Technical bulletins
November 2012

The environmental quality act and insurance claims

By Michel Millmore P.T., CESA,

Given the considerable impact caused by the reinforcement of the Environment Quality Act (EQA), it has become essential, particularly within the scope of an insurance claim, to identify with a comfortable level of certainty the source of the contamination and the person responsible for its releasing to the environment.

That is why professionals from the insurance industry are relying increasingly on forensic consultants trained in conducting rigorous technical investigations emphasizing on causes and origins of an environmental loss.

In May 2002, the Assemblée Nationale adopted Bill 72 (Act to amend the Environ­ment Quality Act and other legislative amendments with regards to land protection and rehabilitation). This amendment to the EQA entered into force in March 1, 2003, a few days after the adoption by the Québec Cabinet of the "Land Protection and Rehabilitation Regulation" (LPRR) that fixes value limits for a certain range of contaminants and defines the types of commercial and industrial activities contem­plated by the LPRR and by division IV.2.1 of the EQA.

One of the main effects of Bill 72 is to give to the Ministry of Sustainable Development, Environment and Parks (MSDEP) increased power to undertake procedures against a polluter, even though the contamination predates the entry into force of the Law (as well as pollution exclusion clauses).

Another effect of Bill 72 is the introduction of the possibility, under certain conditions, to undertake procedures against not only the polluter, as was the case in the application of the polluter-pays principle, but also against the person who has custody of land.

These new provisions can have a significant impact on the management of environmental loss related claims. For example, following the spill of petroleum products on a site, it is generally required to assess the site condition in order to determine the extent of the contamination and to help planning remediation work.

However, in cases where contaminants originate from an activity identified by Schedule 3 of the LPRR, such as a spill related to a gas station operation, the presence of that contamination can have serious consequences.

Thus, if the contamination is present at the property limit in excess of the value limits, the person who has custody of land is required to send a notice to the neighbor informing him of the situation (section 31.52 of the EQA). The MSDEP must also be noticed. This requirement aims directly at the person who has custody of land, even though he is not the owner or the polluter.

Notices to the neighbor and to the MSDEP open the door to new claims for damages to third parties. It can also result in the MSDEP ordering the preparation of a remediation plan and/or ordering that a soil and groundwater characterization be carried out on the site and be certified by a recognized expert. If contaminants levels exceed the value limits, it will also be required to apply for registration in the Land Register of
a notice of contamination accessible to the public.

Apart from the cost of these interventions, the person who does not comply with the obligations of the EQA may also be liable, since February 1, 2012 (Entry into force of Bill 89 "An Act to amend the Environmental Quality Act in order to reinforce compliance"), to significant administrative financial penalties and even imprisonment.

MSDEP, through these new tools, can be a lot more persuasive towards polluters and person having custody of contaminated lands. In many cases, these persons will turn to their insurers for advice and the insurer will have to answer to the ministry requirements, while avoiding false steps that could put the insured or the insurer in a difficult position.

Retaining the services of a forensic consultant means working with an expert that is aware of the insurers preoccupations and who knows how to navigate among the subtleties of an increasingly complex legislation. It is also an excellent way to reduce uncertainties to a comfortable level for which regard liabilities and to guarantee that work is carried out in compliance with governmental requirements, while minimizing the risk of unnecessary interventions.

If you would like to receive more information on the subject, do not hesitate to contact one of CEP's forensic consultants. We will be happy to answer any questions you might have.