No cover for damage to own property Expressly excluded under standard liability forms. Vast majority of pollution incidents will result in clean-up of the company’s own site No cover for Environmental Liability Directive No cover for clean-up costs imposed by regulators

ACE European Group 11 Traditional Insurance Solutions  Bartoline vs. RSA & Heaths Background: Manufacture/packaging of solvents and adhesives Significant fire at UK site Fire-fighting foam washed solvents and adhesives into adjacent watercourse EA responded undertaking emergency remediation works on the river Invoice issued to Bartoline, plus notice served for onsite works – total cost c. £700k.

ACE European Group 12 Traditional Insurance Solutions The Outcome: Bartoline claimed under their PL policy written by RSA and placed by Heaths RSA disputed claim so were sued for breach of contract The court ruled in favour of RSA - liability to repay expenses incurred by the Environment Agency and liability to pay damages in tort are “quite different animals.” Appeal was due to be heard in October 2007, but case settled out of court shortly before. Precedent set – S&A pollution, but still not insured

ACE European Group 13 Can these risks be insured currently? Many insurers have attempted to amend public liability policies to include ‘Bartoline’ cover, but: Still no cover for clean-up of own premises; Still no cover for gradual pollution; Still fails to meet liabilities arising under the new Environmental Damage Regulations: flora and fauna exclusion clean-up coverage falls well short of Complimentary and Compensatory Remediation requirements Liability underwriters lack understanding and experience of environmental risks Uncertainty therefore prevails……

ACE European Group 14 ACE Environmental Solutions u Specialist Policies – Key Benefits n Pollution conditions – no dispute between what is S&A or gradual n Based on ‘discovery’ of pollution – no physical loss requirement n Site-based policies or contractor coverage n Third-party ‘tort’ liabilities for S&A and gradual pollution n First-party regulatory clean-up for S&A and gradual pollution n Can include first-party business interruption – loss of profit, loss of rent. n Multi-year policies available n Policies designed to respond to claims under ELD

ACE European Group 15 Can these risks be insured currently? GL or PL coverage ELD scope Available cover Accidental pollution   Gradual pollution   Legal liability Financial, material losses / Bodily injuries   Imposed remediation costs Including Primary Complementary Compensatory Remediation Protected species and habitats   Water / land   Natural resources   Prevention costs   Clean up costs on your own property 

ACE European Group 16 General Client Considerations  Existing Property & Casualty pollution coverage is inadequate  Client does not need to handle chemicals or waste to have exposure  Disclosure and Financial Reporting requirements expanding  Contract conditions are starting to address environmental liabilities  Awareness of Financiers  Future regulations are uncertain, but they WILL be more stringent

ACE European Group 17 Questions