(Part I of a multi-part discussion exploring insurance issues impacting infrastructure)
When it comes to insurance coverage for key infrastructure assets, several fundamental questions emerge:
- Can our current infrastructure withstand sea level rise and other severe weather consequences?
- If the answer to that question is “no,” (which depends on the asset at issue and geography), does awareness of climate change impacts impose a duty on anyone to protect infrastructure from potential damage?
- If a duty exists to anticipate severe weather impacts, should insurance companies ultimately be on the hook if asset owners fail to take steps to make infrastructure more resilient?
As with most legal questions, where you stand depends on where you sit.
From the perspective of insured homeowners, they may not care much initially. As long as their property insurance carriers are paying for the damage in the first instance, anyway… (by no means a guarantee—flood exclusions and sub-limits abound). Of course, if it leads to higher taxes, they might feel differently.
From the municipal quarter, even if immunity defenses don’t succeed, they might argue that there is no duty to protect against damages caused by failure of a key infrastructure in the first place. And even if there is a theoretical duty, a municipality would likely argue that the risks were not certain enough for a duty to have been breached.
With respect to municipal infrastructure, from at least one insurer’s perspective, municipalities are to blame and should pay for any resulting damages from inadequate infrastructure.
In early 2014, Illinois Farmers Insurance Company filed several suits in federal and state court against more than 100 Illinois municipalities for the alleged failure to increase stormwater capacity in their jurisdictions. The insurance company cited increased rainfall from climate change as the cause of their policyholders’ property damage—and pointed the finger at the municipalities’ failure to implement reasonable practices despite knowledge of the issue.
Then, without any apparent impetus, the insurer promptly dismissed the suits voluntarily. Farmers released a statement that they believed their “lawsuit brought important issues to the attention of the respective cities and counties, and that our policyholders’ interests will be protected by the local governments going forward.”
This may suggest that the insurer was trying to send a message to municipalities along the lines of ‘hey, if you keep failing to upgrade your infrastructure, there could be consequences beyond handling the natural disaster itself.’ In other words, there’s a risk that the municipalities might have to pay for the damages caused, and either way, would bear the expense of litigating the issue.
Whether the message was received—and how wide the audience—is yet to be seen.
Regardless of the underlying motivation, making infrastructure more resilient to potential climate impacts may ultimately be the wisest course.