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U.N. climate report stirs liability fears

U.N. climate report stirs liability fears

The publication of a U.N. report last week linking human activity to global warming won't be enough to cause immediate liability problems for industrial companies, but it does increase the chances of more claims filtering through to insurance policies in the future, some experts say.

The report, which links the burning of fossil fuels with more extreme climate conditions, may increase the likelihood that commercial policyholders and their liability insurers will have to fund more defenses against allegations that their activities caused financial losses due to increased storm activity, they say.

Even before the release of last week's report, some policyholders have sought advice about coverage under their commercial general liability policies for potential global warming claims, said Adam M. Cole, an insurance recovery expert at Heller Ehrman L.L.P. in San Francisco.

Already there are a few of lawsuits awaiting trial holding that industrial companies should be held liable for their alleged contributions to global warming, Mr. Cole said.

A class action filed by Mississippi homeowners, for example, targets oil, chemical and utility companies over their emissions.

The suit, Comer et al. vs. Murphy Oil USA et al., which remains alive 14 months after it was filed, claims that global warming played a role in causing Hurricane Katrina, which damaged the homeowners' properties.

The lawsuit, which "everybody thought would get thrown out and didn't," represents a "first shot across the bow," for potential corporate liability for global warming-related losses, said Dave Dybdahl, president of American Risk Management Resources Network L.L.C., a Madison, Wis.-based environmental wholesale brokerage.

In addition, last year then California Attorney General Bill Lockyer sued several Japanese and U.S. auto manufacturers, said G. Andrew Lundberg, a policyholder attorney at Latham & Watkins L.L.P. in Los Angeles.

That lawsuit alleged that the manufactures' automobiles contribute to global warming with negative effects for California's resources and environmental health. Current Attorney General Edmond G. Brown Jr. said last week he would continue to pursue the action, although he also said he would seek a settlement.

"I think insurance companies will have a very, very hard time avoiding having to defend some of these cases," Mr. Lundberg said.

For now, a standard for holding corporations negligible for global-warming related losses does not exist, Mr. Dybdahl noted.

But events such as the Mississippi suit and the release of the report by the United Nation's Intergovernmental Panel on Climate Change, can help create liability where it previously didn't exist, he said.

The report, written by scientists and officials from 113 countries, says that recent global warming was very likely caused by human activity. The report also says that increased hurricane strength is more likely than not linked to global warming.

As the notion that emitting greenhouse gases is detrimental to the environment takes a firm hold, companies are more likely to be held responsible for damage linked to global warning, Mr. Dybdahl said.

Insurers could face substantial liability exposures under occurrence-based CGL policies that they sold over the past decades, he said.

Brokers compare potential global warming liability claims to the emergence of asbestos and toxic tort pollution losses in the past. Both asbestos and pollution losses resulted from business practices once considered standard and the damages they caused mounted before the liabilities were fully understood.

According to Mr. Dybdahl, pollution exclusions in some CGL policies may not apply to gases linked to global warming, so insurers may have to pay defense costs and court judgments that are related to damage allegedly caused by global warming.

"If you are a risk manager and you are concerned about global warming, you should load up on occurrence-based general liability policies today because you are buying subsidized insurance that has no rate component for that risk," he said.

Rod Taylor, managing director for Aon Environmental Services Group in New York, agreed that policyholders should find ample coverage under existing CGL contracts.

Claims for global warming losses would extend back to before insurers inserted pollution exclusions into their liability policies, Mr. Taylor said. Additionally, many utility companies have purchased policies with broad pollution coverage, he added.

"I think you would find there is going to be carrier involvement if there are claims...a lot like we have had with asbestos and toxic torts," Mr. Taylor said. "We are talking about an aggregation of liabilities that span years...and the emissions have been going on literally since the start of the industrial revolution."

Several insurers contacted declined to discuss the issue.

However, Ivo Menzinger, head of sustainability at Swiss Reinsurance Co. in Zurich, said the report has not materially changed the issue of causation, so there is still a huge challenge in terms of proving a specific company contributed to a loss.

Laura A. Foggan at Wiley Rein Fielding L.L.P. in Washington, a defense attorney and pollution liability expert, said global warming does not present a "near-term coverage issue" for insurers. Even assuming that global warming contributes to climate change, plaintiffs in an underlying liability lawsuit would still have to prove that a company's specific activities caused a particular event such as a hurricane, she said.

Then they would have to link that event to a specific bodily injury or economic loss that could be compensable under an insurance policy, said Ms. Foggan, who believes CGL pollution exclusions would stand.

Policyholder attorneys and brokers agree that proving the merits of underlying global warming lawsuits would be difficult for plaintiffs.

Even if such lawsuits survived motions to dismiss, plaintiffs would still need scientific testimony to help pin responsibility for damages on a specific corporation's practices, Mr. Cole said.