If States Can Successfully Use The Courts To Address CO2 Emissions, What Does This Mean For Your Company And For Your Insurance Company?
Shareholder, Anderson Kill & Olick P.C.
A two-judge panel of the Second Circuit, vacating and remanding the District Court judgment, held that “the district court erred in dismissing the complaints on political question grounds; that all of the Plaintiffs have standing; that the federal common law of nuisance governs their claims” and that such claims are not preempted by existing environmental law. This case has important implications for industries that may be viewed as having contributed significantly to anthropogenic atmospheric emissions. It also has insurance coverage implications and may be a harbinger of future litigation.
More specifically, this decision could be viewed as giving states and other plaintiffs a green light to sue companies from other states alleging nuisance from carbon dioxide emissions. Until now, industry has been protected by at least three substantial hurdles to successful global warming lawsuits. The "political question" doctrine and lack of plaintiffs’ standing knock out most suits.
The Court of Appeals rejected those protections in this case. The third hurdle is being able to show causation in terms of a sufficiently close connection between, for example, CO2 emissions from burning coal and evidence of rising global temperatures. This decision potentially enables every state and municipality in the country to bring nuisance suits against an almost limitless range of CO2 emitters. One might say that the Second Circuit will be cited for having found the missing causal link.
With respect to the insurance implications of this case, companies involved with significant CO2 emissions or facing lawsuits similar to this case will look to their liability insurance policies to defend and indemnify themselves. Insurance companies can be expected to contest coverage based upon pollution exclusions in many policies, setting the stage for high stakes coverage battles. Moreover:
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This decision could well pave the way for states and local municipalities (and potentially anyone else claiming property damage or bodily injury) to bring damages claims against a multitude of industries.
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The long-term nature of greenhouse gas emissions (“GHG”) and global warming damages may trigger decades of historic insurance coverage. Detailed reconstruction of corporate insurance coverage history by experienced professionals has uncovered millions of dollars in hidden coverage assets and is one way companies could take steps to protect themselves.
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Older insurance policies often are especially valuable because of the absence of exclusionary language involving pollution. Moreover, the global nature of the alleged damages may afford policyholders broader opportunities to pursue coverage in more-favorable states.
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While many companies may consider “nuisance” suits alleging harm from their GHG emissions weak or even frivolous, the cost of defending such suits can dwarf the costs of indemnification – and insurance companies’ duty to defend is broader than their duty to indemnify. Companies facing such suits should thus move quickly to obtain and preserve coverage for defense costs.
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The insurance industry can expect to be called upon to shoulder a substantial part of the burden of global warming. If a company’s normal operations involve the release of GHGs which generally were not regulated, then a company may successfully argue that it has or had a reasonable expectation of coverage for lawsuits relating to those activities regardless of any so-called pollution exclusion in an historic insurance policy. Insurance companies are likely to argue otherwise, however. One insurance company recently moved for summary judgment in Virginia, arguing that pollution exclusions relieved it of the duty to defend a global warming case brought in California by Native Americans. This is a case to watch closely.
Turning back to other details of the Second Circuit’s decision, in holding that these were not merely political questions, the Court focused on how the plaintiffs sought specific relief as opposed to a comprehensive solution.
Nowhere in their complaints do Plaintiffs ask the court to fashion a comprehensive and far-reaching solution to global climate change, a task that arguably falls within the purview of the political branches. Instead, they seek to limit emissions from six domestic coal-fired electricity plants on the ground that such emissions constitute a public nuisance that they allege has caused, is causing, and will continue to cause them injury.
Plaintiffs’ claims were not pre-empted by other government activity according to the Court.
Similarly, the fact that the Clear Air Act (“CAA”) or other air pollution statutes, as they now exist, do not provide Plaintiffs with the remedy they seek does not mean that Plaintiffs cannot bring an action and must wait for the political branches to craft a “comprehensive” global solution to global warming. Rather, Plaintiffs here may seek their remedies under the federal common law. They need not await an “initial policy determination” in order to proceed on this federal common law of nuisance claim, as such claims have been adjudicated in federal courts for over a century.
The Court’s holding that the alleged “injuries are ‘fairly traceable’ to the actions of Defendants ... [in that] continued emissions of carbon dioxide contribute to global warming, which harms them now and will harm them in the future in specific ways” is important in providing guidance to lower courts (and potential litigants) on the central issue of causation at the pleading stages.
Regardless of how one comes out on the science, global warming is on everyone’s mind. The Second Circuit’s recent decision shows that focused legal action seeking specific relief may provide states and local governments with greater legal traction when it comes to using the courts to address CO2 emissions. The decision also has potentially-significant consequences for heavy industry as well as the insurance industry.