Greenhouse Gases

Disclosure Pressure Ratchets Upward - Will D&O Policies Provide Cover?

February 16, 2010 02:42
by J. Wylie Donald
I concluded that I needed to pay more attention to climate change issues when I attended a seminar in 2005 and one of the speakers commented that inadequate climate change disclosures would not be covered under a D&O policy because of the pollution exclusion. Could it be so? The argument was deceptively simple. Carbon dioxide was a "pollutant." The inadequate disclosure "arose" out of the "release" of carbon dioxide. There is no coverage for same. Q.E.D. Thoughtful analysis, however, dispatches this canard. As we have written previously, carbon dioxide should not be classified as a pollutant. It does not irritate or contaminate: it is biologically benign except at impossibly high concentrations, and it is found in the atmosphere in billions of tons, a natural and essential constituent. And because it does not make the atmosphere impure, it is not a pollutant. But one does not even have to reach that conclusion. Any liability alleged against a director or officer for inadequate disclosure of risks from rising CO2 levels, arises from the inadequate disclosure not from the release of carbon dioxide. Cf. Owens Corning v. National Union Fire Insurance Co., No. 97-3367, 1998 WL 774109 (6th Cir. Oct. 13, 1998) (alleged inadequate disclosure of asbestos risk); Boliden Ltd. v. Liberty Mutual Insurance Co., Dkt. No. 05-CV-284493PD1, 2007 CanLII 11309 (Ont. Super. Ct. Apr. 3, 2007) (ore processing risks); Sealed Air v. Royal Indem. Co., 961 A.2d 1195, 404 N.J. Super. 363 (App. Div. 2008) (asbestos risk). But see National Union Fire Insurance Co. v. U.S. Liquids, Inc., 88 Fed. Appx. 725 (5th Cir. 2004) (per curiam) (pollution exclusion applies to allegations of improper disclosure of illegal toxic waste disposal). The requirements for disclosure are ratcheting upward. It started with activist shareholders requesting climate change disclosure at their companies' annual meetings. Next came the Carbon Disclosure Project, which over time has enlisted over 2000 companies in their annual reporting. See cdproject.net. In 2007, New York Attorney General Cuomo served subpoenas on certain publicly traded electric utilities and a coal company (based far from New York), seeking information on their climate change disclosures. New York has settled with three of the five companies, Xcel Energy, Dynegy and most recently with AES Corp. Dominion Resources and Peabody Energy remain in the dispute. The National Association of Insurance Commissioners weighed in with their disclosure requirements for insurance companies in 2009 (effective 2010). And now, with the publication of the SEC's recent interpretive guidance on climate change disclosures, it is only a matter of time before some investor's prescience is not rewarded and he or she or it concludes that the fault lies not in the stars, but in a corporate prospectus.   Should that come to pass, we anticipate the corporation will tender the claim to its D&O insurer for a defense. Undoubtedly the insurer will consider asserting the application of the policy's pollution exclusion. The ultimate result will depend on all the facts. One fact will be the extent and timing of disclosures. Another, however, could be that the policyholder had the pollution exclusion endorsed out its policy. That is a step the risk manager could be taking right now, regardless of what the corporate lawyers ultimately conclude about disclosure.

Carbon Dioxide | Climate Change | Insurance | Greenhouse Gases

16 States Back EPA in Suit Challenging Endangerment Finding

January 26, 2010 07:02
It has only been a month since an organization called the Coalition for Responsible Regulation, Inc. filed suit in the U.S. Court of Appeals for the District of Columbia Circuit challenging the U.S. Environmental Protection Agency’s endangerment finding and, already, 16 states have lined up with the EPA, seeking to intervene in support of the challenged regulation.   The challenged regulation, entitled “Endangerment and Cause or Contribute Findings for Greenhouse Gases under Section 202(a) of the Clean Air Act” (the “Final Rule”), was published in the Federal Register on December 15, 2009 and was issued by the EPA in response to the U.S. Supreme Court’s landmark decision in Massachusetts v. EPA, 549 U.S. 497 (2007).  The rules regulate emissions of greenhouse gases from new motor vehicles and engines.    In the Final Rule, the Administrator finds that “the body of scientific evidence compellingly supports” her conclusion that “greenhouse gases in the atmosphere may reasonably be anticipated both to endanger public health and to endanger public welfare.” She defines the resulting air pollution referred to in Section 202(a) of the Clean Air Act to be “the mix of six long-lived and directly-emitted greenhouse gases: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O)), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), and sulfer hexafluoride (SF6).”  The Administrator concluded that the mix of greenhouse gases from transportation sources contribute to the climate change problem, which is reasonably anticipated to endanger public health and welfare.   The Final Rule triggers the EPA’s statutory duty to promulgate regulations establishing emissions standards for motor vehicles covered by Section 202(a)of the Clean Air Act.   Noting that the Court’s action on the petition for review will affect the public health and welfare of their residents and will also affect a host of global warming impacts that the proposed intervenors are suffering, the following states seek to intervene in support of the EPA: Commonwealth of Massachusetts and the States of Arizona, California, Connecticut, Delaware, Iowa, Illinois, Maine, Maryland, New Hampshire, New Mexico, New York, Oregon, Rhode Island, Vermont and Washington.  The City of New York also filed in support of the EPA.   Notably absent from the Motion for Leave to Intervene as Respondents is the State of New Jersey, from which EPA Administrator Lisa Jackson came as the prior Commissioner of the New Jersey Department of Environmental Protection. New Jersey, which just last week inaugurated new Republican Governor Chris Christie, who unseated Democrat Jon Corzine, formerly supported climate change litigation and was among the states challenging the EPA in Massachusetts v. EPA.  The following states were not in the Massachusetts v. EPA case but joined the fight now in support of the regulations: Arizona, Delaware, Iowa, Maryland and New Hampshire.

Carbon Dioxide | Climate Change | Legislation | Regulation | Greenhouse Gases

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