In Milan, Ohio, where Thomas Alva Edison was born in 1847, there is a grassy town square just around the corner from Edison's first home. It was to this square that his father dragged "Tommy" one afternoon for a public whipping, because the curious lad had just burned down the barn in an effort to figure out how fire worked. Or so the legend says. But consider where we'd be without inventors such as Edison and all those others who gave the 20th century world its electrical standard of living.
Now, in the 21st century, we're moving beyond 20th century technology; as pointed out in the previous column, though, we are doing so reliant on early to mid-20th century infrastructure that is corroding, collapsing, and continually breaking down, causing direct and indirect loss. Our computers would not work without electricity, which is carried by an overwhelmed electrical grid that is prone to blackouts. As our summers become hotter and we turn the air conditioners colder, we can anticipate more brown-outs as the electrical generating systems continue to become inefficient, inadequate, and antiquated.
Regardless of whether or not we believe the scientists who blame carbon dioxide emissions for global warming, few now deny that there are climatic changes afoot, and that the warming is affecting our weather. Summers are hotter, winters more snowy, and spring is either too wet or too dry, producing either flood or drought.
If it is the carbon dioxide, then we have old Tom Edison to blame, because our ever-increasing need for electricity is taxing the energy producers' ability to provide more. The grid is outdated, the generating plants are outdated, the dams for hydroelectric production are crumbling, the gas lines are leaking, and miners must dig ever deeper for coal to fuel the plants.
All Kinds of Coal
In the "History of American Transportation" course I teach at Emory University's Osher Institute, the second session is on canals. The Delaware & Hudson Canal was the forerunner of the D&H Railroad, today a part of the Canadian Pacific. It was built to ship anthracite coal from Northeastern Pennsylvania to the cities on the Delaware and Hudson Rivers. Then came the Chesapeake & Ohio Canal, which interconnected with canals in Pennsylvania for transporting bituminous coal. These were preferred grades of coal for heating over other types such as lignite, which is better than peat or sub-bituminous coal. It was the need for a stronger cable for hauling canal boats over a mountain that got John A. Roebling into the steel cable business that led to the building of the Brooklyn Bridge.
Railroads were built to haul coal. From the very beginning coal was the black gold that paved America's pathway to wealth. Coal and iron ore from Michigan and Minnesota made Industrial America. Every famous railroad was in the coal business: the C&O, the Reading, the B&O, the Norfolk and Western, the Pennsylvania, the Pittsburgh and Lake Erie — they all hauled coal, and ran their locomotives with coal. Then Edwin Drake discovered oil in Pennsylvania in 1859. That created a new industry, challenging King Coal and making John Davison Rockefeller a billionaire.
The Modern Coal Industry
The hundreds of late 19th century and early to mid-20th century railroads are, today, boiled down to seven major systems. All of them are reliant on fossil fuels or petroleum-based chemicals for their freight, and all of them run on oil. Perhaps you may have noted that when the Obama administration was bailing out the banks and the auto industry, the railroads were not there with their hands held out. Their business was down because of the recession, but they were self-reliant. Furthermore, they maintain their own infrastructure without tax dollars.
Was it not Warren Buffett himself who pulled out $26 billion from his wallet and purchased the BNSF Railroad? Why? Because of coal. It is the Union Pacific and the BNSF that tap the low-sulfur coal of the Powder River Basin of Wyoming, hauling train after train to the famished steam-power electrical generating plants in the East. CSX and Norfolk Southern also manage to make a mint hauling the black gold. The rest of us use it in the form of that wall socket into which we plug our electrical devices. So what happens to the coal? Well, it is burned and all goes up in smoke. The carbon dioxide in that smoke is the crux of the problem. It affects our climate.
It is odd that the banks that triggered the recession are now reluctant to invest in coal mining operations, which include a whole bunch of peripheral industries such as the heavy equipment used to remove the tops of mountains in West Virginia to mine the coal, or new power generating systems that will convert the coal to heat to produce steam. Coal ash itself has become a problem, even a pariah when a dam that holds the ash bursts and pollutes the surrounding waters. Yet we are all screaming for more power. If not coal, if not oil, if not gas, then what? Can we afford nuclear, or would we be in for more of that not in my back yard (NIMBY) lobbying?
The Green Alternative
It would probably be rare for the typical claim adjuster to become directly involved in a coal or oil-related loss, unless it involved something such as an auto wreck between a truck full of coal or oil and an insured. Most major railroads, oil producers, pipelines, power generating companies and the like are large enough to self-insure, until something like a BP Deep Horizon oil platform explosion triggers a national disaster. Perhaps, suggests Chad Hemenway in the July 19, 2010, issue of National Underwriter, the BP spill may spur more sales of environmental impairment liability insurance, which is currently inexpensive. Then a few adjusters may get involved in direct and indirect losses that EIL potentially might cover. But it is certain that our good friends the lawyers will be involved. Where there is damage, there are claims, and where there are claims there is litigation, and where there is litigation there is money. Damage is like horse manure drawing flies.
It is possible that litigation may hasten our need to turn from fossil fuels to green energy such as more hydroelectric, solar power, wind, or the fuel cells that are now being made out of nothing more than silicon plates and a fancy chemical paint. Hydroelectric power is problematic. It requires the damming of rivers and creation of lakes that often swamp valuable farm or forest land. Wind is handy, but, like ethanol – which is just plain corn liquor – it requires almost as much energy to produce as it saves in fossil fuel. And where should we put those big tall windmills? NIMBY!
Solar energy is great, especially for the sunny states, but not so much in the cloudy North. What about hydrogen, you ask? Again, it takes energy to make energy. What is the trade-off? Congress won't go along with energy "cap and trade," so we can forget that. It appears that the railroads, barge lines, and pipelines transporting fossil fuels are safe investments for the time being. At least Warren Buffett thinks so.
Global Warming Litigation
However, that "time being" may be short. Already the courts are addressing global warming lawsuits, raising coverage questions for liability insurers. In Connecticut, et al v. American Electric Power Co. (582 F.3d 309 [2nd Cir., 2009]), two combined suits filed by eight states and New York City sued a power company serving 20 states on the basis that the power company was a public nuisance contributing to global warming.
In an article in ABA's The Brief (Summer, 2010, issue) authors Benjamin A. Blume and Nicole J. Moody explain, "The plaintiffs claimed that the defendants contributed to global warming as the five largest emitters of carbon dioxide in the United States, and among the largest in the world." They continued, "The states' complaint cited reports from the Inter-governmental Panel on Climate Change and the U.S. National Academy of Sciences to support the causal link between heightened greenhouse gas emissions and global warming, 'explaining that carbon dioxide emissions have persisted in the atmosphere for "several centuries and thus have a lasting effect on the climate.' The states alleged that the resulting rising temperatures 'will have substantial adverse impacts on their environments, residents, and property, and that it will cost billions of dollars to respond to these problems.'"
The plaintiffs alleged that these complaints represented real damages, a factor that the federal court carefully examined, finding that the states did have standing to bring the action on the basis of the "land trusts" or non-profit organizations that maintain ecologically important land properties for scientific and public usage. The plaintiffs sought to hold the defendants liable for contributing to a public nuisance and to permanently enjoin the defendants to abate the nuisance by placing a cap on each of the emissions of carbon dioxide. They did not seek to have the defendant remediate past damages.
The coverage issue under general liability insurance is simple. Is being a nuisance a tort? If we're talking gaseous emissions, then the absolute pollution exclusion applies. It is debatable as to whether that will always be the case. What if a future defendant has environmental impairment insurance? There are other cases that also focus on global warming issues, including Comer v. Murphy Oil USA, (585 F.3d 855 [5th Cir., 2009]), and A.Y. McDonald Industries v. INA (475 N.W.2d 607 [Iowa, 1991]). There are bound to be more, hence the likelihood of an adjuster being assigned such a claim may not be as remote as it sounds. One can guarantee that the solution will not be as simple as sending the insured a denial letter by certified mail.
As in that famous Pogo cartoon restatement of Commander Oliver Hazard Perry's message to Gen. William Henry Harrison following the September, 1813, Battle of Lake Erie, "We have met the enemy, and they are we!" Each of us as individuals are potential class-action plaintiffs against the forces of the power industry, just as each of us as an insured or adjuster will become involved either through our premium payments or as an assigned arbiter of the coverages. There is no easy answer, no simple substitute for fossil fuels such as coal, gas, or oil.
But there are golden opportunities for new industries. If we can land men on the moon and build the 787 Dreamliner, surely we can figure out a way to remove carbon dioxide from power company smokestacks without bankrupting the company in the process. Of course it is not so simple. What does one do with the carbon dioxide once it is removed? We can't breathe it, because it is a poisonous gas. We can't bury it with last week's garbage. There has been talk of pumping it into depleted oil wells, but it might escape. Somewhere out there is a chemist who can figure out how to convert it to its basic parts, carbon and oxygen. That is where both the power industry and the insurance industry need to consider spending their R&D dollars.
That the insurance industry is worried about global warming is old news. If you don't think so, then compare this year's homeowners' or renter's insurance bill with last year's bill. That difference is the fear of weather, meaning whether that weather is drought, flood, wind, or waves. "Oh, we don't insure against drought," you say? But consider the insurance on that new subdivision built on the edge of the forest that may be destroyed in a forest fire? "Only flood insurance would apply to flood or waves," you say? Okay, but wait until you see your next tax bill! Global warming, regardless of the scientific disputes, is an expensive reality for all of us. Going green, cheaply and quickly, is the only solution.
Ken Brownlee, CPCU, is a former adjuster and risk manager based in Atlanta, Ga. He now authors and edits claim-adjusting textbooks.
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