Environmental Impairment Environmental Impairment (Pollution) Insurance(Pollution) Insurance

L’Oreal USA, Inc.

Pollution InsurancePollution Insurance

Objective:Objective: Explain how environmental insurance works to Explain how environmental insurance works to

protect L’Oreal’s interests:protect L’Oreal’s interests:

Pollution EventPollution Event

Insurance Policy Terms & Conditions:Insurance Policy Terms & Conditions:

Basic Coverage ExplanationBasic Coverage Explanation

Key ExclusionsKey Exclusions

Claim discovery and reporting requirementsClaim discovery and reporting requirements

What is Considered a Pollution Event?What is Considered a Pollution Event?

Gradual or sudden discharge, dispersal, Gradual or sudden discharge, dispersal, release, or escape of any:release, or escape of any: Solid, liquid, gaseous or thermal irritant, Solid, liquid, gaseous or thermal irritant,

contaminant or pollutantcontaminant or pollutant Including smoke, vapor, soot, fumes, acids, Including smoke, vapor, soot, fumes, acids,

alkalis, chemicals, and wastealkalis, chemicals, and waste Into or upon land, or any structure on land, Into or upon land, or any structure on land,

the atmosphere, or any watercourse or body the atmosphere, or any watercourse or body of water, including ground waterof water, including ground water

L’Oreal’s Environmental Insurance L’Oreal’s Environmental Insurance CoverageCoverage

Zurich North American Insurance CompanyZurich North American Insurance Company

Policy Number: EPC 2857482 01Policy Number: EPC 2857482 01

Policy Term: 1/16/2009 – 1/16/2014Policy Term: 1/16/2009 – 1/16/2014

Limit of LiabilityLimit of Liability $5 Million each pollution event$5 Million each pollution event $10 Million policy (5 years) aggregate limit$10 Million policy (5 years) aggregate limit

Deductible - Deductible - $25,000$25,000

All L’Oreal named locationsAll L’Oreal named locations90 Days to report new owned or leased locations90 Days to report new owned or leased locations

Pollution ApplicationPollution Application

Reliance upon insurance application:Reliance upon insurance application:Description of surrounding environmentDescription of surrounding environment

Historical use of each locationHistorical use of each location

Environmental reportsEnvironmental reports

Type of raw materials used in manufacturingType of raw materials used in manufacturing

Effluent treatment and dischargeEffluent treatment and discharge

Reported underground storage tanksReported underground storage tanks

Air emissionsAir emissions

Methods of disposalMethods of disposal

Previous environmental issuesPrevious environmental issues

What’s Insured?What’s Insured?

Clean-up Costs Legal Liability

What’s Insured?What’s Insured?

Clean-up CostsClean-up CostsOn-Site and Off-SiteOn-Site and Off-Site

(Including non-owned locations and transportation of materials)(Including non-owned locations and transportation of materials)Required by governmental authorityRequired by governmental authority

Reasonable and necessary cost of removal and remediationReasonable and necessary cost of removal and remediation

Business interruption expensesBusiness interruption expenses

Legally obligated to pay (off site)Legally obligated to pay (off site)

Example: Storage tank or runoff from fighting fire seeps into ground and Example: Storage tank or runoff from fighting fire seeps into ground and further contaminates groundwater under facility.further contaminates groundwater under facility.

What’s Insured?What’s Insured?

Pollution Legal LiabilityPollution Legal Liability On site and off siteOn site and off site

(Including non-owned disposal sites, divested (Including non-owned disposal sites, divested locations and transportation of materials)locations and transportation of materials)

Bodily Injury and Property DamageBodily Injury and Property Damage Including fungus / sporesIncluding fungus / spores Limited Lead and Asbestos coverage Limited Lead and Asbestos coverage

(for third-party bodily injury only)(for third-party bodily injury only) Legal Expenses / duty to defendLegal Expenses / duty to defend

Example: A gradual discharge of contaminants leaks into neighbors Example: A gradual discharge of contaminants leaks into neighbors property. Neighbor sues for clean-up and alleged bodily injuries.property. Neighbor sues for clean-up and alleged bodily injuries.

Key Policy ExclusionsKey Policy Exclusions

Knowingly wrongful acts or deliberate non-Knowingly wrongful acts or deliberate non-compliance with government mandatescompliance with government mandates

Unreported underground storage tanksUnreported underground storage tanks

Upgrades or maintenance without physical Upgrades or maintenance without physical pollution eventpollution event

Fines, penalties and punitive damagesFines, penalties and punitive damages

Employee injuriesEmployee injuries Covered by Workers’ Compensation Covered by Workers’ Compensation

InsuranceInsurance

Key DefinitionsKey Definitions

Bodily InjuryBodily Injury Physical injury, sickness, disease, mental anguish or Physical injury, sickness, disease, mental anguish or

emotional distress sustained by any person, including emotional distress sustained by any person, including deathdeath

Property DamageProperty Damage Physical injury to or destruction of tangible property, Physical injury to or destruction of tangible property,

including loss of useincluding loss of use

Clean-up CostsClean-up Costs Reasonable and necessary costs incurred in the Reasonable and necessary costs incurred in the

investigation, removal, remediation, neutralization investigation, removal, remediation, neutralization (and monitoring) of contaminated soil, surface or (and monitoring) of contaminated soil, surface or ground waterground water

Key Policy ConditionsKey Policy Conditions

Cooperation with insurerCooperation with insurer Do not admit liability without written consent Do not admit liability without written consent

of the insurance companyof the insurance company

Environmental events discovered and Environmental events discovered and reported during the policy period.reported during the policy period.

By a responsible insured in amounts or concentrations that By a responsible insured in amounts or concentrations that exceed allowable levels established under governmental exceed allowable levels established under governmental authorityauthority

A responsible insured is an officer, member of management, A responsible insured is an officer, member of management, employee with responsibility for compliance, environmental or employee with responsibility for compliance, environmental or legal affairs, or risk managementlegal affairs, or risk management

Notification of Potential ClaimsNotification of Potential Claims

Notify Insurance or Regulatory AffairsNotify Insurance or Regulatory Affairs

New pollution events that are reasonably New pollution events that are reasonably expected to result in a claimexpected to result in a claim

Provide written notice to the insurer containing Provide written notice to the insurer containing particulars sufficient to identify the:particulars sufficient to identify the:

Cause of the pollution eventCause of the pollution event Time, place and locationTime, place and location When first aware of eventWhen first aware of event Known third-parties impactedKnown third-parties impacted Investigative or engineering reportsInvestigative or engineering reports

Clark 2006 Claim ExperienceClark 2006 Claim ExperienceRelease from alcohol storage tank on November 10, 2006Release from alcohol storage tank on November 10, 2006

Underground pipes corroded and cracks in concrete vault Underground pipes corroded and cracks in concrete vault allowed alcohol to seep into soilallowed alcohol to seep into soil

UST and connections identified on insurance policy UST and connections identified on insurance policy applicationapplication

Reported to insurer within the policy periodReported to insurer within the policy period Results of ground water monitoringResults of ground water monitoring DEP and environmental consultants reportsDEP and environmental consultants reports Actual invoices for expensesActual invoices for expenses

Estimated clean-up expenses $400KEstimated clean-up expenses $400K

Estimated legal expenses $100KEstimated legal expenses $100K

Claim recovery still unknown, but expected to be settled by Claim recovery still unknown, but expected to be settled by mid-2009mid-2009

Environmental Impairment Liability Environmental Impairment Liability (EIL) Summary(EIL) Summary

L’Oreal has insurance coverage for a gradual, L’Oreal has insurance coverage for a gradual, or sudden and accidental pollution eventor sudden and accidental pollution eventZurich Insurance Company $5MM / $10MMZurich Insurance Company $5MM / $10MMClean-up costs, legal liability and legal Clean-up costs, legal liability and legal expensesexpensesCoverage for on or off site, and transitCoverage for on or off site, and transit90 days to report new locations90 days to report new locationsClaims have to be reported during the policy Claims have to be reported during the policy periodperiod Better to advise Regulatory Affairs or Insurance, Better to advise Regulatory Affairs or Insurance,

even if uncertain, before the insurance policy even if uncertain, before the insurance policy expiresexpires

Questions or CommentsQuestions or Comments