Global Warming Litigation Just Getting Started; Costs Will Be Significant

Toward the end of 2009, it appeared that a number of issues with the possibility of creating significant political and social changes were on the verge of becoming law before stalling or imploding. One such issue with serious implications for the insurance industry in particular is global warming or climate change.

The issue of global warming was certainly on the radar screen for several years before 2009, but, in 2009, there appeared to be, or was at least represented to be, a general consensus as to the existence, cause and need for action to stop or slow global warming.

One result was the passage in the United States House of Representatives of a bill to address global warming.

There also appeared to be momentum building toward the signing of an international global warming treaty in Copenhagen in December 2009.

However, the release of e-mails among and between scientists working on the United Nations Intergovernmental Panel on Climate Change (IPCC) raised questions about the conclusions of the IPCC report on global warming which continue to reverberate today. That scandal, along with recent political events in the United States, have cooled the likelihood of global warming legislation passing any time soon.

Nonetheless, these events do not mean that global warming does not continue to present challenges and threats to the insurance industry. To the contrary, global warming litigation raising claims either directly concerning insurance coverage or issues of particular interest to the insurance industry is currently pending in a number of courts. There are good reasons to expect global warming litigation to continue to proliferate and possibly increase exponentially depending on the rulings in some of the pending litigation.

A Trio of Rulings

Although global warming presents many complex issues and concerns for the insurance industry, a triumvirate of rulings are the focus of present attention and appear to set the stage for the future direction of global warming litigation.

In the 2007 case of Massachusetts v. Environmental Protection Agency, [549 U.S. 497 (2007)]. several states and private organizations sued the EPA to require it to regulate carbon dioxide and other greenhouse gas emissions under the Clean Air Act.

In a narrow 5 – 4 decision the U.S. Supreme Court held that the EPA is authorized, and required, under the Clean Air Act to regulate those emissions which it determines cause or contribute to global warming or climate change, and, further, held that carbon dioxide constitutes a “pollutant” within the meaning of the Clean Air Act.

While the Court did not attempt to make a formal finding as to the reality or extent of global warming or whether carbon dioxide or other greenhouse gases contribute to global warming, it found that the EPA “had offered no reasoned explanation for its refusal to decide whether greenhouse gases cause or contribute to climate change” and remanded the matter, requiring the EPA to base its refusal to regulate greenhouse gas emissions as requested by the plaintiffs on reasons permitted and required under the Clean Air Act.

In September 2009, the Second Circuit Court of Appeals held in State of Connecticut v. American Electric Power, Inc. [582 F. 3d 309 (2nd Cir. 2009)] that eight states and several land trusts had standing to assert a federal common law nuisance claim against six electric power companies on the basis that those companies, through their emissions of carbon dioxide, were large contributors to global warming, which the plaintiffs alleged caused or would cause harmful effects to human health.

Similarly, in October 2009, the Fifth Circuit Court of Appeals held in Comer v. Murphy Oil USA [585 F. 3d 855 (5th Cir. 2009)] that a putative class of private landowners along the Mississippi Gulf Coast had standing to assert a private nuisance claim under Mississippi law against a number of companies which the plaintiffs alleged had contributed to global warming, thereby increasing the ferocity of Hurricane Katrina and, as a consequence, their damages from Hurricane Katrina.

These cases are not alone in asserting nuisance claims based on activities of defendants which purportedly contribute to global warming.

For example, the State of California sued General Motors and five other leading automobile manufacturers on the basis that the vehicles they manufactured emitted greenhouse gases which contributed to global warming. The district court dismissed the case and the State appealed.

In June 2009, the State of California voluntarily withdrew its appeal to the Ninth Circuit Court of Appeals due to what it perceived as favorable changes proposed by the administration of President Obama. However, the Ninth Circuit will apparently get its chance to rule on this issue in another case.

The Alaskan Village of Kivalina sued ExxonMobil and numerous other oil and gas companies alleging that the defendants caused harm to their village by contributing to global warming. The district court dismissed the suit for lack of standing and for raising a non-justiciable political question. The case is now on appeal to the Ninth Circuit.

Litigation Costs Significant

It should be noted that the courts in the foregoing cases expressed doubts as to the ability of the plaintiffs to ultimately prove their cases, particularly with respect to establishing causation.

However, for insurance purposes, ultimate success on the merits is only part of the concern. Litigation costs are likely to be significant in defending global warming cases.

Indeed, to the extent proof of the existence of global warming and the causation of damages by global warming are issues, the pre-trial proceedings in such cases are likely to take years and require expensive expert testimony. Thus, coverage issues will be front and center as insurers are presented with claims arising out of or related to global warming.

While numerous commentators, lawyers and legal scholars have suggested various defenses to insurance coverage of global warming related claims, no court has yet issued a public ruling on any of these defenses.

At present, the most prominent case raising global warming coverage issues is Steadfast Insurance Company v. The AES Corporation. [Cause No. 2008-858, in the 17th Circuit Court for Arlington County, Va.]

Steadfast Insurance Company filed a declaratory judgment action asking a Virginia state court to rule that the commercial general liability (CGL) policy it issued to AES did not provide coverage of the global warming claims asserted against AES in the Village of Kivalina lawsuit and that it was not required to defend AES against that lawsuit.

In its declaratory judgment action, Steadfast asserts that its CGL policy does not cover global warming claims for three reasons: (1) the damages allegedly caused by global warming were not caused by an “occurrence” within the meaning of the CGL policy, (2) since the damages allegedly caused by global warming began prior to the date the policy was issued, the “loss in progress” endorsement excluded coverage and (3) coverage is excluded under the policy’s pollution exclusion.

No final decision has been issued in the Steadfast case, but it is currently set for trial in April 2010.

It is somewhat surprising that there are not more lawsuits which can be found where the existence of insurance coverage for global warming claims is at issue. This is likely due to the fact that global warming litigation is in its infancy.

As a result, when a ruling is issued in the Steadfast case, although coming out of Virginia state court, the ruling will undoubtedly quickly spread throughout the country and will have a profound effect on how subsequent and pending global warming claims are handled by insurers and insureds. Even then, however, it is fairly certain that Steadfast will not be the end or the last word on global warming litigation coverage issues.

Robert Redfearn, Jr. (Redfearnjr@spsr-law.com) is a partner in Simon, Peragine, Smith & Redfearn, a regional law firm with offices in New Orleans, La., and Mississippi.