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Insurers may find themselves on the hook for rising litigation costs as environmental activists and others sue companies over their alleged contributions to climate change.
In 2015, the Bank of England identified three primary risk factors in which climate change is likely to hit the insurance sector: physical, transitional and liability risks.
“The liability dimension here is huge,” said Cynthia McHale, senior director of insurance for Boston-based investor coalition and sustainability advocacy group Ceres. “It’s a very, very real financial threat to insurance companies and to the industry.”
A report released by Clyde & Co LLP in December notes there are a broad range of new types of liability exposures as well as novel litigation tactics being deployed by activists to force change and by cities and others to recover the costs of climate-related damage and resilience measures.
To date, many of the proceedings have failed to overcome legal hurdles, but that could be about to change, the report stated. For example, earlier this year a federal court denied a motion to dismiss the 2016 securities class action lawsuit Ramirez v. Exxon Mobil Corp., which alleges the Irving, Texas-based oil and gas company hid and mispresented the potential costs of climate change. The ruling suggests that the “long-anticipated specter of a rise in climate-related (directors and officers) claims could at last be about to materialize,” Clyde & Co said in its report.
The National Climate Assessment and other reports are “fleshing out the foreseeable loss” and providing information that will likely underpin future litigation, said Nigel Brook, a London-based partner with Clyde & Co. “You still have to prove causation … but this is a vital part of that picture: that if you put that carbon dioxide out there, this is one of the consequences.”
Risk managers and insurers should work to mitigate climate exposures, particularly if action by companies and governments fails to stop the potential dire economic consequences of climate change described in a recent report issued by the federal government, experts say.