Emerging issues: global warming claims and coverage issues.

• Author: Allen, Robert D.

1. AN INTRODUCTION TO THE POLARIZING AREA OF GLOBAL WARMING

   THE ISSUE of global warming or climate change remains a polarizing subject and a continuing source of heated political, social, and economic debate. On one end of the spectrum, there are those who subscribe to the belief that global warming poses a devastating threat to continued life on the planet. This group points to the intensified hurricanes that have battered the South in the last few years (Katrina, Rita, and others), flooding coastlines, the raging wildfires in the West, the El Nino phenomenon, droughts in Africa, rising sea levels in Asia, and a host of other matters as signs of a serious existing problem and as frightening signals of things yet to come. It has been argued in some American courtrooms that human-induced global warming has, among other things, reduced California's snow pack--a vital source of fresh water, raised sea levels along California's coastline, increased ozone pollution in urban areas, increased the threat of wildfires, and cost the State of California millions of dollars in assessing those impacts and preparing for future impacts. (1) On the other end of the spectrum, there are those who maintain that the "threat of catastrophic global warming [is] the greatest hoax ever perpetrated on the American people." (2)

   This article is not a foray into the political debate on global warming; but instead, it is intended to provide insurance and reinsurance professionals and practitioners with an overview of global warming, the legal theories, defenses, and early results in underlying litigation predicated upon global warming, and some of the coverage issues and defenses that may be presented by global warming claims. Global warming is an emerging, dynamic area with enormous implications to the insurance industry.

   Understandably, much of the focus on the impact of climate change has been on first-party policies in view of the recent hurricane experiences. Many of the early underlying cases have involved efforts to require governmental entities to regulate such things as emissions of greenhouse gasses--which generally do not name corporate policyholders and, viewed properly, generally should not be covered under their liability policies--or actions by private parties or government entities seeking declaratory and injunctive relief as opposed to damages. As the focus shifts to claims seeking damages against corporate policyholders and professionals based upon alleged culpable conduct, more companies and professionals will turn to their liability insurers, seeking to be defended in lawsuits and indemnified for resulting settlements and judgments. As the allegations may implicate conduct, knowledge, and damages dating back in time, the potential exists for policyholders to seek to implicate policies issued years or decades earlier. Yet, insurers will have substantial coverage defenses to many such claims.

2. THE GLOBAL WARMING PHENOMENON 101: THE BASICS

   1. "Climate Change"--A Consensus Emerges

      The U.S. Environmental Protection Agency ("EPA") defines the term "climate change" as "any significant change in measures of climate (such as temperature, precipitation, or wind) lasting for an extended period (decades or longer)." (3) According to the United Nations Framework Convention on Climate Change, climate change is, "a change of climate which is attributed directly or indirectly to human activity that alters the composition of the global atmosphere and which is in addition to natural climate variability observed over comparable time periods." (4) At its core, the fundamental premise of global warming is that energy from the sun heats the earth, which radiates the energy into the earth's atmosphere (5) Atmospheric greenhouse gasses, such as carbon dioxide, trap some of the outgoing heat in the earth's atmosphere. Carbon dioxide emissions are reported to persist in the atmosphere for several centuries and, thus, have a lasting effect on climate.

      The World Economic Forum recently stated that "climate change" is one of the most important global risks that key decision makers will face in the years to come. (6) There appears to be a "clear scientific consensus" that global warming has begun and that most of the current global warming is caused by emissions of greenhouse gasses, primarily carbon dioxide, from fossil fuel combustion. This emerging consensus has been expressed in official reports from the United States and international scientific bodies. For example, the Intergovernmental Panel on Climate Change ("IPCC") concluded in its 2001 Report that: "[m]ost of [the] observed warming over [the] last 50 years [is] likely [to have been] due to [the] increases in greenhouse gas concentrations due to human activities." (7) The IPCC and other relevant professional scientific societies have concluded that there will be an acceleration of global warming, and of its impacts, as carbon dioxide levels rise. The issue is one of international concern. The European Union developed a carbon trading market, the European Union Greenhouse Gas Emissions Trading Scheme, in an effort to address the problem. (8)

      Many now argue, as did the State of California in recent global warming-related litigation, that the scientific debate "is over" as to whether a massive atmospheric increase in carbon dioxide and other greenhouse gasses resulting from human activity has changed the climate and will further change the climate over the next decades. (9)

      The United States Supreme Court has recognized the existence of global warming.

      In Massachusetts v. Environmental Protection Agency, the leading case involving authority to regulate greenhouse gasses, the Supreme Court observed that, based upon "respected scientific opinion ... a well-documented rise in global temperatures and attendant climatological and environmental changes have resulted from a significant increase in the atmospheric concentration of 'greenhouse gasses.'" (10) The Supreme Court further noted that a "well-documented rise in global temperatures has coincided with a significant increase in the concentration of carbon dioxide in the atmosphere." (11) The Court acknowledged it is widely understood that, when carbon dioxide is released into the atmosphere, it acts like a ceiling of a greenhouse, trapping solar energy and retarding the escape of reflected heat. (12)

      The far-reaching ramifications and potential aftermath of this landmark decision will be felt in many arenas. On April 2, 2008, officials of 18 states, including Illinois and Massachusetts, brought a petition in the United States Court of Appeals for the District of Columbia seeking an order compelling the EPA to comply with the Supreme Court's decision. The petitioners assert that the EPA has done nothing to comply with the Supreme Court's 5-4 decision. (13) Massachusetts Attorney General, Martha Coakley, a petitioner in the newly-filed case, has stated that: "The EPA's failure to act in the face of these incontestable dangers is a shameful dereliction of duty." (14)

      On August 25, 2008, New York Attorney General Andrew M. Cuomo and a coalition of twelve states, the District of Columbia, and the City of New York filed suit against the EPA in the Federal Court of Appeals for the District of Columbia for failing to adopt regulations to control emissions of global warming pollution from on refineries. (15)

   2. The Potential Impact of Global Warming

      The far-reaching impact of global warming may include heat deaths, exposure to infectious disease, wildfires, mud slides, disruption of water supply, flooding, and more dramatic weather events with a heightened intensity due to increased energy in the atmospheric system, disruption of and damage to forests and ecosystems, additional sea level rise, beach erosion, salt infiltration of fresh water drinking supplies, damage to and breaches of levees, and the general reduction of water availability. By way of illustration, one lawsuit alleged that "Glacier National Park already lost two-thirds of the more than 150 glaciers it had in the 19th Century" and that, at the present rate, "there will be no glaciers at all in approximately 30 years." (16)

      Hurricanes Katrina and Rita are considered the most powerful and damaging hurricanes in U.S. history and have been described as a dramatic example of the sweeping impacts weather and extreme climate change will have on broad sectors of the economy. (17) Insurers were reportedly hit with $45 billion in insured losses from Hurricane Katrina alone. (18) It has been reported that there have been numerous weather-related disasters since 1980 that have each caused at least one billion dollars worth of damage in the United States. These include droughts, fires, tornados, heat waves, and floods. Collectively, these 78 weather-related disasters have cost over $600 billion. (19) Industries beyond just the property insurance industry have felt the impact of these disasters. Nearly half of the largest 100 Standard & Poor's companies reported losses from Hurricanes Katrina and Rita. (20)

      There is no clear consensus as to the likely costs to U.S. and/or international industry as a result of global warming-related claims. The Stem Report from the United Kingdom calculates that, each year, climate change eventually could cost the equivalent of between 5% and 20% of the global gross domestic product. (21) Nicholas Stem, the British government's chief economist, estimates that global warming may cost the world as much as $9.6 trillion by the next century. (22) According to ISO's Property Claim Services' January 16, 2007 press release, catastrophic losses cost the U.S. insurance industry $62 billion in 2005, up from an average of $4 billion a year in the 1950s and $40 billion a year in the 1990s. (23) It has also been reported that the insurance industry paid out a record $58 billion in weather-related disasters in 2005. (24) Whatever forecasting limitations exist, it is...