space Press Releases, News Stories

by Daniel Pruzin, International Environmental Reporter, BNA

The report, presented to the fifth Conference of the Parties to the Basel Convention on the Control of Transboundary Movements of Hazardous Wastes and Their Disposal, notes that "there clearly is substantial capacity available in the international market" for pollution damage insurance (INER Reference File 1, 21:3701).

"One should, however, be careful not to draw the conclusion that imposing routinely very high financial guarantees does not pose any problems," the report adds. "The insurance is not always available."

Premium coverage "will depend on an individual assessment of an installation or operation," while operations that are not managed properly will "not get coverage."

The report was drawn up by Belgian professor Hubert Boecken for the December 6-10 COP-5 meeting in Basel and is based on information provided by governments, academics, and associations representing insurance and reinsurance firms as well as insurance brokers.

Representatives from more than 100 countries at the Basel meeting wrapped up an agreement December 10 on a new protocol to the convention that sets out global rules on liability and compensation for damage resulting from illegal dumping or accidental spills of international hazardous waste shipments. (See related article in this issue.)

Provisions of Liability Protocol

The protocol requires parties responsible for waste shipments to secure insurance, bonds, or other financial guarantees to cover their spill liability while at the same time imposing minimum limits on the amount of financial compensation that can be awarded for any one incident.

The minimum limits would apply to notifiers or disposers of waste who are liable for the shipments under the protocol's strict liability provisions; for those who are found to have caused a spill through wrongful intentional, reckless, or negligent acts, no upward or downward limits on liability would apply.

The report notes that current insurance coverage for pollution liability is costly. "Premiums are quoted from US$50,000 to US$250,000 for a cover of US$100 million. Minimum premiums for a cover of US$10 million may start around US$5,000. Generalizations are not possible. The premium will depend on the type of operation, the ceiling and wording of the cover, and many other factors."

The report adds: "There also will be a substantial difference according to whether or not the premium is taken out for an isolated operation or whether it is a blanket policy covering a continuous operation. In the latter case, the premium will probably become lower not only in view of the effect of economy of scale but also in view of the higher degree of specialization of the operator."

Financial Limits Per Spill/Accident

In regards to the financial limits for any one spill or accident incident, the report recommends that negotiators fix a minimum liability of US$5 million for shipments of 2,000 tons or less, a figure that would rise by US$1,000 for each additional ton.

"This limit would probably be consistent with the status of the insurance market," the report notes. "It would in the majority of the cases provide a very substantial protection to the victims."

The report points out that despite the capacity for increased coverage, special environmental liability policies are being offered by only a limited number of insurers.

In Denmark, Finland, France, Italy, the Netherlands, and Spain, insurers cooperate through insurance pools in providing specialized coverage, although the scope of coverage in many of these countries is limited. In the United States the number of specialized insurers is limited to seven, with three insurers--American International Group, ECS Underwriting, and Zurich- controlling 75 percent of the market.

The report, "Financial Limits of Liability and Compulsory Insurance Under the Draft Protocol on Liability and Compensation for Damage Resulting From Transboundary Movement of Hazardous Wastes and Their Disposal," is available on the Basel Convention Web site at http://www.iisd.ca/basel.