Since the advent of the age of mega-securities-fraud settlements, class-action counsel have searched strenuously for--and corporate executives have slept fretfully worrying about--the next trend in investor claims and activism. With global warming and environmental protection on the front pages because of the efforts of social activists, litigators and politicians, there may be repercussions for directors and officers of publicly-traded companies as well as their D&O liability insurers.

Most recently, global warming has received the attention of the U.S. government, including the executive branch.

At the same time, the U.S. Supreme Court has spoken on the subject, having held in the seminal case of Massachusetts v. EPA that the U.S. Environmental Protection Agency violated the Clean Air Act by improperly declining to regulate new vehicle emissions standards to control carbon dioxide emissions that contribute to global warming.

In and of itself, the court's ruling is somewhat narrow. However, two components of the decision are relevant to corporate governance and D&O insurance.

First, the court held that the injury of which Massachusetts complained in bringing the suit was sufficiently particularized for the Commonwealth to have "standing" to bring its claim against the federal government. And second, the court held that greenhouse gas emissions are "pollutants" under the Clean Air Act.

Responses of the EPA, state regulators, lower courts and even the newly constituted Congress to the Supreme Court's ruling and environmental issues could potentially have a dramatic impact on a broad range of industries--some of which will have to modify their business practices to comply with the anticipated heightened regulation and judicial scrutiny of environmental matters.

In addition, these changes could dramatically impact public companies' disclosure obligations and the way they do business--particularly in the face of Regulation S-K, Item 101 (requiring disclosure of environmental compliance) and the more generalized requirements of Item 303 (which requires disclosure of known trends or uncertainties that could affect a company's business).

In turn, public company disclosure creates a context within which it is prudent to assume that D&O claims will arise.

Beyond automotive and energy generation businesses (and supporting industries), the changing claims context could also have a significant effect on industries such as insurance, transportation, manufacturing, shipping and businesses whose operations have (or which could sustain) a substantial environmental impact, even if it is entirely localized.

In some cases, the battles already have begun, with activist shareholders asking questions, voicing concern, and demanding through corporate resolutions and other vehicles that public companies disclose:

o The nature and extent of their pollution generating activities.

o The financial risks attendant to global warming and the government's heightened scrutiny, including how they will recognize and account for the risks attendant to climate change.

o The methodologies and plans they are implementing or intend to implement to reduce greenhouse emissions and meet the changing regulatory, political and social environments.

To the extent claims do arise, the wording of applicable D&O policies could have an enormous impact on the availability of D&O insurance to defend and indemnify companies and their directors and officers.

The typical D&O policy contains a pollution exclusion. Surprisingly, however, it is not obvious that the standard forms of pollution exclusion address greenhouse gas emissions or consequences arising from such emissions. (See accompanying sidebar, "What Do D&O Policies Say?")

There may be several arguments raised to try to support the idea that the typical pollution exclusion wording has no relation to greenhouse gas emissions or their environmental consequences. Whether or not such contentions would be persuasive to a court is a matter of pure conjecture on which we do not opine.

Nevertheless, assuming the exclusion would otherwise preclude coverage for claims pertaining to greenhouse gas emissions, the pollution exclusion in most D&O policies these days carves back coverage for derivative suits and shareholder claims.

In light of the possible course of future litigation in this area, the wording of the pollution exclusion--and, in particular, the wording of the carve-back for shareholder claims and derivative lawsuits--will be absolutely critical.

The fact that policy language must anticipate cases and claims of a kind that may not have previously arisen underscores the importance of enlisting the assistance of skilled D&O insurance professionals in the D&O insurance transaction.

Some insurers are already requesting of proposed policyholders detailed information about their companies' efforts to reduce the risk of and manage environmental losses and claims. The reality is that global climate change is not some distant theoretical construct.

More to the point, the answer to the question of whether this will affect a company's risk profile is a reflection of the way the question is framed.

o On the one hand, an underwriter can regard global climate change as a separate category of risk to be analyzed on its own merits.

o Alternatively, the underwriter can simply view the discrete issue of climate change as imbedded within numerous other risk categories--such as commodities pricing risk, political risk and currency risk as well as what insurers call parameter risk (the risk of events different than those that have occurred in the past).

Regardless, whether viewed separately or as a part of the overall panoply of corporate risk, global climate change will be an increasingly important part of the risk landscape that companies face.

The influence of activist investors suggests that companies and their insurers disregard these risks at their peril.

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