The threat of climate change is felt across virtually all industries. Businesses in all sectors are monitoring and attempting to address this threat, and the insurance industry is no exception.
According to databases maintained by the London School of Economics and Columbia University,
Environmental damage allegedly caused by climate change is the subject of a growing number of lawsuits against companies in the energy sector, in particular, those involved in fossil fuel production. Such lawsuits have been brought by a wide range of plaintiffs, including individuals, municipalities, states, cultural groups, and nonprofit organizations.
Unsurprisingly, defendants in climate change lawsuits have sought—and will no doubt continue to seek—coverage for climate change claims from their insurance carriers. Yet while lawsuits seeking damages for losses allegedly caused by climate change continue to proliferate, the number of insurance coverage lawsuits that explicitly involve climate change claims has been relatively low. Only one state’s highest court (the Virginia Supreme Court) has delved into such issues in a decision issued a decade ago. However, recent lawsuits show that these claims and disputes are not going away anytime soon, and it is imperative that insurers understand and closely monitor the risks posed by such claims.
Lawsuits Targeting Petroleum Companies as a Cause of Climate Change
The suit claims that these entities contributed to climate change through their The city alleges that this activity has caused it to experience severe storms with increasing frequency, including, for example, The city claims that to mitigate the effects of these storms, it has developed a $500 million “adaptation and mitigation plan” to The complaint brings claims sounding in negligence, nuisance, and violation of the Though the complaint does not seek a specific amount of damages, it claims compensatory, consequential, and punitive damages. It also seeks an injunction ordering the defendants to cease the activities that have caused the alleged damages.
Similar to the suit brought by Hoboken, this suit alleges that ExxonMobil, Shell, Chevron, BP, and ConocoPhillips engaged in a campaign to conceal the effects of their activities on the environment and also Specifically, the state alleges that since the 1950s, the defendants knew that their fossil fuel emissions would cause the environmental harm taking place today, The complaint alleges that the activities of these entities have caused flooding, extreme weather, and rising sea levels, The complaint asks that the court issue an injunction prohibiting the companies from The complaint also seeks compensation, claiming that New Jersey taxpayers will be burdened by the billions of dollars the state must expend to remedy past environmental damage and Also, similar to the complaint filed by Hoboken, New Jersey alleges violations of the Consumer Fraud Act,
Its complaint alleges that these entities have long known that their activities would cause climate change but that Delaware alleges that the climate change caused by these companies has caused extensive damage to the state, including but not limited to damage to state property, increased costs pertaining to emergency services, and The lawsuit alleges common-law claims for negligent failure to warn, nuisance, and trespass. It also asserts claims under the state’s
While the majority of climate change lawsuits have been commenced in the U.S., such actions are also being pursued globally.The decision came after a series of wildfires and other natural disasters rocked the province of British Columbia in the summer of 2021, after temperatures reached a record 121.3°F (49.6°C)— The heat wave also reportedly caused hundreds of deaths. A Vancouver city councillor has estimated that Vancouver would need to spend approximately US$39 million (C$50 million) in order to repair the environmental damage. Currently, there is no timeline for the filing of the lawsuit, and it is not clear which entities will be named as defendants.
The farmer contended that the company’s activities and carbon emissions caused the glacial lake to rise, Though this action sought a relatively small sum of money compared to the suits brought by municipalities and nonprofit organizations, it still warrants attention. Should this type of litigation gain traction, energy companies may face a multitude of small-sum suits from a large number of individuals, the culmination of which could be significant.
Coverage Lawsuits Involving Climate Change–Related Claims
Some of these climate change disputes have led to insurance coverage litigation. Monitoring coverage cases such as these is particularly important in light of the relative dearth of case law regarding whether climate change claims may be covered under general liability policies.
The suit seeks coverage for In the underlying actions, the governmental entities claim that Aloha Petroleum, among other entities, The underlying lawsuits seek damages sustained from 1965 until the present, while in the coverage action, Aloha Petroleum seeks a declaratory judgment that the insurer must defend and indemnify it with respect to the National Union, for its part,
Meanwhile, in another recently filed action, Everest Premier Insurance Co. and Everest National Insurance Co. sought a declaration that they have no obligation to defend or indemnify Gulf Oil Limited Partnership in connection with an underlying lawsuit brought by Conservation Law Foundation,The underlying action accused Gulf Oil of failing to prepare a New Haven, Connecticut, bulk petroleum terminal for the impact of climate change weather events, The group’s complaint claimed violations of the Resource Conservation and Recovery Act as well as the It also sought civil penalties and an order that Gulf Oil’s facilities be properly fortified to prevent the spread of According to the court’s docket system, the parties settled the suit in October 2022, and the case was dismissed without prejudice.
The insurance company The complaint alleged that Illinois Farmers claimed negligent maintenance liability, Illinois Farmers discontinued the case in 2014.
The electric company AES sought insurance coverage from Steadfast in connection with an underlying action in which the Native Village of Kivalina, Alaska, Kivalina claimed that AES and other electric companies caused global warming through their emission of greenhouse gases, which, in turn, The crux of Kivalina’s complaint was that due to increasing amounts of melting ice and rising sea levels, its village, which is located on a narrow strip of land on the Arctic Ocean, It was in the face of these allegations that AES commenced a declaratory judgment action against its insurer, Steadfast Insurance Co., which issued several commercial general liability (CGL) Steadfast moved for summary judgment and for dismissal of AES’s claims on the basis that (1) the complaint did not allege an occurrence, (2) any alleged injury arose prior to the inception of the Steadfast policies, and (3) the claims alleged in
AES appealed the decision to the Virginia Supreme Court, AES then petitioned the Virginia Supreme Court for a new hearing on grounds that the previous decisions were overly broad and might potentially hinder the administration of insurance claims concerning negligence in the The Virginia Supreme Court Finally, after the new hearing, the Virginia Supreme Court reaffirmed the prior decisions in favor of Steadfast.
The court based this decision on the fact that the underlying complaint alleged that This allegation of intentionality meant that the alleged activities were not an accident and therefore could not be covered The Virginia Supreme Court held that regardless of whether AES’s intentional act constituted negligence, The court further stated:
Even if AES were actually ignorant of the effect of its actions and/or did not intend for such damages to occur, Kivalina alleges its damages were the natural and probable consequence of AES’s intentional actions. Therefore, Kivalina does not allege that its property damage was the result of a fortuitous event or accident,
The AES decision is now more than 10 years old, but it appears unlikely that AES will be the last word regarding climate change–related coverage disputes as more and more climate change lawsuits are filed against energy companies.
some of the coverage issues that climate change claims raise are not so new and are analogous to ones that insurers have seen before in connection with long-tail claims involving asbestos-related losses and environmental losses, for example. Traditional long-tail claims inherently raise a myriad of coverage issues, including, for example, what trigger of coverage applies; the allocation of losses across multiple policies and policy periods; the treatment of lost, missing, or incomplete policies; whether policy exclusions apply; and whether claims for generalized harm such as public nuisance may be covered. Some of these coverage considerations are discussed below.
Trigger of coverage. With respect to occurrence-based policies such as general liability policies, a significant coverage issue is whether there has been an “occurrence” sufficient to implicate coverage. As indicated above, that was the critical (and dispositive) issue in AES under Virginia law. If a plaintiff such as the one in AES were able to overcome that obstacle, another key coverage issue could be trigger of coverage.
Because the alleged effects of climate change occur over time, the issue of what insurance policy or policies might be implicated is a particularly consequential one. The issue of what trigger of coverage might apply to any given claim can vary by jurisdiction, the type of claim at issue, and the policy language at issue.
the injury-in-fact theory, which provides that coverage is triggered when real personal injury or actual property damage first occurs, the manifestation theory, which provides that and the “continuous” or “multiple” trigger theory, which provides that It remains to be seen whether courts will apply these same triggers of coverage to climate change–related claims.
Policy exclusions. While policy exclusions can vary by line of coverage and other factors, many policies contain pollution exclusions in one form or another. As noted above, the insurer in AES argued that a pollution exclusion barred coverage for AES’s climate change claim, but the court did not reach the issue because it held that the policyholder had failed to establish that there had been an “occurrence” under the policy. Just as they have done in other contexts, policyholders will likely attempt to advance various arguments that such exclusions do not apply to climate change claims.
Policyholders have successfully argued in a handful of jurisdictions that such exclusions only apply to “traditional” environmental pollution. For example, Illinois’s highest court held that the accidental release of carbon monoxide due to a broken furnace did notPolicyholders in such jurisdictions may similarly attempt to argue that climate change claims do not involve “traditional” environmental pollution. Policyholders may also point to a 1997 Wisconsin Supreme Court ruling that held that However, the emission of greenhouse gases into the environment at large is factually distinguishable from carbon dioxide conditions within a closed space, and notably,
Whether coverage is available for public nuisance.The above-referenced cases brought by New Jersey, Delaware, and the City of Hoboken all allege nuisance among the other various claims asserted. For example, in its complaint, the City of Hoboken alleges that Chevron and the other defendants “caused adverse effects on a common right in the State of New Jersey” by
For example, in 2022, the attorney general for the state of Wisconsin announced that Johnson & Johnson, along with several opioid distributors, reached a $26 billion settlement concerning opioid claims, Meanwhile, the Supreme Court of Delaware rejected such public nuisance claims in a coverage dispute involving a pharmaceutical company on the ground that there had been no “bodily injury” The court held that the claims brought by the government entities were not covered because the entities did not seek damages for injuries caused to any specific person. Instead, their claims of nuisance were based on general public harm.
Nuisance allegations are equally dubious in the context of climate change cases. The AES case discussed above sought coverage for nuisance.Thus, any damages flowing from said nuisance were not an “accident” as required by the policy at issue. Opioid claims and climate change claims that allege public nuisance attempt to hold entire industries liable for widespread social problems—circumstances that insurers that issued liability policies never intended to cover.
Allocation of losses. Where damages such as those resulting from climate change are alleged to have taken place over many years, another significant coverage issue is how such claims should be allocated to (or divided among) multiple policies that may be implicated. As with trigger of coverage, the answer has traditionally varied from state to state and depends on factors such as the type of loss, the type of coverage, and what the relevant policy language provides.
Some courts have held that damages for claims that span multiple policy periods should be allocated based on a pro rata basis, for example. Under this method, an insurer’s liability is limited to amounts incurred by the insured during the policy period; in other words,
Other courts have adopted an “all sums” allocation approach in apportioning liability among multiple implicated carriers. Under the all sums approach, an insured faced with a long-term exposure may turn to any one of its implicated carriers to pay 100% of a particular loss. The selected carrier would then have the ability to pursue a contribution action against the other implicated carriers
The issue of allocation has been heavily litigated in the context of asbestos and environmental claims over the years, and it raises many issues, for example, what happens during years when a company had no insurance or during years where it is alleged that no insurance was available,That approach, however, is inequitable as it penalizes those insurers who issued coverage.
The allocation of any climate change losses will necessarily be fraught with additional complexity since, as certain claimants have alleged,
The recent spate of climate change cases focus on cutting-edge questions such as whether those impacted by damages allegedly caused by climate change can seek redress from the judicial system and whether any such damages are, in turn, covered by insurance. Insurance carriers should remain vigilant in surveying the legal landscape as it relates to these topics and in adjusting their market strategies to attempt to mitigate risk. Allegations in cases like the ones discussed above will likely remain in dispute, and it may be years before courts render substantive decisions on these issues. In the meantime, one thing is likely to remain certain: as the alleged effects of climate change continue to manifest, so will their impact on the insurance industry.