New regulations on environmental insurance

Resolution No 177/2007 issued by the Argentine Secretariat of Environment and Sustainable Development -amended by Resolution No 303/2007(1) - approved certain operative rules applicable to the environmental insurance and the self-insurance mechanism foreseen by section 22 of the General Environmental Law No 25,675.

The General Environmental Law sets forth the obligation to take out an insurance policy with sufficient coverage to guarantee the financing of the remediation of collective environmental damages caused by any person carrying out activities holding a risk for the environment. However, in order for this obligation to be enforceable it has first to be implemented.

While Resolution No 177/2007 addresses some of the matters which require to be regulated other aspects of the environmental policies are yet to be defined.

Firstly, Annex I of Resolution No 177/2007 lists the “risky activities” that will require an environmental insurance, once such policies are available on the market. These policies will only be mandatory for the activities listed by the resolution whose environmental complexity level is medium or high, according to a formula established by this resolution.

The following activities are included in Annex I,: (i) intensive livestock breeding; (ii) mining; (iii) hydrocarbons –upstream and downstream-; (iv) manufacturing of foods and beverages, (v) production of paper, textile, chemical, plastic and metallurgic products; (vi) manufacturing of machines, cars and communication equipment; (vii) recycling activities; (viii) infrastructure works; (ix) power, gas and steam supply; (x) transportation activities and water collection, purification and distribution.

Annex II of the Resolution sets forth the formula to determine the environmental complexity level of an activity. This formula takes into account various parameters defined on the basis of: a) the characteristics of the raw materials, processes and products of a given activity; b) the quality of wastes and effluents generated thereby; c) the specific risks of the activity; d) the size of the facilities where the activity is carried out; and e) the location thereof.

Resolution No 177/2007 creates the ‘Environmental Risks Evaluation Unit ‘EREU’, a committee that will be in charge, among others tasks, of setting the minimum insurable amounts on the basis of the following: the environmental complexity of each activity, the mechanisms of environmental risk management and the location where the activity is carried out.

The EREU will establish the proceedings for: a) certifying the status of the insured environment at the time the insurance policy is issued; b) certifying the scope of the damages caused to the environment; c) approving the proposed remediation, mitigation or compensation plan and d) auditing the fulfillment of said plan.

Resolution No 177/2007 contemplates self-insurance as an alternative to environmental insurance provided that the person performing a risky activity evidences economic and financial solvency in accordance with the requirements that will be established by complementary rules.

Despite these new regulations and those that will be approved by the EREU, the difficulties preventing the suitable offer of this kind of insurance policies resulting from the legal framework that governs the insurance business and the particular features of the collective environmental damage still remain.