Insurance Fights Could Heat Up Amid Warming Suits


As the effects of global warming start to spur new public nuisance litigation, attorneys predict battles between policyholders and insurers will brew if these suits gain traction.

Attorneys for both policyholders and insurance companies have begun mounting arguments over whether existing and past general liability policies will cover claims against companies that emit carbon dioxide, anticipating the potential fights between insurers and the insured.

Attorneys representing both policyholders and insurance companies who spoke to Law360 point to a slew of general liability questions that could arise amid global warming litigation.

These questions include whether courts will consider carbon dioxide a "pollutant" under most policies' pollution exclusions, whether old policies will cover new climate claims and whether the effects of global warming can be classified as the “accidents or occurrences” covered by most general liability policies.

"I think most of us anticipate because the liabilities are potentially enormous that the insurance companies are really going to test their responsibility at every stage,” according to Meghan Magruder, who represents policyholders for King & Spalding LLP.

The U.S. Supreme Court decided in Massachusetts v. Environmental Protection Agency in 2007 that the federal government should regulate carbon dioxide emissions under the Clean Air Act. But lawyers for policyholders and attorneys for insurers still can't agree on whether those emissions should be “pollutants” in the eyes of insurers.

Since the 1970s, most general liability insurance policies have carried “pollution exclusions,” which initially exempted intentional pollution from coverage but in recent years have begun to exempt an array of other contamination claims as well, according to insurance attorneys.

Insurance companies will likely cite pollution exclusions as one of several reasons to refuse to pay claims, attorneys say. But attorneys who represent policyholders contend that insurers shouldn't consider carbon dioxide as a pollutant under their pollutant exclusions.

Peter Gillon, who represents major corporate policyholders for Pillsbury Winthrop Shaw Pittman LLP, said that carbon dioxide shouldn't be deemed a pollutant for insurance coverage purposes, even if the federal government begins to regulate it.

He pointed to Justice Antonin Scalia's dissent in Massachusetts v. EPA, which Gillon said commented that the definition of “pollutant” under the Clean Air Act — any physical or biological substance or matter that is emitted into or otherwise enters the air — is so broad that it could go so far as to include Frisbees.

Most insurance policies, he said, define “pollutants” far more narrowly than the Clean Air Act does. “The definition of pollutant under the policies boils down to saying that it has to be an 'irritant' or a 'contaminant' to be a pollutant. Irritants or contaminants should not include carbon dioxide emissions because there is no irritating effect or contaminating effect,” he said.

The attorneys who represent policyholders also contend that carbon dioxide is too ubiquitous to be considered a pollutant in insurance policies.

“The notion that carbon dioxide from natural sources is a pollutant is offensive. It is part of the air we breathe ... The idea that the pollution exclusion could be used is outrageous on its face,” said John G. Nevius, a shareholder at Anderson Kill & Olick PC and an expert on both environmental law and insurance recovery.

But Peter Chaffetz, head of the insurance and reinsurance dispute resolution group at Clifford Chance LLP, predicted that policyholders would have a difficult time arguing that carbon dioxide emissions aren't pollution under pollution exclusions if they're facing lawsuits over alleged environmental damage over those emissions.

“Generally carbon emissions have been attacked as pollution, and the Supreme Court has held that the EPA can regulate carbon as a pollutant. I don't think you can have it both ways,” said Chaffetz, who represents insurance companies.

Seth Ribner, a partner at Simpson Thacher & Bartlett LLP who also represents insurers, pointed out that while policies defined pollution rather narrowly in the 1970s, now many pollution exclusions are broad enough to include carbon dioxide. Some exclusions can include any gaseous substances that harm the environment, he said.

Still, he said, the pollution exclusion won't be the first obstacle to companies looking to their insurance companies to defend or indemnify global warming claims.

Because the federal government has yet to regulate carbon dioxide emissions, policyholders will be hard-pressed to categorize emissions as an “accident or occurrence,” Ribner told Law360.

Most insurance policies define “occurrences” as unexpected or unintended events, Ribner explained. “The reason that you would say that they're not accidents or occurrences from the insurers' point of view is that this is activity that society is condoning now,” Ribner said.

Chaffetz also pointed out that it would be difficult to argue that global warming is an “event.” “Global warming has been a general process that has been going on for decades," he said.

Even without the difficulty of proving that carbon emissions are accidents or occurrences as defined by insurance policies, Ribner said, policyholders also must in most cases show that damage occurred during the policy period. This could prove challenging for policyholders making claims for policies from the 1970s or 1980s, before rising sea levels and weather events from climate change appeared on the world's radar.

“Insurance companies are focused on damage within a policy period,” Ribner said. “If policyholders are trying to access older policies, it's very difficult to make a showing that any perceptible damage was taking place in those periods.”

To date, insurance attorneys say, plaintiffs have yet to win a private action against carbon dioxide emitters.

One closely watched case among energy companies involves the tiny Alaskan village of Kivalina, which sued Exxon Mobil Corp. and 23 other companies in the U.S. District Court for the Northern District of California, claiming that carbon dioxide and other greenhouse gases from the defendants destroyed their town.

The traditional Inupiat Eskimo village is located on the northwest coast of Alaska, about 120 miles above the Arctic Circle. The town has been eroding for years as sea ice melts and exposes the village to coastal storms during the fall and winter, town officials said.

The suit seeks up to $400 million in damages to pay for the relocation of the village. It invokes the federal common law of public nuisance and alleges a conspiracy among some of the defendants to mislead the public regarding the causes and consequences of global warming.

One of the defendants, AES Corp., tendered its liability in the case to its insurer, Steadfast Insurance Co., which has brought a declaratory action in a Virginia state court seeking a ruling that the insurance company is not liable for the climate change claims under its policy with AES.

Steadfast has argued that emissions of greenhouse gases are air pollution and so are not covered by the insurance policy. The case raises questions about what kind of damage would be involved under the insurance coverage, and, if it's property damage, when that damaged occurred.

The attorneys interviewed by Law360 agree that the outcome of the Kivalina case could portend the future of global warming litigation. Most attorneys say, though, that the difficulty in proving causation doesn't bode well for plaintiffs in global warming suits.

"I would think that the burden of having to prove causation should be insurmountable because of the incredible multiplicity of sources of greenhouse gas emissions in the atmosphere. For example, every time I exhale I emit carbon dioxide," said Patricia Barmeyer, head of the environmental practice group at King & Spalding.

Insurance companies will still scrutinize their policyholders for potential global warming liabilities and possibly even introduce new products to specifically cover them, attorneys say.

“Whenever there's an identifiable potential risk, the insurance market does respond,” Nevius said.

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