A Supreme Court decision last month holding the EPA responsible for regulating greenhouse gasses could have tsunami-like effects on insurers. In order to explain the decision and its importance in greater detail, Claims' Eric Gilkey spoke with James Davis, who represents policyholders in complex insurance coverage matters on behalf of the Chicago law office of Anderson Kill & Olick.

Can you explain from a legal standpoint the Supreme Court verdict in Massachusetts v. EPA?

The Supreme Court found as an important preliminary matter that the State of Massachusetts had standing to contest the refusal of the Environmental Protection Agency (EPA) to regulate the emission of greenhouse gasses (GHGs), because the State had suffered the actual physical loss of its shoreline and faced further losses in the future.

On the merits, the Court held that the EPA had the authority to regulate GHG emissions, and Congressional failure to regulate GHG emissions did not alter the EPA's pre-existing mandate under the Clean Air Act to regulate any air pollutant that may endanger the public welfare.

Lastly, the Court found that the EPA could only refuse to regulate GHG emissions from vehicles after determining that GHGs do not contribute to climate change, or by providing a reasonable explanation of why it could not make such a determination.

In a rebuke to those who continue to deny the existence of climate change, the Court accepted the “strong consensus” of scientists that global warming was increasing from GHG emissions, and recognized that the damages from climate change are “serious and well recognized.” Moreover, the Court was careful to note that the EPA did not dispute the existence of a casual connection between GHG emissions and global warming.

In the end, the Court concluded that the EPA had failed and refused to comply with its clear statutory command to regulate the emissions of GHGs.

You say that insurance companies could shoulder a large portion of losses due to this verdict. Why?

The Supreme Court's finding that global warming is caused by GHG emissions, and that plaintiffs can show that the resulting climate change causes them real injury, will pave the way for every state and local municipality in the country (and potentially anyone else claiming property damage or bodily injury) to bring damages claims against a multitude of industries. Indeed, the State of California has already sued the six largest automobile manufacturers for damages to its environment. If the EPA now moves to regulate GHG emissions, or seeks to force companies to contribute to “clean-up” solutions, the cost to U.S. industries could dwarf those of Superfund or asbestos claims.

The decades-long nature of GHG emissions and global warming damages will trigger up to 60 years of historic insurance coverage. Companies vulnerable to GHG litigation will look to decades of old liability insurance policies for protection. The insurance industry can expect to shoulder a substantial part of the burden of global warming, because pollution exclusions in these historic policies generally will not preclude claims.

Also, under the common law of most states, an insurance policyholder who has a reasonable expectation of coverage for liabilities arising out of his normal business operations must be granted that coverage. If a company's normal operations involve the release of GHGs, and GHGs were not regulated emissions during the coverage period, then a company can reasonably expect its insurance policy will cover lawsuits relating to those activities regardless of a pollution exclusion.

Has there ever been any other kind of ruling that compares to this one in terms of the financial impact on insurers?

This case is reminiscent of the 1981 ground-breaking Keene v. INA decision, wherein the founder of my firm, Eugene Anderson, successfully convinced the U.S. Court of Appeals, D.C. Circuit to adopt the triple trigger of coverage for asbestos injuries. That decision paved the way for insurance coverage of tens, if not hundreds, of billions of dollars of asbestos defense and indemnity costs, and set a precedent for later environmental coverage cases involving billions of dollars as well.

Although it is impossible to estimate the future liability of insurers as a result of the Supreme Court's decision on climate change, the possibility for costs on a similar or greater scale certainly exists. To avoid this result, it is critical that the insurance industry work closely now with U.S. industries and governments to find a consensus solution rather than leaving the decision to the courts.

Special Reports /

SPEAKING OF: MASSACHUSETTS V. EPA DECISION

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