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October 4th 2010 saw Hungary hit by an environmental disaster , highlighting the potential risk of many industrial operations and processes. The Hungarian Aluminium plant in the west of the country burst the banks of its reservoir holding chemical waste – a mixture of water and mining waste containing heavy metals. A 700,000 m3 wave of toxic red sludge poured out; sweeping away cars, damaging bridges and surrounding property and forcing the evacuation of hundreds of local residents.

• More than 7,000 local residents were directly affected by this incident

• A state of emergency in 3 countries, • 10 people were killed • Over 120 people suffered chemical burns • The red mud soaked into the surrounding countryside and affected over 800 Hectares, this will have a lasting and harmful effect on the local terrain

The clean up operation is expected to take at least 18 months and, unofficial

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preliminary numbers have been quoted in the range of $25m-$50m.

At a recent seminar, an Environmental specialist indicated that over time the total cost could well approach $150m.

pollution risks and properly responds to Europe’s dynamic environmental legislative landscape. For example general liability insurance generally does not cover

• Gradual pollution • First party costs for pollution clean up on your own site

• Complex damages arising under the new From a commercial insurance perspective, it has been reported that the plant’s general liability policy had a very low limit of cover of just under $50,000 for pollution claims. Evidently in this case it was a catastrophic event, importantly though it highlights the significance of companies assessing the level of pollution risk from their operations and comparing this with what cover and limits have been achieved in their current insurance programme. Lack of coverage under general liability programmes and tightening scope of environmental regulation across the EU has focussed many companies to seek Environmental Impairment Liability (EIL) from specialist insurance providers.

Coverage Gaps Many companies are of the opinion that Sudden &Accidental pollution cover on a General Liability policy is adequate. The Hungarian case highlights the potential need for companies to hold a stand alone environmental policy, which properly covers

EU Environmental Liability Directive (ELD).

Gradual Pollution A public liability policy will not generally cover any damages caused as a result of a gradual pollution whether these are civil liabilities or the new damages as defined by the Directive. Much pollution is gradual, not caused by single sudden event. This would include pollution caused by a range of events such as leaks and regular fumes, not just by fire or explosion. Gradual pollution has the potential to go unnoticed for large periods of time causing extensive environmental damage.

First Party costs for pollution clean up on your own site Standard General Liability policies in general only cover limited clean up costs for 3rd party’s, this leaves a huge gap in cover for the potential costs involved in repairing your own property as a result of a pollution

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