Argentina: Environmental Insurance - New regulations

Last Updated: 5 October 2012
Article by Pablo Cereijido and Gabriel A. Fortuna

New regulations on environmental insurance have been issued.

On September 11, 2012, Decree No. 1638/2012 (the "Decree") was published in the Official Gazette, providing a new regulation of Section 22 of the General Environment Law No. 25675 ("LGA," after its acronym in Spanish) on environmental insurance.

This new regulation repeals the former regulatory regime, which had been established by Joint Resolutions No. 178/2007 and 12/2007 by the Secretaría de Ambiente y Desarrollo Sustentable (the Federal Environmental Agency -"SAyDS"-) and the Secretaría de Finanzas (Secretariat of Finance), respectively, and No. 1973/2007 and 98/2007, respectively; and Resolution No. 35168/2010 by the Superintendencia de Seguros de la Nación (Argentine Superintendence of Insurance – the "SSN" after its acronym in Spanish-).

The Decree provides for two kinds of products that may be acquired in order to comply with Section 22 of the LGA: a) a Surety Insurance Policy for Environmental Damages with a Collective Impact; and b) a Liability Insurance Policy for Environmental Damages with a Collective Impact (Section 1).

Also, the Decree provides that the SSN is in charge of drafting the text of the insurance coverages, which will be regulated only by the general and uniform conditions to be set forth by the SSN (Section 2). These are some of the general guidelines that the insurance products must comply with:

  1. Coverage will only guarantee the financing of the remediation of an accidental environmental damage with a collective impact, whether sudden or gradual, unless remediation is not technically possible, in which case the financing will be substituted for a monetary compensation.
  2. An environmental damage with a collective impact exists when it is an unacceptable risk to human health, or it has destroyed or abusively degraded natural resources. This definition of environmental damage is different from that provided by Section 27 of LGA. Besides, the concept of "abusive degradation" is vague, which will perhaps be defined more precisely in future regulations.
  3. As regards the Surety Insurance Policy for Environmental Damages with a Collective Impact, the cause of the accident must occur during the term of the policy. Instead, the Liability Insurance Policy for Environmental Damages with a Collective Impact shall only cover damages first appearing or discovered during the term of the period, and are duly notified to the insurer during such term or during an extended notification period, which must be of at least 3 years since the policy expires.
  4. Deductibles may not exceed 10% of the sum insured. In the event of a loss, the deductible shall be covered by the insurer, notwithstanding its right to claim a reimbursement from the insured.
  5. In the event of termination of the insurance contract, the environmental authority must be duly notified by the insurer at least 30 days before termination.

Regarding the Surety Insurance Policies for Environmental Damages with a Collective Impact that are currently in force, the Decree stipulates that they will remain in force until the agreed expiry date, a term which in no case may exceed one year from the date the Decree comes into force.

Parties to the to the Surety Insurance Policy for Environmental Damages with a Collective Impact agreement are the insurer, the holder of the hazardous activity, and the National, provincial or municipal state, the City of Buenos Aires or inter-jurisdictional agency (e.g. the Matanza-Riachuelo Basin authority), according to the ownership of the affected property. The holder of the hazardous activity shall be the policy holder. Regarding the Liability Insurance Policy for Environmental Damages with a Collective Impact, the parties to the agreement are the insurer and the owner of the hazardous activity. The holder of the hazardous activity will be considered the insured, while the National, provincial or municipal state or the City of Buenos Aires or inter-jurisdictional agency, according to the ownership of the affected property, will be considered a third party with a right to claim (Section 3).

Section 4 of the Decree prohibits the insurer from granting the insurance provided in the Decree to individuals or entities to whom they are connected or over whom they have control; or when the person obliged to take out the insurance is the holding company of the insurer or belongs to the same economic group. However, the Decree makes it clear that the prohibition will not be applicable when the control or connection between the policyholder and the insurer exists due to the participation of the state in either of them or their connected or controlled companies.

From the date the Decree comes into force, insurance companies shall be in charge of setting the Insurable Minimum Amount of Sufficient Entity, according to the assessment guidelines that will be issued in the future, which guarantees the sufficient entity of the coverage required by Section 22 of the LGA. Moreover, the insurer must perform an Initial Environmental Situation Assessment ("IESA") to disclose and detect existing damages (Section 5). Note that within the previous regulatory regime the performance of the IESA was optional for the insurance company (see Joint Resolutions No. 1973/07 and 98/07 by the SAyDS and the Secretariat of Finance, respectively).

As regards the procedure that must be followed when there is an event that may generate the obligation to recompose the environment, Section 7 of the Decree provides that the holder of the hazardous activity must notify the insurer within a maximum term of 3 calendar days from the moment it becomes aware, and the environmental authority until the day after, of the first manifestation or discovery that may lead to environmental damage with a collective impact. The insurer will carry out the verification through its personnel and other means available, and must send the environmental authority the conclusions reached. The environmental authority will request those who caused the damage to submit a Remediation Plan that has express indications and details of the works to be performed, the terms and every other information that is relevant. The remediation works must be authorized by the environmental authority, according to what is provided in valid regulations and the kind of materials and sites that must be treated. Once the remediation works have been authorized, the insurer will provide the amounts of money necessary to pay for them; if the remediation is not technically possible, it must pay the compensation according to the limits of the insurance policy.

The Decree creates the Technical Commission for the Assessment of Environmental Hazards within the Chief Cabinet Secretariat as an advisor and technical assistant in environmental hazards, and will consist of 3 members designated by the Chief Cabinet Secretary, with at least one belonging to the SAyDS and one belonging to the SSN (Section 9).

Finally, the Decree instructs the Chief Cabinet Secretary to establish and review periodically the items included in the hazardous activities list and the categorization of the industries and service activities according to their Environmental Complexity Level and the Insurable Minimum Amount of Sufficient Entity, issuing the relevant regulations, while being able to delegate such powers (Section 10).

The Decree leaves a series of precisions and uncertainties. Among the precisions, it is worth noting the express indication that the Security Insurance is a valid instrument to comply with the obligation contained in Section 22 of the LGA.

Finally, among the uncertainties the Decree creates, the uncertainty related to the fact that companies are obliged to take out environmental insurance (e.g. for renewal of their environmental permits) may be highlighted; while there are no policies that have yet been approved that conform to the guidelines set forth by this Decree.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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