Green walls (also referred to as living walls or vertical gardens) have become increasingly common within our urban landscape. Typically incorporated into the vertical structures of buildings, they are promoted to boost biodiversity, reduce air pollution, and help promote wellbeing. Green walls can also influence the property risk considerations of the associated building or structure, particularly the potential for fire, water, and wind damage. When considering the design, installation, and management of green walls, engage with your broker and involve insurers early to help ensure any property risks are understood, managed, and that any underwriter concerns are addressed. Types of green walls Green walls can be categorised in different ways and summarised into four main types (as reported by RISCAuthority, a research scheme funded by UK insurers: Wire trellis or net systems for climbers Plants grow vertically via a series of wires or nets Troughs Modular or stacked troughs fixed or restrained to structures with climbing, trailing or upright plants. The troughs can be manufactured from materials such as wood, plastic, or metal. Fabric based systems Typically manufactured from textile fixed to structures with pockets or slits for the plant roots. Modular panel-based systems Typically, rigid panels manufactured from plastic or metal and fixed to structures. The panels may also form a rainscreen element to the structure. The panels contain the growing media and are typically delivered ‘pre-grown’. Property risk considerations Green walls can be installed on a range of buildings, both large and small. By definition, the walls contain combustible components and, if not properly designed and maintained, can introduce property insurance challenges, potentially increasing insurer loss estimates (influencing the potential for fire spread) and impacting risk quality. Challenges include: Combustibility of the planted system Combustibility of plastics or other materials within the green wall system Management of penetrations such as windows and vents to prevent fire ingress and spread into the building and void areas Water and wind damage potential Potential impact to the building and surroundings if the green wall was allowed to dry out Green walls need effective management and controls to remain a living system and avoid drying out. There have been instances where green walls have turned brown (e.g., due to irrigation failure). The risk of external fire spread is significantly increased in these circumstances with a potential impact on property insurance, building occupation, exposure to other nearby buildings and other compliance issues. Guidance to help manage property risk. The Fire Protection Association’s (FPA) RISCAuthority has released new guidance to support all those involved with green walls, from designers to suppliers, owners to insurers. The guidance was prepared in a collaborative exercise involving UK insurers and living wall providers. The document includes a detailed questionnaire to gather information on green walls together with detailed background information and guidance. It also includes a scoring matrix which could be used by Authorities Having Jurisdiction (AHJ) such as building control, insurers or fire authorities and can help other stakeholders understand the potential assessment approach by an AHJ. Overall, the guidance provides a set of core principles and a methodology to gather information and assess the characteristics of green walls for property risk management and insurance purposes. The principles cover key topics, including: appropriate fire testing clear record keeping fire risk assessments system information emergency plans maintenance construction materials (using non-combustible materials wherever possible) design (including fire risk and ease of repair) upkeep (including irrigation and management of hot work) The process starts with Principle 1: ‘Engage with all stakeholders at the earliest opportunity and maintain dialogue for the entire lifecycle of the building’. For further information, please visit the Lockton Risk Control page.

Green walls (also referred to as living walls or vertical gardens) have become increasingly common within our urban landscape. Typically incorporated into the vertical structures of buildings, they are promoted to boost biodiversity, reduce air pollution, and help promote wellbeing.  

 

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Inside Risk: Managing the risk of green and living walls 

The market for insuring satellites in orbit has seen many developments, but space itself continues to be a challenging environment. The satellites we launch to space must survive years of intense solar radiation, damaging vacuum conditions and temperatures ranging from minus 150C to plus 200C. This means that sometimes – despite careful design, highly-regulated manufacturing, and stringent testing - parts can fail. Indeed, that is why space insurance – as a class – is  as a crucial risk mitigation measure, not only for satellite operators and manufacturers but also for those seeking finance for new space missions. When you consider that a single communications satellite can generate $100-200m a year in revenue – potentially repeated across a fleet of up to 30 spacecraft - the advantage of placing insurance to cover lifetime in orbit becomes clear. The challenges Although space insurance may seem like a new concept, it dates back to 1965 when the first policy was issued for the Intelsat I satellite. It was restricted to Third Party Liability and Pre-Launch risks, but it marked the beginning of a  space insurance market.  The field has developed over the past six decades to meet the requirements of satellite operators and has reached a certain level of maturity. However, the space insurance market is continually faced with two major issues: the relatively small statistical sample and the pace of technology development. The first is a result of the simple fact that the number of insurable satellites compares miserably with, for example, the much larger number of Airbus A330s or Boeing 737s in operation. The constant desire to innovate is a natural process in any field of engineering , but it doesn’t sit well with an underwriting focus on equipment heritage and reliability. The overall result is a volatile market in which a couple of major claims can decimate a year’s premium income. For example, in 2023/24 claims have greatly exceeded premiums and rates have risen dramatically as a result. An inherent problem with satellites is the relative inaccessibility of their operating environment. Most communications satellites are stationed 36,000km above the Earth’s surface, which means that if anything goes wrong, we cannot simply send a maintenance crew to fix it. However, this is where technology development may come to the rescue - in the form of a suite of technologies collectively termed in-orbit servicing (IOS). Orbital repair A number of space agencies and industry contractors are currently expanding the envelope of space operations by developing spacecraft to dock with and take control of satellites. The aim is to extend satellites’ operational lifetimes. This has already been demonstrated by Northrop Grumman, Astroscale and others. Meanwhile, other vehicles that resupply a satellite’s  propellant are being tested.  The ultimate intention is that  ‘space tugs’ with robotic manipulators will be able to readjust or replace some failed components, many of which will be produced in space by 3D printing and other manufacturing techniques. This would go some way towards normalising space insurance in comparison with other classes. The hope is that being able to fix a problem in orbit, rather than making a claim for the entire cost of a disabled satellite, will dramatically reduce claims costs (especially since replacing a large satellite can cost hundreds of millions of dollars). This, in turn, would reduce the overall volatility of the space market and potentially attract other insurers, thereby enhancing market capacity. Lockton Space There are quite a few ‘technological ducks’ to get in a row before we can declare the satellite-repair problem ‘solved’, but the promise of in-orbit servicing is  the space insurance community, not least Lockton’s new Space team, based in London. In fact, the team is looking even further ahead, as the space industry develops commercial space stations in low Earth orbit and conducts a structured return to the Moon for both automated spacecraft and crewed missions. If the often-discussed concept of lunar mining is to become reality, it will require communications and navigation satellites in lunar orbit (like the ones we have around the Earth) …and they will require insurance. The space insurance market has never been shy of a challenge - and the next few years will test its resolve to the limit – but the team at Lockton Space looks forward to this new opportunity. For further information, please contact the author of this article or your Lockton representative. 

The market for insuring satellites in orbit has seen many developments, but space itself continues to be a challenging environment. The satellites we launch to space must survive years of intense solar radiation, damaging vacuum conditions and temperatures ranging from minus 150C to plus 200C. This means that sometimes – despite careful design, highly-regulated manufacturing, and stringent testing - parts can fail.

Photorealistic 3d illustration of a satellite orbiting the Earth..World map texture credits to NASA: https://visibleearth.nasa.gov/images/74218

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Space insurance: the promise of in-orbit repair

Climate change poses several challenges for viticulture. Grapes are vulnerable to changes in temperature, precipitation, water availability, pests and diseases, and extreme weather events. Changes in weather patterns are becoming less predictable and they can have significant impacts on the yield, ripening, sugar content, acidity, phenolic compounds, and aroma of the grapes. In this article, we will look at the impact of climate change on five major wine-producing regions: South Africa, California, Chile, Europe and Australia. We will also discuss some of the adaptation and mitigation strategies that viticulturalists have implemented or are planning to implement in response to the changing climate. 

Climate change poses several challenges for viticulture. Grapes are vulnerable to changes in temperature, precipitation, water availability, pests and diseases, and extreme weather events. Changes in weather patterns are becoming less predictable and they can have significant impacts on the yield, ripening, sugar content, acidity, phenolic compounds, and aroma of the grapes.

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 Mitigating the climate change impact on vineyards

Aerosols are a familiar sight in our daily lives, providing the easy application of deodorant, cleaning materials, paint or other products in our home or workplace. However, aerosols can also contain flammable substances as well as  flammable propellants, such as propane or butane which can easily ignite and lead to rapid fire spread. In a fire, containers can rupture, producing jets of flame and projectiles, spreading the fire, and making firefighting more difficult. The smoke from the resulting fire can pose additional health risks. Robust property loss controls are therefore needed to manage the storage and handling of aerosols. Understanding the risk Not all aerosols are the same. Lower-hazard aerosols can include water-based toiletries such as shaving foam or carpet shampoo. Water-miscible flammable liquids such as hairspray or windscreen de-icer present a higher hazard. The highest hazard category includes insoluble flammable and combustible liquids, such as spray paints and vehicle engine cleaning products. The hazard and flammability classification of aerosols can depend on the country and code being used. Two example classification systems are provided below: Mitigating the risk of aerosols The assessment of property risk and associated control measures will depend on factors such as the aerosol classification, the location and quantity stored. Several considerations are provided below when storing aerosols in bulk within commercial and industrial situations: Risk assessment: Conduct a formal risk assessment and review and update existing controls in accordance with local fire safety legislation such as the Regulatory Reform (Fire Safety) Order 2005, Dangerous Substances and Explosive Atmospheres Regulations 2002 (DSEAR) and, where larger quantities are stored, major hazards legislation such as the Control of Major Accident Hazards (COMAH) Regulations and Planning (Hazardous Substances) Regulations. Property protection and business resilience: Reinforce the risk assessment by considering property protection and business resilience features, such as fire divisions and fire protection systems. These will help to keep losses small and accelerate business recovery. Liaise with your broker and property risk engineering provider for more information. Storage: Carefully consider the storage of aerosols to limit the likelihood and severity of an aerosol fire. Where aerosols are stored in bulk, segregate and isolate storage, ideally in a separate building in a cool and ventilated area to prevent the build-up of flammable . Where this is not possible, store the aerosols in a dedicated fire compartment or enclosed within stout steel mesh cages of limited size and with self-closing doors. Smaller quantities should be stored in a dedicated container such as a metal gas cylinder storage cabinet. Avoid accidental damage of aerosols and have a process to manage containers should damage occur. Ignition sources: Identify potential ignition sources, ensure they are well-controlled and away from aerosols. This includes managing activities on site such as hot work, electrical equipment, sources of heat and smoking as well as other sources such as arson, exposure to external fires and lightning. The movement and charging of forklift trucks (or similar) is a common potential source of ignition and such equipment should be suitably specified and managed for the aerosol hazards. Management systems: Ensure appropriate management systems are in place including training of personnel, housekeeping (avoiding the build-up of combustible materials or packaging) and emergency procedures. Fire detection and protection: Install appropriate fire protection systems. Sprinklers can help prevent a fire spreading to involve aerosols and potentially limit a fire involving aerosols. Other considerations include fire detection, alarms, extinguishers, and fire water for manual firefighting. Emergency and incident response: Develop and practice emergency plans to help contain and suppress the fire (where appropriate) and evacuate personnel from the area. Ensure good access and information is available for the responding fire brigade. Following any incident, conduct a thorough investigation to identify any control failures and implement corrective actions. Education and training: Regularly train staff of the dangers of aerosols including handling, storage and emergency and incident response procedures. Clear signage should indicate where aerosols are stored and their associated risks. For more information to assess and manage the handling and storage of aerosol,  the relevant  guidance. Examples include: RC19: Recommendations for the storage of aerosol products. 2015. Fire Protection Association https://www.thefpa.co.uk/resource-download/327 NFPA 30B: Code for the Manufacture and Storage of Aerosol Products. 2023. National Fire Protection Association. https://www.nfpa.org/for-professionals/codes-and-standards/list-of-codes-and-standards/free-access Property Loss Prevention Data Sheets 7-31. Interim Revision July 2024. FM Global. https://www.fm.com/resources/fm-data-sheets 

Aerosols are a familiar sight in our daily lives, providing the easy application of deodorant, cleaning materials, paint or other products in our home or workplace. However, aerosols can also contain flammable substances as well as pressurised flammable propellants, such as propane or butane which can easily ignite and lead to rapid fire spread. In a fire, containers can rupture, producing jets of flame and projectiles, spreading the fire, and making firefighting more difficult. The smoke from the resulting fire can pose additional health risks. Robust property loss controls are therefore needed to manage the storage and handling of aerosols.

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Inside Risk: Aerosols – managing the property fire risk

Logistic firms are extending their offering. They now provide end-to-end services, covering the complete logistic cycle: starting with procurement and distribution, transport, delivery to the customer and ending with return logistic. The evolution of the sector and its changing scope has far-reaching impact on logistic firms’ risk exposure.  Expanding service offering The expansion of logistic services to manage more elements of clients’ supply chains is driven both by clients’ needs and logistic firms’ growth aspirations. Following the rapid growth of e-commerce, logistic clients are requiring tailored, efficient, and comprehensive logistic solutions. This entails end-to-end visibility across the transport life cycle. To persevere in this competitive environment, logistic clients require a wide range of support services, including advisory and supply chain consulting services, reverse logistic, data and analytics capabilities, e-commerce channel management capabilities and even algorithms that match demand and supply. For logistic firms, this offers an opportunity to rethink the scope and end-to-end nature of their services, to integrate more capabilities across the logistic value chain, and to create a deeper, broader, more customer-focused approach to service delivery.  For logistic firms it is often easier to expand or diversify their services by acquiring a business that already delivers the products or services required. However, this brings a measure of risk associated with integration, including culture, financial parity for employees, legacy claims, or other contractual exposures.  Lockton’s Risk Control Services have provided risk management advice to logistic firms in the process of expanding their service offering via acquisition. For example, a logistic firm took over some operations from a UK based malting company which produces malt for whisky distilling and brewing. The logistic firm extended operations to include grain storage and are now working with farmers to supply grain for the core business, creating a “field to glass” model. Advantages include enhancing the traceability of the product and, by working with farmers, aligning the strategy with sustainability goals. Perhaps most importantly, by overseeing and combining grain storage and supply, the logistic firm is making a vital element of the supply chain easier and more efficient. However, the strategic move is also transferring new risks to the logistic firm with potential exposures; including the unavailability of product if there is a disruption and susceptibility to severe weather events affecting harvests.  In another instance, a logistic firm acquired a UK provider of major infrastructure engineering services to enhance service capabilities. During the process, the logistic firm encountered integration challenges. With hindsight, the business noted that it should have had greater confidence in its core management structures and focused on defined strategic goals to better manage the integration instead of relying on some of the expertise coming from within the acquired company. In the US, logistic firms are taking on more cargo operations. A widespread risk sweeping across the industry is cargo theft through fictitious pickup. Thieves gather enough information on a shipment awaiting pickup and send an impostor trucker to pick up the load before the legitimate carrier. As the carrier did not collect the load, the full value falls upon the freight broker and their insurers for liability.  Furthermore, some US logistic companies are acting in the capacity of freight broker. The risk of nuclear verdicts in the highway accident space creates the need for Contingent Auto insurance. This protects the broker against third party suits claiming vicarious liability or contributory negligence despite the broker being at arms-length to the carrier.  One note to add is that many logistic providers will develop their own software to best fit client needs and, in many cases, will provide this software as a service to clients. While Software as a Service can represent a great business opportunity, it also adds new risks to logistic firms. Cyber Liability, Technology Professional Liability, and legal compliance are areas that require added focus with this new . Risk management recommendations  Logistic firms expanding into new areas need to conduct a thorough risk analysis of the new business to understand the risk environment they will be entering. This is necessary not only to identify potential challenges but also to develop solutions to mitigate against them. Areas of focus that may need to be understood include:  An unfamiliar regulatory environment  Potential financial exposures – including contractual penalties, adverse terms, hidden costs etc.  Market constraints and trends including the competitive landscape  Furthermore, logistic businesses will need to evaluate the extent to which a new enterprise is aligned with core strategic values and objectives. This includes evaluating the extent to which the planned expansion is within the ’s current risk appetite and risk tolerance. The logistic firm will also need to decide if it has the technical skills and knowledge to oversee the new enterprise and deliver anticipated outcomes. If wholly reliant on the expertise within the new entity, this could present an unacceptable exposure.  Finally, bringing previously outsourced services and products inhouse can increase supply chain risks and reduce the ’s resilience. At the same time, having a single internal source to maintain strong relationships as opposed to multiple external suppliers can also be advantageous.  For further information, please contact the author or your Lockton representative. 

Logistics firms are extending their offering. They now provide end-to-end services, covering the complete logistics cycle: starting with procurement and distribution, transport, delivery to the customer and ending with return logistics. The evolution of the sector and its changing scope has far-reaching impact on logistics firms’ risk exposure. 

Supply Chain Management - SCM - The Coordinated Process of Producing and Delivering Goods and Services from Suppliers to Consumers - Conceptual Illustration

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Managing logistic firms’ risks as service offering expands 

In a significant ruling for the marine insurance industry, the High Court of England & Wales has confirmed the enforceability of “pay to be paid” clauses in marine insurance policies.  What is a “pay to be paid” clause?  The “pay to be paid” concept stipulates that an insurer’s obligation to indemnify an insured only arises after the insured has paid the third-party claim in question and has consequently discharged the relevant liability.   Such a rule applies to all marine insurance policies, including P&I.  The background   MS Amlin Marine NV on behalf of MS Amlin Syndicate AML/2001 -v- King Trader Ltd & others (Solomon Trader) EWHC 1813 (Comm)  Owners: King Trader Ltd (owners of the Solomon Trader)  Charterers: BMC  Charterers’ insurer: MS Amlin  The owners fixed the vessel to the charterers under a time charterparty dated 29 May 2017. BMC held a charterers’ liability insurance policy with MS Amlin, effective from 1 April 2018 for 12 months.   On 4 February 2019, the vessel grounded in the Solomon Islands.  In March 2023, arbitrators from the London Maritime Arbitrators Association (LMAA) found BMC liable to the owners and their P&I Club in respect of the grounding for a total award amount of US$47 million.   BMC’s liability insurance included a “pay to be paid” clause, and MS Amlin argued that it meant that no indemnity was payable unless BMC had first discharged liability towards the owners. The Court had to consider whether this clause was enforceable considering BMC’s insolvency.    The High Court decision  The Court ruled that the “pay to be paid” clause was enforceable. It held that such clauses are common in marine insurance and are intended to ensure that insurers are only liable to indemnify once an insured has discharged its liability.   The Court further found that there was no inconsistency between the “pay to be paid” clause and the main purpose of the charterers’ liability policy, which was to provide liability cover.   The Court has also addressed the applicability of the Third Parties Act 2010. This Act transfers the rights of the insured to third parties in the event of insolvency.   The Court held that while the Act allows third parties to claim directly against insurers, it does not override “pay to be paid” clauses in marine insurance contracts, except in cases involving death or personal injury, which was not the case in the circumstances.  The consequences  The “pay to be paid” concept is now a protected right of the insurers and cannot be challenged as per this recent High Court decision. This means that even if there are contractual contradictions between the marine insurance policies and other documents, the “pay to be paid” clause will prevail.   We should therefore expect marine insurers to rely on this rule and resist any direct third-party actions.   Also, this court decision  the need for every insured to manage their financial responsibilities and be ready to discharge  any claim and liability before claiming any reimbursement from their insurers.  At the same time, we recommend any insured to carry out due diligence when dealing with a new counterparty to ensure their credible financial standing. This is to to avoid situations of insolvency which may deprive the insured of their right to claim against the insurer on the basis of the “pay to be paid” rule.      For further information, please contact the author or your Lockton representative. 

In a significant ruling for the marine insurance industry, the High Court of England & Wales has confirmed the enforceability of “pay to be paid” clauses in marine insurance policies. 

Lady Justice on top of Old Bailey the Central Criminal Court of England and Wales in London

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“Pay to be paid” clause: consequences of the High Court’s marine ruling  

Extreme weather events such as floods and droughts, and natural catastrophes like tropical cyclones are major causes of disruption in the mining sector. As such events are expected to increase in frequency and severity, insurers are becoming more cautious in their underwriting approaches, particularly for tailings dams. Parametric insurance can offer an attractive alternative solution, filling the gaps in the traditional insurance  . Extreme weather events Scientists are warning that a warming climate is making extreme weather events more frequent and severe. Warmer temperatures increase the amount of moisture the atmosphere can hold, making heavier rainfall in a shorter space of time and in smaller areas more likely. Further, average temperatures in the Arctic have risen faster than the global average. This is causing the jet stream to slow, increasing the likelihood of heat domes. Such heatwaves can worsen droughts by drying out the soil. The map below shows regions where multiple severe impacts may occur at similar times at 4°C of global warming above pre-industrial levels. These impacts include extreme heat stress risk, river flooding, drought, and wildfire risk. Many of the regions expected to be affected are also traditional mining locations. Source: Met Office The impact on mining operations The environmental impact of such weather events can disrupt supply chains across different raw materials, mining sites and climatic zones. For example, flooding, following heavy rain or surges, can cause hazardous or toxic waste storage to spill and disrupt operations. Insurers are particularly concerned about tailings dams. They can fail for many reasons, including floods caused by heavy rain, tropical cyclones, snow melt or storm surges. Tailings dams can represent a big risk for insurers as a failure can not only result in extensive environmental damage, but it can often also destroy livelihoods, damage infrastructure, and even cause fatalities. However, having too little water also poses risks to mining. Droughts can lead to water shortages, affecting both environmental aspects (e.g. less water available for dust suppression) and supply aspects (e.g. water-intensive production processes need to be slowed down). In addition, increased water stress might intensify water competition between mining and other water users (e.g. communities or agriculture). This is of particular concern to governments and local authorities. A combination or sequence of extreme events can amplify the impact: a wet weather event during a period of prolonged drought can worsen the impact on mining and processing operations. Alternative protection Parametric solutions can help protect mining businesses against weather-related losses and the consequent non-damage business interruption. Parametric policies respond when pre-defined parameters (triggers) are met or exceeded. The client must suffer a financial loss due to a triggering event taking place but unlike traditional insurance, there is no need for loss adjusters to determine the loss and there are no exclusions for any assets or business interruption losses. For floods and droughts, the obvious trigger for a parametric insurance policy would be rainfall. There are various data sources available to insurers to measure and trigger policies. It is key that the data source is independent of both the client and the insurer to ensure complete transparency in the contract. Lockton works with several data providers to structure and price a solution that suits the mining company’s needs. Benefits of parametric insurance Traditional insurance policies include a number of conditions and limitations, exclusions and self-insured retentions that are assumed by the insured. Where insureds or captives want to reduce their exposure beyond what the traditional insurance market will offer, parametric insurance can supplement that cover and fill gaps left in the risk transfer . Advantages:  Business interruption doesn’t require a physical damage trigger There are no deductibles Contracts are transparent and simple Claims are usually recovered within one month as there are no lengthy loss adjuster requirements Example of a mining company in Peru  Main purposes of the coverage: Cover deductible Cover self-insured retention (SIR) Cover sublimit of the tailings dams Cover physical damage/business interruption in their location Cover any contingency that could happen in supply chains While there is no need for loss adjusters for parametric insurance claims, clients need to present proof of loss declaration signed and . Depending on the insurance company, some of them require presenting financial statements and invoices as part of the claims process. Parametric insurance will keep growing in the mining industry because it can fill the gaps in traditional insurance programmes. At Lockton we can create tailor-made structures that leverage data-driven triggers that can stabilize your business’ cash flow and reduce downtime. For further information, please contact the author or your Lockton representative.

Extreme weather events such as floods and droughts are major causes of disruption in the mining sector, but also natural catastrophes such as tropical cyclones continue to cause disruption. Because such events are expected to increase in frequency and severity, insurers are becoming more cautious in their underwriting approaches, particularly for tailings dams. Parametric insurance can offer an attractive alternative solution, filling the gaps in the traditional insurance programmes.

Huge iron ore quarry opencast mining of iron ore opencast mining.

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Parametric solutions: mitigating extreme weather risks in the mining sector

Every carbon capture and underground storage (CCUS) project is unique and requires  engineering designs, procurement strategies, construction approaches and management systems. However, despite comprehensive analysis and skilled management processes, CCUS projects remain susceptible to technical and non-technical risks. This happens at each stage of the value chain, during construction and during operation. Complications can be linked to the location, emission source, technology employed, commercial business models, government involvement and applicable laws. These complications can have severe consequences, including: property damage well control issues  third party liability and business interruption losses project delay higher capital expenditures (CAPEX) costs loss of revenue or  of assets increased operating expenses (OPEX) costs penalties requiring corrective measures withdrawal of the permit because breach of regulatory and contractual requirements  project abandonment To avoid such outcomes, in this article Lockton’s dedicated CCUS team discusses the main risks CCUS projects face during their life cycle to create solutions protecting your investment.  CO2 capture CO2 capture is the costliest investment of CCUS projects because the significant deployment and energy expenses involved. There are currently two main processes available: on point source capture through pre-combustion, post-combustion and oxy-firing applications, and direct air capture. Irrespective of the CO2 capture configuration and technology, there are inherent risks during the construction, the commissioning, and the operation of the capture facility. These risks can be associated with: the layout and design of the capture facility, its integration with the existing emitting plant or plants, the material selection based on the technology used for CO2 extraction and condition for transport, specific flue gas and required CO2 purity, the application of both mature and unproven technology, accidental discharge of CO2 and impurities contained in the CO2, solvent handling including monoethanolamine (MEA) degradation due to CO2 presence, scaling up deployment, mechanical integrity, equipment failure, overflow or backflow, fire from machinery, high pressure incidents (70 bar plus), and loss of containment, both during the CO2 capture/conversion and well injection process. All these inherent risks can impact the performance objectives of a CO2 capture facility and the CCUS value chain. Notably, most technology providers do not offer process guarantees on key performance parameters, which needs to be taken into consideration when developing insurance solutions. CO2 transportation CO2 can be transported through various means. Pipelines, vessels, road tankers, or railway tankers are viable, however, most of the projects rely on pipeline and vessel transportation. CO2 pipeline transportation has been thoroughly understood since the 1970s, primarily for enhanced oil recovery. While liquefied CO2 is currently transported by vessels, the volumes are relatively minor in comparison to what is anticipated for the CCUS value chain. As CCUS projects multiply, larger quantities of CO2 will need to be transported from numerous capture facilities. This will make CO2 transportation risks become more relevant. Despite being non-flammable, the integrity of CO2 pipelines and equipment on CO2 vessels can be compromised by impurities that affect its thermodynamics and phase . Corrosion can also occur due to carbonic acid forming from free water, which is highly corrosive to carbon steels. Other potential risks include: dry ice formation degradation embrittlement fracture blockage scaling collision fire There is also a risk of leakage during the loading and offloading of CO2 from vessels, including the return of boil-off gas to the CO2 vessel and collision damage during transport. The risks associated with the transportation of the CO2 will also vary. For example, if the CO2 is offloaded onshore at a port with subsequent pipeline transportation from shore to offshore, or if it is offloaded offshore at a floating injection and storage platform. The latter will require further conditioning of the CO2 once it is offloaded or alternatively onboard the CO2 vessels for direct injection into the well. CO2 storage CO2 can be stored as liquid in a tank at the CCUS site. Suitable locations include saline aquifers, depleted oil and gas reservoirs, or unmineable coal beds. The risks primarily revolve around the possibility of leakage. Not all storage sites are suitable for long-term CO2 storage, but the gas can be effectively trapped through various mechanisms. The CCUS include: structural/stratigraphic residual/capillary dissolution, and mineral trapping, including up to multiple impermeable caprock layers In addition, experience from hydrocarbons, gases and fluid trapped underground for millions of years with hardly any leakage to the surface suggests that injected CO2 can also remain safely stored in geological formations. However, even if CO2 plume migration is well monitored, several risks remain present. These are usually associated to: gradual leakage inaccurate leakage rate estimation undetected faults reactivation of inactive faults because of over- fracture development in the cap rock, hydrate formation, seismic activity, well equipment breakdown, or interruption in the expected continuous injection of CO2 impacting casings and the well barrier materials. Interdependency risks of CCUS hubs The development of CCUS hubs can create economies of scale and increase capital and operational cost effectiveness. By sharing infrastructure costs, such hubs can make the development of capture facilities economically viable even when storage is distant from the emission or capture site. CCUS hubs also enable each participant to focus on their individual expertise within their facility and provide smaller scale emitters to connect to the same network for the treatment and transportation of CO2 for storage. However, these hubs are susceptible to interdependency risks. A prolonged or complete shutdown, reduced capacity, reduced or abandoned  caused by an event affecting one facility within the CCUS value chain, can have repercussions on another facility or the entire value chain, both during construction and operational stages of a CCUS project. Change of law The safety of CCUS developments is supported by a robust regulatory framework designed to address potential risks. However, while projects develop and regulatory frameworks are continuously being revised, gaps that fail to address particular risks remain. Changes in regulation may affect the viability of a CCUS project and create hurdles for long-term strategic planning and financial stability.  A tailored risk management approach It is crucial that any CCUS project implements a contractual risk and CO2 ownership allocation at a very early stage of the development. This needs to be paired with a robust risk management strategy that may need to be reviewed regularly, not least because technology will continue to evolve. Tailored insurance solutions are required to ensure the sustainability of a CCUS project.  CCUS facility wordings tend to leave clients vulnerable to gaps in coverage that may not be apparent until a claim is filed. Lockton has studied two large scale projects, each of them involving the injection of CO2 at a rate of approximately 1 MT/y. Both projects involved a natural gas field located in a thick sandstone formation with low permeability and similar geological characteristics. They both required the CO2 to be removed and reinjected in a saline aquifer below a gas producing well. Both projects were conducted by experienced oil and gas market players. However, whilst one of the projects has so far resulted in minimal pore pressure and encountered no real operational issues, the same can’t unfortunately be stated for the second project. Pore pressure increased significantly, leading to significant geomechanical deformation and subsequent induced seismicity. This study shows that  engineers need to get engaged from the outset in CCUS projects to identify any potential failures. The result of this assessment needs to flow into the design of the insurance . In addition to their contractual and regulatory responsibilities, Lockton’s dedicated team of CCUS experts can conduct a comprehensive analysis of a participant’s individual first and third-party risk exposures associated with CCUS operations and interdependence. Lockton’s risk engineering unit can assist by reviewing construction designs and working with you to get the requirements for insurance cover correct during the construction (saving redesign costs or post commissioning rework). For further information, please contact the author of this article or your Lockton representative.

Every carbon capture and underground storage (CCUS) project is unique and requires customised engineering designs, procurement strategies, construction approaches and management systems. However, despite comprehensive analysis and skilled management processes, CCUS projects remain susceptible to technical and non-technical risks. This happens at each stage of the value chain, during construction and during operation. Complications can be linked to the location, emission source, technology employed, commercial business models, government involvement and applicable laws. 

View of power plant at Drax power station

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Mitigating the risks of carbon capture and storage projects

The March 26 collision between the Dali container ship and the Francis Scott Key Bridge, resulting in the bridge's collapse, has highlighted the complexity of insurance coverage for maritime operations. The collision resulted in extensive property damage, loss of life, and a significant disruption of shipping and vehicular traffic in and around the Port of Baltimore. Three months after the bridge collapse, total losses from the event have not yet been quantified. And some important questions remain unanswered: How much will the incident ultimately cost marine insurers? Depending on how litigation and other events play out in the coming months and years, it could be as much as $4 billion — or as little as $44 million. Limiting liability? A variety of marine insurance coverages could be triggered by the bridge collapse. This includes various forms of insurance that are typically purchased by shipowners — including the Dali’s owner, Singapore-based Grace Ocean Private Ltd., and the owners of other vessels impacted by the port/bridge closure — along with cargo owners and marine and nonmarine businesses that may have been affected. The biggest challenge stemming from the bridge collapse is the potential for third-party liability claims, which would be covered by the Dali’s P&I club, Britannia P&I. The estimated value of these damages is currently believed to be between $2 billion and $4 billion. If this proves to be accurate, it would be the largest P&I claim in history. Two unknowns, however, will determine whether this comes to pass. First is whether parties that have sustained purely economic losses (and their subrogated insurers) will be able to successfully recover those claims. Under the U.S. Supreme Court’s 1923 opinion in Robins Dry Dock v. Flint and subsequent case law, a plaintiff must demonstrate a proprietary interested in damaged property in order to recover damages from economic loss. Many of the business interruption claims arising from the bridge collapse will likely not meet this standard. Second is whether the Dali’s owner can successfully cap its liability. On April 1, 2024, the Dali’s owner and her manager filed a petition in federal court in Maryland seeking to do this by availing itself of the protections afforded under the Limitation of Liability Act of 1851, also known as the Limitation Act. This law, enacted primarily to encourage maritime industry investment by limiting financial risks for shipowners, permits the owner of a vessel involved in a marine casualty to cap its maximum liability for damages at the value of the vessel immediately following the casualty plus pending freight — meaning the compensation paid to the vessel owner for the carriage of cargo or other services. This limitation applies regardless of the extent of the actual damages caused by the underlying incident. Here, the Dali’s owner is seeking a cap of approximately $44 million; if it succeeds, claimants to whom the shipowner is found liable would be paid their proportional share of that amount. Many of the claims outlined above — particularly, the high-value claims involving personal injury and death, general average/salvage costs, damage to the bridge and other recoverable economic losses — would be subject to this limitation. Filing a limitation of liability petition also serves to consolidate all claims in a single, multiparty federal lawsuit. Once all parties have appeared, the court will determine whether the Dali’s owner is entitled to limit its liability or whether it is responsible for the full value of all claims arising out of the incident. The difference between these two figures — $44 million if capped vs. as much as $4 billion if uncapped — is astonishing. A difficult legal standard To succeed in its petition, the Dali’s owner will need to prove that it lacked “privity or knowledge” of the negligence or fault that caused the incident. In the context of U.S. admiralty law: “Privity” refers to a legal relationship or connection between parties — specifically, the shipowner and the person or entity responsible for the act or omission that caused the maritime incident. “Knowledge” refers to the shipowner's awareness or understanding of the circumstances that led to the incident. This can include knowledge of any unseaworthy conditions of the vessel, negligence of the crew, or other factors contributing to the incident. U.S. courts generally impute onto corporate shipowners the privity or knowledge of high-ranking corporate officials — such as land-based executives — and that of the master or the owner’s superintendent or managing agent, at or before the beginning of each voyage. This area of law, however, is far from straightforward. For centuries, courts have struggled to apply the privity or knowledge standard, often referring to it as elusive and difficult. As such, U.S. courts will typically look at the specific facts of a given case, including such factors as crew competency and efforts made by the owner and crew to remedy defects in a vessel that are discoverable through reasonable diligence. Navigational mistakes or other errors caused by an otherwise competent crew, or latent defects in a ship, are typically not deemed to be within the shipowner’s privity or knowledge. Even so, legal decisions in this area are far from consistent or predictable. Recent trends in U.S. courts have leaned toward holding shipowners seeking to limit liability to an extremely high standard. At present, all reports indicate that the immediate cause of the incident was a power failure aboard the Dali moments before its collision with the bridge. If that power failure were the only causal link in the chain, the limitation petition would very likely be successful. The National Transportation Safety Board, however, noted in its preliminary report that the Dali had experienced power failures prior to the bridge collapse incident. This could complicate the petition, potentially unraveling the shipowner’s defense and leaving it and its insurer liable for the full value of recoverable claims. Potential insurance market and regulatory implications The outcome of the Dali owner’s limitation petition and subsequent litigation will significantly impact all parties involved, including insurers, reinsurers, and claimants. More broadly, it could reshape the landscape of maritime insurance and U.S. admiralty law. From a legal and regulatory standpoint, a notable concern is that Congress may seek to repeal the Limitation Act or amend it to expand liability for shipowners. Changes to the law would likely not apply retroactively to the Dali owner’s liability for the bridge collapse, but they would affect shipowners involved in future casualty events in the U.S. There is some precedent for this. In response to the 2019 fire and sinking of the dive boat Conception, Congress passed the Small Passenger Vessel Liability Fairness Act (SVPA) in 2022. The SVPA specifically excludes owners of “small passenger vessels” from availing themselves of the Limitation Act’s protections. Regardless of how much liability the Dali’s owner is eventually determined to be responsible for — along with any possible legislative action that is taken — the legal process related to the bridge collapse will undoubtedly drag on. It may ultimately be years before any third-party claims are paid out. P&I clubs may well use this uncertainty as a reason to be more cautious going into 2025 renewals. P&I club reinsurance  limits — currently at $3.1 billion — were previously thought to be more than adequate to meet the needs of the shipping community, but the potential exposure in the bridge collapse proves otherwise. Costs for the reinsurance purchased by the P&I clubs, known as the general excess of loss reinsurance , are likely to increase at the 2025 renewal, with that cost being passed along to shipowners in the P&I club system.  For now, shipowners and ship operators should focus on proactive risk management to mitigate risks from unforeseen maritime incidents. Owners and operators can prevent the occurrence of major casualty incidents and limit their scope and magnitude by establishing and following robust maintenance, training, safety, and risk standards. Documentation of these standards and related policies and procedures can also serve as a  in the event claims arise. For further information, please contact the author or visit the Lockton Marine page.

The March 26 collision between the Dali containership and the Francis Scott Key Bridge, resulting in the bridge's collapse, has highlighted the complexity of insurance coverage for maritime operations

July 28, 2018, Baltimore, MD, USA. A small tug boat on the way in the Baltimore harbor to meet a large auto cargo ship under the Key Bridge.

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The Baltimore bridge collapse: a $4 billion question

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