June 27, 2014 Articles

Insurer Files Class Action Suits to Recover for Climate Change Losses

One insurer recently looked to litigation as a tool for recouping past losses it attributes to climate change

by Erin Doran

Recent extreme weather events like Hurricane Sandy, larger and more intense wildfires in the western United States, and record droughts have all been linked to climate change— that is, rising global temperatures. Sam Eaton, Climate Change and Sandy (Nov. 3, 2012), ; National Wildlife Federation, Increased Risk of Catastrophic Wildfires: Global Warming’s Wake-Up Call for the Western United States (2008),; Study Links California Drought To Global Climate Change (Apr. 24, 2014).

These events have led to record high property insurance claims in recent years. Andrew Freidman, U.S. Dominated Global Disaster Losses in 202: Swiss Re (April 1, 2013), ("The insurance industry had its third-most expensive year on record in 2012, with global economic losses from natural catastrophes and manmade disasters totaling $186 billion"). As a result of these increased losses, insurance companies are looking for ways to manage climate change risk, including ways to predict and prevent losses from extreme weather events. AIG, Climate Change: A Call for Weatherproofing the Insurance Industry.

One insurer recently looked to litigation as a tool for recouping past losses it attributes to climate change. In April 2014, Illinois Farmers Insurance Company (Illinois Farmers) filed several proposed class action lawsuits in Illinois state court, alleging that Chicago and surrounding municipalities failed to increase their storm water storage capacity, which allowed heavy rainfalls in the Chicago area on April 17 and 18, 2013, causing widespread flooding of homes. Kira Lerner, Ill. Farmers Says Chicago, Towns Didn't Prevent Flooding (April 21, 2014), http://www.law360.com/articles/538935/insurers-take-wait-and-see-approach-to-climate-change-suits?article_related_content=1. Illinois Farmers also filed similar lawsuits against other municipalities and government agencies in the counties surrounding Chicago. Bibeka Shrestha, Insurers Take Wait-and-See Approach to Climate Change Suits (May 21, 2014). The lawsuits proposed a class comprised of insurers that had paid claims regarding the April 2013 flooding event and of people who lived in the watershed districts identified in each lawsuit. Original Class Action Complaint and Demand for Jury Trial, Ill. Farmers Ins. Co. v. Metropolitan Water Reclamation District of Chicago, No. 14-cv-03251 (N.D. Ill. May 2, 2014), ECF. 1-1. Illinois Farmers asserted its claims as a subrogee of the insureds to whom it had paid claims related to the April 2013 rains.

The lawsuits allege that the watershed management agencies knew that climate change was causing increased amounts of rainfall. Id. at ¶ 48-51. For example, the complaint against entities in Cook County alleged that the watershed district had "adopted the scientific principle that climate change has caused increases in rain fall amount, intensity and duration during a rain in the Cook County as evidenced by their adoption of the Chicago Climate Action Plan." The complaint alleged that despite this knowledge, the municipalities failed to take reasonable pre-storm action to prevent or limit water intrusion into homes.

The Cook County complaint alleged three counts: negligent maintenance liability, failure to remedy known dangerous conditions, and unconstitutional encroachment onto private property. Illinois Farmers sought damages for the property damage caused to the putative individual plaintiff's property and for the amounts paid by the insurer class members for that damage.

The Illinois Farmers lawsuits appeared to be the first of their kind, and many commentators opined that Illinois Farmers faced significant hurdles in pursuing its claims, including obtaining class certification, convincing other insurers to remain in the class if it were certified, potential conflicts, and overcoming arguments that the municipalities were immune from the lawsuit. Bibeka Shrestha, Farmers Insurance Drops High-Profile Climate Change Suits (June 3, 2014), ; Insurers Take Wait-and-See Approach, at n.5; Mica Rosenberg, U.S. insurer class action may signal wave of climate-change suits (May 16, 2014), ; Vinson & Elkins, Climate Change Blog: Farmers Insurance Voluntarily Withdraws Climate Change Suits (June 6, 2014). While the Illinois Farmers lawsuits would have been a test case of climate change litigation, however, perhaps due to the challenges of pursuing such novel claims, Illinois Farmers voluntarily dismissed all of its lawsuits just a month after filing, on June 3, 2014. Insurers Take Wait-and-See Approach, at n.13. Thus, it remains to be seen whether subrogation lawsuits will become a new tool in the insurance industry’s battle to contain the increased claims that it anticipates as a result of climate changes and the resultant increases in losses due to extreme weather events.

Keywords: insurance, coverage, litigation, Illinois, climate change, subrogation, class action

Erin Dora, Meagher & Geer PLLP, Minneapolis.

 

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