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Environmental protection insurance – what do the insurers cover for the companies concerned?

The decree summarizing the rules of environmental protection insurance, affecting nearly 20,000 domestic economic organizations, can result in significant changes and immediate steps in the life of domestic enterprises. Starting this year, the affected companies must take out environmental protection insurance with a minimum insurance amount of 10, and in some cases even 100 million.

On January 1, 2024, a new government decree summarizing the rules of environmental protection insurance entered into force, according to which, starting this year, many domestic business organizations must have environmental protection insurance with a minimum insurance amount of HUF 10 million or more or even HUF 30-50-100 million. The exact amount of the environmental protection insurance – required by law – must be calculated by the organization obliged to provide the insurance based on the formula given in the government decree.

Who is affected by the regulation?

The decree applies not only to landfill operators or those engaged in waste management activities, but to all economic organizations whose activities annually generate more than 2,000 kilograms of non-hazardous waste, or more than 200 kg of hazardous waste, or more than 5,000 kg of non-hazardous construction waste – produces demolition waste. Although these amounts may appear to be a lot, many businesses may be affected that we would not think of at first: even a larger grocery store, restaurant, food court or hotel, a car or tire service, or even a pharmacy or a butcher shop can be covered by the regulation specified annual amount of waste. According to preliminary estimates, about 20,000 domestic economic organizations and enterprises may fall under the scope of the decree.

What does environmental protection insurance include (can)?

Environmental protection insurance is used to finance the liquidation of unforeseen, accidental environmental damage caused by the insured’s activities, such as soil, surface water, groundwater, air pollution. In addition, with some insurers, the insurance can provide cover for damage caused to biodiversity, damage mitigation costs, and legal defense costs arising in connection with environmental pollution cases, or it can even cover transport activities as an additional service.

“The type of environmental protection insurance covers for damages related to environmental pollution and other additional costs arising in this case may differ from one insurance company to another. That is why it is definitely worth finding out exactly what the insurance conditions contain,” he suggested. Gábor Faraga, head of the Corporate Board of Colonnade Insurance. “There are insurance policies that insure only for on-site damage events, while others also provide coverage for clean-up costs, personal injury, or material damage in the event of environmental pollution occurring off-site as a result of the insured’s activities.”

What environmental pollution cases can occur, what is covered by the insurance?

We distinguish between two types of environmental pollution: accidental pollution and continuous environmental pollution. “Both cases can result in significant environmental and material damage, but the latter is not covered by the environmental protection insurance currently available in most domestic insurance companies,” added Gábor Faraga.

There are cases when the given enterprise complies with its obligation to prevent damage, yet – continuous – environmental pollution occurs, which is only detected after a longer period of time, when it has already caused significant damage to the environment.

Some examples of continuous environmental pollution:
– Most construction machines run on diesel fuel and various hydraulic systems. Large machines, such as bulldozers, can transport 300-400 liters at a time. If a fuel leak goes unnoticed for a long time, it can contribute to soil or water pollution.
– During the emission of combustion products at the company’s premises, despite the monitoring, emission limit values ​​are exceeded for a long period of time, thereby damaging the air.
– Due to a cooling error and ammonia leakage, 900 m3 of ammonia-containing cooling water entered the sewer system, the ammonia had been leaking for days before anyone noticed. As a result, approximately 1,700 kilograms of fish died in a 10 km long section of the river. During the restoration, it was also necessary to ensure, for example, the reintroduction of fish.

Does the previously concluded environmental pollution liability insurance comply with the new regulation?

Adapted to market needs, they have also appeared in the range of insurance companies in Hungary in recent years, so there are several companies that already have some kind of environmental pollution liability insurance. At the same time – although these types of insurances provide coverage for many damage events – they do not 100% comply with the new government decree that will enter into force on January 1, 2024. Thus, it is definitely worthwhile for these businesses to review their contracts, find out about the products available on the market that meet the requirements of the regulation, and contact their insurance experts.

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