The California litigation:

The lawsuits brought by San Mateo and Marin Counties and the city of Imperial Beach are largely identical, accusing many of the country’s largest oil and gas companies of promoting and profiting from a massive increase in the extraction and consumption of fossil fuels since the 1950s, a period they call the “Great Acceleration,” while also concealing the scientific effects of such conduct. These actions by the defendants, the suits allege, have contributed to an enormous and foreseeable increase in greenhouse gas pollution, which has caused more extreme weather and loss of coastline, among other climate-related effects. In particular, plaintiffs allege sea-level rise affecting their sewer systems, beaches, parks, and roads, as well as millions in costs studying and mitigating the effects of global warming. The suits allege claims of public and private nuisance, strict liability, negligence, and trespass, and seek compensatory and punitive damages and disgorgement of profits.

Precedent/prior litigation:

The California lawsuits are the latest in a series of civil suits attempting to hold companies accountable for contributing to climate change. In 2006, residents of Mississippi sued multiple energy, chemical, and utility companies for releasing greenhouse gases that, they alleged, caused them property damage related to Hurricane Katrina. In 2013, the Fifth Circuit Court of Appeals upheld a decision dismissing the case Comer v. Murphy Oil USA, on the grounds that plaintiffs did not have standing to bring the lawsuit and could not establish proximate cause. In 2011, the Supreme Court rejected a public nuisance suit brought by several states and New York City against power plants seeking to force them to cap their emissions of greenhouse gases. The Court held in American Electric Power Co. v. Connecticut that the Clean Air Act preempted plaintiffs’ federal common law claims. Similarly, in 2012, the Ninth Circuit Court of Appeals affirmed a lower court’s ruling in Kivalina v. ExxonMobil, throwing out a suit brought by the residents of a city on the northwest coast of Alaska against more than 20 energy and utility companies alleging that their contributions to global warming would result in the forced relocation of their village. Following American Electric, the Ninth Circuit held that federal law preempted the village’s claims.

Why coverage applies to cases like the California litigation:

Most companies have commercial general liability policies that provide coverage for bodily injury or property damage. Pleadings like those in the California litigation alleging sea-level rise damaging public utilities, roads, parks and other property arguably trigger this coverage. Many general liability policies provide “occurrence”-based coverage that should respond to a claim alleging that property damage occurred during the period of the policy. Allegations of companies contributing to greenhouse gas emissions from 1965 to present, as in the California litigation, arguably trigger such coverage going back to at least to 1965. Companies with only “claims made” liability policies normally would be limited to seeking coverage under the policy encompassing the year the claim was brought against them.

Defendants sued in legal actions like the California litigation can argue that any insurers that issued them primary “duty to defend” policies during this period are obligated to defend them against such lawsuits. The duty to defend is broader than the duty to indemnify. The law of most states would require primary liability carriers to provide a defense if there is merely a potential for coverage—even if the allegations of the suit are false or fraudulent.

Lawsuits like the California litigation that allege claims of trespass arguably trigger the “personal injury” coverage of companies’ general liability policies. Companies directors’ and officers’ policies also could be implicated by global warming lawsuits in the event that shareholder derivative suits, or similar claims, allege failure by the company’s leadership to adequately disclose potential liabilities related to global warming.

If a company is faced with a lawsuit alleging liability for damages because of climate change, it should carefully consider giving notice under any and all policies issued by any and all insurers providing liability insurance to them for the period of time implicated by the lawsuit. In light of the science of climate change, this could be the entire duration of the company’s industrial operations.

Potential obstacles to coverage:

Although liability policies should provide coverage for most claims alleging liability for damages from global warming, insurers likely will raise several arguments to avoid their coverage obligations.

Insurers likely will point to any allegations of intentional and willful conduct, like those in the California litigation, to invoke a policy exclusion for damages that are “expected or intended” by the insured. These exclusions may only apply, however, if the insurer can show that the resulting damage, not the conduct that led to the damage, was expected or intended. This often is difficult for insurers to establish. Moreover, for suits like the California litigation that include claims for negligent as well as intentional conduct, these exclusions should not operate as a complete bar to coverage.
Insurers also likely will argue that a pollution exclusion in the policy avoids coverage for damages from global warming. With respect to policies issued prior to 1985, the courts of several states will not apply this exclusion if the contamination caused by pollution was unexpected. For post-1985 policies, most of which feature the so-called “absolute pollution exclusion,” policyholders still can invoke the “reasonable expectations doctrine” in favor of coverage. The doctrine, which is honored in most states, holds that a policyholder’s reasonable expectation for coverage for liabilities arising out of their normal business operations should not be disturbed. If a company’s normal operations included the extraction, sale, and use of fossil fuels and release of greenhouse gases, a company should be able to reasonably expect coverage for those operations, despite the presence of a pollution exclusion in the policy.

Insurers also likely will invoke an exclusion for “known loss” in the face of allegations, as in the California litigation, that companies were aware of the damage resulting from their conduct before they purchased their policies. As in the California litigation, however, there often are other allegations, asserting that the policyholders knew “or should have known” about these damages that would survive application of the “known loss” exclusion.

What to do now:

It is unclear whether the plaintiffs in the California litigation will overcome the obstacles of establishing standing and proximate cause, which have derailed prior civil litigants seeking redress for damages from global warming. Companies with substantial risk of being targeted by such litigation, however, can take certain steps to shift the risk of significant defense and indemnity costs to their insurance.

Companies should devote resources to locating copies of their historic primary and excess/ umbrella general liability policies. The services of an insurance archaeologist can be particularly helpful in this regard. In many cases, their work has led to the discovery of “pristine” primary insurance that provides unlimited defense cost coverage.

Once compiled, companies should review their historic insurance program, consider the limits of coverage available to them, and analyze the optimal allocation of insurance coverage for a “long tail” claim that triggers their historic liability policies.

Companies’ risk management and legal departments should be prepared to provide prompt notice to their insurers of written demands or lawsuits alleging liability for climate change. Often, the biggest obstacle to obtaining insurance coverage is policyholders’ delay in notifying their insurance carriers of a written demand for monetary or non-monetary relief, and of lawsuits. By providing prompt notice, policyholders can eliminate this common issue.

Client Alert 2017-185