Environmental Risks, the Judgment-Proof Problem and Financial Responsibility

Compensating ecological damage: comparative and economic observations

“…13 The Practice of the IOPC fund has considered losses or damage suffered by persons who depend directly on earnings from coastal or sea-related activities as recoverable economic losses. 14 This practice was later accepted by the Protocol of 1992 to Amend the International Convention on Civil Liability for Oil Pollution Damage 1969 (1992 CLC) 15 and the Protocol of 1992 to Amend the International Convention on the Establishment of an International Fund for Compensation for Oil Pollution Damage (1992 Fund Convention). 16 As incorporated into Article I( 6) of the 1992 CLC, pollution damage refers to:…”

“…Thus, rather than contending that one instrument dominates another, some determinants of the relative desirability were given by Shavell. 14 According to him, four criteria determine the desirability of liability and regulation: the difference in knowledge about risky activities between private parties and a regulation authority, the possibility of private parties being incapable of paying for the full magnitude of harm, the threat of suit for harm and the administrative costs incurred by private parities and by the public.…”

“…The trigger of coverage is no longer liability but damage itself. 14 In addition to insurance, many other alternative compensation mechanisms are also developed, such as risk sharing agreements, funds and self-insurance. Risk pooling by potential liable parties is a useful mechanism to increase the capacity to cover ecological damage.…”

“…13 Besides, in addition to liability, some compensation instruments, such as insurance, guarantees, environmental funds, are either mandated or encouraged to be used to cover the potential damage. 14 All those characteristics make the regime of ecological damage compensation a very comprehensive and intricate system. Although experience has been accumulated to deal with this question, the existing system still faces challenges from time to time.…”

“…Given this reality, firms must demonstrate the availability of assets to cover potential liability to alleviate insolvency risks. 14 Law and economics literature supports the use of other instruments, especially extended liability, to resolve insolvency problems. 15 Extended liability holds third parties contractually connected with the directly liable party liable.…”