CHILE Law and Practice Contributed by: Pablo Méndez, Christian Rojas, Pablo Neupert and Vicente Huidobro, TM Abogados
that serve an equivalent function, ensuring the repair or mitigation of environmental impacts. In the mining sector, for instance, Law No 20,551 requires the constitution of financial guarantees to secure compliance with mine and facility closure plans, which aim to prevent the generation of envi- ronmental liabilities. Similarly, the REP Law, which establishes the Frame- work for Waste Management, Extended Producer Responsibility, and Promotion of Recycling, provides in its Article 22 that collective management systems must establish and maintain a bond, insurance policy or other guarantee to ensure compliance with targets and related obligations. Uninsurable Aspects of Environmental Risk In general, policies exclude administrative fines and criminal penalties, since insurance cannot cover con- sequences arising from unlawful or punitive acts. This principle is reinforced by Law No 21,595, which clas- sifies economic and environmental crimes, including certain conducts that entail criminal liability for envi- ronmental damage. Such conducts cannot be subject to insurance coverage, as the contracting of insurance does not exempt directors or executives from criminal responsibility or possible administrative sanctions. Intentional or wilful damages caused by the insured, as well as pre-existing undeclared events, are also excluded, unless specific clauses are negotiated with an additional premium (Article 535 of the Commercial Code). Moreover, large-scale or systemic risks – such as diffuse pollution or environmental degradation of multiple origins – are difficult to cover in advance under insurance policies, due to the impossibility of identifying the responsible party or quantifying the damage.
Under Law No 19,300 on the General Environmental Framework, environmental liability primarily rests with the project owner or operator responsible for causing the impacts. In this context, a lender could eventually face indirect liability if it is proven that it exercised a significant degree of control, interference or influence over the operations that caused the damage – particu- larly in financing structures where the creditor partici- pates in the management or direction of the project. In theory, Chilean courts could apply the general prin- ciples of extra-contractual civil liability (Articles 2314 to 2329 of the Civil Code) to hold a lender liable if its conduct contributed to the environmental harm through negligence or complicity. Nonetheless, such cases are exceptional in practice, and there are no judicial decisions in Chile imposing environmental liability on financial institutions solely for providing financing. 9.2 Lender Protection In Chile, lenders generally do not face a direct risk of environmental liability. Nevertheless, they often adopt various preventative and contractual measures aimed at ensuring the effectiveness of the loan granted and protecting their interests against potential environ- mental contingencies. Among these measures, conducting “environmental due diligence” prior to the granting of financing is par- ticularly noteworthy, especially for projects subject to the Environmental Impact Assessment System (SEIA). Likewise, creditors commonly require the borrower to demonstrate compliance with all applicable environ- mental regulations and to maintain valid environmen- tal permits throughout the term of the loan. Similarly, loan agreements typically include represen- tations, warranties and environmental compliance clauses that oblige the borrower to report any relevant environmental incident or proceeding. It is also com- mon to include indemnity clauses that shift environ- mental risk to the borrower, as well as requirements for insurance coverage against potential environmental contingencies. In project financing, lenders may also establish monitoring mechanisms or periodic audits to verify the borrower’s continuous compliance with environmental obligations.
9. Lender Liability 9.1 Financial Institutions/Lenders
In Chile, financial institutions and lenders (creditors) are not directly liable for environmental damage or for breaches of environmental law.
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