Companies face increasing risks from climate change and should carefully assess whether those risks are or should be covered by insurance.
Potential climate change liabilities range from litigation alleging that a company's operations contributed to climate change, which in turn affected the plaintiff's property or health, to damage to the company’s own property or business attributable to weather variations caused in part by the release of carbon dioxide ("CO2") or other greenhouse gases into the atmosphere.
We understand that many insurers are beginning to offer policies tailored to the novel dangers and opportunities of climate change, such as policies covering renewable energy project financing and production risks. We believe they are also developing climate change-related exclusions to standard liability, property and possibly D&O policies.
Even in the absence of such specific climate change exclusions, insurers might try to preclude coverage for damages arising out of CO2 or other greenhouse gases by relying on the general pollution exclusion clauses found in many policies. Pollution exclusion clauses typically define "pollutant" very broadly, although general principles of state insurance law may limit the meaning of the term or the scope of the exclusion in favor of the policyholder. However, whether any given policyholder will be able to defend a claim of exclusion is unclear. While the U.S. Supreme Court, in Massachusetts v. E.P.A. (2007), determined that CO2 is a pollutant under the federal Clean Air Act, to date, no court has fully considered the emission of CO2 in the context of a pollution exclusion clause. When interpreting such a clause, a court may assess what pollution the policyholder reasonably understood the clause to exclude. As regulation of CO2 becomes more widespread, the gas may be more reasonably perceived to be a pollutant than a benign byproduct. While currently policyholders can therefore probably put forth a strong argument that the term "pollutant" should be construed narrowly against the insurer to omit CO2, in light of Massachusetts v. E.P.A. and expanding greenhouse gas regulation generally, it may become increasingly difficult for policyholders to maintain that CO2 is not a pollutant.