Lawsuits related to climate change could expand faster than the explosion of asbestos claims and have significant impact on insurers, Swiss Re warns in a new report.
The Zurich-based firm, in an examination of the consequences of globalization of class actions on insurers, said that "we expect…climate change-related liability will develop more quickly than asbestos-related claims, and believe the frequency and sustainability of climate change-related litigation could become a significant issue within the next couple of years…"
The company advised that "given the potential implications of this shift for the insurance industry, developments need to be monitored closely."
The report noted that a legal basis for such claims has already been established in the case of a climate change-related lawsuit against a public entity.
Swiss Re said the suit involved an action by Massachusetts against the U.S. Environmental Protection Agency to enforce emission reduction standards for motor vehicles under the Clean Air Act. In 2007, the U.S. Supreme Court ruled in favor of the plaintiffs. The claimants were found to have standing, and EPA's rationale for not regulating was found to be inadequate.
While there has yet to be a similar suit against a private company through 2008, because it expects this could change, Swiss Re said it has "included climate change-related litigation in its emerging risks framework in order to systematically monitor developments, quantify risks and define mitigation measures."
As class-action suits or "collective action" systems are "increasingly being adopted by countries around the world," Swiss Re said insurers should be ready to lobby governments and lawmakers "to help strike a balance between the positive aspects of collective redress systems and some of the unforeseen developments witnessed in the U.S."
Misuse of class actions, according to Swiss Re, has contributed to civil litigation costs reaching more than $250 billion. (See the accompanying infographic for problems with the U.S. legal system cited by Swiss Re in its report.)
Swiss Re said that after some abatement, the current financial crisis is expected to bring a "powerful surge" in U.S. class actions. The report said lawsuits in connection with subprime and securitized mortgage debt now exceed 1,000.
Bank losses, Swiss Re said, could mean potential litigation–with consequences for insurers and reinsurers in the form of directors and officers liability and errors and omissions claims.
The report–"The Globalization Of Collective Redress: Consequences For The Insurance Industry"–in warning insurers to play a role in preventing any expansion of class-action systems, said that for large companies, wider introduction of collective actions "might in fact encourage coercive settlements."
Swiss Re said that when considering improving access to justice through collective redress, "the focus should not be exclusively on collective action. Consideration should be given to alternative dispute resolution schemes."
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