Global Warming Brings Big Legal Expenses, Liability Questions For Insurers

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Arctic ice formed a natural sea wall that protected the barrier-reef of Kivalina, home to about 400 Inupiat Eskimos — until it thinned in recent years, and waves gulped at the shore, eroding the spit of land off Alaska’s northwestern shore and compelling residents to look elsewhere to live.

The Inupiat blame global warming and, more pointedly, in a federal lawsuit, energy companies that burn fossil fuel that they say contributed greenhouse gases warming the Earth.

The suit so far has been unsuccessful. Where it has succeeded, however, is in giving insurance lawyers a case study of an issue emerging as a major concern to property-casualty insurance companies and reinsurers, such as those in Hartford and Fairfield counties. Energy companies, air polluters and all manner of potentially responsible parties could be sued, and if they are, their liability insurer has an obligation to defend them.

Insurers in the property-casualty business already pay tens of billions of dollars annually to fix homes and businesses damaged by hurricanes, tornadoes and other natural disasters around the world. Those are property-claim payments. Liability cases, such as the Kivalina suit, could present a one-two punch for the property-casualty industry: costly property claims, and costly legal expenses to defend clients sued by groups looking to cash in on liability coverage.

U.S. courts saw a rise in the number of climate-change-related lawsuits in the past decade, including some brought by flood-damaged towns alleging that energy companies are responsible for churning out emissions that contribute to global warming and, therefore, are partly responsible for a range of damaging weather, said Michael Gerrard, director of the Center for Climate Change Law at Columbia University.

“This litigation really began in the 2000s,” he said.

Gerrard has tallied 527 climate-related lawsuits filed between 1989 and Oct. 3, 2012, when he last updated the total.

The Kivalina case, filed in 2008, is considered a touchstone for lawsuits claiming global warming is the cause of damage related to everything from rising sea levels to rampant wildfires to brutal hurricanes.

The Inupiat sued Exxon Mobil Corp. and other companies that, they say, are ultimately responsible for their predicament. Moving their entire village would cost anywhere from $95 million to $400 million, as estimated by the U.S. Army Corps of Engineers and the Government Accountability Office.

But as recently as Sept. 21, the 9th Circuit Court of Appeals upheld a U.S. District Court ruling that Kivalina had no standing to sue air-polluting energy companies and couldn’t link the erosion to the defendants.

“By Kivalina’s own factual allegations, global warming has been occurring for hundreds of years and is the result of a vast multitude of emitters worldwide whose emissions mix quickly, stay in the atmosphere for centuries, and, as a result, are undifferentiated in the global atmosphere,” Judge Sidney R. Thomas wrote in the court’s opinion. “Kivalina nevertheless seeks to hold these particular appellees, out of all the greenhouse gas emitters who ever have emitted greenhouse gases over hundreds of years, liable for their injuries.”

But lawyers say that decision, and others like it, hardly put the matter to rest. And regardless of the ultimate legal outcome, insurance companies are on the hook to defend their clients in court — it’s part of a contractual “duty to defend” under liability coverage. So, even if these lawsuits all fail, insurers could face mounting legal expenses to defend clients, or to defend themselves from paying damages if the insurer believes global warming is outside what’s covered by a liability policy.

Is Global Warming Covered?

Some insurers, such as Munich Reinsurance and The Hartford Financial Services Group, have taken a vocal public stance affirming that climate change is a real and growing concern. Insurance companies and reinsurers, which provide property coverage to insurers, have paid out between $10.4 billion and $110.8 billion annually to cover natural disasters worldwide between 2000 and 2009, according to the Insurance Information Institute, a trade group.

Lawsuits filed to cash in on liability coverage would be on top of property-damage expenses the industry already pays. Global warming is an emerging liability risk for insurers.

“I think we can all agree that, at least, there’s a very significant risk that climate change is going to impact our society,” said William F. Stewart, an attorney based in Blue Bell, Pa., who said he has practiced insurance law for about 20 years.

“You cannot have 7 billion people on the planet, built around certain ecosystems, and then potentially throw them into some form of disarray, and not have all sorts of things happening that are not desirable,” Stewart said. “I think we can also agree that, in our society, it’s the insurance industry that is, at least, among the primary institutions that respond to those sorts of risks.”

One of the energy producers that Kivalina sued in 2008 was AES Corp., a Virginia-based power company, which looked to its insurer for a legal defense. The liability insurer for AES Corp. was Steadfast Insurance Co., a subsidiary of Zurich Financial Services.

Steadfast provided legal defense with the caveat that they did not believe global warming was covered under its policy and that it did not owe AES Corp. a defense or coverage for damage allegedly caused by AES’s contribution to global warming. The insurance company asked a Virginia court for a declaratory judgment in the matter. In April, the Virginia Supreme Court sided with Steadfast that emissions from the power company didn’t trigger liability coverage.

“The AES versus Steadfast case was the first case to address commercial general liability coverage for global warming, and, therefore, there was a lack of guidance from the courts on how these policies would respond,” Laura A. Foggan, a lawyer in the Washington, D.C., area, who also argued on Steadfast’s behalf in the case.

Steadfast did what an insurer should do — it protected its policyholder while seeking court guidance to affirm the insurer’s belief that the liability policy did not, and could not, cover global warming, Foggan said. Insurers have a contractual “duty to defend” clients in any claim or lawsuit that might result in a liability claim. Insurers also have a right to investigate the basis for those claims.

Unanswered Questions

Legal questions about liability insurance are different from those about property coverage.

For example, if an insurer pays to fix a home or business damaged by hurricane winds, a tornado or hail, that’s property coverage, and it’s a first-party, or policyholder, filing a claim. In climate-change liability cases, a third party is seeking money on someone else’s insurance. For example, the tribe in Kivalina sued energy companies in the hope that those companies would pay damages. Some energy companies, such as AES Corp., believed their insurer should cover the damages through liability coverage.

The whole idea that an insurance company might have to pay for the effects of global warming raises many questions.

Insurance lawyers, law students, and insurance and environmental professionals came together earlier this month at a University of Connecticut School of Law conference titled “Climate Change Risks & Liability: The Future of Insurance & Litigation.”

Nearly 100 people met at the law school campus to discuss the legal questions arising in a new frontier of law. The discussion raised various open ended questions: Can the damage be attributed to global warming? Are companies that spout emissions responsible for global warming? Under what circumstances does an insurer have to pay a liability claim?

Liability coverage typically pays if there is an “occurrence,” meaning an accident. But was global warming an accident or a known consequence?

The Steadfast case hinged on whether climate change could be defined as an “occurrence” that would trigger an insurer to pay for losses. The court ruled that the emissions were not accidental, and that there was no “occurrence” that would trigger Steadfast’s liability coverage.

More broadly, other lawsuits in the past five to 10 years call into question whether the government can be liable for not properly maintaining infrastructure. If a river levee isn’t properly maintained by a governmental body, is the government responsible for the damage when the levee breaks and unleashes a hurricane storm-surge onto homes and businesses? Is the government protected by so-called “sovereign immunity?”

The new frontier of global-warming lawsuits also raises questions about legal jurisdictions, said Gerrard, the director of the Center for Climate Change Law at Columbia University.

How could a U.S. court have jurisdiction over air polluters, or other responsible parties, outside the country, particularly if we’re talking about a state court, Gerrard asked the audience.

For example, a group of Mississippi property owners sued oil, coal and chemical companies seeing liability for climate change related to Hurricane Katrina, which ravaged the Gulf Coast in 2005. The case was dismissed by more than one court, but it raises questions about whether a Mississippi court would have jurisdiction over, say, Chinese power companies operating outside the U.S. that also pump emissions into the air, Gerrard pointed out.

Separately, if polluters are liable, does that mean that drivers, coal miners, trucking companies or electricity distributors are partly to blame?

“Where along that supply chain does liability attach?” Gerrard asked the audience.

Gerrard’s question is one of many being raised by the deluge of lawsuits filed in the courts in the past decade. Many of the lawsuits sue on the claim that global warming is a “nuisance” that caused damage one way or another. Some courts have dismissed cases, deferring to the legislative and executive branches of government.

In the federal appeals court decision last month on Kivalina’s lawsuit, Judge Thomas said the tribe’s lawsuit requires a determination of an “acceptable limit on the level of greenhouse gases” emitted by air polluters and who should bear the cost of global warming. Both issues are best resolved by Congress and the U.S. president.

“It’s a question of, ‘Whose job is it to decide how much greenhouse gas emissions are too much?’ And the courts have been saying, ‘It’s the job of EPA [U.S. Environmental Protection Agency] and Congress to decide that, it’s not for the courts’,” Gerrard said.

“None of these cases have moved beyond that. If they did, there are a whole lot of other obstacles they would face,” he said. “There would be the question of, ‘Is the particular injury that was suffered really attributable to climate change? Was Hurricane Katrina really worsened by greenhouse-gas emissions — a very difficult, technical issue?”

About Matthew Sturdevant

Full-time staff journalist at The Hartford Courant and magazine freelancer with a master's degree in writing from Dartmouth. My work has appeared in The Los Angeles Times, The Chicago Tribune, Taiwan News, The Baltimore Sun and many other news sources. My blog has been referenced by Politico.com, the Kaiser Family Foundation, the Georgetown Law Library and a number of organizations in healthcare and business. Sturdevant’s blog is "a well-written wealth of ideas," said The Donald W. Reynolds National Center for Business Journalism, (businessjournalism.org, May 18, 2011). I have experience writing for newspapers, magazines, Web sites and blogs as well as shooting and editing video. I made regular appearances on news-talk radio and on the NBC affiliate station in Corpus Christi, Texas. I made occasional appearances on the Fox affiliate in Connecticut promoting Hartford Courant articles.

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5 thoughts on “Global Warming Brings Big Legal Expenses, Liability Questions For Insurers

  1. Dave

    It doesn’t get stupider than this.

    There is no evidence of any kind that conclusively proves CO2 has any effect past .5 degrees of warming. That one half of one degree is small enough to be lost in the process of measurement.

    The warming of the past couple of centuries (coming out of the little ice age) correlates very well with the action of our sun. Will insurance companies be held responsible for the fluctuations in brightness and activity of the sun?

    BTW, worldwide hurricane activity is very currently very low. Katrina had nothing to do with climate, it was a weather event.

    As I said, this column is sheer stupidity.

    1. antiDave

      @Dave — let me be the first to lob an insult your way. I disagree and think you’re stupider. (Chuckle chuckle)

  2. WVhybrid

    Dave:

    You are wrong about the attribution of CO2 to global surface temperature rise, and you are wrong about changes in the sun. Don’t trust me, check the relevant literature. For CO2 effects, see Tyndall’s work of 1861 and Herzberg’s work in the Journal of the Optical Society of America (1953). For more about the non-effect of the sun, see Krivova’s work in Astronomy and Astrophysics, 2007.

    I suspect that at some point in the future, insurance companies will walk away from climate damages such as SLR, the same way they have walked away from flood insurance.
    WVhybrid

  3. Peter Mizla

    C02 has played a role in the climate of the earth in all of our geologic history. Back 500 million years ago the sun was somewhat dimmer then today, but CO2 levels varied over time. High levels caused hothouse conditions, where low levels caused ice house conditions.

    C02 40 million years ago was around 550ppm- in the late Eocene- Earth was mostly ice free- with sea levels 70 meters higher then today. C02 during ice ages over the last 500,000 years (5 of them) has seen C02 around 180ppm- during the 5 interglacials C02 rose to around 280ppm (due to the Milanokovic cycles) when the earths tilt and orbit has varied and allowing more warming or less warming in the arctic. Going from an Ice age to an interglacial takes about 15,000 years- when C02 rose 100ppm- 180-280ppm. We will rise to 400ppm in the mid to late spring of 2013- an unprecedented rise since the 280ppm levels 125 years ago. CO2 is now rising 2ppm or more each year- a rate that is extremely rapid. C02 at current levels will bring disaster over time.

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