chevron-down Created with Sketch Beta.
October 10, 2019 Articles

Coverage Issues for Climate Change Claims

An examination of whether climate change is a risk that can, and should, be covered by insurance.

By Karin S. Aldama, Tred R. Eyerly, and Rina Carmel [1]

The Earth’s climate is changing. This article discusses whether this is a risk that can, and should, be covered by insurance. Few coverage cases to date have addressed the issue, but that could change as underlying climate change suits are filed, including by young people who face an uncertain future. This article also highlights some of the public policy issues that might come into play, given the global importance of the underlying issue.

Our Changing Climate

Climate change has various causes. The National Resources Defense Council provides a basic explanation:

Q:        What causes global warming?
A:        Global warming occurs when carbon dioxide (CO2) and other air pollutants and greenhouse gases collect in the atmosphere and absorb sunlight and solar radiation that have bounced off the earth’s surface. Normally, this radiation would escape into space—but these pollutants, which can last for years to centuries in the atmosphere, trap the heat and cause the planet to get hotter. That’s what’s known as the greenhouse effect.
In the United States, the burning of fossil fuels to make electricity is the largest source of heat-trapping pollution, producing about two billion tons of CO2 every year. Coal-burning power plants are by far the biggest polluters. The country’s second-largest source of carbon pollution is the transportation sector, which generates about 1.7 billion tons of CO2 emissions a year.[2]

Causes of climate change, in order of most to least abundant, are as follows:

·       Water vapor. Changes in the concentration of water vapor happen because of atmospheric warming resulting from industrialization, not due to industrialization itself. “As a greenhouse gas, the higher concentration of water vapor is then able to absorb more thermal infrared energy radiated from the Earth, thus further warming the atmosphere. The warmer atmosphere can then hold more water vapor and so on and so on,” creating a positive feedback loop. At this time, this process is poorly measured and poorly understood.
·       CO2. CO2 is the most common greenhouse gas (GHG). It can remain in the atmosphere for over a century. It occurs naturally and also results from human activity. “It is an inevitable byproduct of the incomplete combustion of fossil fuels, and in particular coal. In 2013, CO2 accounted for about 82 percent of all U.S. greenhouse gas emissions from human activities.”
·       Methane (CH4). While much less common than CO2, methane is about 20 percent more potent. Its lifespan is about 12 years. Methane is currently about 2.5 times its pre-industrial levels in the atmosphere. Human activities cause over 60 percent of methane emissions. The main sources include natural gas and petroleum systems, enteric fermentation, landfills, coal mining, and manure management.
·       Nitrous oxide (N2O). N2O is a naturally occurring GHG, but human activities—in particular agriculture, fossil fuel combustion, wastewater management, and industrial processes—are increasing the level of concentration. A pound of nitrous oxide “has the equivalent warming effect of 300 times that of one pound of carbon dioxide.” Its lifespan is about 120 years.
·       Fluorinated gases: Hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfur hexafluoride (SF6). Although the fluorinated gases are the least common, they are the most potent GHGs. They have the longest lifespans, ranging up to 270 years for HFCs, 800–50,000 years for PFCs, and about 3,200 years for SF6. The most common sources of these GHGs include aluminum and semiconductor manufacturing processes.[3]

Regardless of its specific cause, it is generally understood that climate change results in, for example, weather and natural conditions that increase the risk of, and exacerbate, wildfires, and result in more frequent and stronger hurricanes, flooding and droughts, the melting of sea ice and accompanying rise in ocean levels, and other, similar events.[4] These events, in turn, may cause injury and destruction, and policyholders are increasingly looking to their insurers to cover the alleged associated losses.

The remainder of this article discusses some of the issues that can arise in that context, as well as what future directions of these types of claims may take.

Existing Policy Language: Coverage Arguments and Defenses

First-party property policies. Current property policies do not contain provisions that specifically mention climate change. However, property insurers have seen dramatic increases in claims based on weather events that may be caused by climate change or whose frequency or severity is likely increased by climate change, or a combination of these factors. For example, the record-breaking 2017 hurricane season saw three Category 4 and 5 hurricanes make landfall in the United States, with estimated insured losses at $16 to $19 billion for Harvey, $20 to $24 billion for Irma (an estimated 1,002,800 claims filed in Florida), and $25–30 billion for Maria. [5]

On the other side of the country, California’s 2018 wildfire season was the longest and most severe on record, resulting in $9.05 billion in insured losses from “three fires includ[ing] 17,955 partial residential losses, 10,564 total residential losses, 1,648 partial commercial losses, 350 total commercial losses, and 9,457 auto and non-residential losses—such as ocean marine, inland marine, aircraft, boiler and machinery,” according to the California Department of Insurance.[6]

First-party property insurers may well continue to be on the front lines of responding to losses due to climate change, especially to the extent government and corporate actors do not act to reduce GHG emissions.

Commercial general liability (CGL) policies. Many CGL policies now contain a total pollution exclusion, which applies to Coverage A—Bodily Injury and Property Damage Liability.[7] This form does not have its own definition of “pollutant.” Instead, “pollutant” is defined in the main form, or sometimes in another endorsement. ISO’s main CGL form defines “pollutant” as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.”[8] A major issue that could arise under this definition is whether GHGs constitute “pollutants.” This issue will likely pose significant challenges, especially for water vapor, given that the understanding of its impact is in the early stages, and water should not be a harmful substance.[9]

ISO’s main form also contains an anti-continuous trigger provision, sometimes referred to as a “Montrose exclusion” after a landmark pollution coverage case that ruled that pollution claims had a continuous trigger.[10] This provision, found in the insuring agreement, states:

b.  This insurance applies to “bodily injury” and “property damage” only if:
(3) Prior to the policy period, no insured listed under Paragraph 1. of Section II—Who Is An Insured and no “employee” authorized by you to give or receive notice of an “occurrence” or claim, knew that the “bodily injury” or “property damage” had occurred, in whole or in part. If such a listed insured or authorized “employee” knew, prior to the policy period, that the “bodily injury” or “property damage” occurred, then any continuation, change or resumption of such “bodily injury” or “property damage” during or after the policy period will be deemed to have been known prior to the policy period.
c. “Bodily injury” or “property damage” which occurs during the policy period and was not, prior to the policy period, known to have occurred by any insured listed under Paragraph 1. of Section II—Who Is An Insured or any “employee” authorized by you to give or receive notice of an “occurrence” or claim, includes any continuation, change or resumption of that “bodily injury” or “property damage” after the end of the policy period.
d. “Bodily injury” or “property damage” will be deemed to have been known to have occurred at the earliest time when any insured listed under Paragraph 1. of Section II—Who Is An Insured or any “employee” authorized by you to give or receive notice of an “occurrence” or claim:
(1) Reports all, or any part, of the “bodily injury” or “property damage” to us or any other insurer;
(2) Receives a written or verbal demand or claim for damages because of the “bodily injury” or “property damage”; or
(3) Becomes aware by any other means that “bodily injury” or “property damage” has occurred or has begun to occur.[11]

Insurers may argue that anti-Montrose provisions supersede the timing language in the definition of “property damage,” as the definition applies to losses without a temporal component. That language provides:

17. “Property damage” means:
a. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or
b.  Loss of use of tangible property that is not physically injured. All such loss of use shall be deemed to occur at the time of the “occurrence” that caused it.[12]

Insurers may argue, based on the anti-Montrose provision, that there can be no coverage for “property damage” or “bodily injury” resulting from climate change because everybody—including policyholders—was aware of the effects of climate change before the inception of a given policy period. Policyholders may respond by arguing that there continues to be debate about the existence or extent of climate change, and some jurors and judges might agree. Policyholders might also respond that the occurrence resulting in a given loss was, e.g., a hurricane, wildfire, or other sudden event, and not the climate change that may have facilitated or aggravated the sudden event. The latter arguments may increase the extent to which courts must examine causation to determine coverage, and concurrent causation issues are not always well delineated in the liability coverage context.

With the diametrically opposing trends of greater scientific knowledge and less government regulation, whether there is an “occurrence” and whether the “expected or intended” exclusion may bar coverage will likely be key issues in situations where coverage for climate-change-related losses is sought under CGL policies. With respect to “occurrence,” which is defined as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions,”[13] questions such as the following are likely to arise: Is a wildfire an “occurrence” when it was facilitated by conditions that were created over a significant period of global warming? Is climate change a “harmful condition” that persists over time, thus falling within the definition of “occurrence”? As to the “expected or intended” exclusion, which bars coverage for “‘[b]odily injury’ or ‘property damage’ expected or intended from the standpoint of the insured,”[14] issues may include whether fossil fuel companies or car manufacturers “expected or intended” climate change to result from increased GHG emissions or what constitutes the proximate cause of any given loss, and whether that particular cause was expected or intended. How these and other questions are resolved will likely depend on a combination of facts, policy language, legal precedent, scientific evidence, and public policy considerations.

As to Coverage B, ISO’s main CGL form contains a total pollution exclusion and a pollution-related exclusion, briefly summarized as applicable to government-ordered cleanup.[15] Coverage B contains a “knowing violation” exclusion, which bars coverage for “‘Personal and advertising injury’ caused by or at the direction of the insured with the knowledge that the act would violate the rights of another and would inflict ‘personal and advertising injury’.”[16] Issues similar to those discussed above may arise if and when policyholders seek coverage for climate-change-related losses under Coverage B.

Pollution liability and environmental liability policies. Policy forms that provide coverage for pollution liability and environmental liability are not standardized. The insuring agreement of a representative such policy, at issue in Acuity, a Mutual Insurance Co. v. Chartis Specialty Insurance Co., provides coverage as follows:

Claims for Bodily Injury, Property Damage, or Environmental Damage caused by Pollution Conditions resulting from Covered Operations. The Pollution Conditions must be unexpected and unintended from the standpoint of the Insured. The Bodily Injury, Property Damage, or Environmental Damage must occur during the Policy Period.[17]

The policy defined “Pollution Conditions” to mean:

Pollution Conditions means the discharge, dispersal, release or escape of any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, medical waste and waste materials into or upon land, or any structure on land, the atmosphere or any watercourse or body of water, including groundwater, provided such conditions are not naturally present in the environment in the concentration or amounts discovered.[18]

Because pollution liability policies are, with respect to environmental pollution, arguably the mirror image of CGL policies, the issue of whether GHGs constitute pollutants will likely also arise for claims made under this type of policy. Policyholders may argue that resolution of this issue for one policy type should resolve the issue for both CGL and pollution liability policies. Insurers may respond that the outcome may depend on a policy’s definition of “pollutant,” especially if it differs significantly from those set forth above, and that how the term is applied depends on whether it appears in a coverage provision (as in pollution liability policies) or in an exclusion (as in CGL policies).

Directors’ and officers’ (D&O) policies. D&O policies are not written on standardized forms, but many of them provide coverage for “Wrongful Acts.” One D&O policy defines this term to mean “any actual or alleged act, error, omission, misstatement, misleading statement, neglect, or breach of duty by an Insured Person acting in their role with the Company.”[19] One of the key questions with respect to cases brought by  shareholders, for example, against officers and directors for negative impacts on companies from their GHG emissions will be whether this language covers the wrongdoing alleged in such actions.

Limited Body of Case Law Addressing Climate Change Issues

Courts have yet to address many coverage-related issues arising out of climate-change-related claims. A few decisions may foreshadow how courts could analyze these issues in the future.

The Supreme Court addressed climate change issues over a decade ago. The U.S. Supreme Court has addressed other climate change issues in the past decade in opinions that could affect how insurance disputes based on climate change will be viewed.

In 2007, Massachusetts v. Environmental Protection Agency,[20] the Court held that federal courts could hear complaints against the federal government regarding climate change. Relevant to coverage, the Court considered whether CO2 is a pollutant. After the U.S. Environmental Protection Agency (EPA) declined to regulate CO2, states and organizations challenged the EPA’s inaction. The Court discussed the impact of global warming in detail, while deciding that the EPA had abused its discretion.

Justice Stevens began his opinion by stating:

A well-documented rise in global temperatures has coincided with a significant increase in the concentration of carbon dioxide in the atmosphere. Respected scientists believe the two trends are related. For when carbon dioxide is released into the atmosphere, it acts like the ceiling of a green house, trapping solar energy and retarding the escape of reflected heat. It is therefore a species—the most important species—of a “greenhouse gas.”[21]

The Clean Air Act (CAA) required the EPA administrator to adopt standards applicable to the emission of any air pollutant from motor vehicles “which in his judgment cause, or contribute to air pollution which may reasonably be anticipated to endanger public health or welfare.”[22] The EPA declined to regulate GHG emissions from new motor vehicles, determining that the CAA did not authorize it to issue mandatory regulations to address global climate change and that, even if it had authority to do so, it would be unwise to set GHG emission standards at that time.[23] The EPA reasoned that climate change was such an important issue that, unless Congress specifically instructed the EPA to act, Congress could not have meant for the EPA to address global warming.[24] Thus, the EPA believed that GHGs could not be “air pollutants” under the CAA.[25]

The D.C. Circuit Court of Appeals agreed. Reversing, the Supreme Court first determined that the petitioners had standing to challenge the EPA’s denial of their rulemaking petition.[26] The Court next determined that the CAA authorized the EPA to regulate GHG emissions from new motor vehicles if the EPA determined that such emissions contributed to climate change.[27] The CAA’s definition of “air pollutant” was broad and extended to all airborne compounds.[28] Thus, GHGs were an “air pollutant” under the CAA, and the EPA had authority to regulate GHG emissions from new motor vehicles.[29]

The Court also rejected the EPA’s reasoning that, even if it had statutory authority to regulate GHGs, it would be unwise to do so. The EPA could avoid taking further action only if it determined that GHGs did not contribute to climate change or if it provided some reasonable explanation as to why it could not exercise its discretion to make the determination.[30] But the EPA had offered no reasoned explanation for its failure to decide whether GHGs caused or contributed to climate change. The EPA’s actions, therefore, were arbitrary and capricious.[31]

From a coverage standpoint, the issue is whether Massachusetts means that CO2 emissions will be deemed a pollutant under a CGL policy’s absolute pollution exclusion or whether they fall within a pollution liability policy’s coverage provisions. Few cases since Massachusetts have addressed this question, but future claims could well involve it.

After Massachusetts, the EPA began rulemaking to set limits on GHG emissions from fossil-fuel-fired power plants. Before the EPA implemented the new rules, several states, the city of New York, and three private land trusts sued four private power companies and the federal Tennessee Valley Authority, asserting federal common-law public nuisance claims for CO2 emissions from the plants. In America Electric Power Co. v. Connecticut,[32] the Court held that corporations could not be sued for GHG emissions under federal common law because the federal CAA preempted the common law. The plaintiffs had alleged that public lands, infrastructure, and health were at risk from climate change, and that animal habitats and rare species of trees and plants would be destroyed. As relief, the plaintiffs had sought a decree capping CO2 emissions for each defendant.

The Court held that the CAA and the EPA actions under the act displaced any federal common-law right to seek abatement of CO2 emissions from fossil-fuel-fired power plants.[33] In Massachusetts, the Court had held that emissions of CO2 qualified as air pollution subject to regulation under the CAA, which spoke directly to CO2 emissions from the defendants’ plants. Because the CAA itself provided a means to seek limits on CO2 emissions from power plants, the plaintiffs could not seek to bypass it by invoking federal common law.[34] In addition, federal judges could not set limits on GHG emissions when the CAA empowered the EPA to do so.[35]

Only a few courts have addressed coverage for damage allegedly created by climate change. To date, AES Corp. v. Steadfast Insurance Co.[36] is the case that has most clearly addressed potential coverage for climate change claims. AES was based on an underlying action filed by the Alaskan village of Kivalina against ExxonMobil and several other oil, coal, and electric utility companies, Native Village of Kivalina v. ExxonMobil Corp.[37]

The plaintiffs in Kivalina alleged that the defendants’ GHG emissions contributed to global warming, which in turn melted Arctic sea ice and contributed to the coastline erosion, making the plaintiffs’ village uninhabitable. The plaintiffs sought monetary damages under a theory of public nuisance.[38] The trial court dismissed the plaintiffs’ claims, and the Ninth Circuit affirmed, holding that, under American Electric, the “displacement of a federal common law right of action [also] means displacement of [the] remedies” sought by the Kivalina plaintiffs, and noting that “the solution to Kivalina’s dire circumstance must rest in the hands of the legislative and executive branches of our government, not the federal common law.”[39]

The coverage dispute arose when AES, one of the Kivalina defendants and a Virginia-based company, sought coverage under several CGL policies.[40] The insurer provided a defense under a reservation of rights and sought a declaration that it had no duty to defend or indemnify.[41] The insurer alleged that the underlying action did not allege “property damage” caused by an “occurrence” and that the pollution exclusion barred coverage.[42]

Each of the policies at issue in AES provided coverage for property damage “caused by an ‘occurrence’”; that is, by an “accident, including continuous and repeated exposure to substantially the same general harmful condition.”[43] Crucially, the court’s reasoning and holding, discussed below, were rooted in Virginia’s strict eight-corners standard for whether a defense obligation may exist.[44]

Recognizing that the duty to defend is broader than the duty to indemnify, the court nonetheless held that the insurer had no duty to defend because the Kivalina complaint did not allege property damage resulting from an “occurrence.”[45] The court focused on the fact that an “occurrence” is an “accident”; that is, “an event which creates an effect which is not the natural or probable consequence of the means employed and is not intended, designed, or reasonably anticipated.”[46] The Kivalina complaint alleged that AES intentionally released into the atmosphere tons of CO2 and other GHGs “as a regular part of its energy-producing activities” and that “there is clear scientific consensus that the natural and probable consequence of such emissions is global warming and damages such as Kivalina suffered.”[47]

Thus, “the gravamen of Kivalina’s nuisance claim [was] that the damages [Kivalina] sustained were the natural and probable consequences of AES’s intentional emissions,” regardless of whether AES was negligent in that it should have known that its release of the GHGs would cause the damage alleged in the Kivalina complaint.[48] “If an insured knew or should have known that certain results were the natural and probable consequences of intentional acts or omissions, there is no ‘occurrence’ within the meaning of a CGL policy,” so there was no defense obligation.[49] Because that conclusion resolved the coverage issue, the court did not reach the issue of whether GHG emissions constituted “pollution” within the scope of the policies’ pollution exclusion.

AES thus found no potential coverage for damage caused by GHG emissions because there was no “occurrence.” However, the court’s holding can be read as a narrow one: The coverage conclusions were necessarily based on the underlying allegations that AES should have known that its business practices would cause damage such as that experienced by the village of Kivalina. Given the newly energized debate about whether climate change actually exists—scientific consensus notwithstanding—the result in a different suit with different allegations or different policy language (or both) could well be different.

Another early case addressing potential coverage for damage related to climate change is Donaldson v. Urban Land Interests,[50] which addressed whether CO2 emissions fell under a CGL policy’s pollution exclusion. The plaintiffs in the underlying action alleged that an inadequate air exchange ventilation system in the policyholder’s office building had caused an excessive accumulation of CO2 in their work area. The plaintiffs alleged that they had, as a result, suffered from headaches, sinus problems, eye irritation, extreme fatigue, upset stomach, asthma, sore throat, nausea, and pounding ears. The trial court granted the insurer’s motion for summary judgment, determining that the buildup of CO2 was a “gaseous irritant” and therefore a “pollutant” under the policy.

The court of appeals affirmed, but the Wisconsin Supreme Court reversed. It ruled that both the insurer and the policyholder intended for the pollution exclusion to have a broad application. However, the court concluded that the pollution exclusion at issue did not plainly and clearly alert a reasonable policyholder that coverage was excluded for personal injury claims based on the fundamental human activity of breathing.[51] Consequently, the court held that the pollution exclusion was ambiguous because the policyholder could reasonably expect coverage on the facts of this case.[52] This opinion thus suggests both that CO2 emissions could constitute pollution and that there may still be questions as to whether a particular type of emission falls within a particular pollution exclusion.

Are Claims of Damage Based on Climate Change Covered?

Although, as discussed above, courts have rarely addressed directly the issue of coverage for claims of damages allegedly caused by, e.g., GHG emissions contributing to climate change and global warming, it is likely that the following issues will ultimately need to be addressed as climate-change-related litigation becomes more prevalent. These issues are likely to arise in the context of CGL and pollution liability policies as polluters are sued for damages and injuries allegedly caused by their GHG emissions.

State law nuisance claims. State nuisance law claims have not been foreclosed under Massachusetts and its progeny. In fact, in January 2018, the city of New York filed a lawsuit against various oil companies, including BP and ExxonMobil, alleging that their GHG emissions have damaged New York City in various ways, including through erosion and flooding.[53] The city alleged causes of action including public nuisance, private nuisance, and trespass, and sought both compensatory damages and costs that the City will incur to protect infrastructure and property as well as public safety and the health of its citizens from the impacts of climate change. The case is currently on appeal following dismissal in the U.S. District Court for the Southern District of New York, and oral arguments are currently set for September 23, 2019.[54]

Similar lawsuits against fossil fuel companies have been filed in California by municipalities, the state, and coastal communities.[55] Victims of hurricanes are also filing suit, alleging that the defendant oil, electrical, chemical, and coal companies caused or contributed to global warming and climate change that created the conditions fueling devastating hurricanes such as Hurricane Katrina.[56]

Property damage. Whether damage allegedly caused by climate change triggers a CGL carrier’s duty to defend seems likely to be a key issue. One important question in that context will likely be whether the environmental damage alleged, such as flooding or erosion, constitutes covered “property damage” that occurred during the policy period.

Some courts have held that damage to the environment constitutes the requisite damage to “tangible property” for purposes of CGL coverage.[57] And where the complaint alleges continuous and incremental damage to the environment occurring over years of GHG emissions since, e.g., the 1970s, courts in some jurisdictions could determine that a continuous trigger applies, possibly implicating decades of policies.[58]

Occurrence. If the definition of property damage is satisfied, the next issue may be whether it was caused by an “occurrence”; that is, “an accident” or “continuous or repeated exposure to substantially the same harmful conditions.” As discussed above, the Virginia Supreme Court concluded in AES that the complaint did not allege an occurrence because it alleged that the defendants knew or should have known of the allegedly detrimental consequences of their conduct. But many courts have found, in the context of long-tail environmental cases, that the continuous discharge of pollutants into the environment constitutes an occurrence.[59]

By analogy, and absent allegations such as those contained in the Kivalina complaint, courts could well find that the continuous emission of GHGs constitutes an occurrence. Moreover, different standards for evaluating an “occurrence,” which vary by state, could affect the analysis. Some states do not consider the objectively natural or probable consequences of a policyholder’s actions when evaluating whether there was an “occurrence”; rather, they assess only the policyholder’s subjective intent or expectation or the substantial probability of the alleged harm occurring as a result of the policyholder’s intentional actions.[60]

Duty to defend where pollution exclusions exist. Another key issue policyholders and insurers will likely face is whether standard CGL policies’ pollution exclusions bar coverage. Since 1986, many CGL policies have included absolute pollution exclusions, and policies issued between 1973 and 1986 contained pollution exclusions with exceptions for “sudden and accidental” discharges of pollutants. These exclusions raise two issues: First, are GHGs “pollutants,” which are often defined to mean “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste”? And, second, if GHGs are pollutants, can emission over time constitute a “sudden and accidental” release within the meaning of the pre-1986 CGL policies’ exception to the pollution exclusion?

1. Are GHGs “pollutants”? As to the first issue, no court has directly addressed that question yet. Massachusetts suggests that GHGs may be pollutants, but that decision was made under the CAA’s broad definition of air pollution, not under the definition in standard CGL policies.

But other courts have held, Massachusetts notwithstanding, that naturally occurring substances such as CO2 are not pollutants.[61] And even opinions by courts that do not go quite that far range from extremely broad to very narrow interpretations of the pollution exclusion.[62]

Whether an insurer’s duty to defend is triggered by allegations of damage caused by GHG emissions seems likely to depend on the jurisdiction in which the coverage case is brought. And even if the complaint is brought in a jurisdiction with a more expansive view of the pollution exclusion, policyholders may still argue that emissions within regulatory limits cannot constitute pollution—a view that an Illinois appellate court ostensibly agreed with when holding that a pollution exclusion was at least ambiguous when applied to regulatorily permitted levels of discharge of air pollutants.[63]

2. Are emissions causing climate change “sudden or accidental?” With respect to the second issue, of whether GHG emissions occurring over time—potentially years or decades—can be “sudden or accidental,” decisions similarly range from finding coverage only for pollutant discharges that occurred abruptly or over a short period of time, to finding coverage for gradual discharges (at least so long as the policyholder did not expect or intend the resulting damages).[64] Thus, again, the coverage outcome will likely depend on where climate‑change-related coverage actions are filed.

Coverage for “wrongful entry” under CGL Coverage B. Trespass allegations based on GHG emissions are likely to give rise to the coverage issue of whether they allege a “wrongful entry” under Coverage B, as required for “personal and advertising injury” coverage.[65] For example, the complaint in City of New York v. BP P.L.C. alleges trespass.

Importantly, Coverage B was not subject to a pollution exclusion until the mid-1990s, when ISO issued CGL form CG 00 01 01 96. The absence of a pollution exclusion in pre-1996 CGL policies may allow policyholders to argue that Coverage B is available for such allegations, even if no potential coverage exists under Coverage A for the resulting property damage. Such an argument could likely be particularly successful in a jurisdiction that has held that trespass onto third‑party property by chemicals is akin to wrongful entry under Coverage B.[66]

Exclusions for “expected or intended” results. Depending on how the allegations in the underlying complaint are framed, the scope of the “expected or intended” exclusion may also come into play. For example, an underlying complaint alleging intentional behavior of the insured in order to preserve an argument for punitive damages likely will not be helpful to the policyholder’s efforts to secure a defense under the policy. On the other hand, an insurer might choose not to assert this exclusion so that it can control the defense and appoint panel counsel.

Coverage issues under policies other than CGL policies. Of course, coverage issues may also arise under policies other than CGL policies. For example, it is easy to foresee shareholder suits against coal, oil, and utility companies alleging that their consistent emissions of GHGs have exposed them to damages claims such as those discussed above, which may in turn have resulted in lower share prices. The defendants will likely tender such claims to their D&O insurers, resulting in coverage issues such as whether the D&O policy at issue contains a pollution exclusion, the scope of that exclusion, whether the complaint’s allegations fall under it, and, if they do, whether an exception applies. Especially if the complaint alleges failure to disclose climate-related risk (as opposed to focusing on the actual emissions), it may well be that courts find that any pollution exclusion in the D&O policy does not apply because the allegations focus on misrepresentation, not pollution.

Similarly, issues may arise under pollution liability and environmental liability policies. These policies, in a way, are mirror images of CGL policies: Whereas the CGL policies contain pollution exclusions, pollution liability and environmental liability policies are designed to cover “pollution events.” Thus, to the extent that courts conclude that GHGs are pollutants for purposes of CGL coverage, they could then also conclude that coverage for damages resulting from the discharge of those pollutants is available under pollution liability and environmental liability policies. Of course, principles of policy construction will likely come into play, given that coverage provisions are construed broadly, while exclusions are construed narrowly. In addition, the fact that most such policies are claims-made rather than occurrence-based may somewhat mitigate the risk to insurers posed by climate-change-related lawsuits because, unlike with CGL policies, only the policy in effect when the complaint is filed may be triggered.

Finally, the increasing occurrence of extreme climate events potentially caused by human action and climate change, such as hurricanes or wildfires, may continue to implicate coverage under first-party property policies.

Public Policy Implications

Several commentators have raised public policy issues that insurers might consider, both on the underwriting and coverage sides. Underwriting issues include pricing based on GHG emissions risk, how businesses such as heating, ventilation, and air conditioning and boiler cleaning contractors should be classified, and surcharges for emitters.[67]

On the coverage side, the key issues will likely continue to be those discussed above, as well as whether insurers will seek to add climate change/GHG emissions exclusions to policies.[68]

 Eleven years ago, a scholar noted the following, which remains true today:

The insurance industry is poised to make important contributions to address both the causes and impacts of our changing climate. Climate change poses risks that are unprecedented in the short timespan of industrialized society; some of the risks are startlingly uncertain in nature and degree and have financial consequences to business and individuals. Because insurers play a central role in helping our global economy to manage risk and to make business and personal ventures viable, their participation in solving the climate change problem is essential. Moreover, climate change poses a risk to the long-term stability of the insurance industry itself, because of the uncertainties that climate change introduces into risk management. If insurers do not rise to the challenge of climate change, there could be a serious financial and social crisis on a global scale. Global governance institutions will have to devise other methods of managing the risks posed by climate change.[69]

As Professor Hecht recognizes, it seems unlikely that the insurance industry alone could effect change in GHG emissions. This is especially so when government regulation and enforcement are nonexistent or lax.[70] If insurers were to introduce climate change/GHG emissions exclusions, policyholders would likely argue that they are not enforceable. If courts were to agree, what deterrents would be left?

An environmental group has proposed a more direct approach, calling on insurers not to issue policies to coal, mining, power plant, oil, and fracking companies, under the theory that without insurance, these companies will be unable to continue operations.[71] It is not clear that this approach would reduce GHG emissions, at least in the near term, for several reasons, including the following: To the extent any “occurrences” took place in the past, they could continue to be potentially covered for decades. Moreover, many companies can likely afford to self-insure. And the fact that insurance is not available does not necessarily eliminate risk, as seen in the need for uninsured drivers to purchase uninsured motorists’ coverage.[72] Finally, for insurers, a decision not to insure particular industries could result either in loss of competitiveness by a single insurer that makes this decision or in antitrust liability for a group of insurers.


To the extent that insurance is going to play a role in combatting climate change, insurers will need to develop products and determine how they should be priced if they wish to have a role in protecting insureds from the increasing possibility of future harm created by climate change. At the same time, until such products are in place and have been accepted by policyholders, issues such as those identified above will likely increasingly be litigated under existing policies as climate-change-related events continue to occur and damage property and as third parties continue to bring climate-change-related lawsuits against policyholders. If such policies are introduced, policyholders, which include major emitters, will need to consider whether the real goal is to combat climate change or to obtain policy benefits despite climate-change exclusions. Otherwise, a policyholder win in a coverage action could be a Pyrrhic victory.

Karin S. Aldama is with Perkins Coie LLP in Phoenix. Tred R. Eyerly is with Damon Key Leong Kupchak Hastert in Honolulu. Rina Carmel is with Zelle McDonough & Cohen LLP in Los Angeles.


[1] This article is based on a 2019 ABA Insurance Coverage Litigation Committee CLE seminar presented by Karin S. Aldama, Tred R. Eyerly, and Rina Carmel, Changing Climate, Changing Risks and Policies. This is an academic discussion. The views and opinions expressed in this article do not necessarily reflect the opinions of all of its authors on everything expressed herein, nor of their firms or clients.

[2] Amanda MacMillan, Global Warming 101 (Nat’l Res. Def. Council Mar. 11, 2016) (bold font in original; italics added).

[3] Morris A. (Bud) Ward, The Principal Greenhouse Gases and Their Sources (Nat’l Envtl. Educ. Found. Sept. 16, 2015).

[4] E.g., Nat’l Aeronautics & Space Admin., The Effects of Climate Change.

[5] Ins. Info. Inst, Facts + Statistics: Hurricanes.

[6] Don Jergler, “Official Figure on Insured Losses for 2018 California Wildfires Reaches $9B,” Ins. J., Dec. 12, 2018.

[7] E.g., ISO Form No. CG 21 49 09 99.

[8] ISO Form No. CG 00 01 04 13, at 15.

[9] But see Ortega Rock Quarry v. Golden Eagle Ins. Corp., 141 Cal. App. 4th 969, 980–81 (2006) (holding “natural” dirt and rocks were pollutants within meaning of Clean Water Act when placed in waters of United States in violation of the act); Gold Fields Am. Corp. v. Aetna Cas & Sur. Co., 295 A.D.2d 289, 290 (N.Y. App. Div. 2002) (“The hazardous substances are not rendered non-polluting by the fact that they are naturally occurring [citation], since, in this case, the hazardous material ‘is not found in its unaltered form because mining, an unnatural process, has altered its location.’”); see also Space v. Farm Family Mut. Ins. Co., 235 A.D.2d 797, 798 (N.Y. App. Div. 1997) (natural organic fertilizer may be pollutant within meaning of pollution exclusion when it leaches into groundwater or contaminates water sources).

[10] Montrose Chem. Corp. v. Admiral Ins. Co., 10 Cal. 4th 645 (1995) (often referred to as “Montrose II”).

[11] ISO Form No. CG 00 01 04 13, at 1.

[12] ISO Form No. CG 00 01 04 13, at 15.

[13] ISO Form No. CG 00 01 04 13, at 15.

[14] ISO Form No. CG 00 01 04 13, at 2.

[15] ISO Form No. CG 00 01 04 13, at 7.

[16] ISO Form No. CG 00 01 04 13, at 6.

[17] Acuity, a Mut. Ins. Co. v. Chartis Specialty Ins. Co., 861 N.W.2d 533, ¶ 31 (Wis. 2015).

[18] Acuity, 861 N.W.3d 533, ¶ 33.

[19] AR Capital, LLC v. XL Specialty Ins. Co., C.A. No. N16C-04-154 WCC CCLD, 2018 Del. Super. LEXIS 1568, at *5 (Dec. 12, 2018).

[20] Massachusetts v. Envtl. Prot. Agency, 549 U.S. 497 (2007).

[21] Massachusetts, 549 U.S. at 504.

[22] Massachusetts, 549 U.S. at 506 (quoting 42 U.S.C. § 752 (a)(1)).

[23] Massachusetts, 549 U.S. at 510–11.

[24] Massachusetts, 549 U.S. at 512.

[25] Massachusetts, 549 U.S. at 513.

[26] Massachusetts, 549 U.S. at 526.

[27] Massachusetts, 549 U.S. at 528.

[28] Massachusetts, 549 U.S. at 529.

[29] Massachusetts, 549 U.S. at 532.

[30] Massachusetts, 549 U.S. at 533.

[31] Massachusetts, 549 U.S. at 534.

[32] Am. Elec. Power Co. v. Connecticut, 564 U.S. 410 (2011).

[33] America Electric, 564 U.S. at 424.

[34] America Electric, 564 U.S. at 426.

[35] America Electric, 564 U.S. at 429.

[36] AES Corp. v. Steadfast Ins. Co., 725 S.E.2d 532 (Va. 2012).

[37] Native Vill. of Kivalina v. ExxonMobil Corp., 696 F.3d 849 (9th Cir. 2012).

[38] Kivalina, 696 F.3d at 853.

[39] Kivalina, 696 F.3d at 857–58.

[40] AES, 725 S.E.2d at 533.

[41] AES, 725 S.E.2d at 533.

[42] AES, 725 S.E.2d at 533.

[43] AES, 725 S.E.2d at 534 (internal quotation marks omitted).

[44] See AES, 725 S.E.2d at 535.

[45] AES, 725 S.E.2d at 535, 538.

[46] AES, 725 S.E.2d at 536 (internal quotation marks and citation omitted).

[47] AES, 725 S.E.2d at 536–37.

[48] AES, 725 S.E.2d at 537.

[49] AES, 725 S.E.2d at 538.

[50] Donaldson v. Urban Land Interests, 564 N.W.2d 728 (Wis. 1997).

[51] Donaldson, 564 N.W.2d at 732.

[52] Donaldson, 564 N.W.2d at 732.

[53] City of New York v. BP P.L.C., No. 18-CV-182 (S.D.N.Y. Jan. 2018).

[54] City of New York v. BP P.L.C., No. 18-2188 (2d Cir.), ECF No. 223.

[55] E.g., People of the State of Cal. v. BP P.L.C., No. 3:17-cv-06011 (N.D. Cal. 2017).

[56] E.g., Comer v. Murphy Oil USA, Inc., 839 F. Supp. 2d 849 (S.D. Miss. 2012) (dismissing suit due to lack of standing), aff’d, 718 F.3d 460 (5th Cir. 2013); Turner v. Murphy Oil USA, Inc., 472 F. Supp. 2d 830 (E.D. La. 2007).

[57] E.g., Weight v. USAA Cas. Ins. Co., 782 F. Supp. 2d 1114, 1123–24 (D. Haw. 2011) (concluding that stream diversion that resulted in “diminished water flow” to plants and fish could constitute damage to “tangible property”); Oak Ford Owners Ass’n v. Auto-Owners Ins. Co., 510 F. Supp. 2d 812, 817 (M.D. Fla. 2007) (finding that creek dredging and deposition of fill on creek bank constituted damage to “tangible property”; noting that in “environmental contamination cases, courts routinely assume that property damage occurs by virtue of the introduction of pollutants into the environment”); Towns v. N. Sec. Ins. Co., 964 A.2d 1150, 1161–62 (Vt. 2008) (determining that groundwater contamination constitutes damage to “tangible property”).

[58] See, e.g., Fireman’s Fund Ins. Cos. v. Ex-Cell-O Corp., 685 F. Supp. 621, 626 (E.D. Mich. 1987) (holding that “each exposure of the environment to a pollutant constitutes an occurrence and triggers coverage”); Cole v. Celotex Corp., 599 So. 2d 1058, 1077–80 (La. 1992) (noting that in “some exposure types of cases involving cumulative injuries, it is possible that more than one policy will afford coverage” because “each policy will afford coverage to the bodily injury or property damage which occurs during the policy period” (internal citation omitted)); C. Brewer & Co. v. Indus. Indem. Co., No. 28958, 2013 WL 4017100, at *10–15, 2013 Haw. App. LEXIS 472, at *43 (Haw. Ct. App. Aug. 7, 2013) (holding that continuous damage to earthen dam over multiple years triggered all policies in effect over period during which damage occurred), aff’d in part, vacated in part on other grounds sub nom. C. Brewer & Co. v. Marine Indem. Ins. Co., 347 P.3d 163 (Haw. 2015).

[59] E.g., Metro. Life Ins. Co. v. Aetna Cas. & Sur. Co., 765 A.2d 891, 900–909 (Conn. 2001) (collecting cases and concluding that “exposures to asbestos” that “spanned a period of more than sixty years” constitutes “several occurrences”).

[60] E.g., Nat’l Sur. Co. v. Westlake Invs. LLC, 880 N.W.2d 724, 736 (Iowa 2016) (holding that existence of occurrence “under a modern standard-form CGL policy turns on whether the event itself and the resulting harm were both expected or intended from the standpoint of the insured”); Columbia Cas. Co. v. Westfield Ins. Co., 617 S.E.2d 797, 799 (W. Va. 2005) (similar; collecting cases); Voorhees v. Preferred Mut. Ins. Co., 607 A.2d 1255, 1264–65 (N.J. 1992) (similar; noting that the “general trend appears to require an inquiry into the actor’s subjective intent to cause injury”); City of Carter Lake v. Aetna Cas. & Sur. Co., 604 F.2d 1052, 1059 (8th Cir. 1979) (similar; holding that existence of occurrence depends on insured’s actual knowledge); State Farm Fire & Cas. Co. v. Motta, Civil Action No. 18-3956, 2018 U.S. Dist. LEXIS 208472 (E.D. Pa. Dec. 11, 2018) (viewing whether suicide was an accident from the policyholder’s perspective after he allegedly bullied his classmate).

[61] E.g., Andersen v. Highland House Co., 757 N.E.2d 329, 333 (Ohio 2001) (holding that claim based on carbon monoxide poisoning was not excluded by pollution exclusion); Donaldson v. Urban Land Interests, 564 N.W.2d 728, 732 (Wis. 1997) (holding that exhaled CO2 is not a pollutant); W. All. Ins. Co. v. Gill, 686 N.E.2d 997, 999–1001 (Mass. 1997) (holding that pollution exclusion did not bar coverage for claim based on injury from inhalation of carbon monoxide fumes emitted from restaurant’s tandoori oven during normal business operations).

[62] Compare, e.g., Chestnut Assocs. v. Assurance Co. of Am., 17 F. Supp. 3d 1203, 1214 (M.D. Fla. 2014) (holding that bodily fluids can constitute “pollutant”), with, e.g., Am. States Ins. Co. v. Kiger, 662 N.E.2d 945, 948–49 (Ind. 1996) (holding that gas leaking from gas station’s underground storage tank was not pollutant).

[63] Erie Ins. Exch. v. Imperial Marble Corp., 957 N.E.2d 1214, 1221 (Ill. Ct. App. 2011) (asserting that pollution exclusion is “arguably ambiguous as to whether the emission of hazardous materials in levels permitted by an [Illinois Environmental Protection Agency] permit constitute traditional environmental pollution excluded under the policy”); Country Mut. Ins. Co. v. Bible Pork, Inc., 42 N.E.3d 958, 970 (Ill. Ct. App. 2015) (similar).

[64] Compare, e.g., N. Pac. Ins. Co. v. Mai, 939 P.2d 570 (Idaho 1997) (finding that “sudden” is unambiguous and concluding that it only “includes reference to an event that happens in a short period of time”), with, e.g., Sunbeam Corp. v. Liberty Mut. Ins. Co., 781 A.2d 1189, 1195 (Pa. 2001) (noting that CGL policies may “provide coverage for both gradual and abrupt pollution or contamination so long as it was unexpected and unintended”).

[65] ISO Form No. CG 00 01 04 13, at 15.

[66] E.g., Pipefitters Welfare Educ. Fund v. Westchester Fire Ins. Co., 976 F.2d 1037, 1042–44 (7th Cir. 1992) (concluding that CGL policy’s pollution exclusion clause defeats claim for coverage only when it “applies, by its terms, to the policy’s personal injury provision” and the suit “falls within the purview of the clause”); Great N. Nekoosa Corp. v. Aetna Cas. & Sur. Co., 921 F. Supp. 401, 407 (N.D. Miss. 1996) (holding that policy’s “pollution exclusion is only applicable to bodily injury and property damage,” not “to liabilities enumerated within the personal injury endorsement”); Millers Mut. Ins. Ass’n of Ill. v. Graham Oil Co., 668 N.E.2d 223, 229 (Ill. App. Ct. 1996) (determining that, because “language of the pollution exclusion refers only to ‘bodily injury’ . . . and ‘property damage,’” and because court must “construe exclusions strictly against the insurer and in favor of coverage,” court could not “broaden the pollution exclusion’s express terms to deny coverage for personal injuries caused by pollution”); Hirschberg v. Lumbermens Mut. Cas. Co., 798 F. Supp. 600, 604 (N.D. Cal 1992) (finding that “coverage exists under the personal injury provision” because complaint alleged “causes of action based on nuisance and trespass”).

[67] Joseph A. Valenza, Virtue Risk Partners, LLC, “Underwriting Green” Tames Climate Risks (Feb. 22, 2010).

[68] Valenza, supra note 67.

[69] Sean B. Hecht, “Climate Change and the Transformation of Risk: Insurance Matters,” 55 UCLA L. Rev. 1559 (2008).

[70] See Rich Duke, “Leaving the Paris Agreement Is a Bad Deal for the United States,” Foreign Pol’y, May 19, 2019 (expressing view that coordinated worldwide action is needed to combat climate change and that Donald Trump’s plan to withdraw from Paris Agreement would provide cover for other major emitters like China and India).

[71] Ross Hammond, While California burns U.S. insurance companies continue to finance coal & climate destruction, Leonardo DiCaprio Foundation, (last visited June 9, 2019).

[72] Compare, e.g., Cal. Veh. Code § 16056(a) (requiring drivers to have specified minimum liability insurance limits), with Cal. Ins. Code § 11580.2(a) (requiring auto insurers to provide uninsured motorists coverage, although insureds may waive such coverage).

    Copyright © 2019, American Bar Association. All rights reserved. This information or any portion thereof may not be copied or disseminated in any form or by any means or downloaded or stored in an electronic database or retrieval system without the express written consent of the American Bar Association. The views expressed in this article are those of the author(s) and do not necessarily reflect the positions or policies of the American Bar Association, the Section of Litigation, this committee, or the employer(s) of the author(s).