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Managing Environmental Risks on International Projects

As contractors look globally for opportunities, they should think locally when it comes to the environmental risks.

As U.S. contractors seek opportunities in new countries, they should consider potential environmental risks right from the start. That’s made more complex by the fact that just as regulations vary significantly among U.S. states, laws regarding the environment and insurance differ from country to country. Because each project in each country will present its own unique risk, it’s crucial for contractors to make a fresh start with every new project.

Before taking on a project abroad, contractors need to understand the local laws as well as how the contract requirements may affect the environmental exposures associated with a project. When it comes to insurance coverage, contractors should make sure their carrier can meet the local requirements and provide the necessary local resources so that claims can be handled and paid in compliance with the laws of that country.

Know the Contract

As they evaluate a project, contractors should understand any environmental requirements that may be part of the contract. That could include, for instance, hiring biologists or other scientists to make sure the contractor’s work does not harm local wildlife or natural resources. The contract may not specify which environmental regulations need to be met, but it is still up to the contractor to comply. Bid requirements may not include specific environmental coverage, such as contractors’ pollution liability, but the work involved (e.g., transporting fuel or materials) may involve exposures that would not be addressed by other policies. Contractors have to be able to identify the pollution risks the contract may raise, the steps they will have to take to meet applicable environmental laws and how those factors affect their insurance needs.

Understand the Environmental Regulations

Contractors that are well versed in U.S. federal and state environmental requirements start from a strong base, but they need to make sure they also understand the regulations in each individual country where they plan to work. It’s also important to consider how those laws, and enforcement, are evolving. China, for example, has set tougher penalties for environmental infractions, including fines based on the length of time that pollution occurs, rather than one-time penalties. The European Union has taken a strict “polluter pays” approach to environmental liability that covers damage to land, water, protected species and habitats. The EU definition of property damage may include biodiversity, a far more expansive approach to natural resource damages, for which standard U.S. policies may not provide adequate coverage. Within the EU, member nations may decide upon even more stringent laws. In Latin America, countries such as Brazil are putting a greater emphasis on environmental concerns.

Comply with Local Insurance Laws

Every country has different laws when it comes to insurance. Insurance regulations may even vary within a country, such as among Canadian provinces. At a basic level, it comes down to whether a contractor can rely on a U.S.-based policy for coverage in a different country, or whether the law requires “admitted coverage” (that is, a locally approved policy from a locally licensed insurer). That also may apply to claims. For example, Italy requires claims to be handled locally. Companies relying on a U.S. policy in a country that requires admitted insurance may risk running afoul of tax regulations or find that claims in that country cannot legally be paid by the U.S. policy.

Get the Right Expertise

Evaluating the potential environmental exposures of a project in a new country and complying with national insurance laws is a complex task in itself. There may be other unforeseen risks, such as how past uses of a particular project site may give rise to pollution exposures for the contractor. That’s why it makes sense to work with consultants that understand international environmental, health and safety laws, how they are applied and how they may change.

Understanding the local insurance laws is equally important. As contractors consider projects abroad, they need to make sure their insurance program meets all the national requirements and that their carrier can provide not only locally compliant coverage, but also local underwriting expertise and claims handling ability. If a claim or problem arises on a foreign project, the contractor should be confident that its insurer can provide the proper support.

Put Environmental Concerns at the Forefront

As they assess potential projects, contractors should make sure that they take into account any environmental exposures from the very beginning. Putting environmental issues at the forefront can help avert significant problems later on.

However, when it comes to the pollution exposures of foreign projects, contractors have to contend with a number of environmental and insurance variables that are typically outside their expertise. That means a one-size-fits-all approach is likely to be unsuitable when it comes to insurance. A carrier that has experience with international environmental and insurance regulations, and has a deep understanding of the construction industry, can be a valued partner when developing a suitable risk management program and help contractors navigate the difficulties as they embark on new projects abroad.

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