The environmental insurance policy is being regulated

In 2002, the General Environmental Law No 25,675 was enacted by the Federal Congress (“General Environmental Law”). Section 22 of this law provides that any person who carries out activities dangerous to the environment, ecosystems or their elements must take out an insurance policy. However, until now, environmental insurance had only been a declaration of intent due to the lack of regulation.  

In February 2007, the Secretariat of Environment and Sustainable Development issued Resolution No 177/2007 and subsequently amended it through Resolutions No 303/2007 and No 1639/2007. These last resolutions set forth the operative mechanism to implement environmental insurance. They also state that environmental insurance will only cover environmental damages of a collective nature, as defined by the General Environmental Law.

According to these regulations, hazardous activities that must take out environmental insurance are those listed in Exhibit I of Resolution No 1639/2007. The activities are categorized in three groups depending on their environmental complexity. The obligation to take out an environmental insurance is triggered with respect to activities within categories II and III. Resolution No 1639/2007 sets forth the formula to determine the environmental complexity level of a given activity.

These activities include extraction of carbon, oil, natural gas and metal minerals; manufacturing of food products and beverages; manufacturing of textile products; tanning of leather, manufacturing of wood, paper, coke, chemical substances and products, rubber and plastic products, non metal minerals, manufacturing of ordinary metals, manufacturing of machines, equipments, electric devices and vehicles; recycling; supply of electricity, gas, steam and hot water, disposal of wastes and wastewaters.

As provided by the General Environmental Law, self-insurance is expressly admitted by the above regulations as a valid and accurate option to finance the remediation of any environmental damage. Self insurance is permitted provided that the persons responsible for the dangerous activities evidence their economic and finance solvency by complying with the requirements that will be provided by complementary regulation yet to be issued.

On December 6, 2007, the Secretariat of Finance and the Secretariat of Environment and Sustainable Development issued joint Resolution No 98/2007 and 1973/2007 (the “Joint Resolution”) providing basic standards for the terms and conditions of the insurance policies for collective environmental damages.  

According to the Joint Resolution, the purpose of the environmental insurance will be to guarantee the availability of sufficient funds to remedy the collective environmental damages regardless of whether such damages were caused suddenly or gradually. Moreover, it provides that in order to be covered the environmental damage shall imply:

(i)           an unacceptable risk for human health, and

(ii)           the destruction of a natural resource or the deterioration thereof when it impairs its self-regeneration ability.

The Joint Resolution regulates the content and scope of the term “environmental remediation” set forth by Section 41 of the National Constitution and Section 28 of the General Environmental Law. Pursuant to the Joint Resolution, remediation shall consist of reestablishing the conditions of the damaged environment until it reaches acceptable levels of risk for the human health and for the self-regeneration of the natural resources so that the negative transformation is not longer relevant.

Insurance shall only cover damages which first manifestation or discovery takes place after the inception of the policy. Therefore, an insurer is entitled to carry out a prior environmental evaluation which can be filed before the environmental and regulatory agencies.

Insurance shall cover damages which first manifestation or discovery occurs while the policy is in force or during the extended period which shall not be shorter than two years as from the policy expiry date. According to the Joint Resolution, the minimum duration of insurance policies shall be of one year.

The possibility of fixing a maximum sum insured to limit an insurer and its reinsurers’ exposure was alleged to be an unavoidable requirement for these policies. According to the Joint Resolution, the sum insured under these policies may be agreed between an insurer and its insured, or the person who takes out the policy, taking into consideration the particularities of each case.

The enforcement agencies of the above regulations shall be the National Insurance Superintendency (Superintendencia de Seguros de la Nación) for insurance matters and each local environmental agency. At the national level, the enforcement agency shall be the Secretariat of Environment and Sustainable Development (Secretaría de Ambiente y Desarrollo Sustentable).