Energy, Sustainability

Climate Change Insurance Defense Coverage Up in the Air

Who pays for climate change damages? Industry or their insurance carrier? The first cases that will determine the answer to these questions are making their way through the legal system.

In the last few years, several state and local governments across the country have filed lawsuits against energy companies for their alleged contributions to climate change. The lawsuits claim that the production and use of fossil fuels create greenhouse gas (GHG) emissions, which cause climate change-related extreme weather events resulting in climate change-related harm to the plaintiffs.

“In addition, the government entities claim that the energy companies were aware for decades of the climate effects of the use of their fossil fuel products, but failed to disclose those dangers to consumers and regulators,” says Zelle LLP in a JD Supra article.

Initial skirmishes in these cases were to determine jurisdiction for the legal proceedings, with energy companies pushing for federal hearings and state and local governments pushing for state courts. “[S]everal federal courts of appeal have now sent those cases back to the state courts where they were originally filed,” the Zelle article says.

Two recent cases of note are Aloha Petroleum Ltd. v. National Union Fire Insurance Co. and Everest Premier Insurance Co. v. Gulf Oil Ltd. Partnership. These two cases signify the beginning of the legal battles to determine liability insurance coverage for legal defense in climate-related lawsuits.

Hawaii courts

Aloha Petroleum, a subsidiary of U.S.-based Sunoco LP, was the subject of a couple of climate-related claims by local Hawaiian governments.

In City and County of Honolulu v. Sunoco LP, defendant Sunoco’s (along with other oil and gas company codefendants’) motions to dismiss for failure to state a claim and for a lack of personal jurisdiction were denied by the Hawaii First Circuit Court, adds Zelle.

In Maui v. Sunoco LP, the case before the Hawaii 2nd Circuit Court, motions to dismiss the case are still pending before the court.

Meanwhile, Aloha filed suit against its insurance company, AIG’s National Union Fire Insurance Company of Pittsburgh, in August for failure to provide it with legal defense coverage for its legal battles in Hawaii. The suit is attempting to force coverage for legal fees of more than $880,000, The Guardian reported.

Gulf oil

Environmental and concerned citizen groups are also bringing climate change adaption lawsuits against big oil.

“The plaintiffs in these cases generally allege that energy companies and other defendants have failed to adapt their facilities and operations to prepare for the effects of climate change, exposing communities to harms from foreseeable weather events,” Zelle states. “The complaints seek, among other things, environmental restoration and compensatory mitigation, and injunctive relief.”

For example, in Conservation Law Foundation (CLF) v. Gulf Oil LP, plaintiffs alleged that Gulf Oil “failed to adequately prepare its petroleum fuel terminal in New Haven, Connecticut, for the effects of climate change, in violation of the Clean Water Act (CWA) and the Resource Conservation and Recovery Act (RCRA),” according to Zelle’s analysis.

The case has been dismissed for a lack of standing, with the court stating “although the complaint discusses the worsening impacts of climate change on New Haven at great length, Plaintiff does not articulate whether or how such impacts will imminently lead to the discharge of pollutants from Defendant’s Terminal,” reports a summary of the case actions published by Columbia University.

The court dismissed nine CWA counts and all the RCRA counts but granted CLF leave to file an amended complaint.

Insurance coverage

Gulf Oil’s insurer, Everest Premier Insurance, also filed suit against the company fighting against providing insurance coverage to fund the oil company’s court battle against CLF on the grounds that Gulf had not adequately prepared its New Haven bulk petroleum facility for climate change impacts. 

Everest has since dropped its Massachusetts state court case against Gulf Oil, presumably because the CLF case is currently dismissed.

However, it’s important for industry to note that insurance companies are expending a great deal of money and legal resources to deny defense coverage in these suits and are taking the position that climate change litigation is excluded under pollution clauses in general liability policies.

“The only previous decision on this subject was in 2012, when the Virginia supreme court ruled that Steadfast insurance company had no duty to cover the energy firm AES Corporation in a climate lawsuit brought by the Native American village of Kivalina,” reports The Guardian. “The Kivalina lawsuit was unsuccessful, but in the US that usually still leaves defendants liable for their legal costs.”

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