Cedric Stephens | Insurance protection for the sensitive Cockpit Country

QUESTION: Is insurance available to protect entities, private or government-owned, against environmental liability risks? For example, where the operations of a company contaminated the air, ground, or a river, and members of the public suffered injuries as a direct result, is an insurer likely to be involved as they normally would be in the case of a motor vehicle accident? On the other hand, how likely is it that that settlement would come straight from the company coffers?

– TH, Kingston 6

INSURANCE HELPLINE: There is rising interest worldwide about the protection of the environment. As I write this, the BBC is reporting about an 85 per cent increase this year in forest fires in Brazil.

Locally, many things are also happening. A heated debate is now taking place in this newspaper on a related and important topic. Should the ‘ecologically sensitive Cockpit Country’ be exposed to the perils of bauxite mining? Does the Special Mining Licence granted by the government, which allows mining to take place, pose threats to the area?

Last Thursday, The Gleaner reported that “health officials have been moving to calm fears after a work crew excavating an area at the Cornwall Regional Hospital on Monday stumbled upon poorly discarded medical waste”.

A eulogy, also published on Thursday; a report about legal action taken against the National Solid Waste Management Agency the day before; and Steven Jackson’s analysis of the financial statements of an Italian multinational two Fridays ago provide the fitting subtext of my response to your two questions.

Late businessman David Hopwood was remembered by his family for his ‘love of the environment … butterflies and poui trees in bloom” and that he “would be most displeased when hillsides were being cleared”. What about his career in a company that his father founded and bears the family surname? Nothing about this was mentioned.

J. Wray & Nephew Limited, JWN, a subsidiary of the Campari Group, was sued in December 2015 for US$23 million by fish farmers Algix Jamaica Limited. The claimants alleged that effluent from JWN’s sugar-producing farm in St Elizabeth was released into the Black River and caused damage to their property. The three-year legal fight was settled for US$1.2 million. Mr Jackson wrote that the bulk of the payout was covered by the parent company’s insurance contract. It had minimal economic and financial impact.

Multinational companies typically buy environmental impairment liability or EIL insurance. These types of risks are often not on the radars of locally owned companies.

Contrast the JWN incident with the case of three adults and a minor. They sued NSWMA in June 2014. The agency, they alleged, had “failed to effectively manage the Riverton City disposal site”. They suffered injuries as a result of the fire that burned there for six days from February 6, 2012, but produced fumes lasting until the end of that month.

Careful reading of the Minister of Local Government’s sectoral presentation to Parliament for 2018/19 indicates that the NSWMA has been severely challenged by resource shortfalls for many years. Further, it is highly unlikely that the agency has, even now, properly assessed its environmental liability risks. My research suggests that it has not transferred those risks to the private insurance market. In all probability, the Ministry of Finance is acting as its insurer – knowingly or unknowingly.

If my theory is correct, it probably explains why five years after the lawsuit was filed, the matter remains unsettled. It’s also the reason the claim that originated in St Elizabeth, three years after the Riverton City fire, and involved the pollution of a river, did not suffer a similar fate as one that allegedly contaminated the air quality in and around the dumpsite.

EIL provides cover for clean-up costs and legal defence. It doesn’t cover fines. it can cover third-party costs for damage to neighbouring land, and potentially, compensation for any loss of business suffered as a result.

EIL is now a commonplace policy in the United Kingdom and other developed countries. It offers protection for risks that other insurance products do not cover. It is also important to remember that accidental pollution damage is likely to be gradual so may not be apparent until years down the line as was probably the case on the hospital site.

Unfortunately, liability can also arise from historical environmental damage. For instance, if there was a slow oil leak on to a property that you have bought, you could be held responsible for putting it right. EIL may also offer this type of protection.

EIL cover varies widely, depending on the insurer and the industry. It can be arranged for a variety of industries, including agriculture, manufacturing, transportation, warehousing, and, not surprisingly, waste disposal. Some policies will cover just first-party losses, that is, damage to your property, while others will also cover third-party losses if there is damage to the environment on neighbouring properties.

The research that I conducted to answer your questions led me in unexpected directions. It took me to a 2018 report about a first-of-a-kind type of coverage – the insurance of 60 kilometres of a coral reef and a beach on Mexico’s Caribbean coast around Cancún and Puerto Morelos. Its purpose was to provide funds to restore that country’s Great Mayan Reef after damage by a hurricane.

“Hurricanes rank as the biggest short-term threat, with a Category 4 or 5 storm capable of wiping out up to 60 per cent of live coral cover. And recent research suggests such storms could become more destructive in the near future,” said the report. Could this solution offer a model to help mitigate some of the risks associated with bauxite mining in Jamaica’s Cockpit Country?

Many thanks for your two intriguing questions. I sincerely hope that I have answered them.

- Cedric E. Stephens provides independent information and advice about the management of risks and insurance. For free information or counsel, write to: aegis@flowja.com