Liability insurance for a petrochemical company
A petrochemical company is liable not only for what it does, but also for what it owns. Tanks, pipe racks and flares bring a strict liability with them that is separate from whether anyone made a mistake.
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In brief
Where the focus for a contractor is on the mistake, for an operator the focus is on ownership. Article 6:174 of the Dutch Civil Code makes the possessor of a structure liable if it does not meet the standards that may be expected of it and thereby creates a danger: a corroding tank wall, a failed pipe support, a roof that gives way. Fault does not have to be proved for that. For hazardous substances you have in your possession and for the installations with which you process them, the law has comparable strict liabilities. That means that the maintenance and inspection file is almost always the first subject when a claim comes in.
The public and employers' liability insurance pays for the resulting injury and property damage suffered by others: soot deposits on neighbours' cars, a neighbouring plot affected, injury to the staff of a maintenance contractor on your site. What it does not cover is damage to your own installation — that is a fire and business interruption question — nor the gradual pollution of soil, groundwater or air. Cleaning up and restoring the environment belongs on environmental damage insurance, which can cover both your own site and third parties' land.
The third line is what leaves the gate. If you supply a raw material, fuel or intermediate that does not meet specification, that can cause damage to your customer's installation or render his own production unusable. That is the territory of product liability insurance. Replacing your own batch and the costs of retrieval and destruction do not automatically fall under it; recall costs call for a separate provision.
This page deals with one situation. The full overview is on Compare public and employers' liability insurance (AVB).
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What to look out for
Four points that determine the cover question at a processing company handling hazardous substances.
Contractors on your own site
On an operating site, dozens of people who are not employed by you walk around every day. If such a person is injured by the state of your installation or by an action of your operators, you are liable as possessor and as principal. Article 7:658(4) of the Dutch Civil Code moreover puts you on the same footing as an employer for people working under your direction, even without a contract of employment.
Emissions into the surroundings
Dust deposits, odour, an escaping cloud or a firefighting incident reaches the residential surroundings faster than any other loss. Sudden and unforeseen pollution is sometimes included on an AVB to a limited extent; gradual emissions virtually never. Record which of the two covers picks up which scenario, so that no gap opens up between two policies after an incident.
Fines and administrative measures
An order subject to a penalty payment, an administrative fine or a criminal sanction is not compensation and is therefore excluded on every liability insurance. Nor do the costs of legal assistance in such proceedings automatically fall under the policy; there is business legal expenses insurance with a module for administrative and criminal law assistance for that.
What your customer loses
If a customer's plant is at a standstill because your delivery was off specification, he claims his loss of production. Without damaged property that is pure financial loss and outside cover. Your terms of supply decide a great deal here: a limitation of liability that you consistently declare applicable is in practice as important as the sum insured.
What does your premium depend on?
- Nature of the substances processed: flammable, toxic or under pressure changes the assessment
- Location and surroundings: proximity to residential areas, water and other businesses
- Maintenance and inspection regime: demonstrable integrity management counts
- Turnover and sales markets: supply outside Europe changes the liability risk
- Payroll and number of contractors: decisive for the employers' liability part
- Sum insured and excess: set per claim and per year of insurance
Insurers weigh these details differently. That is where your saving is.
What is covered
| Situation | AVB | BAV |
|---|---|---|
| A driver is injured when a loading hose fails during unloading on your site | Yes | No |
| Firefighting foam after an incident reaches the ditch and the adjoining nursery loses its crop | Provided that | No |
| A batch of solvent supplied contains water, so that a customer's reactor has to be cleaned | Yes | No |
| Your laboratory issues an incorrect certificate of analysis on which a customer bases his release | No | Yes |
| The extra cost of moving production temporarily to a third party during a breakdown | No | No |
| A neighbour claims for the fall in value of his home after years of odour nuisance | No | No |
Sudden pollution can fall under a clause, gradual emissions belong on environmental damage insurance.
Frequently asked questions
This is what people ask us most.
We have environmental damage insurance. Does that cover liability as well?
Those two policies do different jobs. Environmental damage insurance addresses investigation, clean-up and restoration of soil, water and air, including on your own site. Liability insurance pays for injury and property damage suffered by third parties. A neighbour with health complaints or a damaged building falls on the liability side; cleaning the ground on the environmental side.
A pipe cracks through corrosion. Is that covered even though no one made a mistake?
For liability towards third parties fault is not always necessary: as the possessor of a defective structure you are liable under Article 6:174 of the Dutch Civil Code for the resulting damage. Your policy covers that liability, but the insurer will check whether you complied with the inspection and maintenance regime discussed at acceptance. The damage to the pipe itself is your own property damage.
A customer wants to recall a batch from his own customers. Who pays for that?
Recall costs are not injury or property damage and therefore do not fall under the ordinary cover. Some insurers offer a separate section for this with its own limit and conditions on when a recall counts as covered. Discuss this in advance, because in a chain with many customers such an action quickly runs up.
Does our cover apply to products going abroad as well?
Only if the territorial scope allows it. Supply outside the European Union, and certainly to the United States and Canada, is assessed separately by insurers or excluded because of the different liability climate. State export destinations when you apply. That duty of disclosure rests with you under Article 7:928 of the Dutch Civil Code.
Every situation is different. For these situations we have a separate page.
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