Self-insuring environmental liabilities: a residual risk-bearer's perspective

Self-insurance is often permitted as a means of satisfying regulatory requirements imposed on operators to evidence capability to bear their environmental liabilities. Its hallmark is that operators or their parent companies prove their financial strength rather than dedicate specific assets/funds to cover these costs. This article examines whether self-insurance can ensure that adequate funds are available when required. It is argued that if a self-insuring operator and/or its parent enter into liquidation then the protection afforded to their creditors under insolvency law may result in an environmental regulator recovering little or, indeed, nothing in respect of the costs associated with any requisite preventive, remedial or restorative works. This protection includes a liquidator’s ability to disclaim ‘onerous property’ and challenge certain payments made to the regulator as a voidable ‘preference’. Whilst commentators have highlighted a general insolvency risk with the measure, neither its extent nor precise source has been appreciated fully.