CANADA Law and Practice Contributed by: Laura Duke, Will Shaw and Emma Russell, Lawson Lundell LLP
9. Lender Liability 9.1 Financial Institutions/Lenders
• being heavily fined or imprisoned for the corpora- tion’s contempt of court where there are repeti- tions of events that led to a previous environmental conviction; and • being personally liable for the costs of remediat- ing historic and current property contamination associated with any real estate that the corporation owns, controls or occupies, or formerly owned or controlled. However, practically speaking, personal liability against directors and officers is still relatively uncom- mon in Canada. Historically, it has typically only been sought where the individual is seen to have engaged in morally blameworthy conduct that contributed to the breach. Insuring Against Liability Most directors and officers in Canada rely on direc- tor and officer insurance to insure them against any errors and omissions made in the course of their duties. However, the standard terms of these policies often exclude pollution liability. Given the serious con- sequences of potential environmental breaches, it is not uncommon for directors and officers to seek addi- tional coverage for this risk – although such coverage may be expensive. Directors and officers may seek further indemnifica- tion from the company itself for any liability that arises from their role in the company; however, this is of little practical utility if the company has become insolvent as a result of environmental penalties.
It is unlikely that financial institutions or lenders would be liable for environmental damage caused by one of their clients. However, in some jurisdictions, con- taminated sites legislation contains broad liability provisions that could ‒ in theory ‒ apply to a lender who owns, controls or manages a piece of property. By way of example, a lender that realises on security taken on real property assets that are contaminated may have sufficient “control” over the property to incur liability. 9.2 Lender Protection To protect themselves from risk to their investment stemming from environmental liability of the underly- ing investment, lenders should investigate the poten- tial environmental liabilities inherent in an undertak - ing before investing and should ensure that money is allocated for meeting environmental contingencies. Further, lenders can make it a term of any lending agreement that the owner or operator of a site meets and/or exceeds any applicable environmental regu- lations. Finally, lenders may seek indemnities or the provision of an insurance policy naming them an addi- tional insured in order to mitigate potential environ- mental liability. For the reasons discussed in 9.1 Financial Institu- tions/Lenders , lenders should also exercise caution when realising on security where the underlying prop- erty may be contaminated. Civil claims for compensation or other remedies can be brought through common-law causes of action, such as nuisance, negligence, trespass or loss of property value, or through statutory causes of action set out in environmental legislation. As discussed in 5.3 Key Defences , in certain Cana- dian jurisdictions, cost allocation for remediation of contaminated sites is dealt with through civil claims based on statutory causes of action. Such claims are 10. Civil Liability 10.1 Civil Claims
8. Insurance 8.1 Environmental Insurance
Most commercial general liability policies in Canada exclude pollution liability. Organisations can purchase optional pollution liability extensions, which are sub- ject to strict exclusions, or can seek out broader envi- ronmental liability policies. These policies can provide coverage for liability arising from – among other things ‒ a sudden or gradual pollution event, waste manage- ment services, storage tanks and contractors.
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