Basic Standards for Terms and Conditions of Environmental Damage Insurance Policies

The Argentine Superintendence of Insurance and the State Secretariat of Environment and Sustainable Development issued Joint Resolution No. 2/2019 (“Joint Resolution”), that provides the basic standards for the terms and conditions of the insurance policies for collective environmental damage, The Resolution introduced some amendments with respect to the previous regime regulated by the abrogated joint Resolution No. 98/2007 and 1973/2007 of the Secretariat of Finance and the former Secretariat of Environment and Sustainable Development.

As in the previous regime, and in accordance with Decree No. 447/2019, the Joint Resolution provides for two different types of coverages, one with a risk transfer and a surety insurance. In the first, the Government (National, Provincial, Municipal or the City of Buenos Aires, or the corresponding inter-jurisdictional authority) assumes the role of third party claimant, while in the second it assumes the role of insured. In both types of insurances the existence of a co-insured is admitted.

The Joint Resolution establishes that the coverage of the environmental insurance will be aimed at guaranteeing the effective remediation of the collective environmental damage (“Environmental Damage”) accidentally caused, regardless of whether such damage was caused suddenly or gradually, and up to policy limit. This implies a modification with respect to the previous regulation, which referred to guaranteeing the availability of the funds necessary for the remediation. We understand that this point contradicts the express text of Section 22 of Law 25.675 (the “LGA” after its acronym in Spanish) and the case law established by the Argentine Supreme Court in re “Fundación Medio Ambiente / EN-PEN-DTO 1638 / 12- SSN Resol. 37,160 s/medida cautelar autónoma” (sentence ruled on 12/11/2014), which instituted environmental insurance as a financial instrument.

Like the previous regulation, the Joint Resolution limits coverage to the remediation of soil and water. Furthermore, in line with Section 28 of the LGA, it provides that if the remediation of the Environmental Damage is not technically feasible, the substitute compensation, determined by a Court, must be deposited in the Environmental Compensation Fund provided for in the LGA within ten days from the date when the insurer is formally notified.

In similar terms to those of the previous regime, Environmental Damage is considered that which affects or alters in a significant and negative way any element of the environment and/or its resources, regardless of whether or not it results in damage to a person or their property. An Environmental Damage will occur when: (i) it poses an unacceptable risk to human health, and (ii) a natural resource is destroyed or deteriorated in a way that limits or impairs its self-regeneration ability.

Similarly, the Joint Resolution establishes that the remediation will consist of reestablishing the conditions of the affected environment until it reaches acceptable levels of risk to human health and to the ecosystem so that the negative transformation is no longer relevant, and in any case up to the policy limit.

As in the previous regime, the insurance with risk transfer will only cover damages whose first manifestation or discovery occurs during the term of the policy or in the extended period which must at least be of three years from the date of expiry of the policy (the previous regime provided for two years). In the case of surety insurance, the cause that gives rise to the Environmental Damage must occur during the term of the policy. The minimum term of the insurance policy must be one year.

The insurer is entitled to conduct an initial environmental situation study (the “ESAI” after its acronym in Spanish) to detect pre-existing damages, which will be borne exclusively by the holder of the risky activity. In the event that said ESAI is not conducted, the pre-existence of the damage cannot be invoked.

A loss occurs when (i) the determination of the Environmental Damage made by the competent environmental authority refers to damages whose first manifestation or discovery occurred within the term of the policy; (ii) the competent environmental authority has ordered the policyholder to proceed to the remediation and the policyholder did not do so (totally or partially); (iii) the competent environmental authority formally notifies the insurer of the loss.

The loss must be investigated by the insurer, who must send the adjustment report to the competent environmental authority. Once a loss has occurred, the insurer must coordinate the execution of the obligations breached by the policyholder with said authority. For this purpose, the Joint Resolution refers to the procedure for the Execution of Environmental Policies of Resolution No. 548/2017 of the former Ministry of Environment and Sustainable Development.

As in the previous regime, a deductible can be established provided it does not exceed five percent of the Minimum Insurable Amount of Sufficient Entity to be set by the State Secretariat of Environment and Sustainable Development. In the event  of execution of the policy, the insurer must execute the obligations breached by the policyholder in full, with subsequent recourse to the policyholder to recover the deductible.

The Joint Resolution also includes a series of definitions of concepts to be mandatorily used in Environmental Damage insurance plans.

Lastly, as a temporary provision, the Joint Resolution provides that within thirty days of its publication the insurers authorized prior to said regulation must submit the following documentation to the Argentine Superintendence of Insurance (i) a sworn statement signed by the president of the insurer, and (ii) a report from an independent lawyer stating that its Environmental Damage insurance plan complies with the provisions of the Joint Resolution.