Carlos A. Estebenet
Insurance and reinsurance expert lawyer.
Bulló-Tassi-Estebenet-Lipera-Torassa Abogados (Managing Partner).
Buenos Aires, Argentina.

Background

It is obvious that the mere enactment of legislation cannot by itself change reality. Still less can it create a system that requires intelligence and determination in order to be successfully implemented.

Laws are implemented through the actual political will of the authorities to make them operative.

This is the current situation and the state of development of environmental legislation in Argentina today and the types of insurance cover authorised by such legislation.

Before going into an in-depth discussion of the subject I intend to examine, a distinction must be drawn between two aspects of the same system that serve different purposes. Firstly, damage suffered by individuals and their property, which gives rise to an obligation to provide compensation. Secondly, this kind of damage, which may be caused by environmental contamination, is subject to the general legislation on civil liability, as well as a number of supplementary regulations. The cover of this kind of damage is undisputed and there is in fact a long tradition of authorised contracts, all generally in accordance with the guidelines of international reinsurance.

This paper sets out to examine the legislation that makes up national environmental policy aimed at protecting the environment as a whole, as well as what I will later refer to as remediation or reparation, and especially the insurance contracts approved for this particular cover. Wherever I mention the need for government determination to implement legislative systems and take them to real effect, I am referring specifically to the latter.

Legislation

The General Environmental Act, which was enacted in 2002, has only been put into practical effect in the last few years with the implementation of the provisions it contains. This particular piece of legislation stems from Article 41 of the National Constitutionⁱ , which lays down the fundamental rights and principles in relation to the environment: (1) the right to an environment that is healthy and balanced, (2) suitable for human development, (3) without compromising future generations, (4) establishing the duty of preservation, (5) the obligation to remediate any damage, (6) the rational use of resources, (7) imposing on the authorities the duty to preserve these rights, (8) setting out the respective jurisdictions of the central and provincial governments, and (9) banning the entry of hazardous and radioactive waste into the national territory.

Subject to the distribution of jurisdictions, the Act sets out the minimum requirements for the proper and sustainable management of the environment, the conservation and protection and conservation of biological diversity, and sustainable development. Under the federal system, the minimum standards laid down by national law can be supplemented by local legislation based on the specific needs and peculiarities of each region. The Act defines objectives, sets guidelines for its interpretation and enforcement, lays down rules to decide which courts – local or national – have jurisdiction in each case, and provides policy instruments including a procedure to assess the impact of any activity having the potential to deteriorate the environment or seriously impair the quality of life for the population. All these important issues are addressed. Thus, we clearly seem to be dealing with a full-scale system that sets general policy guidelines without leaving any unfilled gaps.

Definition of damage and its effects

The concept of "damage", although expressed with a single word, is broad in meaning. The Act uses it to refer to environmental damage having collective effects, where environmental damage is defined as any significant alteration causing adverse changes to the environment, its resources, ecosystem balance, or common property and valuesⁱⁱ.

Since no list of potentially affected resources is provided, this definition must serve to determine what constitutes an instance of environmental damage. As noted above, the scope of the Act is collective environmental damage, which excludes any damage to individuals that may concur with those specifically governed by the legislation being reviewed here. General damage to the environment cannot be used to justify individual claims. There must be a causal link between the act or omission that affected the environment and any individual damage, evidence of which must be provided in accordance with the ordinary civil law.

A further point worth noting is that alterations to the environment are required to be "significant". There are no legal parameters to determine what is to be considered significant, with the exception of one indication provided by the Civil Code, which mentions the "normal level of tolerance" in the context of restrictions on the use of real property and its potential damage to neighboursⁱⁱⁱ . It is worth noting Cafferatta's quotation^iv of Ricardo Lorenzetti^v, where he defined environmental damage as any significant loss, diminution, detriment or impairment caused to the environment or one or more of its components. He pointed out that "this criterion serves to distinguish cases where productive activity that transforms the environment is not harmful". Harmful activity therefore entails a "disorganisation" of the laws of nature. The second aspect is that this substantial alteration of the organisational principle exerts an effect on the fundamentals necessary to support life. There is a connection, we realise, between the environment and life in the broad sense of the word, in so far as the environment supplies the natural and cultural elements without which there can be no life. Although there are countless authors whose work would provide useful parameters for establishing significance for the purposes of the law, each case will be judged on the basis of its particularities, its circumstances and the prevailing criteria at the time.

Further to our examination of damage, we must explore the "effects" of the obligation to restore the environment to its previous state, which is established in the Act. Those who cause environmental damage are liable without fault for remediation unless this is technically unfeasible, in which case they will be required to pay compensation in lieu in the amount decreed by an ordinary court of law. This amount must be paid into the Environment Compensation Fund, which was also established by the General Environmental Act. It follows from the above that compensation is indeed possible and that the ordinary judicial authorities are a necessary part of the process^vi. Given the strict requirements to qualify for exemption, the liability attaching to the party causing the damage is almost without fault. The party concerned must prove that it took all the necessary measures to prevent the damage and that such damage was caused solely through the fault of the victim or a third party it is not accountable for, without any concurrent fault of its own^vii.

Since we are dealing with collective damage, the concept of "victim" covers the community at large and its representative institutions. Hence, it is rendered inoperative where fault is concerned, unless the state itself were to be regarded as the victim. Turning to who is competent to initiate legal action, this faculty usually lies with the three levels of government (national, provincial and municipal), with the ombudsman and environmental NGOs also included. The Act additionally authorises persons directly affected by a harmful event that took place in their jurisdiction^viii to initiate action. However, the only actions permitted in this case are those seeking to secure environmental remediation or a compensation payable into the designated compensation fund, but not any actions for personal injury or damage to individual property.

Lastly, it is worth pointing out a number of peculiarities of the regime: a) where the person responsible for the damage cannot be established, joint and several liability applies; b) the court may rule extra petita (i.e. beyond matters presented by the parties); and c) judgments have erga omnes effects, unless quashed on evidentiary grounds^ix.

Proposed insurance solution

The framework described above is based on a system of compulsory insurance which is established by the Act itself, in general terms and without the necessary specifications for its implementation. "Any natural or legal person, public or private, who carries on activities that pose a risk to the environment, the ecosystems and their constitutive elements, shall arrange sufficient insurance cover to guarantee funding for the remediation of any damage such activities may cause. Additionally, based on its available resources and the particularities of the case concerned, it may establish an environmental restoration fund to provide for remediative action."^x The obligation is imposed on those whose activities have the potential to affect the environment. Insurance cover is required to be sufficient but no parameters are specified to gauge sufficiency. The purpose of the insurance is to guarantee funding for the remediation of the damage, from which it follows that the insurer's obligation is strictly financial and in no case an obligation to perform any action.

Traditional contracts commonly used in the past did not comply with the specifications laid down in the Act, first and foremost because they did not provide for remediation. Further to this, they all included limitations that could have been at odds with the notion of "sufficient insurance cover" established in the law.

A new, different product thus had to be devised to fulfil the general guidelines set down in the law. This process began in 2007 and has recently been completed with the new contracts approved in late 2012. Due to the complexity of the matter, the shortcomings of the legislation implementing the Act and the fact that two different government agencies were involved – the Department for the Environment and Sustainable Development and the National Insurance Superintendence – the system's entry into operation was delayed or functioned partially for a number of years through the contracts approved in the suretyship branch. This solution was found to be partial, as the financial effects of risk are not transferred to the insurer. The cover functions as a guarantee where the insurer is entitled to recovery in the event of a payout.

Nonetheless, suretyship insurance has provided a means to comply with the law I consider as a first comprehensive solution for this matter, as I will now explain.

On 6 September 2012, the National Executive issued Decree 1638/2012, fully implementing Article 22 of the Act and thus instilling life into a system that had hitherto seemed inert. The National Insurance Superintendence's resolution no. 37160 of 19 October 2012 set the seal on the Decree as it approved the specific content of the contract and the requirements for companies intending to operate in the branch. The Decree also lays down the general guidelines, duties and the agencies that will control the system. The Technical Committee for the Assessment of Environmental Risk was created, a technical assistance and advice body formed by three members appointed by the Head of the Cabinet of Ministers and at least one representative of the Department for the Environment and Sustainable Development and one from the National Insurance Superintendence.^xi.

The insurer is charged with two crucial responsibilities: (1) determining the Minimum Insurance Amount to provide sufficient cover, and (2) performing an Initial Environmental Study to mitigate risk and detect any pre-existing damage. The cost of this study, which must be carried out prior to signing the contract, may become a significant issue to be borne in mind^xii.

The existing list of risk activities and their associated weighting criteria were ratified^xiii.

Providing cover to legal persons connected to or controlled by the insurer, and to any of its affiliate companies, was ruled out^xiv.

Regarding the specific provisions of the insurance contract^xv, the following aspects of the Decree are worthy of note:

1. Both suretyship insurance and damage insurance – which I would refer to as civil liability insurance – are admitted.
2. The purpose of cover is strictly to guarantee funding for remediation.
3. Accidental damage, both gradual and abrupt, is included.
4. Damage is defined as entailing an unacceptable risk to human health or the destruction or abusive deterioration of a natural resource.
5. In suretyship insurance, the original cause of the damage must have occurred during the term of the policy.
6. In liability insurance, the claim modality is admitted, i.e. discovery or initial manifestation must occur during the term of the policy and be notified to the insurance within that term or the extended term for claims, which must be at least three years.
7. Any excess may not be more than 10 per cent of the insured amount. In the event of a loss, the insurer must pay the full amount and subsequently charge the excess to the insured.
8. Risk limitation provisions are admitted only in so far as they are indispensable according to standard insurance practice.
9. Early termination is subject to 30 days' notice to the relevant environmental authorities.
10. Where suretyship insurance is used, the party carrying on the risk activity is the policyholder and the state is the insured.
11. Where liability insurance is used, the party carrying on the risk activity is the insured and the state is considered a third-party with exclusive recourse.
12. A specific procedure is established to deal with losses^xvi.

Judicial controversy^xvii

The breakthrough achieved by the authorities in enacting the Decree described above has been called into question by an environmental foundation, the Fundación Medio Ambiente. This organisation has succeeded in obtaining an injunction issued by lower courts (Court of First Instance and Court of Appeal) that suspends implementation of the Decree until the challenges brought against it have been resolved.

These rulings are not final, as no examination of the merits has been undertaken and, moreover, a complaint appeal that is as yet unresolved has been lodged at the National Supreme Court requesting an overturn

This foundation has also been granted a second injunction by a first-instance court, which has likewise been appealed against by the central government and the National Insurance Superintendence.

The point in issue in this case is the eligibility requirement contained in the former legislation, under which insurers must substantiate their technical capability to provide remediation by producing evidence of contracts with qualified entities.

The court has ruled that authorisation to operate in this field of insurance is conditional upon providing proof of such contracts, and that this prior condition is grounded in the Act.

The central government's appeals are based on the argument that these requirements are an exclusive prerogative of government institutions and do not emerge from the Act.

This is a view I share, as under this piece of legislation the insurer is only required to cover the cost of remediation, not to perform it.

Conclusion

While the system is certainly perfectible and so far it is unclear which companies will be prepared to provide insurance cover under these conditions, having legislation and authorised contracts in place will test the system's performance and should be regarded as a sign of considerable progress more than 10 years after the Act was passed, even though a number of matters remain to be resolved.

The objections raised against the system that has been proposed and the injunctions issued by the courts do not in the least help to develop this type of insurance. Indeed, they lead us to think that the key aspects that determine its operation should be included in the Act itself, as we mentioned above.

The core controversial issue is to what extent Argentinian courts will uphold contractually established limitations in this kind of mandatory insurance. This question has been asked repeatedly ever since the Act was merely an idea.

In our view, legislative stability is essential for the system to function effectively and in a way that is attractive to competent insurers that have the necessary experience in this field.

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ⁱAll citizens have the right to an environment that is healthy and balanced, suitable for human development and for production activities that meet the present necessities without compromising future generations. They also have the duty to preserve the environment. Environmental damage shall generate an obligation of remediation in accordance with the law. The authorities shall provide for the safeguard of this right, for the rational use of natural resources, for the preservation of the cultural and national heritage and biological diversity, and for environmental information and education. The Central Government shall enact national legislation establishing minimum protection standards, and the provincial governments shall issue the necessary regulations to supplement those standards. National legislation shall not alter local jurisdictions. The entry of any hazardous or potentially hazardous waste as well as any radioactive waste into the national territory is prohibited. Article 41 of the National Constitution.

ⁱⁱThis Chapter lays down the regulations applicable to legal acts, whether lawful or unlawful, which by act or omission cause collective environmental damage. Environmental damage shall mean any significant alteration causing adverse changes to the environment, its resources, ecosystem balance, or collective property and values. Article 27 of the General Environmental Act.

ⁱⁱⁱThe inconveniences caused by smoke, heat, smells, light, noise, vibration, and any similar damage resulting from activities being carried on in adjacent properties shall not exceed the normal level of tolerance having regard to the particularities of the place concerned, even where such activities are officially authorised. According to the circumstances of each case, the courts may award compensation or order the discontinuation of the nuisance. In applying the provisions of this Article, a court must reconcile the needs of productive activity with due respect for the regular use of property, while also taking into consideration priority in use. Fast-track proceedings shall apply. Article 2618 of the Civil Code.

^ivCafferatta, Nestor A. "Régimen jurídico del daño ambiental". R.C and S 2010-VIII-9.

^vLorenzetti, Ricardo L. "Reglas de solución de conflictos entre propiedad y medio ambiente", La Ley, 1998-A 1026. By the same author, “La protección jurídica del ambiente", La Ley, 1997. E-1467.

^viArticle 28 of the General Environmental Act.

^viiArticle 29 of the General Environmental Act.

^viiiArticle 30 of the General Environmental Act.

^ixArticles 31, 32 and 33 of the General Environmental Act.

^xArticle 22 of the General Environmental Act.

^xiArticle 9 of Decree 1638/2012.

^xiiArticle 5 of Decree 1638/2012.

^xiiiArticle 8 of Decree 1638/2012.

^xivArticle 4 of Decree 1638/2012.

^xvArticles 1, 2 and 3 of Decree 1638/2012.

^xviArticles 6 and 7 of Decree 1638/2012.

^xviiCase 1892/12 “Fundación Medio Ambiente”, Case 56432/12 “Fundación Medio Ambiente”.

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