Insurance Companies Face Global Warming Claims

Corporations Exposed to Liability for Greenhouse Gas Emissions

The industry is about to enter an era of global warming insurance claims. Scientists have been warning about the impact global warming could have if greenhouse gas emissions are not reduced. Because of a sense of urgency in the need to reverse global warming, pressure has been mounting on the three branches of government at the state and national levels to reduce greenhouse gas emissions. As a result of a public outcry and government actions, corporations that emit greenhouse gases ranging from energy companies to toy makers are becoming increasingly exposed to regulatory orders and lawsuits, for which they will tender claims to their insurance companies.

Global Warming Dangers

Global warming comes from greenhouse gas emissions. Greenhouse gases are emitted from the combustion of nonrenewable sources of energy. Greenhouse gases trap heat in the atmosphere, increasing the earth’s average temperatures. That phenomenon is referred to as climate change, or global warming.

The principal greenhouse gases are carbon dioxide, methane, nitrous oxide and fluorinated gases. Most energy demands are met by the combustion of fossil fuels such as coal, oil and natural gas. When fossil fuels are burned, carbon dioxide is released into the atmosphere. Not surprisingly, carbon dioxide is the most prevalent greenhouse gas emitted by humans.

According to many scientists, the dangers of global warming include:

• An increase in extreme weather-related natural disasters and associated deaths;
• Water and power shortages;
• Rising sea levels, which endanger islands and coastal areas;
• The spread of severe diseases;
• Damage to forests;
• Threat to many animal species;
• Warming ocean waters that kills plankton, the bottom of the food chain;
• Loss of ecosystems and food production;
• Thawing permafrost;
• Disappearing glaciers and coral bleaching; and
• Loss of economic industries such as winter sports industries.

Some claim that, absent emission reductions, it is possible that a catastrophic event will occur, plunging the globe into the next ice age and causing mass extinction. There is a growing movement in favor of regulations and lawsuits aimed at curbing greenhouse gas emissions.

Claims Arising From Global Warming

The energy, auto and manufacturing industries are facing regulations and lawsuits aimed at curbing their greenhouse gas emissions. As those industries incur substantial compliance costs, they will seek to shift the costs to their insurers.

Some lawsuits have been filed by states and eco-friendly organizations against government agencies seeking to compel executive or legislative action to address global warming. Such lawsuits are aimed at curbing corporate emission practices through the enactment of regulations.

Another category of lawsuits is reflected in actions filed by private individuals, corporations and eco-friendly organizations against the industries that emit gases, on the basis that the emitters are causing global warming damage. The tort lawsuits generally allege claims including public nuisance, trespass and unjust enrichment.

Corporations that are the objects of the lawsuits and regulatory action will tender claims to their commercial general liability insurers seeking coverage for regulatory compliance costs (i.e., costs to abate or mitigate emissions pursuant to regulations or compliance orders) and litigation costs, including defense costs and indemnity for settlements and judgments.

Whether such claims are covered will likely be decided by the courts. If history is a guide, there will probably be different conclusions in different states. The debate will likely revolve around the “pollution exclusion” in CGL policies and whether carbon dioxide, the main greenhouse gas emitted by human activity, is a pollutant.

Absolute Pollution Exclusion

A typical CGL policy obligates an insurance company to pay “all sums for which [the insured] become[s] legally obligated to pay as damages caused by bodily injury, property damage or personal injury,” subject to exclusions. One exclusion that has evolved over time is the pollution exclusion. That exclusion was initially drafted in response to the marked increase in environmental liability associated with new environmental statutes and environmental disasters.

In the 1970s, the standard pollution exclusion excluded coverage for damages “arising out the discharge, dispersal, release or escape of smoke, vapors, fumes, acids, alkalize, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any water course or body of water,” but not the “sudden and accidental” release or discharge of pollutants. That was known as the “qualified pollution exclusion.”

Later, in the mid-1980s, the insurance industry revised the exclusion by eliminating the “sudden and accidental” exception. The revised exclusion is known as the “absolute pollution exclusion.” The APE is found in most CGL policies today.

A “pollutant” is defined in a typical CGL policy as “[a]ny 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.” The APE typically excludes subject to certain exceptions:

1. “Bodily injury” or “property damage” arising out of “the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants” under specific circumstances.
2. “Any loss, cost or expense arising out of a request, demand, order, or statutory or regulatory requirement that any insured or others test for, monitor, cleanup, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of, pollutants.”
3. “Any claim or suit by or on behalf of a governmental authority for damages because of testing for, monitoring, cleaning up, removing, containing, treating, detoxifying or neutralizing, or in any way responding to, or assessing the effects of, pollutants.”

In sum, losses caused by pollution are generally excluded under CGL policies. Notwithstanding the changes made to the exclusion courts in various states still apply the exclusion inconsistently.

Topics Lawsuits Carriers Legislation Claims Climate Change Pollution