Insurance In A Climate Of Change

What Is Global Warming?

Global warming refers to an average increase in the Earth's temperature, which in

turn causes changes in climate. A warmer Earth may lead to changes in rainfall

patterns, a rise in sea level, and a wide range of impacts on plants, wildlife, and humans.

The U.S. Environmental Protection Agency, 2006

What Causes Global Warming?

FAST FACTS….

• The "greenhouse effect”

• Without the greenhouse effect, the Earth would not be warm enough for humans to survive. But if it’s too strong, it makes the Earth too warm causing serious problems for humans, plants, and animals.

• CO2 and the environment

• The human role since the Industrial Revolution

• The largest sources of CO2 emissions

– Coal burning power plants– Cars

Power Plant

Today’s Traffic

Global Warming

Why Insurance Companies Should Be Concerned

Global Warming Impacts On Insurance Industry

• Increase In Extreme Weather EventsIncrease In Extreme Weather Events

• New Liability Exposure: The “Global Warming” New Liability Exposure: The “Global Warming” ClaimClaim

• The Great Challenge: Promoting Emission The Great Challenge: Promoting Emission ReductionsReductions

Extreme Weather Events

Cost the Insurance Industry Billions of Dollars In First-Party

Claims

2008 Flooding - Cedar Rapids, Iowa

Oceans Rising

Southern California Wildfires

Melting Glaciers

Hurricane Katrina Aftermath

May 28, 2004 Highway 12 Nebraska Supercell

• What Is the Insurance Industry Saying

About Global Warming?

– The American Assoc. of Ins. Services

– The largest insurers Munich Re and Swiss Re

– Clement Booth of Allianz AG

– Lloyd’s of London chairman Peter Levine

– The Insurance Services Office

• The World Meteorological Organization reported that:

• “Weather and climate are marked by record extremes in many regions across the world since January 2007.”

• In 2007, “it is likely that global land surface temperatures ranked warmest since records began in 1880…. [It is] very likely that hot extremes, heat waves and heavy precipitation events will continue to become more frequent.”

Fiercer Hurricanes More Likely Global warming heats our oceans and therefore scientists expect more ferocious hurricanes. This could devastate coastal communities, affecting many insurance lines.

Wildfires on the RiseThe Dept. of Energy is tracing a link between our warmer climate and the recent uptick in wildfires. Wildfire frequency and severity will affect crop, property, life, and health insurance.

Hotter DaysAn increase in hot days and heat waves will directly affect health, life, property, business interruption, and crop insurance.

More Droughts ExpectedHigher temperatures cause water to evaporate faster, leading to dried-out soil that increases water shortages and puts crops and livestock at risk.

Higher Risk of FloodsA warmer world will deliver heavier rainfalls and more flooding. This will affect property, flood, crop, vehicle, life, health, and business interruption insurance.

Coastal ErosionClimate scientists predict that global warming could cause sea levels to rise by 3 feet this century. Coastal erosion from rising sea levels will affect property, flood, business interruption, and life insurance lines.

New Liability Exposure

The “Global Warming” Claim

Greenhouse Gas Emitters’ Liability

Who are the greenhouse gas emitters?

- energy companies - toy makers- car manufacturers-power plant companies

What Liability Are They Facing?

Who are the greenhouse gas emitters?

- energy companies - toy makers- car manufacturers-power plant companies

What Liability Are They Facing?

Greenhouse Gas Emitters’ Liability

REGULATORY COMPLIANCE COSTS –

CO2 SEQUESTRATION (CAPTURE AND CONTAIN)

CO2 STORAGE LIABILITY

TORT LAWSUITS

REGULATORY COMPLIANCE COSTS –

CO2 SEQUESTRATION (CAPTURE AND CONTAIN)

CO2 STORAGE LIABILITY

TORT LAWSUITS

Greenhouse Gas Emitters’ Liability

TORT LAWSUITS

• Lawsuits filed by private individuals, corporations and environmental organizations against emitters claiming they are causing global warming damage.

• Claims include public nuisance, trespass, civil conspiracy, and unjust enrichment.

TORT LAWSUITS

• Lawsuits filed by private individuals, corporations and environmental organizations against emitters claiming they are causing global warming damage.

• Claims include public nuisance, trespass, civil conspiracy, and unjust enrichment.

Are Greenhouse Gas Emitters Covered

Under CGL Policies?

Whether claims are covered depends on two things:

the “pollution exclusion” in CGL policies

whether carbon dioxide - the main greenhouse gas emitted by human activity - is a pollutant

Whether claims are covered depends on two things:

the “pollution exclusion” in CGL policies

whether carbon dioxide - the main greenhouse gas emitted by human activity - is a pollutant

THE POLLUTION EXCLUSION

• CGL policy coverage: “all sums for which [the insured] become[s] legally obligated to pay as damages caused by bodily injury, property damage or personal injury,” subject to exclusions.

• The pollution exclusion: excludes losses arising from the discharge of pollutants and contaminants, and regulations and lawsuits arising from such discharge.

THE POLLUTION EXCLUSION

• CGL policy coverage: “all sums for which [the insured] become[s] legally obligated to pay as damages caused by bodily injury, property damage or personal injury,” subject to exclusions.

• The pollution exclusion: excludes losses arising from the discharge of pollutants and contaminants, and regulations and lawsuits arising from such discharge.

California Courts And

The Pollution Exclusion

California Courts And

The Pollution Exclusion

CALIFORNIA CASES INTERPRETING THE POLLUTION EXCLUSION

MacKinnon v. Truck Ins. Exchange, 31 Cal.4th 63 (2003)

Garamendi v. Golden Eagle Ins. Co., 127 Cal.App.4th 480 (2005)

Ortega Rock Quarry v. Golden Eagle Ins. Corp., 141 Cal.App.4th 969 (2006)

Legarra v. Federated Mutual Ins. Co., 35 Cal.App.4th 1472 (1995)

Cold Creek Compost, Inc. v. State Farm Fire and Cas. Co., 156 Cal.App.4th 1469 (2007)

CO2 AND THE FUTURE

None of the California cases cited address the Absolute Pollution Exclusion in the context of greenhouse gas emissions. As a result, there is a gaping hole in the

legal landscape.

How will courts analyze a claim for coverage involving CO2?

for the very first time

April 2007

U.S. Supreme Court Addresses Global Warming

Massachusetts v. Environmental Protection Agency, 549 U.S. 1438 (2007)

This lawsuit is “[b]ased on respected scientific opinion that 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 gases,’” (549 U.S. at 1440.)

The Court said “[t]he harms associated with climate change are serious and well

recognized.” (549 U.S. at 1442.)

This lawsuit is “[b]ased on respected scientific opinion that 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 gases,’” (549 U.S. at 1440.)

The Court said “[t]he harms associated with climate change are serious and well

recognized.” (549 U.S. at 1442.)

States Have Standing to Sue The EPA To Force It To Regulate Emissions

The Supreme Court accepted the right of US (coastal) states to sue as

they face the prospect of direct losses to their territories in the event of rising sea levels due to

global warming.

States Have Standing to Sue The EPA To Force It To Regulate Emissions

The Supreme Court accepted the right of US (coastal) states to sue as

they face the prospect of direct losses to their territories in the event of rising sea levels due to

global warming.

Issue: Was the EPA’s decision not to regulate carbon dioxide emissions

under the Clean Air Act was “arbitrary and capricious.”

In resolving that question, the Court addressed whether “pollution”

includes CO2.

Issue: Was the EPA’s decision not to regulate carbon dioxide emissions

under the Clean Air Act was “arbitrary and capricious.”

In resolving that question, the Court addressed whether “pollution”

includes CO2.

Under the Clean Air Act, EPA is required to regulate emissions of “air pollutants” that “endanger the public health and welfare.”

EPA says carbon dioxide is not a pollutant.

Supreme Court rejects EPA position -- rules that CO2 is a pollutant under the CAA.

Under the Clean Air Act, EPA is required to regulate emissions of “air pollutants” that “endanger the public health and welfare.”

EPA says carbon dioxide is not a pollutant.

Supreme Court rejects EPA position -- rules that CO2 is a pollutant under the CAA.

Does Mass v. EPA mean that carbon dioxide

emissions are ipso facto a “pollutant” under the Pollution Exclusion?

Policyholder Position

Policyholders will contend that the pollution exclusion does not Policyholders will contend that the pollution exclusion does not preclude coverage because:preclude coverage because:

Carbon dioxide is not “traditional environmental pollution” Carbon dioxide is not “traditional environmental pollution”

Carbon dioxide is “not commonly thought of as pollution” Carbon dioxide is “not commonly thought of as pollution” (applying MacKinnon)(applying MacKinnon)

There is a “reasonable expectation” of coverage for liabilities There is a “reasonable expectation” of coverage for liabilities arising out of normal business operations, which include arising out of normal business operations, which include emissions of greenhouse gases emissions of greenhouse gases

The EPA has never regulated greenhouse gas emissionsThe EPA has never regulated greenhouse gas emissions

Insurers never contemplated carbon dioxide emissions in drafting Insurers never contemplated carbon dioxide emissions in drafting the pollution exclusion the pollution exclusion

Insurer Position

Insurers disputing coverage will contend that the pollution Insurers disputing coverage will contend that the pollution exclusion precludes coverage because:exclusion precludes coverage because:

Greenhouse gas emissions are “traditional environmental Greenhouse gas emissions are “traditional environmental pollution” which courts have held to be excludedpollution” which courts have held to be excluded

The Massachusetts v. EPA court held that greenhouse gas The Massachusetts v. EPA court held that greenhouse gas emissions are “pollutants” (albeit under the Clean Air Act)emissions are “pollutants” (albeit under the Clean Air Act)

There is no “reasonable expectation” of coverage for There is no “reasonable expectation” of coverage for liabilities arising out of emissions of greenhouse gases liabilities arising out of emissions of greenhouse gases

Greenhouse gas emissions are man-made and cause Greenhouse gas emissions are man-made and cause environmental harm and, under MacKinnon, the pollution environmental harm and, under MacKinnon, the pollution exclusion was intended to “address the enormous potential exclusion was intended to “address the enormous potential liability resulting from anti-pollution laws enacted between liability resulting from anti-pollution laws enacted between 1966 and 1980.” 1966 and 1980.”

this is not Y2K

Global Warming Lawsuits

Global Warming Lawsuits Native Village of Kivalina v. ExxonMobil, No. 4:08-cv-

01138-SBA (N.D. Cal. filed Feb. 26, 2008)

California v. General Motors Corp., No. C06-05755 MJJ (N.D. Cal. filed 2006)

Friends of the Earth, Inc. v. Mosbacher, No. C-02-04106-JSW, 2005 WL 2035596 (N.D. Cal. Aug. 23, 2005)

Comer v. Murphy Oil USA, Inc., No. 1:05-CV-436-LG-RHW (S.D. Miss. filed Sept. 20, 2005)

Korsinsky v. EPA, 205 U.S. Dist. LEXIS 21778 (S.D.N.Y. Sept. 28, 2005)

Connecticut v. American Electric Power Co. , Civ. No. 04 CV 05669 (S.D.N.Y. filed July 21, 2004)

Native Village of Kivalina

v.

ExxonMobil

Complaint by villagers alleges:

“Houses and buildings are in imminent danger of falling into the

sea.”

$400 million in damages to relocate villagers.

Cause: global warming

Causes of Action:

Federal Common Law Public Nuisance

State Public and Private Nuisance

Civil Conspiracy

Concert of Action

Defendants include…..

BPChevron

ConocoPhillipsExxonMobil

ShellPeabody Energy

American Electric PowerDynegy Holdings

Edison InternationalReliant Energy

Kivalina, Alaska

Flooding At Kivalina

California v.

General Motors Corp.

•

California claims damages from

global warming:

• reduced snowpack (fresh water)

• raised sea levels along its coastline

• increased ozone pollution, smog

• heightened wildfire risks

• increased flooding

Motion to dismiss granted

Matter raises a “political question” not for the judiciary

branch

Case is Now On Appeal Before the 9th Circuit

Comer v.

Murphy Oil USA, Inc.

• Hurricane Katrina case (filed in Mississippi)

• Property owners sue energy and oil companies

• Allegation: greenhouse gas emissions were “proximate and direct” cause of an “[i]ncrease” in the “[d]estructive capacity of Hurricane Katrina.”

• Causes of action: unjust enrichment, civil conspiracy, aiding and abetting, public and private nuisance, trespass, negligence, and fraud.

• Damages: compensatory and punitive damages

• Defendants moved to dismiss (political question/lack of standing).

• District court grants motion to dismiss. Case is before Fifth Circuit.

Connecticut v.

American Electric Power Co.

• Eight states (CA, CT, IA, NJ, NY, RI, VT, WI)

sued five electric utility companies as the five largest CO2 emitters in the U.S.

• Claims: federal common law public nuisance and state law public and private nuisance.

• Defendants moved to dismiss for lack of jurisdiction and failure to state a claim. The district court dismissed the case under the political question doctrine.

• This case is now on appeal before the Second Circuit.

What Is Being Done To Curb Greenhouse Gas

Emissions?

Clean Technology & Sustainable Building

Windmill Energy

Solar Energy

Energy Efficient Light bulb

Green Building

Green Building

Hybrid Automobile

Biodiesel Renewable Fuel

From Risk to Opportunity

New Insurance Products Offered

to Promote Emission Reductions

Green Insurance

“As the world’s largest industry—generating about $4 trillion in

premium revenue in 2006. . .the insurance industry is uniquely positioned to further society’s

understanding of climate change and advance creative solutions to

minimize its impacts. . .”From Risk to Opportunity: 2007, Insurer Responses to Climate

Change, Evan Mills, Ph.D., Ceres Report.

Green Insurance

In 2006, Fireman's Fund gives five percent discount on the policy premiums to building owners for LEED- certified

buildings

Lexington Ins. Co. (a member of AIG) is also offering this

discount.

• Fireman's Fund offers a hybrid

endorsement (enables policyholders to upgrade to a hybrid model during the first three model-years in the event of a total loss).

• Travelers will offer owners of hybrid cars in CA a 10 percent discount (already offered in 41 other states).

• Travelers and Lloyds offer policies that will upgrade conventional mechanical equipment to more energy efficient models.

•Pay-as-you-drive insurance products are offered by 19 insurers worldwide who recognize that reduced driving means reduced accident risk as well as energy use.

• Tests have shown that PAYD products can reduce overall miles driven by 10-15 % or more. Progressive and GMAC offer PAYD policies in parts of the U.S.

from risk to opportunity

Global Warming & Insurance

The End