Environmental liability insurers are placing greater emphasis on governance, compliance and regulatory uncertainty as increasing legal scrutiny of environmental decision-making reshapes how environmental risks are assessed, specialists say.
The focus has sharpened following an Office for Environmental Protection (OEP) ruling that found Defra failed to comply with environmental law when approving the emergency use of Cruiser SB, a thiamethoxam-based neonicotinoid seed treatment used on sugar beet.
Thiamethoxam has been banned for most outdoor uses in the UK since 2018, although Defra granted emergency authorisations for sugar beet between 2021 and 2024. According to the OEP, Defra failed to comply with certain legal requirements when granting those authorisations, including shortcomings in its assessment of environmental impacts and consideration of protected sites. The watchdog stressed its investigation concerned whether environmental law had been followed, rather than the scientific merits of the pesticide itself.
Peter Barnes, partner at Clyde & Co, said the OEP's conclusions reinforced a broader trend that insurers and businesses were already seeing.
"The key issue here is process. The OEP is not challenging the science behind the authorisations, but whether the legal safeguards designed to protect the environment were properly followed," he said.
Barnes said the ruling reflected a wider trend of increasing scrutiny of environmental decision-making across high-risk industries.
"For organisations involved in developing, supplying and using agricultural chemicals, the decision reinforces the importance of robust risk assessment, clear regulatory compliance and documented decision-making, particularly where products are subject to heightened environmental and public scrutiny," he said.
"As environmental governance continues to evolve, businesses and insurers alike will be watching closely for greater clarity and consistency in how emergency authorisations are assessed and approved."
For Duncan Spencer, director at EDIA Limited, the insurance implications lie less in the pesticide itself than in what the ruling reveals about the relationship between governance, regulation and liability.
"The important thing to remember is that this issue around CRUISER SB or the ruling is not about whether Cruiser SB is harmful," Spencer said. "It's about whether or not we should be using it."
He said the ruling highlighted the different priorities facing governments, regulators and businesses.
"What I think the impact is not so much Cruiser SB creating a source of claims is actually just recognizing that the government and the regulator are have two different objectives. And that's where insurance needs to view these things differently."
Rather than prompting insurers to retreat from environmental risks, Spencer said heightened scrutiny is changing how those risks are assessed before policies are written.
"Greater scrutiny means more questions at underwriting," he said.
He said insurers are placing greater emphasis on compliance history, distinguishing between known and unknown liabilities, and examining more closely how environmental risks are managed before deciding whether to provide cover. For operators using products such as Cruiser SB, the focus is on whether they are using them correctly and within the conditions under which they are authorised.
Spencer said it was important not to conflate environmental governance with environmental liability insurance. Greater regulatory scrutiny may influence how insurers assess environmental risks, but environmental liability policies are generally designed to respond when an insured legal liability arises, rather than simply because a regulator or court has found flaws in an environmental decision-making process.
Spencer said environmental liability claims have also become more complex over the past decade as insurers contend with historic contamination, long-tail liabilities and emerging contaminants.
"We're seeing more issues around long tail liabilities," he said, pointing to pollution that may have been considered acceptable historically but is now attracting renewed regulatory attention.
He also highlighted growing awareness of substances such as PFAS and PFOA, alongside increasing regulatory involvement and third-party claims.
"We're seeing claims come in for these chemicals that maybe 10 years ago we hadn't heard existed and B, we certainly didn't know what they were and how toxic they were. And yet we were still using them and we were still releasing them into the environment."
Spencer believes one of the biggest misconceptions among businesses is that environmental risk is driven by sudden pollution events, when gradual pollution often creates the more significant long-term exposure.
"The farmer is really concerned about where he stores it, but as soon as he's applied it he can no longer see it, therefore he doesn't really care about it," Spencer said, arguing that organisations frequently insure against the risks they can imagine while overlooking slower-moving environmental liabilities.
Looking ahead, Spencer believes the biggest challenge for insurers is not any single contaminant, but the uncertainty surrounding how environmental regulation will evolve.
"Governance uncertainty is probably the biggest issue that we should be looking at," he said.
Rather than focusing solely on chemicals or pollution events, he argued insurers will increasingly need to consider how changing regulation, legal interpretation and environmental governance shape future liability risks.
As scrutiny of environmental decision-making continues to grow, Spencer believes insurers will increasingly have to assess not only environmental hazards, but also the governance and regulatory uncertainty that may shape future liabilities.
