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Taking the Market’s Temperature on Coverage for Climate Change–Related Liabilities

Janine Stanisz, William McMichael, and Georgia Bender


  • Policyholders must remain vigilant against insurer’s attempts to reduce or eliminate coverage.
  • They must ensure their policies protect against the risk of climate change­–related liabilities.
  • Insurers don’t always provide notice of reductions in coverage.
  • Policyholders should engage coverage counsel before insurance renewals to conduct a policy audit.
Taking the Market’s Temperature on Coverage for Climate Change–Related Liabilities
Paul Souders via Getty Images

Temperatures in Arizona last summer reached over 110 degrees Fahrenheit. The water temperature in the Florida Keys was reported to reach sauna-like levels, threatening the life of habitat-sustaining coral. Atmospheric conditions are routinely blamed for violent storms and for wildfires that darken the skies.

As average global temperatures continue to rise, catastrophic weather events are occurring with greater frequency and intensity. According to Aon, there were 421 major natural disasters worldwide in 2022, resulting in $132 billion in insured losses (including approximately $99 billion in the United States). At the same time, historic risk models are proving unable to account for the increasingly volatile weather patterns, presenting challenges for insurers to accurately assess their exposure.

In response, insurers have begun to use extraordinary measures to reduce the impact of climate change–related losses by shifting the burden onto policyholders and attempting to narrow coverage.

Temperature Exclusions

For example, in the wake of Winter Storm Uri, a four-day severe winter weather event that impacted Texas in 2021, certain insurers sought to rely on the following exclusion (or similar language) to dispute coverage for losses under commercial property policies:

This Policy does not insure LOSS caused by any of the following, unless direct physical LOSS by an insured peril ensues and then this Policy insures only such ensuing direct physical LOSS:

. . . .

4. Extremes or changes in temperature.

However, not all insurance programs contain such exclusionary language, nor has such language been applied consistently in the industry or by courts. Several insurers have yet to pursue a narrow interpretation of this exclusion but are nevertheless pushing for the incorporation of this language in renewals going forward.

In the context of Winter Storm Uri, insurers’ reliance on the temperature exclusion was deeply flawed. First, some insurers simply ignored that the exception stated in the exclusion specifically provides that coverage is still available for “direct physical LOSS” ensuing from an extreme temperature event. Second, “extreme” and “change” are inherently ambiguous terms that are reasonably susceptible to multiple meanings. For example, so-called “extreme” winter weather in southern Texas might not be considered extreme in the Texas Panhandle, even though both are in the same state and have relatively similar weather during much of the year. And the words “extreme” and “change” are, by definition, relative. For example, is a temperature “extreme” if it is much higher or lower than the temperature the same day the previous year? Than the average of temperatures on that day over a certain number of years? Than the predicted temperature for that day? How much higher or lower than average must the temperature be to qualify as “extreme”? And what must the nature of a “change” in temperature be to trigger the exclusion?

In addition, courts interpreting the term “temperature” in similar contexts have largely found it to be ambiguous because the term lacks inherent specificity (e.g., ambient temperature compared with inside temperature inside; daytime temperature compared with nighttime temperature; average temperature compared with high or low temperature; etc.). Furthermore, insurers traditionally have not relied on this language when analyzing coverage for losses resulting from catastrophic weather events, and have instead relied on “Named Storm”-type exclusions. Finally, there has been significant fact-specific debate over whether “extremes or changes in temperatures” caused the losses sustained, as opposed to, for example, the power grid’s failure to meet demand during the storm. So, while this exclusion may apply to a narrow category of losses, it proved powerless to bar coverage for Uri-related claims.

While courts have found the temperature exclusion to be ambiguous as a matter of law, several appear to acknowledge that the temperature exclusion may apply to losses resulting from changes in ambient temperature but not to changes inside a building. But courts have yet to analyze what constitutes “extremes” or “changes” in temperature, or potentially related causation issues. These lingering questions will fuel coverage fights, especially considering trends in the global climate. Meanwhile, the extent to which policyholders successfully obtained coverage for Uri claims is cloaked in mystery, as insurers increasingly require the execution of confidential settlement agreements even for undisputedly covered claims—a seemingly unfortunate aftermath of COVID-19 insurance coverage litigation. As a result, insurers will likely rely on similar temperature exclusion language to limit their exposure for future weather events, and inconsistency in their coverage positions will not be readily available in the public domain.

Pollution Exclusions and Environmental Liability

Recently, a federal court in Hawaii submitted two certified questions related to environmental liability to the state’s supreme court under commercial general liability policies:

  1. For an insurance policy defining a covered “occurrence” in part as an “accident,” can an “accident” include recklessness?
  2. For an “occurrence” insurance policy excluding coverage of “pollution” damages, are greenhouse gases “pollutants,” i.e., “gaseous” “irritant[s] or contaminant[s] including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste”?

Due to conflicting law in Hawaii on the first question and an absence of law on the second, both are under the high court’s review. A ruling on these questions will provide clarity to the Hawaiian federal court and be at least persuasive authority to other courts where these questions have not yet been answered.

By way of background, Aloha Petroleum, Ltd., seeks defense and indemnity from National Union and American Home Assurance Company (collectively, AIG), for two underlying actions—one brought by the County of Maui and the other by the City and County of Honolulu. Both actions assert legal claims against Aloha and other corporate members of the fossil fuel industry, alleging that the defendants “kn[ew] for nearly half a century that unrestricted production and use of [their] fossil fuel products create[d] greenhouse gas pollution that warms the planet and changes our climate”; and that despite that knowledge, the defendants “continued to wrongfully market and promote heavy fossil fuel use [in the counties] and mounted a campaign to obscure the connection between their fossil fuel products and the climate crisis”; and, further, that the “impacts of [the defendants’] fossil fuel products on the Earth’s climate and associated harms to people and communities”—including tangible property harms to the counties—were “foreseeable” to the defendants. AIG denied that it owes Aloha a duty to defend or otherwise provide coverage for the underlying lawsuits.

Two insurance policy provisions are central to this dispute. First, several of the AIG policies define “occurrence” in part as an “accident,” and as in most policies, the term “accident” is not further defined. Second, all but two of the AIG policies exclude coverage for the “release or escape of pollutants.”

AIG argued that the policyholder’s conduct does not constitute an “occurrence” because it was not an “accident.” Further, AIG seeks to preclude coverage on the basis that greenhouse gas emissions constitute a “pollutant” excluded by its policies.

Question 1—Can Recklessness Amount to an “Accident”?

Most commercial general liability policies require that an “occurrence” be an “accident” in order to trigger coverage. Other policies effectively set forth a similar requirement by incorporating a policy exclusion that precludes coverage for damages caused by an occurrence that is “expected or intended.” Accordingly, it is no surprise that the questions of intent and foreseeability of alleged environmental contamination have been heavily litigated over the last several decades.

Aloha relied extensively on a decision from the Hawaii Supreme Court, Tri-S Corp. v. Western World Insurance Co., to support its position that recklessness can be covered under an occurrence-based policy. In Tri-S Corp., the coverage dispute arose out of a wrongful death action. There, the court held that an exclusion in an occurrence policy for “expected and intended” injury did not exclude coverage for recklessness. Thus, the insurer had a duty to defend the policyholder “because the possibility exists that [the insured] could be found liable for recklessness, which does not involve intent or expectation of injury and is thus a covered occurrence [i.e., accident] under the policy.” AIG, however, argued that Tri-S Corp. did not address whether recklessness satisfies the threshold condition of “accident” and only held that recklessness was not a high enough mental state to meet the “expected or intended” provision at issue in that case.

AIG relied instead on AIG Hawaii Insurance Co. v. Estate of Caraang and argued that the Hawaii Supreme Court has already defined “accident” to mean that the injuries cannot be an “expected nor reasonably foreseeable result of the insured’s own intentional acts or omissions.” The Aloha court summarized AIG’s argument as follows: “recklessness cannot be an ‘accident’ under Caraang’s definition, because it traditionally requires a risk of foreseeable harm (that is consciously disregarded by the tortfeasor).”

The federal district court will need to reconcile these decisions and clarify whether this legal precedent is in conflict:

In short: if Tri-S says recklessness can be an “accident,” and if Caraang’s definition of an “accident” excludes risk of harms reasonably foreseeable from the perspective of the insured—i.e., recklessness—then there is a conflict.

Question 2—Are Greenhouse Gases “Pollutants”?

In arguing against the application of the pollution exclusion to its claims, Aloha distinguished “traditional environmental pollution” from “combustion-produced greenhouse gases,” which have an impact occurring miles up in the atmosphere. Aloha argued that under Hawaii law, it is an unsettled question whether pollution exclusions extend beyond traditional environmental pollution to cover the greenhouse effects alleged in the underlying lawsuits.

In its order, the District Court of Hawaii acknowledged there is no clear, controlling law on the issue in Hawaii and that most jurisdictions have not directly addressed whether greenhouse gases constitute pollutants under a commercial general liability policy’s pollution exclusion. To add to the uncertainty, the court noted that there are “reasonable arguments on both sides” of the dispute.

On the one hand, the Aloha court noted that Hawaii’s air pollution control statutes define “air pollutant” to include greenhouse gases; that “[a]s the Eleventh Circuit and many other courts have held, carbon monoxide is a pollutant”; and that “it is at least relevant that the average person on the street would view greenhouse gases as polluting the environment.”

On the other hand, the court highlighted the abundance of reasonable arguments in support of finding that the pollution exclusion should not bar coverage for greenhouse gases. First, greenhouse gases are relatively harmless to immediate health. And, second, another court has explicitly held that carbon dioxide is not a pollutant. A ruling acknowledging the limitations of the pollution exclusion’s applicability would be favorable to policyholders facing these risk exposures.


Lawsuits like those Aloha is facing have been filed by local governments around the country such as in Connecticut, Delaware, New York, and Rhode Island, all seeking to hold fossil fuel companies liable for climate change–related damages. Climate change–related litigation is on the rise; accordingly, coverage actions associated with obtaining insurance for such losses is anticipated. The outcome of the Aloha case will indeed affect the coverage positions insurers take when faced with environmental liabilities going-forward.

Policyholders must remain vigilant against insurer’s attempts to reduce or eliminate coverage and must ensure their policies protect against the risk of climate change­–related liabilities. In most jurisdictions, insurers are required to provide notice of any reductions in coverage; yet, such mandates often are not followed. Policyholders should engage coverage counsel before insurance renewals to conduct a policy audit and identify new exclusions, potential ambiguities in coverage, and potential policy improvements. Experienced coverage counsel should also be involved before formal claim submissions so that coverage can be maximized. By taking these proactive steps, policyholders will be able to weather the storm of increasing insurer opposition and protect their interests when the heat is on.