Litigation over global warming is heating up. States and landowners are pursuing lawsuits against greenhouse gas emitters for property damage allegedly caused by global warming. The U.S. Supreme Court recently buoyed these claims.
In ruling that the federal Environmental Protection Agency may regulate greenhouse gases, the court acknowledged that states and certain landowners have standing to pursue claims based on property damage caused by global warming. The scope and frequency of lawsuits against greenhouse gas emitters are only bound to increase as the fact of global warming becomes more widely accepted and its effects manifest themselves more visibly and profoundly.
Commercial general liability insurance could provide coverage for defense costs and liabilities associated with global warming litigation. General liability policies require insurers to defend lawsuits that present the potential for covered liability and pay covered liabilities arising out of property damage. While some GL policies exclude coverage for property damage resulting from pollution in some situations, global warming claims present unique factual circumstances that may allow insureds to avoid their pollution exclusions.
Ironically, in the global warming litigation context, it may be easier for some insureds to find coverage in policies containing an "absolute" rather than a qualified pollution exclusion.
PLAINTIFFS MAY HAVE STANDING
In April 2007, the U.S. Supreme Court opened courtroom doors to claims arising out of property damage caused by global warming. In Massachusetts v. Environmental Protection Agency, a number of states challenged the EPA's decision that it did not have authority to regulate greenhouse gas emissions.
The court ruled that greenhouse gases are "air pollutants" under the federal Clean Air Act, and the EPA has the authority to regulate them. A key aspect of the court's ruling was its conclusion that the states had standing to sue the EPA. The states had "quasi-sovereign interests" to protect in their land and citizens, the court found. Also, the court concluded that each state "owns a substantial portion of the state's coastal property" and therefore "alleged a particularized injury in its capacity as a landowner."
Massachusetts now provides any state or major landowner that has suffered some property damage because of global warming a strong argument that it may seek redress in the courts. The case helped a number of plaintiffs, including the state of California, that had already filed suit against greenhouse gas emitters.
California filed its action against six large automobile manufacturers in late 2006. The state contends that rising seawaters are harming its coastline and levee system, that melting snow pack is compromising its water storage and distribution systems, and that drought and higher temperatures are contributing to large wildfires. The state claims that the defendants are liable for millions of dollars under state and federal public nuisance law because their products--cars and trucks--caused this damage by contributing to global warming through the emission of greenhouse gases.
Similar lawsuits have been filed across the country against electricity generators, oil and coal producers, and investors in fossil-fuel development projects.
SPECIFIC USE FOR GENERAL LIABILITY
General liability insurance covers the defense of, and liability for, certain claims arising out of property damage (among other things) resulting from an "occurrence" during the policy period, unless an exclusion precludes coverage. While a claim must be covered to trigger the insurer's indemnity obligation under a GL policy, the insurer has a duty to defend claims so long as they give rise to a potential for coverage.
Insurers likely will look to the "pollution exclusion" in GL policies to avoid coverage for global-warming claims. However, most GL policies issued before 1973 do not have a pollution exclusion. Because a defendant's contribution to global warming may date back decades, a pre-1973 policy will probably be a valuable as set in protecting against defense costs and liability associated with global warming litigation.
Most GL policies issued in or after 1973 do contain a pollution exclusion. The exclusion precludes coverage for claims arising out of the discharge of contaminants or pollutants unless the "discharge, dispersal, release or escape is sudden and accidental."
The interpretation of this exclusion varies in different states. Some states hold it excludes only intentional pollution; others hold it excludes all gradual pollution, intended or otherwise. In any event, the exclusion precludes coverage for liabilities resulting from some types of gradual pollution regardless of where the pollutants are discharged.
In 1985, insurers sought to limit coverage for pollution-related liabilities even further by adding what has become known as the "absolute" pollution exclusion. That exclusion also precludes coverage for liabilities arising out of the discharge of pollutants, but does not include the "sudden and accidental" exception found in its predecessor.
The "absolute" pollution exclusion is limited in the ISO form, however, to discharges "at or from any premises, site or location which is or was at any time owned or occupied by, or rented or loaned to any insured ... (or) on which any insured or any contractors or subcontractors working directly or indirectly on any insured's behalf are performing operations."
Some insurers later removed from the "absolute" pollution exclusion the requirement that the pollution be discharged at or from the insured's premises or where the insured is working. This version of the exclusion is now known as the "total" pollution exclusion and is generally the broadest of the three.
LIABILITIES NOT EXCLUDED
None of the pollution exclusions described above should preclude coverage for global warming claims. Ironically, the absolute pollution exclusion may allow for more coverage than its predecessor in the global warming litigation context.
The U.S. Supreme Court's decision in Massachusetts that greenhouse gases constitute "air pollutants" for purposes of the Clean Air Act does not necessarily mean that they are "pollutants" under a GL policy's pollution exclusion.
The exclusion generally defines "pollutant" as "any solid, liquid, gaseous or thermal irritant or contaminant." Because virtually any substance may become an "irritant or contaminant" in sufficient quantities or under the proper conditions, the absolute pollution exclusion has been held to apply only to substances "commonly thought of as pollution." Courts look to the reasonable expectations of the insured in determining whether a substance qualifies as a "pollutant" under this definition.
Because carbon dioxide is a naturally occurring molecule in the environment--every person exhales carbon dioxide with each breath--insureds may credibly contend that they did not reasonably expect carbon dioxide and other greenhouse gases to qualify as "pollutants" when they emitted them.
The absolute pollution exclusion should not apply to certain global warming claims for an additional reason. In contrast to the 1973 exclusion, the absolute pollution exclusion applies only to pollutants discharged at or from the insured's premises or where the insured was working. In its lawsuit against the automobile manufacturers, the state of California does not focus on the greenhouse gases emitted by the defendants' manufacturing plants. It focuses instead on the fact that the defendants' vehicles emit greenhouse gases after they are sold.
The alleged harm, therefore, does not arise from pollution at the defendants' facilities or from their operations. Where the 1973 exclusion might apply, the absolute pollution exclusion clearly should not.
Insureds facing global warming litigation should review their GL policies for potential coverage. Because much of the risk is associated with historic pollution, they may have coverage under general liability policies issued before the pollution exclusion appeared in 1973. Or they could have coverage despite post-1973 exclusions because greenhouse gases should not be considered "pollutants."
Policies issued in 1985 and after could also provide coverage because the absolute pollution exclusion, which was intended to limit coverage even further, actually may broaden it in the context of global warming claims.
JOHN D. GREEN is an insurance coverage partner at Farella Braun + Martel in San Francisco.He has more than 20 years of experience representing insureds and claimants in insurance coverage disputes.
TYLER C. GERKING is an associate in Farella Braun + Martel's San Francisco office, where his practice focuses on insurance coverage and commercial litigation.
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September 15, 2007
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