Originally published in BLG's Environment and Health & Safety Digest, Autumn 2007
Increasing levels of environmental regulation have led to an exponential increase in the number of specialist environmental consultancies. There are now well over 1,000 such consultancies in the UK, involved in an ever broadening range of work.
The unique exposures of this profession require suitably tailored professional indemnity cover. For example, the investigation or attempted clean up of contamination creates the risk of further pollution of the environment. Cover for resulting potential liabilities, which would normally be excluded under a professional indemnity policy, is therefore essential.
Claims can and do arise. The House of Lords decision in Sutradhar v National Environment Research Council ("NERC") (dated 5 July 2006) highlights the potential liabilities for the profession where (as frequently arises) an unintended recipient of an environmental report relies upon its findings.
The case arose from the discovery that water from recently installed drinking water wells in Bangladesh contained high levels of arsenic. The claimant suffered from arsenic poisoning. He became aware that, quite independently of the project to install the drinking water wells, NERC had investigated the hydrochemistry of aquifers in Bangladesh in the early 1990s but had not tested for arsenic. He alleged that NERC had caused his illness because NERC's report suggested that the water was safe to drink. Had it not done so, he alleged the authorities in Bangladesh would have investigated potability themselves and averted the current problem.
NERC's application for summary judgment succeeded (eventually). The House of Lords could see no basis on which the NERC owed Mr Sutradhar a duty of care. However, there was nothing in NERC's report that said to whom it was addressed or for what purpose it had been prepared, and had it made express reference to the drinking water wells project, the case may have been decided differently.
Not only have environmental consultancies moved into new areas of practice, many have undergone mergers or MBOs, or become assimilated into larger multi-disciplinary practices. In short, and in contrast perhaps with other professional practices, few are the same from one year to the next. The High Court decision in Encia Remediation Ltd v Canopius Managing Agents Ltd (24 April 2007)) highlights the insurance problems that can result.
The environmental consultant in this case, Encia, was sued for the negligent design and installation of piling works in relation to a residential development on reclaimed land. Encia's insurer declined to cover the claim, on the basis that the risk arose from an excluded activity.
Just before the relevant policy year, the insured entity was the subject of a management buy-out, splitting it into two distinct businesses, one of which being Encia, and the other AIG Southern. When deciding whether the exclusion clause applied, the court had to consider the extent to which placing information for AIG Southern could define the scope of the business activities of Encia.
The court held that "civil and environmental engineering", as stated in the Schedule to the policy, was wide enough to cover the contract for the piling works. As the AIG Southern risk was broked side by side with that for Encia, the placing information for the former (which clearly included design and build contracts) became part of the "matrix of fact" which could be considered when interpreting the scope of the latter. On this basis, the risk did not fall to be excluded as was contended.
The environmental consultants' profession is rapidly changing both in terms of the activities that they carry out, and the size and nature of the businesses. As the above cases highlight, it is essential that environmental consultants ensure that their increased exposures, across all of their business lines, are covered properly by their professional indemnity insurance.
This article first appeared in Insurance Day and is reproduced with the kind permission of Informa
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