Environmental law and regulation in the European Union

Jürg Busenhart, 16 Oct 2014

Industrial disasters in Europe resulting in large scale pollution have shown the vulnerability of its natural resources. Their potential impact on society and economic development(1) has likewise been recognised by the public and governments across Europe. As a consequence, environmental law and regulations have been tightened and private companies are increasingly expected to manage these risks properly.

The environmental policy in the European Union (EU) is based on the “precautionary principle” focusing on the management and control of pollution at the source. There is a high commitment to environmental protection in the EU which is evident at both the collective and at the individual Member States levels. Environmental protection laws in the EU Member States require from the operators of hazardous activities that they assess the environmental impact of their activities, identify the key hazards and implement adequate risk protection and mitigation measures. The “polluter pays principle” is a well-accepted concept and implemented across the EU. Companies have to pay for damage they cause through negligent management of environmental risks.

A number of environmental areas are comprehensively regulated. These include land/soil protection and historical contamination, water security, protection of nature, waste (disposal sites, incinerators, etc.), classified installations2, hazardous activities and substances, air pollution and quality, genetically modified organisms, agriculture and forestry, fisheries, and regional planning. Legislation covering an operator's liability for the compensation of victims suffering bodily injury, damage to their individual property and consequential financial losses from pollution conditions is implemented in all the EU Member States.

A new law, the EC Environmental Liability Directive (EC ELD), which came into effect in 20103 has been implemented in the EU regarding the prevention and remediation of environmental damage. The EC ELD contributes to the harmonisation of legislation across Europe by establishing a basic administrative/statutory liability framework upon which national laws can converge. The EC ELD is intended to address liability for damage to natural resources and biodiversity, and sets binding, minimum standards which have to be transposed by the Member States into legislation, while some other elements are elective.

The Member States were requested to transpose the EC ELD into their national law to make the regime applicable across the EU. The most important elements are as follows:

  • The EC ELD sets out minimum standards for the prevention and remedying of environmental damage based on the “polluter pays” principle.
  • The EC ELD comprises two complementary liability schemes:
    • Strict liability for specified, environmentally hazardous activities listed in an annex.
    • Fault-based liability for all other professional activities when damage is caused to protected species and natural habitats in accordance with the Birds and Habitats Directives
  • Preventive measures: If environmental damage has not yet occurred but the threat of it happening is imminent, the operator must instigate the necessary preventive measures immediately.
  • Remediation measures: If environmental damage has occurred to watercourses or protected species and natural habitats, the operator must instigate measures to restore, rehabilitate, replace or provide equivalent alternatives for the polluted natural resources and/or impaired functions. These measures include: 
    • Primary remediation (ie any remedial measure which returns the damaged natural resources and/or impaired functions to their original or “baseline” condition);
    • Complementary remediation at a different location as compensation when primary remediation does not result in the full restoration of polluted natural resources and/or impaired functions;
    • Compensatory remediation to compensate for the temporary loss of natural resources and/or functions from the date the damage occurred until the full restoration of the original condition.
  • In the case of land or soil pollution, the operator must instigate the necessary measures to eliminate any danger to human health. The aim here is to eliminate the risk rather than restore the original condition.

The ELD does not apply retroactively, so any damage caused before 30 April 2007 (the deadline for implementation of the ELD) is not covered by its provisions. Its fundamental aim is to hold operators financially liable for environmental damage caused by their current business activities with the goal being a higher degree of environmental protection throughout Europe due to an increased level of prevention and more precautionary measures.

Public authorities play an important role under the EC ELD. Enforcement is their responsibility, including the identification of potentially liable operators, the instigation of preventive and/or remedial measures, and, where applicable, the financing of such measures. Public interest groups, such as NGOs, are able to require public authorities to act and, if necessary, to challenge their decisions in the courts. Additionally, the “Directive on Public Access to Environmental Information (2003/4/EC)”, gives the European public better access to environmental information, thus enhancing their ability to demand action.

Insurance solutions

Parallel to the increasing public awareness and responsibility of the industrial operators regarding environmental contamination, including the obligation for comprehensive environmental risk management and the liability for compensation of victims and prevention and remediation measures, the European insurance sector plays an important role in exploring solutions through risk dialogue, management (including prevention) and transfer solutions where appropriate. In Europe, the insurance industry has a long lasting and influential position in developing and implementing risk transfer approaches, including a variety of specific insurance solutions for environmental liability risks. The most important insurance solutions are general (third party) liability insurance and environmental (impairment) liability insurance.

A.  General (third party) liability insurance (GTPL)

Pollution liability insurance is an acknowledged risk transfer solution across the EU Member States. Although pollution liability insurance is widely available, the penetration of these (liability) insurance solutions – either offered as an endorsement to a general liability policy or as a stand-alone policy – depends on the still differing levels of awareness and understanding of liability insurance as a suitable risk transfer option.

GTPL covers the insured’s civil liability arising out of the business activity or property ownership, to compensate third parties for bodily injury or damage to individual property, and in some cases for partial economic/financial losses caused by environmental impairment. The coverage is basically focused on pollution events which are identifiable in time, unintended, and sudden like fire, explosion, or collision and directly leading to environmental impairment (“sudden and accidental” pollution). GTPL is the most important line of business covering civil liability for compensation of bodily injuries and damage to individual property following an environmental impairment. Increasingly the insurance industry is providing an endorsement covering the costs for the prevention and remediation of environmental damage under administrative/statutory liability resulting from EU Member States legislation transposing the EC ELD.

B.  Environmental (impairment) liability insurance (EIL insurance)

EIL insurance as a comprehensive risk transfer solution is offered by a small number of specialised insurance companies or environmental liability reinsurance pools such as those found in France, Spain and Italy. In some EU Member States, comprehensive environmental liability insurance solutions have been developed by insurance associations and are widely offered by insurers (eg non-binding models for "Environmental Liability Insurance" and "Environmental Damage Insurance" developed by the German Insurance Association GDV).

In addition to the covers for traditional claims (eg third-party liability for bodily injury, damage to individual property damage, and resulting financial loss), pollution legal liability policies may cover events that are unexpected and unintended. The pollution legal liability policies may respond to sudden and accidental events and/or gradual occurring pollution conditions as well, depending on the policy's terms and conditions. Companies may also purchase insurance to cover the costs for legally required clean-up of pollution conditions on owned property (first party clean-up) or third party property (third party clean-up), as well as the costs for prevention and remediation of environmental damage according to the EU Member States legislation transposing the EC ELD.

C.  Other insurance solutions

In addition to the above-mentioned risk transfer solutions, other insurance products offer some forms of cover for the legal liability related to environmental impairments. For example:

  • Products liability insurance, which covers environmental liability caused by defective products
  • Professional indemnity policies, which cover claims for negligence against professionals leading to environmental liability (eg architects, engineers or environmental consultants)
  • Motor liability or marine insurance, which may cover the environmental liability associated with the operation of vehicles and the transport of (hazardous) goods
  • Property insurance, which may cover the insured’s expenses for the restoration of contaminated land which it owns known as “decontamination costs insurance”

Protection of the environment is an essential goal of EU community

The factors that have influenced environmental regulation in the EU and the Member States are the same as in most other industrialised countries. Growing environmental awareness in the 1960s, coupled with environmental disasters resulted in the passage of the first EU environmental protection laws. Subsequent catastrophes heighten the need for constant vigilance to safeguard the environment and prompted new laws and amendments to old ones. From the time that the first EU Environmental Action Programme was agreed upon in 1973, there has been a consensus that “the protection of the environment belongs to the essential tasks of the Community.” There have been of course political differences within the Member Countries, but that general sentiment has and continues to prevail.

This approach also characterises the role that insurance has played in protecting the environment. The insurance industry has been viewed as a partner in risk control and management. The passage of environmental laws and regulation has led to product development and innovation. This is in marked contrast to other markets, notably the United States, where environmental laws incorporating the "polluter pays principal" precipitated a crisis for the insurance industry. Unity of purpose between the key stakeholders - regulators, corporations and insurers - has prevailed to date in the management of environmental risks in the EU. This is a model that hopefully will continue to work there and be applied to other markets going forward.


1. The Seveso disaster in Italy (1976) was an industrial accident that occurred in a small chemical manufacturing plant and resulted in the highest known exposure to dioxin (TCDD) in residential areas. Based on numerous scientific studies after the incident, standardised industrial safety regulations were implemented in the EU known as Seveso I, II, and III Directives.
The Aznacollar/Doñana disaster in Spain (1998) was Europe’s biggest ecological catastrophe in a natural park. A dam containing stagnant, toxic waste water from the Aznacollar mine burst and six billion liters of toxic waste water were released, which directly polluted more than 4 600 hectares of land, flowed into the Guadiamar River and wiped out almost all life in the river. It illustrated the inherent risks of the lack of controls and related threats in mining activities.
The Ajka alumina sludge spill in Hungary (2010) was an industrial accident at a caustic waste reservoir chain of an alumina plant. A dam collapsed releasing approximately one million cubic meters of liquid waste from red mud lakes. The toxic mud wave flooded several nearby localities and villages, killed ten and injured up to 150 people. About 40 square kilometers of land and the Danube river system were contaminated.
2. Eg "Seveso II/III Directive", "Integrated Pollution Prevention and Control (IPPC)"/"Industrial Emissions Directive (IED)".
3. The transposition of the EC ELD in EU Member States legislation should have been completed by April 2007. The delay was due to the complexity of the topic and political changes.

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Jürg Busenhart

Senior Product Manager, Swiss Re

Jürg Busenhart is a senior product manager in the Casualty Centre Liability unit of Swiss Re’s Reinsurance Products function. He acts as expert in specialized liability issues, liability insurance solutions and emerging risks with particular focus on Asian and Latin American markets. In addition to the products function he is heading Swiss Re’s worldwide center of competence for environmental liability, which brings together Swiss Re’s environmental insurance specialists.

He studied chemistry and graduated from the University of Zurich with a Master's degree in Law. He joined Swiss Re in 1996 after working for several years as senior liability insurance specialist and head of product development in primary insurance. Within Swiss Re he hold various product management functions in Single Risk and Reinsurance business and was supporting as senior risk manager the oversight of Property&Casualty risks in Swiss Re's Risk Management function.

Jürg Busenhart is author of various Swiss Re publications like 'Food Safety in a globalized world', 'Pollution Risk Assessment in Emerging Markets', ‘Insuring environmental damage in the European Union’ or ‘REACH, the European Chemicals Regulation - a challenge for insurers’. He is also member of the 'Insurance Europe Environmental Liability Project Group.

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