GLOBAL WARMING AND CLIMATE CHANGE: POTENTIAL ISSUES UNDER CGL POLICIES. Robert A. Kole Choate, Hall & Stewart LLP

Transcription

1 GLOBAL WARMING AND CLIMATE CHANGE: POTENTIAL ISSUES UNDER CGL POLICIES Robert A. Kole Choate, Hall & Stewart LLP 1

2 Primary Issues Four significant issues dominate the landscape with regard to the interrelationship between climate change and insurance 1. Insurers and reinsurers attempts to use their market power to change behavior 2. Availability, pricing and coverage under first-party policies 3. Issues under D&O and E&O policies 4. Potential third-party liability issues This presentation will focus on the last category 2

3 Climate Change Cases To date, there have been only a handful of third- party liability cases seeking tort recovery due to climate change, primarily under a nuisance theory Connecticut v. American Elec. Power Co.,, 406 F. Supp.2d 265 (S.D. N.Y. 2005) (states and non-profit trusts sued public utilities, under nuisance theory, claiming they contributed to global warming; dismissed on political question grounds) Comer v. Murphy Oil USA,, No. 05 CV 436, 2006 WL (S.D. Miss. Aug. 30, 2007) (Mississippi residents sued oil, coal and chemical companies, alleging they contributed to global warming, which exacerbated the damages from Hurricane Katrina; dismissed on political question and standing grounds) 3

4 Climate Change Cases (cont d) California v. Gen. Motors Corp.,, No. C , 05755, 2007 WL (N.D. Cal. Sept. 17, 2007) (California brought suit against auto manufacturers for damages based on their contribution to global warming; dismissed on political question grounds) Native Village of Kivalina v. Exxon Mobil Corp.,, CV SBA (N.D. Cal. Feb. 26, 2008) (Alaskan village sued members of the energy industry, claiming their contributions to global warming have resulted in destruction of their village through erosion and melting of Arctic ice, which acted as a barrier to coastal winter storms; case pending) NO damages (i.e.,( indemnity dollars) have been awarded in those cases to date Whether there is an explosion in climate change litigation may very well depend on whether plaintiffs eventually succeed in one of these early suits 4

5 Climate Change Cases (cont d) Procedural and substantive barriers to recovery Causation must establish: Existence of global warming Caused by human behavior The contribution of a particular entity or entities to global warming generally Damage caused to a specific plaintiff as a result of a particular r entity s conduct, rather than everyone s s conduct Possible response to lack of causation: market share liability (Sindell v. Abbott Laboratories,, 26 Cal. 3d 588 (Cal. 1980)) 5

6 Climate Change Cases (cont d) Political Question Courts have declined to weigh the interests of reducing pollution against the interests of economic freedom Defer to Congress/EPA E.g., Comer; Connecticut v. American Elec.; California v. General Motors 6

7 Climate Change Cases (cont d) Standing Under Article III of the Constitution, plaintiff must allege an injury fairly traceable to the defendant s s wrongful conduct that can be redressed by a judicial decision Northwest Envir.. Defense Center v. Owens Corning Corp.,, 434 F. Supp.2d 957 (D. Or. 2006) (environmental protection organization found to have standing to sue Owens Corning, which was building a new facility alleged to contribute to global warming; court held that claims of plaintiffs who lived near the facility could survive a motion to dismiss, because their fear of suffering harm was sufficient to constitute injury) Comer,, No. 1:05-CV CV-436 (S.D. Miss, Aug. 30, 2007) (plaintiffs claim that defendants contribution to global warming increased severity of Hurricane Katrina dismissed, in part, for lack of standing; plaintiffs ntiffs alleged injury not fairly traceable to defendants conduct) 7

8 Defense v. Indemnity However, even if third-party climate change claims are ultimately unsuccessful, companies may spend hundreds of millions of dollars defending them As a matter of black letter law in virtually every state, the duty to defend is broader than the duty to indemnify Generally speaking, an insurer must defend if the allegations set t forth in a complaint, taken as true, arguably could result in coverage under a CGL policy In for a penny, in for a pound if one claim is covered, typically must defend the whole suit in many jurisdictions Significant risks of not defending, if later proven erroneous Bad faith Liability in addition to limits Waiver of coverage defenses 8

9 Duty To Defend: Coverage Case Law Very few coverage cases to date specifically address climate change Cinergy Corp. v. Assoc. Elec. & Gas Ins. Servs.. Ltd.,, 865 N.E.2d 571 (Ind. 2007) (no duty to defend where underlying lawsuit sought to require power companies to incur the costs of installing government-mandated mandated equipment intended to reduce future emissions of pollutants and prevent environmental harm ; those costs are not caused by the happening of an accident, event or exposure to conditions but rather result from prevention of such an occurrence ) ) (emphasis in original) Focused on the distinction between remedial and prophylactic measures Distinguish from CERCLA-type cases, where clean-up is involved Steadfast Ins. Co. v. AES Corp.,, Case No (Va. Cir. Ct. Arlington County July 9, 2008) (Kivalina( case) (dispositive motions pending) 9

10 Duty to Defend: Coverage Defenses No occurrence Typical CGL policy defines occurrence as an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured Is the emission of greenhouse gases over decades accidental or fortuitous Is the property damage expected or intended from the standpoint of the insured Subjective or objective test Problem: sophisticated plaintiffs will attempt to plead around this requirement by claiming negligence 10

11 Duty to Defend: Coverage Defenses (cont d) No damage during the policy period What are the damages for which plaintiffs are seeking to recover Particular event (Comer) Progressive injury over decades (Kivalina) What is the trigger theory continuous manifestation injury in fact exposure 11

12 Duty to Defend: Coverage Defenses Pollution Exclusion (cont d) Sudden and accidental/absolute Definition of pollutant Is carbon dioxide a pollutant See Massachusetts v. Environmental Protection Agency,, 127 S. Ct. 1438, 1440 (2007) (concluding that carbon dioxide qualifies as an a air pollutant under the Clean Air Act) Does jurisdiction limit pollution exclusion only to traditional environmental pollution Interrelationship between trigger and pollution exclusion issues Will trigger theory allow coverage under pre-pollution pollution exclusion policies 12

13 Duty to Defend: Coverage Defenses No property damage (cont d) Many suits seek compliance with the law, rather than damages (Cinergy) An injunction is not property damage Number of occurrences Policies have per occurrence limit If the plaintiff can establish an occurrence, must decide how many, for purposes of limits/deductibles 13

14 Case Study Steadfast v. AES Underlying Allegations U.S. Government Accountability Office (Dec. 2003) and U.S. Army Corps of Engineers (April 2006) concluded that global warming has resulted in significant erosion of the Kivalina coast As a result, the village must relocate, at a cost of between $95 million and $400 million AES (and others) contributed to global warming by emitting large quantities of greenhouse gases for many years AES has long known of its emissions of greenhouse gases 14

15 Case Study Steadfast v. AES Policies (cont d) Annual policies from 9/5/03 9/5/08 $1 million per occurrence limits Standard CGL policy language Covers all sums that the insured becomes legally obligated to pay because of property damage Occurrence means an accident, including continuous on repeated exposure e to substantially the same general harmful conditions Absolute pollution exclusion: excluding any injury or damage which would not have occurred in whole or in part but for the actual, alleged d or threatened discharge, disposal, seepage, migration, release or escape e of pollutants at any time Pollutants means any solid, liquid, thermal or gaseous irritant or contaminant, including smoke, vapors, soot, fumes, acid, alkalis, chemicals and waste 15

16 Case Study Steadfast v. AES Policies (cont d) (cont d) Known Loss and Loss in Progress Exclusion Insurance does not apply to: Any injury or damage which incepts prior to the effective date of this policy Any occurrence, loss or claim of which the insured had knowledge or notice prior to the effective date of this policy; or Any claim for injury or damage which is first asserted against the insured prior to the effective date of this policy 16

17 Case Study Steadfast v. AES Issues (cont d) Is property damage alleged Property and structures owned by city imminently threatened Destruction of sea ice, which acts as protective barrier for coastal storms Relocation of village required, at cost of over $100 million Millions of dollars in lost property value and revenue Is the property damage alleged to have been caused by an occurrence / accident AES alleged to emit 47 million tons of carbon dioxide annually Alleged that AES knows or should know that its emissions of greenhouse gases contribute to global warming Alleged that, intentionally or negligently, AES has created a public nuisance; intentional or negligent acts or emissions 17

18 Case Study Steadfast v. AES Issues (cont d) (cont d) Are plaintiffs claims excluded under the Known Loss Exclusion Alleged to have known of impact of emissions since at least 2002 U.S. Government reports cited by plaintiffs allege that the damage at issue incepted prior to 2003 Are plaintiffs claims excluded under the Pollution Exclusion Are greenhouse gases a pollutant Which policy years are allegedly triggered Alleges that AES has been emitting greenhouse gases for many years Allegations seem to implicate policy years at issue 18

19 Practical Advice: What To Do With Global Warming Tender Compare allegations of underlying complaints with policy language -- is a policy potentially triggered Review policy language and exclusions Occurrence Pollution exclusion Review law of the relevant jurisdiction Trigger Pollution exclusion Occurrence 19

20 Practical Advice: What To Do With Global Warming Tender (cont d) If you conclude there is no defense obligation, promptly file a declaratory judgment action Required in many states Best method to protect against bad faith/liability in addition to limits Review law of jurisdiction to determine if you must defend pending outcome of DJ Action If no DJ, send a comprehensive denial to avoid a claim of waiver 20