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Ninth Circuit Displaces Kivalina v. ExxonMobil Climate Change Liability Case

September 21, 2012 16:22
by J. Wylie Donald
In litigation concerning liability for the emission of greenhouse gases, the federal common law of nuisance is displaced by the Clean Air Act.  This is not news.  It was established by the Supreme Court over a year ago in American Electric Power v. Connecticut, 131 S. Ct. 2527 (2011). This morning, the Ninth Circuit Court of Appeals acknowledged the rule and applied it to the plaintiffs in Native Village of Kivalina v. ExxonMobil Corp. ("Opinion") and affirmed the dismissal by the Northern District of California.  See Native Vill. of Kivalina v. ExxonMobil Corp., 663 F. Supp. 2d 863 (N.D. Cal. 2009). In a nutshell, a native Alaskan village on the shores of the Chukchi Sea brought suit against electric utilities, oil companies and one coal company.  The complaint asserted the defendants are responsible for excess emissions of greenhouse gases, which have led to global warming, which has resulted in delayed formation of arctic sea ice and early melting of the ice, which has accelerated the erosion caused by winter storms.  The plaintiffs sought damages for the cost of relocating their village.  See Opinion 11648-49.  The Court of Appeals dutifully explained the federal common law of nuisance and the doctrine of displacement.  Plaintiffs had hoped to avoid the application of American Electric Power by arguing that it was a case about injunctive relief.  Kivalina was different:  the plaintiffs there sought damages.  The Court was unmoved.  It stated simply:  “under current Supreme Court jurisprudence, if a cause of action is displaced, displacement is extended to all remedies.”  Opinion at 11655.  It did not matter that EPA had not acted before the damage was incurred; "Congressional action, not executive action, is the touchstone of displacement analysis.”  Opinion at 11656.  Nor did it matter that the Court’s decision would be applied retroactively.  Id.  The concurrence (Judge Pro of the District of Nevada, sitting by designation) was not as unequivocal as the Court, and explicated a tension between the Supreme Court’s rulings in Middlesex County Sewerage Authority v. National Sea Clammers Ass’n., 453 U.S. 1, 4 (1981), and Exxon Shipping Co. v. Baker, 554 U.S. 471 (2008).  Middlesex expressly stated that “where a federal common law nuisance claim for injunctive relief is displaced, a federal common law nuisance claim for damages claim likewise is displaced”, but, according to Judge Pro, Exxon’s “overall holding suggests that severing rights and remedies is appropriate as between damages and injunctive relief in some circumstances.” Opinion at 11663, 11665. In the end, however, Judge Pro agreed that the doctrine of displacement shuts the door on federal common law claims for nuisances allegedly caused by greenhouse gas emissions whatever remedy is sought. More interesting and of more moment we think are two points made by the concurrence; the first will give heart to greenhouse gas plaintiffs, while the second may empty their sails. Judge Pro acknowledged that the Supreme Court’s decision and the 9th Circuit’s decision did nothing to affect the plaintiffs’ state law nuisance claims.  He wrote: Once federal common law is displaced, state nuisance law becomes an available option to the extent it is not preempted by federal law. AEP, 131 S. Ct. at 2540 (“In light of our holding that the Clean Air Act displaces federal common law, the availability vel non of a state lawsuit depends, inter alia, on the preemptive effect of the federal Act.”). The district court below dismissed Kivalina’s state law nuisance claim without prejudice to refiling it in state court, and Kivalina may pursue whatever remedies it may have under state law to the extent their claims are not preempted.  Opinion at 11671. We predicted this next phase when the case was argued back in November of last year.  Accordingly, the Kivalina case is not dead yet. However, judicial skepticism of climate change plaintiffs’ current liability theories is expanding.  Judge Guirola, in Comer v. Murphy Oil USA Inc in the Southern District of Mississippi, was dubious of the causation story:  “the tenuous nature of the causation alleged is readily apparent at the pleadings stage.”  Judge Pro went one further: Kivalina has not met the burden of alleging facts showing Kivalina plausibly can trace their injuries to Appellees. By Kivalina’s own factual allegations, global warming has been occurring for hundreds of years and is the result of a vast multitude of emitters worldwide whose emissions mix quickly, stay in the atmosphere for centuries, and, as a result, are undifferentiated in the global atmosphere. Further, Kivalina’s allegations of their injury and traceability to Appellees’ activities is not bounded in time. Kivalina does not identify when their injury occurred nor tie it to Appellees’ activities within this vast time frame. Kivalina nevertheless seeks to hold these particular Appellees, out of all the greenhouse gas emitters who ever have emitted greenhouse gases over hundreds of years, liable for their injuries.  Opinion at 11675.  To be sure, the Supreme Court approved an action by various States to challenge EPA’s failure to regulate greenhouse gases.  See Massachusetts v. EPA, 549 U.S. 497 (2007).  But “[i]t is quite another [thing] to hold that a private party has standing to pick and choose amongst all the greenhouse gas emitters throughout history to hold liable for millions of dollars in damages.”  Opinion at 11676. Judge Pro would have dismissed the case on standing grounds as well. Finally, notwithstanding our foresight above, it is rarely worth getting out the crystal ball to predict the outcome of a case or cases.  If we could do that with any reliability, we wouldn’t be sitting at this keyboard.  So rather than a prediction, we think offering some context is appropriate.  Will states be receptive to climate change liability suits as currently cast?  We are skeptical.  The environmental organization, Our Children’s Trust, orchestrated over a dozen lawsuits seeking to force state regulators to address greenhouse gas emissions.  With only one exception (New Mexico), those cases have been dismissed in jurisdiction after jurisdiction (Alaska, Arizona, Colorado. Minnesota, Montana, Oregon, Texas, Washington and the District of Columbia).  And even in the case that is moving forward, all the court permitted was an action to pursue whatever recourse was in place under current law, which is no more than the Supreme Court ruled in Massachusetts v. EPA. 

Carbon Dioxide | Climate Change Litigation

Tough Love: Florida Continues to Improve Its Hurricane Coverage But Will It Be Enough?

September 8, 2012 21:03
by J. Wylie Donald
We have been rather tough on Florida and its insurer of last resort, Citizens Property Insurance Corporation, over the years (not that they pay any attention to climatelawyers.com).  But Citizens has deserved it. Here is what its president, Barry Gilway, has had to say about the current state of affairs: Citizens is close to being able to cover a major hurricane, the kind that strikes once every 100 years. ... Citizens has the ability to pay $19.5 billion in claims – close to the roughly $22 billion maximum expected damage from a 100-year storm. But more than $5 billion, or about a fourth of the claims-paying funds, are from loans that would have to be paid back.   Close to being able to cover?  Close to the maximum expected damage?  Loss payments to be covered by loans?  Not the most fiscally conservative program on the planet and certainly not one that would be approved by any insurance regulator that wanted to keep her job. Tough love coming from somewhere though is having an effect.  This year continues big fiscal change at Citizens, demonstrated again just this past Thursday, when the Florida Office of Insurance Regulation (OIR) 1) announced a significant depopulation (i.e., transfer of policies) at Citizens, and 2) tentatively approved a proposal for low-interest loans to private insurers.  This follows steps by Citizens to pursue a vigorous reinsurance program, cede the largest catastrophe bond ever placed, and restrict its obligations by dropping coverage for carports and screened enclosures, limiting personal liability coverage and raising deductibles.  Citizens has also taken a lot of heat for conducting reinspections of homes claiming wind-storm mitigation features qualifying for premium discounts.  When the features don’t satisfy the inspectors’ standards, the discounts are removed, an approximately one billion dollar boost to the bottom line.   Depopulation is the Florida Legislature’s term.  Under that authority, 150,000 policies were just approved for removal from Citizens, roughly ten percent of the 1.4 million policies provided by Citizens. But depopulation is not mandatory.  Instead, the Florida Legislature settled on incentives to convince private insurers to step in. A private insurer can get up to $100 from Citizens’ for each risk the insurer takes on.  F.S.A. 627.3511(2).  Perhaps more importantly, the insurer can be excluded from assessments for the next three years.  F.S.A. 627.3511(3).  Mandatory ssessments, for those who don’t recall, are the secret sauces relied upon in Florida to balance the books in the event Citizens’ resources are not sufficient to pay claims.  One has to imagine that the reduced coverages and rising rates for Citizens’ policies may be of moment in a policyholder’s decision to shift insurers.  And it is the policyholder’s decision; he or she does not have to agree to leave Citizens.   As for the low-interest loans, this alternative route to depopulation is being pushed by insurers and their investors.  They seek “surplus notes” (last-to-get-paid instruments) from Citizens and guarantees of premium.  In exchange, the companies would commit to: • Renew the assumed policies for at least 10 years after the expiration of the current policy term.• Limit rate increases, for renewal offers from January 1, 2013, through January 1, 2016, to no more than 10 % per policy per year (consistent with Citizens' current 10% glidepath).• Provide substantially the same coverage for the first three years as that provided by Citizens. All of these may be steps in the right direction but caution is still the word.  First, Citizens is subject to a rate increase cap of 10%.  Media advisories issued by the OIR indicate that Florida insurers seeking rate increases in 2012 were looking for increases in excess of 17% (Universal – 22%, Cypress – 17.7%, Sunshine State – 17.8%).  Even if someone agrees to depopulate himself because rates are better at the new insurer, there is no guarantee they will remain better.  One researcher has written: "Over the past five years, indeed, nearly all “depopulated” policies have ended up back in Citizens and as liabilities for Florida’s taxpayers."  Second, Florida’s insurance market is substantially a world unto itself.  A presentation to the Cabinet by the OIR shows this clearly (at 3).  Citizens has 24% of the coverage, other Florida domestic carriers 60% and non-domestic carriers have 16%.  That lack of diversity should give one pause.  Over 80% of the coverage is written by Florida companies.  Tough love is effecting change in Florida.  It remains to be seen whether it will be enough.

Insurance | Legislation | Regulation | Weather

Revisions to the Green Guides: Part III - Insurance Coverage for the Claim

October 24, 2010 16:10
by J. Wylie Donald
If you have been following along with the last two posts, you are now aware of the several ways one can trip up as one attempts to use "green" climate change attributes (specifically, claims regarding renewable energy, carbon offsets or carbon neutrality) to win customers or sell products. And the universe is bigger than simply climate change. The Green Guides promulgated by the Federal Trade Commission, address general environmental benefit claims; biodegrable, recyclable, compostable, refillable and recycled content claims; "ozone-friendly" claims; and claims about source reduction. See 16 C.F.R. § 260.7. There are numerous perils and you would like to think that a misstep in this area would not be without succor. And you would be right (in some circumstances). Included in the general liability policies with which we are all familiar, is coverage for Advertising Injury. As its name implies, it can be a source of coverage for a marketing misstep. Typical insuring language provides that the insurer "will pay those sums that the insured becomes legally obligated to pay as damages because of 'personal and advertising injury' to which this insurance applies." ISO CG 00 01 12 07. These policies often also require the insurer to defend the insured against claims asserting advertising injury.   Advertising injury coverage is not triggered by the commonly known "occurrence." Instead, the operative event is an "offense" committed by the insured. These offenses are specifically enumerated in the definition of "personal and advertising injury." Pertinent here is the following offense set forth in the definition: "oral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services." It is easy to understand "oral or written publication," but is a misleading advertisement that does not even mention a competitor's name, a slander, a libel or a disparagement? In a case of first impression in California in 2007, a court of appeals panel found that it could be. Tosoh Set v. Hartford Fire Ins. Co., slip op. (Cal. Ct. App., April 30, 2007) Click here . The court found that the "duty to defend was triggered by an allegation that [the insured] falsely claimed it alone had developed the detailed specifications and tolerances required for certain replacement component parts used in semiconductor manufacturing equipment, a statement that disparaged its competitors' products and services by implying they were measurably inferior." It does not require much ingenuity to imagine a claim that a certain item "made with renewable energy" constitutes disparagement of other manufacturers' products that are not so made. Likewise, a claim that a service was carbon neutral, might disparage services that were not. So coverage seems possible.

Climate Change | Renewable Energy

EPA Denies Petitions for Review of Endangerment Finding

August 13, 2010 14:47
The U.S. Environmental Protection Agency Friday denied 10 petitions for reconsideration of its Endangerment and Cause or Contribute Findings for Greenhouse Gases under Section 202(a) of the Clean Air Act. Led by the Chamber of Commerce of the United States of America, the petitions sought to put the brakes on EPA’s regulatory steps that would serve as the trigger for classifying greenhouse gas (GHG) emissions as pollutants under the Clean Air Act.  Although Section 202(a) covers exhaust from new motor vehicles, regulating GHGs in this context has far broader implications because other sections of the Clean Air Act use the same definition of “pollutant” and the regulatory findings, if allowed to stand, will trigger broader consequences for stationary sources like major power plants, industrial boilers and cement kilns.  (EPA’s original findings can be found in the December 15, 2009 Federal Register at 74 FR 66496). In denying the petitions to reconsider its findings, EPA said that petitioners’ arguments and evidence are inadequate, generally unscientific, and do not show that the underlying science supporting the Endangerment Finding is flawed, misinterpreted by EPA, or inappropriately applied by EPA.  The denial can be found in the August 13th Federal Register at 75 FR 49556 and a 3-volume, 360-page compendium supporting EPA’s denials can be found at www.epa.gov/climatechange/endangerment.html. Citing widely-reported e-mails from the United Kingdom-based Climatic Research Unit of the Intergovernmental Panel on Climate Change questioning the climate science, the petitioners argued that recent revelations show that the science supporting the EPA’s findings was flawed or questionable, and that EPA should reconsider the Endangerment Finding. EPA replied that the petitioners’ claims and supporting information do not change or undermine the scientific understanding of how anthropogenic emissions of GHGs cause climate change and how human-induced climate change generates risks and impacts to public health and welfare.  “This understanding has been decades in the making and has become more clear over time with the accumulation of evidence,” EPA wrote in response. “The core defect in petitioners’ arguments is that these arguments are not based on consideration of the body of scientific evidence.  Petitioners fail to address the breadth and depth of the scientific evidence and instead rely on an assumption of inaccuracy in the science . . .,” said EPA. EPA’s response to the petitions shows that EPA remains committed to pursuing regulatory changes that address climate change even as global warming legislation continues to stall in the Congress.

Climate Change | Green Buildings | Greenhouse Gases

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