Issues to Watch: Climate Change Litigation and Insurance

Climate change litigation is here. 

On February 26, 2008, the Alaska Native Village Kivalina and City of Kivalina filed suit against 19 defendants, including oil companies, power companies, and a coal company in the United States District Court for the Northern District of California.  The Complaint alleges that the defendants' activities warmed the climate, causing the village to erode into the Chukchi Sea.  This follows closely on the heels of the United States Supreme Court's decision in Massachusetts v. Environmental Protection Agency,  which held that a state could challenge a decision by the Environmental Protection Agency to regulate emissions of "greenhouse" gasses because they come within the Clean Air Act's definition of "air pollutant."  

Insurers have taken notice. 

Zurich Financial Services has formed the Climate Initiative, "a global initiative focused on the development of products and services addressing the evolving risks associated with climate change...."  A week after forming the Climate Initiative, Zurich announced that it had entered into an advisory agreement with former Prime Minister of Great Britain Tony Blair to collaborate with its Climate Initiative.  Lloyd's of London, Swiss Re, and other insurers have caused research, published articles, and initiated discussion on climate change issues. 

Among other issues, Lloyd's of London is studying how to manage increased property damage risk associated with global warming.  Lloyd's has stated: 

Between the 1960s and the 1990s, the number of natural catastrophes doubled and insured losses increased nearly seven-fold.  2005 was the worst year on record for property insurers, with claims of $83 billion... Hurricanes in the US accounted for $66 billion ... of this total.  It's no coincidence that the ten warmest years on record have all been since 1990.  Glaciers are melting and sea levels are rising. 

Yet, increased property losses are only the beginning.  Climate change raises issues across many lines of insurance. 

As the Kivalina case proceeds and companies are sued for liability arising out of their greenhouse emissions, how will insurers respond to claims made on commercial general liability policies?  Some advocates assert that the size and scope of coverage disputes about climate change litigation could rival the disputes about coverage for asbestos or other, more traditional pollution claims.  Indeed, may of the issues are similar:  What policies are triggered?  Is there coverage?  Are there Pollution Exclusions in the policies and do they apply?  Did the insurers "buy back" the policy as part of a previous settlement for pollution exposure?  How do you allocate defense and indemnity over decades of insurance policies?  These issues are already being debated privately and in academic articles. 

Similarly, the Kivalina case may provide a legal foothold for insurers to recoup some of their losses from tortfeasors.  In light of the increased losses, will insurers pursue subrogation theories against companies that have caused climate change?

Other issues may be less obvious.  For instance, will directors and officers of corporations face liability for failing to adequately address climate change issues?  Some statistics suggest that investors are more concerned about social accountability for corporations than ever before.  According to a recent report, "socially responsible investments" grew 18% between 2005 and 2007.  The market for directors and officers insurance coverage will have to adapt to the increased risk. 

Or, will corporations submit Sue & Labor claims to their insurers for the cost of making their operations "greener" to head off potential losses?  Several insurers successfully defended Sue & Labor claims for expenses incurred to prepare computer systems for the Year 2000.  With new remediation costs and more tangible property damage, policyholders may submit claims for these expenses, causing insurers to again defend themselves. 

At this point, there are a lot of questions.  The best solutions will depend on the circumstances of the individual insurer.  Any answers, however, should be based on the best information available.  At Robins, Kaplan, Miller & Ciresi L.L.P., we are committed to providing our clients the best service possible by staying on top of emerging issues.  If you would like more information about how climate change can affect the insurance industry, please contact us. 

The articles on our Website include some of the publications and papers authored by our attorneys, both before and after they joined our firm. The content of these articles should not be taken as legal advice.