Climate Change and Insurance: Increasing Foreign Lawsuits

by Zelle LLP
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Zelle  LLP

Insurance Law360
February 14, 2019

This is the second of five articles addressing climate change lawsuits in the context of (re)insurance. Read the first article, discussing how liability insurers can respond proactively to climate change claims, here.

Much of the focus on climate change-related lawsuits concentrates on high-profile cases in the U.S. that make the headlines, a recent example being New York vs. Exxon. This article focuses instead on the increasing number of climate change cases outside of the U.S. They are not all headline-grabbing actions against large emitters — rather they are of varying scale across a spectrum of different areas — but they are equally important for (re)insurers to be aware of. They demonstrate that the risk of climate change litigation is real, not theoretical. 

And the risk concerns more than big oil and gas companies. It is significant that there is a developing body of climate change law around the world that can impact upon a wide range of insureds across various classes of business in different jurisdictions.

The number of climate-related actions outside the U.S. is growing. The rise in claims correlates with the increase in loss and damage generally — one only has to think of the impact of recent hurricanes — but can also be attributed to present social attitudes toward climate change and notions of social justice generally. It may also be attributed to a lack of meaningful global action. Today there is an awareness of the cause and effects of climate change and of companies’ behavior and attitudes. There is also increased access to information regarding alternative technologies that are available. Plaintiffs everywhere want to hold companies accountable for the loss and damage they cause. Courts are increasingly used for this purpose and plaintiffs — of all types — have more data available to support their causation arguments.

The current climate change litigation outside the U.S. illustrates the enormous scope and scale of the issue itself, from:

  • The diverse bases of claims (from nondisclosure of financial risk to false green advertising to human rights violations to nuisance);
  • The spectrum of areas potentially covered (from local authority licencing to global emissions)
  • The potential targets (from carbon majors[1] to investors);
  • The potential plaintiffs (from shareholders to citizens to government prosecutors); and
  • The jurisdictional scope of the claims, with a plaintiff able to bring litigation against an entity in one country for loss and damage caused in another.

For example, the federal prosecutor in Brazil brought an action against a manufacturer who drained and cleared a mangrove forest and put a landfill in its place. The Australian Competition and Consumer Commission has brought a series of claims against different companies for false green advertising in Australia.

Climate change litigation is also a powerful tool for nongovernmental organizations to effect change. In New Zealand, an NGO challenged a decision to grant a permit to a coal mining company;[2] while the claim was rejected on jurisdictional grounds, it raises the possibility that operators could potentially risk having their licenses revoked. In Australia, environmental activists brought proceedings against a power station operator concerning emissions limits under its license;[3] although the case did not succeed — it was held that the operator was not subject to implied limits — it illustrates another route plaintiffs can take.

Climate-related human rights cases are also emerging. In In re Greenpeace Southeast Asia and Other, Greenpeace Southeast Asia and other organizations and individuals filed a petition requesting the Philippines Human Rights Commission to investigate the carbon majors’ responsibility for damage caused by climate change.

The claims are based on international human rights law, including obligations on business. The petitioners allege that the carbon majors are responsible for most of the damage caused by climate change and have breached their obligations by generating huge quantities of emissions in the course of their business and intentionally obstructing efforts to control emissions. The claims rely on data (the carbon majors report,[4] which attributes the majority of greenhouse gas emissions to the carbon majors) in order to identify collective and individual responsibility for contributing to climate change. Experts from around the world have submitted supporting evidence.

This case has established a precedent for a national human rights institution to investigate the responsibilities of companies headquartered elsewhere (many of the carbon majors are headquartered in the U.S., U.K. and Europe), and should the investigation find that the carbon majors are responsible for the impacts of climate change and a causal link is established, it may have a domino effect across various areas.

Indeed, the developing body of cases outside of the U.S. could establish principles that would have a far-reaching impact.

Perhaps the most well-known case is Lliuya v. RWE AG in Germany, in which a farmer in Peru filed nuisance claims in Germany against a German company. Lliuya alleges that RWE had knowingly contributed to climate change by emitting substantial volumes of greenhouse gases which led to glacial melt, and seeks from RWE contribution to the costs of mitigating the effects of this, commensurate with RWE’s annual contribution to global emissions.

Originally dismissed by the district court on the grounds that no causal link could be proved between the greenhouse gas emissions of a single emitter and specific climate change impacts, the appeals court accepted the claimant’s legal argument that there is a scientifically provable causal chain between RWE’s emissions and the increasing danger to his property. The claim has now entered the evidentiary phase.

This is significant. It is the first climate lawsuit in Germany. It is the first time a court has recognized that a private company is in principle responsible for its share in causing climate change-related damage as nuisance caused to private property. It also addresses the issue of whether (and in what measure) a greenhouse gas emitter can be liable for damage caused by climate change in a different jurisdiction.

The case is using scientific study to determine a company’s contribution and appears to be using the theory of market share liability — developed in the U.S. in response to DES litigation in the 1980s, this theory states that manufacturers who produced a fungible and unidentifiable product are held liable in proportion to their market share of the product. This case may serve as a model for lawsuits in other countries and will be the subject of the third article in this series.

Various cases also show the power shareholders have to achieve social and environmental goals. The role of activist shareholders in holding companies to account in relation to climate change-related business is ripe for claims, from actions against banks for failing to disclose such risks,[5] to challenging spending on polluting technologies. In Poland, environmental law association ClientEarth brought a legal challenge against a Polish utility company for proceeding with a coal power plant despite widespread market concern about its exposure to climate-related financial risks, alleging breach of the board’s fiduciary duties.[6] It is the first time that a company will have to defend itself in court over a failure to manage material climate-related financial risk when making a major investment decision.

Climate change-related claims extend beyond tort claims for nuisance. Indeed, claims can include negligence and product liability (for defective product), deceptive conduct (continuing with activities with knowledge of their consequences) and failure to protect against climate change risks. Their targets extend beyond emitters and can include governments, designers, professional advisers and investors.

A (re)insurer potentially faces claims in various business lines. Allegations of deceptive conduct may create D&O exposure, particularly if there is an effect on a company’s share price, as may allegations of a failure to warn shareholders of climate change-related litigation risks and ensure adequate financial reserves to meet them — a risk for emitters and investors in fossil fuel-based energy.

In such scenarios, professional advisers face potential professional indemnity liability. Emitters’ licenses could be revoked or made subject to conditions, thereby affecting output. The list goes on. Added to this mix are the policy issues that may come into play concerning the insured’s knowledge, intentional acts, dishonesty and illegality, policy definitions of “occurrence” and territorial limits, any relevant exclusions, claims control clauses and quantum.

(Re)insurers should look beyond the well-publicized U.S. lawsuits to assess their potential exposure to climate change-related litigation. The cumulative effect of the cases outside of the U.S. should not be underestimated. Private companies are being held to account for their conduct. The risk of climate change-related litigation is real.

These cases show the different strategies plaintiffs can take, they are developing principles of causation and testing the applicability of existing law, testing the scientific evidence available and developing methods of measuring companies’ individual liabilities. There are test cases which, if successful, could establish companies’ liability over decades and across territories. It seems inevitable that this will spawn further claims by shareholders, citizens and regulators. It is no longer business as usual.


[1] The Carbon Majors are the largest producers of crude oil, natural gas, coal and cement. They include 50 investor-owned corporations, including Chevron, ExxonMobil, BP, Royal Dutch Shell and ConocoPhillips.

[2] Royal Forest and Bird Protection Society of New Zealand Incorporated v. Buller Coal Ltd

[3] Macquarie Generation v. Hodgson

[4] Carbon Majors: Accounting for carbon and methane emissions 1854-2010 Methods & Results Report by Richard Heede, 7 April 2014. “This research represents an important milestone in establishing legal accountability for climate change impacts” (Centre for International Environmental Law: https://www.ciel.org/news/ciel-reaction-to-carbon-majors-report/).

[5] Abrahams v. Commonwealth Bank of Australia (Australia)

[6] ClientEarth v. Enea

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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