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Law \ Legal

General liability insurance and statutory pollution clean-up obligations

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This judgment considered whether the insured was provided with an indemnity under the insurer’s general liability policy for the costs of pollution rehabilitation.

Transnet sought to recover money it had expended in the rehabilitation of soil contaminated by aviation fuel escaping from an underground pipeline belonging to it. Transnet had a registered servitude through the land where the pipeline is positioned. However, the land that had been polluted belonged to another party. The pollution happened as a result of a deliberate act of unknown individual who excavated a hole of above the pipeline and punctured the pipeline to siphon off aviation fuel. 

The operative clause of the policy read:

“The insurers will indemnify the insured against their liability to pay compensation (including claimant’s costs, fees and expenses) … in accordance with the laws of any country. ” .. .. except and to the extent and subject to the conditions specified herein.”

The insured sought an indemnity on the basis that, in compliance with its responsibilities in section 30 of the National Environmental Management Act 1998 (NEMA) it arranged and paid for the rehabilitation of a soil contaminated by fuel escaping from its underground pipeline.

No demand was ever made against the insured against the owner of the property damaged as a result of the pollution. 

The insured relied on the judgment of Verulam Fuel Distributors CC v Truck and General Insurance Company Limited and Another (2002) JOL 13042 (W) to support its argument that the operative clause provided an indemnity where the insured was under an obligation to act as contemplated in section 30(4) of NEMA.

The wording of the indemnity clause in Verulam was different.  In Verulam the indemnity was against all sums of money paid and undertaken in the clean-up operations. 

In this case the relevant clause provided that the insurers would indemnify the insured against their liability to pay compensation (including claimant’s costs, fees and expenses). The insured argued that it was irrelevant that the legal liability which arises was a matter of statutory obligation or a third party claiming compensation against it.

The court however agreed with the insurer that one cannot disregard the difference in the wordings of the two clauses.  In Verulam the court held as it did because it did not matter that the indemnity arose as a result of a statutory obligation or a third party claim.  The insured was covered against all those sums.  In this case however the indemnity of the insured was against its liability to pay compensation. 

‘Compensation’ had a more limited application in that it envisages a party claiming against the insured and not seeking reimbursement of money spent as a matter of statutory obligation.

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