Environmental Liability From Fire Leads To Bankruptcy

A fire at a relatively small warehouse facility – 2 hectares in size and employing 50 people – resulted in highly toxic waste water escaping from the site.

At the time of the fire, the company was storing the maximum capacity of hazardous materials permitted under its licence, some 4,000 tons. This resultant mixture of chemicals and firewater resulted in the production of 35,000 square meters of contaminated water, and 1,800 tons of contaminated soil.

The consequences

The estimated costs to remedy the resultant soil and water pollution were in the region of €40m, with total costs estimated in excess of €70m, due to additional third party claims over and above the statutory costs of €40m, which were needed to make the environment safe once again.

Third party claims included costs from two neighbouring facilities which had to close permanently, and numerous other facilities temporarily affected by the fire.

As a result of not being able to pay the costs arising from the incident, the company quickly became insolvent as it did not have the appropriate or the relevant insurance cover to deal with such a scenario.

Regulators have undertaken a survey of the chemical industry and found that over 70% did not comply with health & safety standards, of which 8% were posing an imminent threat.

The above case study demonstrates how uninsured environmental liabilities can arise on a scale sufficient to make a company insolvent.