More than a hundred cases have been filed in US courts against companies accused of causing global warming. Are their insurers on the hook?

There have been many responses to the threat of climate change. Electric cars. Green buildings. US Environmental Protection Agency (EPA) regulations. And lawsuits. Big ticket, take-no-prisoners, take-the-case-all-the-way-to-the-Supreme-Court litigation. But one critical element remains unclear: do insurers have to defend insureds accused of causing or contributing to climate change?

Climate change litigation can be broadly defined. The Arnold & Porter law firm maintains a web page that shows more than a hundred cases, including a subset of carbon-dioxide-emissions-as-nuisance cases.

The most well-known is Connecticut v American Electric Power Co (AEP), where it was alleged that electric utilities with carbon dioxide (CO2) emitting plants in 20 states created a public nuisance. The district court judge did not take a position on that issue. Instead, she rejected the lawsuit because of her conclusion that a federal court should not be involved in the absence of an initial policy decision by the executive or legislative branches.

But the Second Circuit Court of Appeals saw things differently, finding that until new federal laws or regulations pre-empt the federal common law of nuisance, federal courts are empowered to decide such lawsuits.

The defendants did not accept that result and appealed to the US Supreme Court, which found in June 2011 that the EPA’s nascent greenhouse gas (GHG) regulatory programme was sufficient to “displace” the plaintiffs’ federal common law nuisance claims. The fact that the EPA had the authority to regulate GHGs, as ruled in Massachusetts v EPA in 2007, was sufficient, even if the agency did not use that authority. But the Supreme Court notably pointed out that state law-based public nuisance claims were not before it in the AEP case and did not rule on that issue.

There have been three other nuisance lawsuits. In Comer v Murphy Oil USA, Gulf Coast property owners injured by Hurricane Katrina alleged the storm’s ferocity was the result of emissions by energy companies. This case was dismissed but has been resurrected.

In California v General Motors, the state of California sued six automobile manufacturers alleging damages arising from global warming and asserting federal and state law nuisance claims. This case was dismissed.

But the last case, Native Village of Kivalina v ExxonMobil Corp et al, led to a legal dispute about the role of insurers in such cases.

The plaintiffs, Inupiat Eskimos living on the shores of the Chukchi Sea in Alaska, assert that the defendants’ – energy companies and electric utilities – CO2 emissions caused global warming, which resulted in late freezing and early melting of arctic sea ice. This allegedly permitted winter storms to erode unprotected shorelines, which is causing the village to fall into the sea. “Climate change equals mayhem” might be the complaint’s subtitle.

Like AEP, Comer and California, the case has been dismissed by the trial court, which ruled that the plaintiffs lack standing on the basis of the political question doctrine and their inability to establish causation. Like the other suits, it was appealed; the parties now await the Ninth Circuit court’s decision.

Claims related to global warming emissions cases have been submitted to carriers with requests for coverage and so far, to our knowledge, only one carrier has accepted coverage. And that was short-lived.  

The plaintiffs’ bar is creative, wellresourced and will not lack for aggrieved parties seeking to be made whole

The AES Corporation – a defendant in the Kivalina case – tendered the lawsuit to its carrier, Steadfast Insurance, which accepted coverage under a reservation of rights, which means an insurer may later deny coverage. Less than a month later, the insurer sued AES in Virginia state court for a declaration that there was no coverage.

Steadfast tried to have the case dismissed based on the policies’ pollution exclusion, asserting that CO2 is a “pollutant”, but the court denied the motion. However, the insurer was ultimately successful on the question of whether there was an “occurrence”, a term of art in the insurance area that addresses, among other things, the intentionality of the actor with respect to the alleged harm. Basically, Steadfast asserted that the Kivalina plaintiffs claimed that the defendants, including AES, knew or should have known of the harm their intentional emission of CO2 would cause and that, therefore, there was no occurrence. The trial court agreed.

AES appealed to the Virginia Supreme Court. The court affirmed that there was no occurrence. But it may be having second thoughts. Rehearing was granted on 17 January with oral argument scheduled for the end of February.

We conclude from all this that the future of climate change liability cases is still up in the air.

To be sure, federal common law nuisance cases are dead, but state law claims are unresolved. Indeed, the Supreme Court noted in AEP the parallels with water pollution nuisance cases. And the litigation thus far only addresses nuisance claims.

The plaintiffs’ bar is creative, well-resourced and will not lack for aggrieved parties seeking to be made whole. We should expect more lawsuits. One example might be the efforts by Our Children’s Trust, a public interest group that has orchestrated the filing of a dozen lawsuits and a raft of regulatory petitions across the 50 states. Their theory is that, under the public trust doctrine, states are required to regulate CO2 emissions. Their theory is novel, well-funded and strategically applied. Similar assaults by others should be anticipated.

As for insurance, whatever the outcome in AES, it is one case, in one jurisdiction, on one issue. There are a plethora of issues to sort out ranging from the application of pollution exclusions to determining which policies are triggered to evaluating claims of causation.

What can be certain, however, is that insureds are going to seek a defence when claims are brought. This area of the law will see much more development.