A record-breaking fine for companies dumping contaminated earthquake waste in Christchurch is the outcome of a District Court ruling, which described the practice as a "complete disaster."

The case (Canterbury Regional Council v Coutts Island Holdings Ltd) related to the disposal of an estimated 5000 cubic metres of contaminated materials removed from buildings being demolished following the Canterbury earthquakes.

A total of $165,000 in fines and costs orders was imposed after two companies and a company director pleaded guilty to discharging contaminants to land in contravention of the Resource Management Act (RMA).

The regional council regarded the offending as the worst of its type seen in post-earthquake Christchurch. It estimated that between 800 and 1000 truckloads of contaminated material would have been dumped, costing up to $2 million in landfill fees.

The companies had agreed to undertake clean-up at their own cost (understood to be up to $150,000). Despite that, the court imposed a total of $165,000 in fines and costs orders.

The decision sends a clear message to demolition contractors of the need to properly dispose of waste. It is also interesting because, in sentencing, the court referred specifically to the availability of insurance as a mitigating factor.

It took the view that insurance was not compulsory and came at a cost to the companies. As such, it said the companies had taken responsible steps in obtaining cover.

The court highlighted the positive features of insurance, noting that in many cases it enables the clean-up costs to be paid for which, if there was no cover and a defendant was not otherwise able to pay, the community would have to fund.

The Court went further to say that insurance policies encourage adherence to environmental laws and/or regulations. It said that insurers have the ability to impact on certain behaviours by requiring precautions against loss, reflecting insurers' role in promoting compliance.

This recognition of the positive role and mitigating benefits of insurance is encouraging. The fine in this particular case was high, but was due to the particular circumstances of the case. The court found elevated culpability because of a total lack of knowledge, systems or procedures for ensuring compliance with the applicable demolition sorting and disposal rules.

Breaches of the RMA are strict liability offences with high maximum penalties, which can be incurred through acts or omissions by employees, contractors or agents, for which ignorance of the law or of the offending generally provide no excuse. The potential for inadvertent offending and significant fines is therefore high, making it vital to have statutory liability cover in place to respond when there is an accidental breach.

But, this and the increasing fines and remediation costs for environmental offences translates to increased exposure for insurers, who would do well to focus on how effectively they are limiting their potential exposure from this particular source.

Encouraging insureds to focus on risk management and implementing proper compliance systems may avoid exposure to increased payouts resulting from the absence of such systems.

In environmental offences, effective compliance systems do often succeed in preventing an offence from occurring. But because of the strict and vicarious liability associated with environmental offences, even the best systems will not totally eliminate non-compliance. However, in such cases the existence of systems may allow a successful statutory defence and be a relevant mitigating factor which could result in a lower penalty than might otherwise have been the case.

This decision highlights the value of statutory liability insurance as recognised by the Courts. Insurers may have a role to play in encouraging appropriate systems and compliance so that the existence of cover can act as the fence at the top of the cliff, as well as an ambulance at the bottom.

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