Mexico’s new environmental law entrenches “polluter pays” principle

Mexico recently enacted the Federal Law of Environmental Responsibility (the Environmental Law), which was published in the Mexican Official Gazette on 7 June 2013 and entered into force in July 2013.
Flag_of_Mexico

The Law is inspired by the European Union Environmental Impact Assessment Directives (Directive 85/337/EEC, as amended by Directives 97/11/EC, 2003/35/EC and 2009/31/CE), as well as by the Spanish Law of Environmental Responsibility, encompassing similar core principles of environmental protection and, in particular, restoration of the environment after a loss and compensation.

The law is the culmination of a painstaking legislative process that began in 1992, after Mexico’s ratification of the Declaration of the United Nations in Rio de Janeiro, which, as part of its remit, establishes the principle of compensation for victims of environmental pollution.

Arguably, the key principle of the Environmental Law is “polluter pays”, which aims to oblige the polluter to restore the environment to its pre-pollution natural state in addition to other potential fines, penalties, third party compensation and potentially criminal liability (in the case of damage caused intentionally and/or recklessly).

The restorative principle of the law is based on Article 4 of the Mexican Constitution which provides that “… all persons have the right to a healthy environment for their development and welfare”. Hence, the law aims to oblige the polluter to restore the healthy natural environment for the welfare of the Mexican people, as protected in the Constitution.

The law establishes that damages caused to the environment are independent from damages caused to third parties (owners of affected property and such). Hence, a polluter may be liable to restore the environment to its pre-pollution natural state, as well as to compensate affected third parties and potentially face additional fines and penalties.

The law allows the government, through the Mexican Environment Agency (Profepa), non-profit environmental groups in representation of affected communities and third parties to claim and to seek reparation as “legitimately interested parties”, as well as compensation for the damages sustained. The Mexican Environment Agency will have the purview to monitor the restoration activities of the polluter.

The short to medium-term impact of the law for insurers is that their insureds will likely face increased environmental litigation and potentially higher exposure on their environmental policies through the framework established by the law.

The upside is that insurers may have the opportunity to capitalise on the increased litigation risk of their insureds by offering additional environmental cover, at the appropriate price.

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Part 2

As discussed in part one of this article series, the new Environmental Law in Mexico (the Law), which entered into force in July 2013, created a framework that regulates the liability deriving from pollution to the environment.

The Law divides the issues of the polluter restoring the natural environment by entrenching the “polluter pays” principle, from civil, administrative, and/or criminal liabilities that may be additionally imposed on a polluter.

The Law brings Mexico – at least on paper – closer to international standards and in line with Mexico’s commitments after its ratification of the Declaration of the United Nations in Rio de Janeiro.

Needless to say, the new legislation will be worthless unless it is effectively and fairly enforced. Mexico has an inconsistent record of enforcement of its previous environmental legislation. For example, it is well known that Mexico’s maquiladora programme, which generated rapid industrialisation of the US-Mexico border and significant growth of exports to the US, also led to sometimes serious environmental pollution as US manufacturers escaped strict environmental laws in the US and established in Mexico in particular after the ratification of the North American Free Trade Agreement (Nafta) in 1994.

In an effort to avoid scaring off these foreign investors, legitimate environmental concerns were sometimes – especially in the early days of Nafta – not vigorously enforced.

The question now is whether the new Law will balance environmental concerns and commercial interests, or whether the tide will turn against companies operating locally and, by consequence, against their insurers and reinsurers.

The Law envisions the creation of “environmental courts” with jurisdiction to hear environmental cases which will be separate from other civil, administrative and criminal courts.

It will be interesting to see how these courts conduct themselves and whether judges will instinctively take an “activist” role against the interests of polluters by imposing unrealistic sanctions and penalties, or whether the courts’ approach will be balanced and considered.

The Law also allows for alternative dispute resolution (ADR) between the claimants and the defendants.

If an agreement is reached by way of ADR, it can be provided to the environmental court and, subject to approval, can be incorporated into the proceedings in order to eliminate or minimise fines and penalties to be imposed.

The statute of limitation is 12 years from the date of damage. For the time being, companies and their insurers will await developments on the ground, on which we will report accordingly.

KENNEDYS_LATINAMERICA

 

MICHAEL HENNESSY Associate Kennedys Latin America & Caribbean

Mike Hennessy

Mike Hennessy qualified as a lawyer in England and Wales in September 2008 and practiced law at a leading London insurance law firm for five years prior to joining Kennedys Latin America LLC in June 2011. As a member of the Kennedys team in Miami, Mike is involved on claims management and policy reviews throughout Latin America and the Caribbean.

Mike has particular expertise in construction and energy claims as well as liability. He has recently worked on a number of high profile cases in Brazil and Mexico and is involved in subrogation recoveries, arbitrations and litigations throughout the region. Mike is ranked in Latin America by the Chambers Global Guide, in 2012 he was said to be a “rising star” by market sources and in 2013 he was stated to “continue to attract considerable praise from market sources”. 

ALEX GUILLAMONT Director of Miami office for Latin America & Caribbean

Alex Guillamont, Kennedys Latin America Director

Alex Guillamont, Kennedys Latin America Director

Alex Guillamont is the director of Kennedys Latin America and leads the Latin American and Caribbean practice at Kennedys. He handles disputes on behalf of leading international insurers and reinsurers, having represented clients across the region. With 15 years of experience, Alex is an acknowledged leading expert on insurance and reinsurance matters regionally. After serving the market with claims in Iberia from our London and Madrid offices, he relocated permanently to Miami in June 2010. The industry has voted him year on year into the LATAMIR Power 50 list, Latin American insurance sector most influential professionals. His team in Miami has been awarded the 2013 Reactions Latin America Awards for best Law Firm.

Alex is involved in complex losses on major environmental and natural disasters, contractors all risk, political and trade risk, financial institutions and D&O claims, energy losses, regulatory compliance and third party administration schemes and political risk in the entire region—most recently in Argentina, Bolivia, Bahamas, Brazil, Chile, Central America, Colombia, Costa Rica, Ecuador, Haiti, Mexico, Panama, Peru and Venezuela. He and his team advise carriers on regulatory issues and strategic deployment of offices, wordings and claims handling procedures, audits of ceding companies and underwriting agents.

Kennedys Latin America Insurance Lawyers

About Kennedys Latin America & Caribbean Team

Kennedys is a litigation and dispute resolute firm with over 1,200 people worldwide. Kennedys is regarded as leader in the insurance market a result of its clear focus, the expertise of its team members and because Kennedys knows it is important to be practical, commercial and approachable.

The Miami office is supported by Kennedy’s international insurance division headed by Nick Williams and senior partner Nick Thomas, who both have over 30 years experience leading the market on significant insurance and reinsurance matters worldwide.

Kennedys Latin America & Caribbean is based in Miami to help international insurers and re insurers manage claims and non-contentious issues arising in Latin America and the Caribbean. The office is well placed to support clients form inside the region with a dedicated bilingual team, drawing on the skills and experience available in Kennedys globally.

According to independent 2013 Gracechurch Report, Kennedys is number one law firm for value for money.

After being recognized as the market’s choice in 2013, Kennedys Latin America has once again been voted by industry leaders as Best Latin America (re) insurance law firm for 2014 by Reactions Magazine.

The award presented by Reactions Magazine honors institutions and individuals who have achieved marked excellence in their profession with unique insight into the direction of growth and key developments in the Latin America (re) insurance market.

The Latin America (re) insurance awards presented by Reactions are decided through an anonymous, online market survey which is completed by their readership.

Also recently, Alex Guillamont, Kennedys LATAM director, has again been voted into the LatAm Insurance Review’s Power 50 list.

The Power 50 list is a snapshot of the most influential professionals in the Latin American insurance sector driving the development of the LatAm market.

LatAm Insurance Review readers select the leading industry leaders across the whole risk transfer chain, from underwriters to lawyers, who demonstrate innovation, passion and service excellence.

About Insurance Professionals Miami

Insurance Professionals Meetings in Miami is an insurance and reinsurance forum useful for professionals of the insurance sector and to share experiences, knowledge and expertise.
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