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Environmental risks moving up the construction agenda

28.06.2017
Topic Construction

Construction digger - environmental

From the inception of a project to completion, construction contractors must confront complex, often large-scale risks. But one emerging trend in the construction industry that particularly stands out is the increased level of demand for environmental impairment liability (EIL) insurance. This should not really come as a surprise. The Environment Agency has reported that the construction industry is responsible for nearly a third of all industry-related pollution incidents in the U.K and, according to Sustainable Build, more water pollution incidents than any other industry. 

From the inception of a project to completion, construction contractors must confront complex, often large-scale risks. But one emerging trend in the construction industry that particularly stands out is the increased level of demand for environmental impairment liability (EIL) insurance. This should not really come as a surprise. The Environment Agency has reported that the construction industry is responsible for nearly a third of all industry-related pollution incidents in the U.K and, according to Sustainable Build, more water pollution incidents than any other industry. 

However, despite the construction industry being aware of environmental concerns, a number of developments are propelling EIL further up the agenda. Chief among these is the increasing requirement by lenders, site owners, developers or main contractors for EIL insurance to be in place. We are also seeing more smaller sub-contractors requiring insurance as well.
Regulation biting

One of the principal drivers behind this trend is the Environmental Damage Regulations (EDR) in the UK. Although these have been in force for some time now, they are only now starting to be enforced with a significant degree of rigour. This means that constructors need to be aware of how the rules deal with serious environmental damage to water, land – especially where there is significant risk for human health – and protected species and their habitats.

The arrival of the EDR has brought with it enhanced regulatory enforcement of the “Polluter Pays Principle”, which means that a business causing environmental damage (or the imminent threat of such damage) will be financially liable. This goes beyond merely cleaning up the pollution and extends to repairing environmental damage and managing the recovery of a damaged area and means that complementary or compensatory remediation may be required. Complementary remediation is where a site may never fully recover (e.g. an ancient woodland is destroyed) and the polluter is required to provide equally beneficial improvements at the site or at another site as compensation. Compensatory damage, where it is expected to take years for a damaged area to recover, may require the polluter to take measures to compensate for interim losses from the date the damage occurred until primary remediation has achieved its full effect.

Failing to act immediately to prevent environmental damage is an offence according to the EDR. Fines are unlimited and in extreme cases prison sentences may be imposed. Where companies have committed an offence, individuals who consented to them such as directors or managers may also be held accountable.

Brownfield developments

Another factor driving the increasing take-up of EIL insurance in the construction industry has been the increase in brownfield developments. This is a trend that is only set to continue. Research released last year by the Campaign to Protect Rural England showed a big increase in brownfield sites available for housing, with the capacity to provide at least 1.1 million new homes.

With any construction project, activities that may cause water pollution or damage to habitats and species are numerous. However, when it comes to brownfield sites, the risks of environmental contamination are even higher. These are often large remediation projects and before building can start there needs to be an extensive investigation, risk management plan and potentially a clean-up process. On brownfield sites, works such as set up of compounds or excavations for underground services can exacerbate existing problems by disturbing or remobilising soil and groundwater contaminants and result in off-site contaminant migration. Other activities may also cause problems such as accidentally drilling through oil pipes or introducing new sources of contamination from spills and leaks.

Effective risk management

Constructors need to do everything they can to effectively manage environmental risk through every stage of the development. During the pre-construction phase, this will involve extensive due diligence to define environmental site conditions and identify potential risks. Once construction begins, an adherence to the environmental management plan, work method statements and diligent updating of environmental records is vital.
There should also be an incident management plan in place as well as equipment such as spill kits to be able to act quickly to any event that threatens pollution. Key personnel should be aware of their responsibilities should an incident occur. Risk management also needs to continue once a project is completed as incidents can arise post completion, for example due to defects in construction or even errors in routine maintenance.

Should the worst happen, speed is of the essence. Businesses should in the first instance notify the appropriate regulatory authority and submit their remediation proposals to the authorities including, as may be needed, a complementary and compensatory remediation plan, before the authority issues a remediation notice. At the end of the day, the impact of environmental damage can be wider than just on the environment. Constructors that are involved in poorly managed site practices and mishandling of pollution incidents will experience an impact on their bottom line, as well as on the reputation and ability to win future tenders.

Having the right protection in place means reviewing insurance cover as gaps in contractors’ insurance are getting wider and many contracts demand environmental insurance alongside traditional policies. Activities that exacerbate existing pollution or harm biodiversity are probably not covered under traditional policies, but environmental insurance covers all this. It also brings the peace of mind of being able to rely on experienced handlers to settle claims swiftly and professionally, minimising damage both to the environment and the policy holder’s business.  

This article first appeared in Insurance Day, 19 June 2017