The use of insurance as a market-based tool for environmental management has gained momentum in the past few years. Insurance is a contract that can either broaden or narrow conditions upon which compensation is given for environmental damage. Existing tort doctrines or statutory provisions very often stipulate the conditions upon which compensation is given. In areas such as perceived environmental risks, however, it may be easier and less costly to all parties to adopt contractual conditions of payment. By monitoring the insured’s activities as part of underwriting procedures, insurance companies can provide economic incentives to comply with standards.

Damages awarded by the Supreme Court of India in cases of environmental damage have been mostly exemplary in nature. The issue of compensation by economically unsound industries is still unanswered. Compulsory insurance that accounts for all their operational risks can be a method to make industries pay for damages accruing out of their activities. This must be mandatory for all industries that use scientific and technological know how.

Early attempts to provide environmental insurance in India can be exemplified by the Public Liability Insurance Act (plia), 1991 and the National Environmental Tribunal Act (neta), 1995. plia makes it mandatory upon industries, which handle hazardous substances, to have an insurance policy that would cover their liability to provide immediate relief on a specified scale. neta goes beyond statutory compensation limits and provides for compensation without limit in all cases where death or injury to a person (other than a workman), or damage to pro