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Insurers Concerned on How Supreme Court Case on Greenhouse Gas Emissions Could Affect Liability

Source: A.M. Best

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Posted on 21 Apr 2011

The U.S. Supreme Court is deliberating a case that could set a precedent for public nuisance lawsuits over greenhouse gas emissions, an outcome some insurers fear could have a severe impact on commercial liability insurance.

The high court heard arguments in American Electric Power Co., et al v. Connecticut, et al, a case centered on whether states and private entities have standing to seek court-ordered reductions in emissions. An appellate court ruled that cases may be brought under federal common law for allegations that the defendants -- five electric utilities, in this instance -- have created a "public nuisance" by contributing to climate change. That court found the plaintiffs may seek the injunctive relief of caps on carbon dioxide emissions at levels to be determined by the courts, according to a court-prepared summary of the case.

The case is the first of its kind at the U.S. Supreme Court and could be a major precedent for the insurance industry, said Robert Detlefsen, vice president of public policy for the National Association of Mutual Insurance Companies.

"No doubt, those companies would look to their insurers to cover a defense ... and any liability that may occur," he said.

It is the most important Supreme Court case for property/casualty insurers this term, said Ann Spragens, senior vice president, secretary and general counsel for the Property Casualty Insurers Association of America. PCI filed a friend-of-the-court brief arguing that greenhouse gas emissions cases are inherently political and regulatory, not judicial.

"At risk for businesses, insurers and ultimately consumers is the potential for environmental regulation to be created on a case-by-case basis through nuisance suits. This could lead to inconsistent rulings and requirements across the country and virtually any business associated with the use of fossil fuel could become the target of a lawsuit," Spragens said in a statement.

The court needs to think locally and act judicially, according to PCI. "We urged the court to take the position that environmental public nuisance suits are viable only if the source of the pollution is limited to a well-defined geographical locality and the alleged damage can be traced or directly linked to the defendant’s actions. Since climate change is a global phenomenon, it is impossible to determine the source of the pollution or prove specific damages due to the actions of the defendants," Spragens said.

During the hearing, the justices reportedly questioned the appropriateness of the judiciary being a decider in climate cases. In a brief, acting U.S. Solicitor General Neal Katyal urged that claims against the plaintiffs be dismissed.
Virtually every person, organization, company, or government across the globe also emits greenhouse gases, and virtually everyone will also sustain climate change-related injuries," he said.

The Supreme Court assigned authority over greenhouses gases to the U.S. Environmental Protection Agency in 2007 -- three years after a district court ruled in favor of the utilities in AEP v. Connecticut and two years before the appellate reversal. In that decision, the court determined that under the Clean Air Act, the EPA must regulate such emissions unless it finds a scientific basis for not doing so. In December 2010, the EPA issued a proposed schedule for establishing greenhouse gas standards for fossil fuel-fired power plants and petroleum refineries. Separate bills to strip that authority from the EPA passed the House and died in the Senate earlier this month.

Insurers are likely to revisit the language of pollution exclusions in some policies to gauge their potential liability, Detlefsen said. "Maybe those could be used to avoid coverage," he said.


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