Regulation

Fracking Zoning Case Seeks Review by New York's Highest Court

June 8, 2013 14:27
by J. Wylie Donald
Columbia Law School convened a panel on hydraulic fracturing ("fracking") yesterday. One of the subtopics was its effect on climate change mitigation. Professor Michael Gerrard laid out the pluses and minuses. On the plus side:  burning natural gas yields about one-half the amount of carbon dioxide as burning coal for the same amount of energy. This has been demonstrated by the 9% drop in United States CO2 emissions in the 5 years from 2007 to 2011.  Confirming Professor Gerard's statistics is a recent report by the Center for Climate Energy Solutions, Leveraging Natural Gas to Reduce Greenhouse Gas Emissions. On the minus side:  natural gas is composed in substantial part of methane, a much more potent greenhouse gas than carbon dioxide, and methane leakage occurs in the production, processing and distribution of natural gas; the low price of natural gas depresses the market for nuclear, solar, wind and other greenhouse-gas-free energy sources; and natural gas greenhouse gas emissions, while better than coal, are still greenhouse gas emissions.  Theoretically, one could assess scientifically this fracking algebra. But, as might be imagined, the future of fracking is not likely to be determined based on a balancing of pluses and minuses. Politics will be central and for the moment those politics are distinctly local.  Fracking's future in many places hinges on the ability of local zoning authorities to zone fracking out of the local community.  On Tuesday, the New York Court of Appeals was asked to join this fray, when fracking supporters filed a petition for review.  In the case, In re Norse Energy, a panel of the Appellate Division considered a local zoning ordinance that banned "all activities related to the exploration for, and the production or storage of, natural gas and petroleum." Petitioner Norse Energy argued the ordinance was preempted by the express terms of ECL 23-0303 of New York's Oil, Gas and Solution Mining Law, which provides that "[t]he provisions of this article shall supersede all local laws or ordinances relating to the regulation of the oil, gas and solution mining industries; but shall not supersede local government jurisdiction over local roads or the rights of local governments under the real property tax law."  The panel concluded that this language was meant to address the details of mining, but did not reach the traditional power of a community over land use.  Accordingly, there was no express preemption.  The court further found that there was no implied preemption either. In our view, reasonable minds could differ.  But also in our view, the Appellate Division decision does not matter yet; it would have been appealed by whichever side lost.  The Court of Appeals, if it takes the case, will have to engage in statutory construction.  We cannot read the tea leaves there.  We hope, however, that the Court keeps the future in mind.   More than 170 municipalities in New York have enacted some sort of limitation on fracking within their borders.  The Oil, Gas and Solution Mining Law forbids activities that lead to "waste," defined to include:   "The locating, spacing, drilling, equipping, operating, or producing  of  any  oil  or  gas well or wells in a manner which causes or tends to  cause reduction in the quantity of oil  or  gas  ultimately  recoverable from  a  pool  under  prudent  and proper operations, or which causes or  tends to cause unnecessary or excessive surface loss or  destruction  of oil or gas."   A patchwork of municipalities with zoning ordinances barring fracking, will be physically juxtaposed with a patchwork of municipalities permitting fracking.  After some time, proponents undoubtedly will have the technical data to support the conclusion that "waste" is occurring and with those facts will return to seek enforcement of a statute forbidding regulation of the "locating ... of any oil or gas well" that causes "reduction in the quantity of oil or gas ultimately recoverable."  The Court should consider how its decision now will affect that future situation  (unless, of course, New York's legislature acts first).

Carbon Dioxide | Carbon Emissions | Regulation

Act II at the Obama EPA: Gina McCarthy (is predicted) To Take the Helm

February 28, 2013 21:43
by J. Wylie Donald
The President gave an indication of his environmental focus in his inaugural address, and then again in his state of the union speech. The focus would be on climate change.  Central to that focus would be the EPA Adminstrator, but that would not be Lisa Jackson who tendered her resignation at the end of 2012.  If Washington gossip is any guide, Ms. Jackson's replacement will be Gina McCarthy, the current head of EPA's Office of Air and Radiation. We went looking to see if we could draw a bead on where Ms. McCarthy might lead EPA.  We found a recent speech and it was directly on point. On February 21, Ms. McCarthy addressed an audience at the Georgetown Law Center at a conference on Climate Change and Energy Policy. (The conference was videotaped. Ms. McCarthy has the podium from about 4:50 to 5:30 if you are interested.)   Ms. McCarthy has a reputation of being something of a pragmatist. Her talk was consistent with that. A brief summary might be:  Climate change is here and we have to deal with it, but in addressing carbon dioxide there can be great benefits from doing so in the form of reducing pollution, increasing efficiency and empowering communities. Pollution reductions will come in at least three forms. First, if more renewable energy sources are developed, there will be less emissions. Second, if production and use is made more efficient there will be less emissions. Third, if production is focused on fossil fuels that emit less pollutants when burned (that is, not coal), there will be less emissions.  We note that this strategy is already at work.  The growth of wind and solar power has been meteoric.  Ms. McCarthy promoted electric cars, which are far more efficient than gasoline-powered ones (although she ignored compressed natural gas vehicles, which are low emission and have some compelling advantages over electric cars).  And we have covered before  the catastrophe for coal signaled by the proposed Standards of Performance for Greenhouse Gas Emissions for New Stationary Sources: Electric Utility Generating Units, which forecasts not a single new coal plant through 2030. Significantly, or perhaps not, she did not mention fracking and the phenomenal recent growth in natural gas production.  That was surprising.  A recent Harvard Magazine article  summarized the pollution and greenhouse gas effects of the natural gas bonanza:  The shift from coal to gas in the electricity sector has also yielded an environmental bonus—a significant reduction in emissions of CO2, because CO2 emissions per unit of electricity generated using coal are more than double those produced using gas. … [T]he U.S. Energy Information Administration (EIA) reported that domestic emissions of CO2 during the first quarter of 2012 fell to the lowest level recorded since 1992. An ancillary benefit of the coal-to-gas switch has been a significant reduction in emissions of sulfur dioxide, the cause of acid rain, because many of the older coal-burning plants selectively idled by the price-induced fuel switch were not equipped to remove this pollutant from their stack gases. Efficiency pervaded her remarks. A striking number is the $1.7 trillion she stated automobile fuel efficiency standards had saved consumers at the pump. But that is just the tip of the iceberg. EPA will help Americans make buildings, processes and communities more efficient.  According to Ms. McCarthy the EPA Climate Showcase Communities saved $19 million per year based in large part on efficiency. We are somewhat troubled by the “eye of the beholder” syndrome exhibited here.  Certainly consumers saved money at the pump.  But they spent more at the car dealer.  How did they fare overall?  The answer depends on how long they owned their car and the price of gas.  According to research in 2012 by TrueCar.com for the New York Times, at $4/gallon “[e]xcept for two hybrids, the Prius and Lincoln MKZ, and the diesel-powered Volkswagen Jetta TDI, the added cost of the fuel-efficient technologies is so high that it would take the average driver many years — in some cases more than a decade — to save money over comparable new models with conventional internal-combustion engines.”   Ms. McCarthy’s vision of empowerment is through information.  If building owners get the knowledge of how to make their buildings more efficient, they will  because it makes sense to do so.  If communities are provided the relevant information, they will make enabling smart choices.  Indeed, she closed on the importance of information, referencing three sources.  First, EPA has now been collecting information on greenhouse gas emissions for two years.  That information is publicly available.  People should look at this because it identifies the sources of the climate change problem.  Electric utilities are far and away the biggest emitters of greenhouse gases (which is to say, all of us are because, with rare exceptions, all of us use electricity generated with fossil fuels).   Second,  she touted the EPA’s 2012 report, Climate Change Indicators in the United States (18MB).  This is a valuable resource. Twenty-six “indicators” are assessed as to what they show about a world beset by climate change.  All are familiar with reduced ice sheets, reduced snowpack and higher average temperatures.  Less familiar is the documented increase in ragweed pollen season and retained ocean heat.  And the report is honest about what is not known.  Although 7000 Americans were reported to have died of heat-related illnesses in the last 30 years, trends have not been determined.  Although one might think that a hotter world would lead to more hurricanes, the data have not proven that yet. Last, Ms. McCarthy praised government research into adaptation and the various reports issued and to be issued. Some view agency heads in Washington as essentially valueless; talking heads, here today and gone tomorrow.  The bureaucracy was there when the new head arrived and will be there when the now old head leaves.  What this view misses is that the agency head can muster the agency’s resources in support of one initiative, argue for it on Capitol Hill, at the White House and in the press, and give the extra boost when the going gets rough.  Gina McCarthy was instrumental in building the northeast’s cap-and-trade program (the Regional Greenhouse Gas Initiative) in her native Connecticut.  Certainly, that idea on a national basis is percolating again.

Carbon Emissions | Climate Change | Regulation | Renewable Energy | Solar Energy

Delaware Advisory Committee Suggests Mandatory Disclosure of Rising Sea Levels in Real Estate Contracts

January 14, 2013 14:09
by J. Wylie Donald
If the State dropped a notice in the mail advising you that 10% of your property was going to be condemned without compensation, you would immediately hire a lawyer, seek out the press and raise holy **** about the trampling of individual rights, justice and the Constitution. That is the situation in which Delaware contemplates finding itself, but the Constitution is no salve.  Rising sea levels of between 0.5 and 1.5 meters are predicted to inundate between 8% and 11% of the state's land area by 2100. Delaware, however, is not one to tear its clothes and beat its chest in lamentation; instead, it is acting. Last July, the Delaware Sea Level Rise Advisory Committee published Preparing for Tomorrow's High Tide:  Sea Level Rise Vulnerability Assessment for the State of Delaware. Besides providing background about sea level rise and the methodology of vulnerability determinations, it looked at 79 resources in the state and assessed the impact of rising sea levels. Sixteen of those resources were assessed as being of high concern statewide. To quote the Executive Summary: "Within those potentially inundated areas lie transportation and port infrastructure, historic fishing villages, resort towns, agricultural fields, wastewater treatment facilities and vast stretches of wetlands and wildlife habitat of hemispheric importance." "[E]very Delawarean is likely to be affected by sea level rise through increased costs of maintaining public infrastructure, decreased tax base, loss of recreational opportunities and wildlife habitat, or loss of community character." From roads to wetlands to tourism, Delaware now has a basis to marshal its resources, and its polity, and move forward into the next phase:  adaptation planning. The United Nations Framework Convention on Climate Change defines "adaptation" thus: "Adaptation refers to adjustments in ecological, social, or economic systems in response to actual or expected climatic stimuli and their effects or impacts. It refers to changes in processes, practices, and structures to moderate potential damages or to benefit from opportunities associated with climate change."  Delaware's focus is to "identify ways that government, businesses and citizens can adapt their policies and business practices to reduce the impact of seal level rise on our state's citizens, economy, and natural resources." The committee has wasted little time in taking action on the vulnerabilities identified in July. As reported in Delaware Online, last Thursday the committee offered up for public comment this question:  "whether property owners selling inside boundaries where seas are predicted to rise will have to disclose that vulnerability to potential buyers."  Hearings will begin in February.  Currently, disclosure of a property's location in a flood zone is required, but flood zones are based on the historical record. Requiring a disclosure about a prediction for the future is new. One can quickly see a few of the implications. First, all things being equal, some will be dissuaded from purchasing, demand will drop and prices will fall. How much and when is anybody's guess.  Second, the drawing of the sea-level-rise boundary may be intensely litigated. Indeed, we have already seen one ocean front property rights case, Stop the Beach Renourishment v. Fla. Dep't of Envtl. Protection, 130 S. Ct. 2592 (2010), make its way all the way to the Supreme Court. Third, realtors, real estate lawyers and other professionals involved in shore transactions will be pleased by this development as the liability for non-disclosure will be much harder to pin on them.  An injured property owner likely will find it difficult to assert an adviser's failure to disclose the risk was the proximate cause of his or her injury.  See J. Wylie Donald, Getting Ahead of Storm Surge, Especially in the Era of Climate Change.   Fourth, and perhaps most significantly, this small step will set the stage down the road when questions of compensation arise for individuals and entities harmed by rising sea levels. Buyers with such a disclosure in their contracts will be hard-pressed to claim ignorance. That in turn is likely to figure into the public discussion of fairness and the right to compensation. Of course, the committee's raising the point for discussion does not mean anything is going to change.  But, with the dialogue initiated, we expect that this issue will no longer be quietly ignored.  In any event, we look forward to further discussion in February.

Climate Change | Climate Change Effects | Regulation | Rising Sea Levels

Will Climate Change Considerations Affect Rebuilding After Sandy? The Short Answer is Yes.

November 27, 2012 08:51
by J. Wylie Donald
West Virginia today and Virginia yesterday became the seventh and eighth states to obtain the benefits of a federal Major Disaster Declaration in connection with Superstorm Sandy.  They follow New Jersey, New York, Connecticut, Rhode Island, Maryland and Delaware.  What does that mean?  Money.  Lots of money.  A key question will be whether that money goes to improving the resilience of the community for the next severe storm. As the FEMA announcements point out, eligible state and local governments may obtain: • Payment of not less than 75 percent of the eligible costs for removing debris from public areas and for emergency measures, including direct federal assistance, taken to save lives and protect property and public health • Payment of not less than 75 percent of the eligible costs for repairing or replacing damaged public facilities, such as roads, bridges, utilities, buildings, schools, recreational areas and similar publicly owned property, as well as certain private non-profit organizations engaged in community service activities.• Payment of not more than 75 percent of the approved costs for hazard mitigation projects undertaken by state and local governments to prevent or reduce long-term risk to life and property from natural or technological disasters.  However, if improvements are desired, “[f]ederal funding for such improved projects shall be limited to the Federal share of the approved estimate of eligible costs."  44 CFR 206.203(d). Discerning readers will have latched on to “eligible costs” as the essential criteria of the payments. What are they?  The Robert T. Stafford Disaster Relief and Emergency Assistance Act, 42 U.S.C. 5121-5207, makes that clear and it is not a good result.   Under the Stafford Act, eligible costs are “[based on] the design of the facility as the facility existed immediately before the major disaster; and (ii) in conformity with codes, specifications, and standards … applicable at the time at which the disaster occurred.”  42 USC 5172(e)(1)(A).  In other words, to put it in the words of Sean Reilly, a Board member of the post-Katrina Louisiana Recovery Authority, “Under the Stafford Act, you pretty much are relegated to building it back the way it was. You get the depreciated dollar, and you get a vision that says, 'OK, that was a 40-year-old building; let's rebuild a 40-year-old building.'”  But surely improved building codes or zoning requirements are covered?  They are, but only if they were in place before the calamity.  The regulations provide:  “For the costs of Federal, State, and local repair or replacement standards which change the predisaster construction of facility to be eligible, the standards must:  [among other things, be] formally adopted and implemented by the State or local government on or before the disaster declaration date.” 44 C.F.R. 206.226(b)(3)(i). One might justifiably be concerned that states and communities are being condemned to repeat the mistakes of the past.  But there is a path to succor:  hazard mitigation by the FEMA Regional Director.  “Hazard mitigation” is “any cost effective measure which will reduce the potential for damage to a facility from a disaster event.” 44 CFR 206.201(f).  Under the regulations, the Regional Director is authorized to “require cost effective hazard mitigation measures not required by applicable standards. The cost of any requirements for hazard mitigation placed on restoration projects by FEMA will be an eligible cost for FEMA assistance.” 44 CFR 206.226(c).  That is, pre-disaster rules and codes are not the only game in town. If a state or municipality rebuilding from Superstorm Sandy wants federal dollars to help it anticipate the exigencies of the future, the FEMA Regional Director must be part of the dialogue. The future is a changing climate.  Thus, the dialogue will almost certainly include climate change adaptation.  Indeed, the Natural Resources Defense Council and the National Wildlife Federation filed a petition in October seeking to have FEMA explicitly require that climate change be considered in the preparation of state hazard mitigation plans. Connecticut and California already do so and FEMA Administrator Fugate appears to be on board.  As he stated in February of this year: "When I talk about climate resilience, I’m talking about how we need to forcefully communicate the risk we face in not building resilience to climate change at the local level, which might not have been in anyone’s experience previously ….  We cannot afford to continue to respond to disasters and deal with the consequences under the current model.  Risk that is not mitigated, that is not considered in return on investment calculations, oftentime steps up false economies. We will reach a point where we can no longer subsidize this.” A premise of the NRDC and NWF petition is that "If states receive federal funds for their disaster mitigation efforts, national taxpayers have a right to demand that the states engage in thoughtful planning to reduce the ultimate federal cost."  We think few would disagree with that.  We likewise think, as the petitioners do, that climate change needs to be part of the plan.

Climate Change | Climate Change Effects | Regulation | Weather

A Tale of Two Deductibles: Post-Tropical Cyclone Sandy is Not a Hurricane

November 3, 2012 06:26
by J. Wylie Donald
You've just weathered a post-tropical cyclone.  Your garage is flattened.  Do you have a hurricane deductible?  Or will your regular deductible apply?  The answer can be worth thousands of dollars as a hurricane deductible is not a fixed amount but is calculated based on a percentage of your home’s insured value.  These questions loom large as the process of recovery from what-was-at-one-time-known-as Hurricane-Sandy gathers steam and homeowners get the lights back on.  The news services and trade press have been all over this topic in the last few days with the governors of New York, New Jersey, Pennsylvania and Connecticut (as well as their Departments of Insurance) weighing in and advising that hurricane deductibles cannot be applied because the storm that started in the south as a hurricane, was no longer a hurricane when it arrived in their respective states. Would that it were so easy.  All you need to determine the meaning of your policy is the ipse dixit of the governor.  Not quite. What actually was going on was this:  the governor was getting advice from his department of insurance, which in turn had reviewed the weather reports and the hurricane deductible form or regulation that had been approved months or years ago.  New Jersey for example issued an executive order, which referenced the applicable regulation.  N.J.A.C. 11:2-42.7 provides:  "This deductible applies, as described below, in the event of direct physical loss to property covered under this policy, caused directly or indirectly in the event of a hurricane named by the National Weather Service or its successor from which sustained hurricane force winds of 74 miles per hour or greater have been measured in New Jersey by the National Weather Service (regardless of whether the sustained hurricane-force winds reach the risk insured under the policy) and shall replace any other applicable deductible in that event.” New York hasn’t codified its hurricane deductible rule and the policy language very much matters.  In the case of one insurer in New York, for example, for a hurricane deductible to apply, a number of things are necessary.  One needs A windstorm of tropical origin; Winds of 74 miles per hour or greater;Those winds must by confirmed by the National Weather Service at a landfall in specified counties.  Because Sandy could not muster 74 mile per hour winds as it entered New York, the hurricane deductible could not be applied.  But suppose the winds had reached 74 mph, what then?  It gets complex fast.  First, according to NASA Sandy packed tropical storm force winds across almost 1000 miles.  The hurricane deductible under this insurer’s policy applies to any insured property “regardless of [its] specific location.”  So, all that is needed is a trace of a hurricane in Montauk at the tip of Long Island and the good citizens of Albany could be facing hurricane deductibles for whatever windstorm loss occurs as the tropical storm ultimately demises, regardless of how violent the winds were (or weren’t).  Second, the deductible applies 12 hours before the hurricane gets there and “ends 12 hours after a hurricane …” – whatever that means. Third, maybe you don’t care about the hurricane deductible because your policy is only triggered by a Category 2 storm or requires that the hurricane force winds be within your county.  Fourth, or maybe you are at the opposite end of the spectrum and your policy applies the deductible if hurricane force winds are in any county in New York, not just coastal counties, or worse, if hurricane force winds are in a contiguous state. The point is that the terms of your policy matter and they may vary widely.  The Department of Financial Services in New York put together a table outlining all the permutations of coverage. We assume that one is likely to have to pay for the differences where more risk is shifted to the insurer. And these wide differences can get even wider as one changes states.  Maryland, for example, requires by statute that the hurricane deductible may only apply “beginning at the time the National Hurricane Center of the National Weather Service issues a hurricane warning for any part of the State where the insured's home is located and ending 24 hours following the termination of the last hurricane warning issued for any part of the State in which the insured's home is located.”  Md. Insurance Code § 19-209(b).   In plainer English, the hurricane warning has to be for the county where your home is, not just any place in Maryland.  (With regard to Sandy, the Maryland Insurance Administration echoed what the governors were doing.  Bulletin 12-24 advised that hurricane deductibles would not apply because "The National Hurricane Center of the National Weather Service did not issue a hurricane warning for the State of Maryland.")  Florida, as might be expected, has its own rules.  A hurricane deductible can only apply per calendar year, and can be a fixed amount, or 2%, 5% or 10% of the home’s value.  The hurricane period is extended out to 72 hours after the last hurricane warning.   Hurricane deductibles are ubiquitous but they are not all the same.  Even where the language is mandated by state law, insurers can always provide more coverage than is required.  You should check that, but also check the premium. Florida’s hurricane deductible popped up after Hurricane Andrew in 1992.  Its calendar year requirement was enacted after Charley, Frances, Ivan and Jeanne wreaked their havoc in 2005.  Connecticut revised its hurricane deductible law following Hurricane Irene.  The meteorologists tells us Sandy was a unique megastorm: a tropical storm, combined with a winter storm, combined with frigid Canadian air, combined with a high tide.  Unique or no, we expect revisions to state hurricane deductible laws as a result. 

Insurance | Legislation | Regulation | Weather

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

Climate Change Challenges the Republican Convention

August 26, 2012 21:44
by J. Wylie Donald
When the Republican National Committee made the decision to call off Day 1 of the Republican Convention as Hurricane Isaac threatened the Gulf littoral, some thought it was an appropriate comeuppance for Republican obstruction of climate change legislation. We won't pass such judgments.  Our focus here is all about addressing climate change; we leave it to others to assess the blame. What we have noticed, however, is a rising swell of concern in the electorate about climate change, which might start to cause  the Republicans some concern.  To be sure, this is only anecdotal, and filtered through climatelawyers.com's prism.  Still, sometimes it is meet to consider other viewpoints. We start with a Superfund site community meeting we attended a few months ago.  The site is near the ocean and one citizen asked whether the proposed remedy considered rising sea levels. EPA's answer was non-commital.  We next stopped in at a public meeting hosted by the Maryland Public Service Commission to consider electric service reliability. The citizenry turned out en masse to excoriate Baltimore Gas and Electric. Overflowing the hearing room, they questioned BGE's ability to handle the increasingly more severe weather (record blizzards in 2010, Hurricanes Irene and Lee in 2011 and the June 29, 2012 derecho - a new storm word in most vocabularies).  We took away a new thought:  extreme weather can trash not only your facilities; it can also trash your reputation if you are not prepared to deal with it.  And this is so whether one believes climate change is the cause of the problem or not. And what do we know about extreme weather? National Geographic delivered a frightening cover story on the subject in the September 2012 issue. We can't do justice to the article here but note a few unequivocally disturbing facts:  "As the oceans warm, they're giving off more vapor.  ... During the past 25 years satellites have measured a 4 percent average rise in water vapor in the air column.  The more water vapor, the greater the potential for intense rainfalls." This followed a description of the "once-in-a-millenium" flood in Nashville in 2010, which received over 13 inches of rain, more than twice the previous record. And Nashville wasn't alone; the article mentions record floods in Rio de Janiero. Pakistan and Thailand. "Extreme events ... are happening more frequently than they used to." From floods to droughts to heat waves, "Losses from such events helped push the cost of weather disasters in 2011 to an estimated $150 billion worldwide, a roughly 25 percent jump from the previous year."  These losses are characterized in the article by the Reinsurance Association of America as "extraordinary."  More ominously:  "The past is not prologue to the type of weather we're about to see." The article concludes that climate change is part of the cause of this demonstrably increasing extreme weather. National Geographic's circulation is about 5 million monthly in the United States. Query weather that means 5 million voters that believe something ought to be done about it? Extreme weather is not the only climate change effect that is impacting individuals. The News Journal, "serving Delaware daily since 1871," ran a 3-part front-page series last Sunday, Monday and Tuesday on the effects of climate change on Delaware and Maryland. One can look at the predictions of Delaware's losses in the next century:  • All of Delaware’s 73,400 acres of tidal wetlands, and 98 percent of its tidal marsh • Up to 15,000 Sussex County homes or businesses; 18,000 statewide, including 5 percent of identifiable commercial properties. • 44 percent of the state’s parks, refuges, conservation areas and otherwise protected land. • 5 percent of roads and bridges, including 6 percent of evacuation routes. • 6 percent of railroad lines, including areas around Wilmington’s Amtrak station. Or one can look at the effects that are being felt now:  A farmer near Milford is watching salt-water brine kill his crops a mile inland from Delaware Bay. Homeowners in Kitts Hummock have been told by the State that the beachfront community should "go back to nature" "it's not cost-effective to save." The Blackwater National Wildlife Refuge in Maryland is losing an acre a day to erosion and inundation. The salt marsh habitat is, or is becoming, open water. James Island has lost 160 acres to Chesapeake Bay. Smith Island, one of two inhabited islands in the bay, is likely to be entirely submerged should sea level rise another foot. The series notes: "those who don't see or feel the weight of the evidence are finding the facts harder to ignore."  The News Journal, the paper of record in Delaware, thinks climate change is worthy of the front page three days running. The smart money is on those - Republican or Democrat - who have a plan to address it; those whose plan is to deny it are going to get wet, or worse. 

Climate Change | Climate Change Effects | Regulation | Rising Sea Levels | Weather

Is a Mass Filing the Right Strategy to Get Carbon Dioxide Regulation Going?

August 3, 2012 20:53
by J. Wylie Donald
After a string of defeats at the regulatory agencies and state and federal courts, Our Children's Trust finally notched two victories last month in its quest to use the public trust doctrine to implement carbon dioxide emission regulations.  Our Children's Trust, an environmental organization based in Oregon,  began its campaign in May 2011 when it oversaw the filing of nearly two score regulatory petitions and a dozen lawsuits seeking to force individual states to take action to restrict carbon dioxide emissions.   OCT's trademark feature is to include as plaintiffs "youth activists".  Up to the beginning of July it had not had any success.  But then, maybe, the tide began to turn.  First, on July 9 Texas District Court Judge Gisela Triana partially overrode the Texas Commission on Environmental Quality's decision rejecting a petition for rulemaking on the public trust doctrine.  Petitioners appealed the decision in Bonser-Lain v. TCEQ.  Petitioners had sought, relying on the public trust doctrine, to force the TCEQ to act to preserve the atmosphere by regulating carbon dioxide.  The TCEQ had concluded that in Texas the public trust doctrine applies solely to water.  Furthermore, according to the Commission, it was precluded from acting by the federal Clean Air Act, which preempted more restrictive state action.  Judge Triana made short shrift of both arguments.  Relying on Article XVI of the Texas Constitution she ruled:  "The Court will find that the Commission’s conclusion, that the public trust doctrine is exclusively limited to the conservation of water, is legally invalid. The doctrine includes all natural resources of the State.”  As to the preemption idea, the federal Clean Air Act "is a floor, not a ceiling, for the protection of air quality, and therefore the Commission's ruling on this point is not supported by law."  The court did find, however, that because of other pending litigation, the TCEQ did properly exercise its discretion in refusing to entertain the petition.  Second, on July 14, New Mexico District Court Judge Sarah Singleton refused to dismiss  a case asserting the State of New Mexico had an obligation to protect the atmosphere under the public trust doctrine.  The 18-line decision would hardly merit discussion except that this was the first decision allowing one of these cases to move forward.  Like the petitioners in Texas, the plaintiffs in New Mexico sought  to establish the public trust doctrine as a vehicle to control carbon dioxide emissions.  In a nutshell, Judge Singleton ruled that the suit, Sanders-Reed v. Martinez, could go forward insofar as it alleged that the State of New Mexico was not in compliance with laws passed by the New Mexico Legislature.  Specifically, the "Motion [to Dimiss] is DENIED to the extent that Plaintiffs have made a substantive allegation that, notwithstanding statutes enacted by the New Mexico Legislature which enable the state to set state air quality standards, the process has gone astray and the state is ignoring the atmosphere with respect to greenhouse gas emissions."  The motion was successful, however, where the court dismissed claims "based on the New Mexico Legislature's failure to act with respect to the atmosphere."  These cases may or may not be important in the climate change arena.  To be sure, they upset an unbroken stream of victories for state regulators over OCT plaintiffs and will undoubtedly serve as a rallying point for the remaining cases as well as to-be-filed cases.  But the comments in  Bonser-Lain are only dicta and that Sanders-Reed survived a motion to dismiss says nothing about the merits.  But the mass-filing strategy by Our Children's Trust bears watching because it is not unique and may surface elsewhere.  Indeed it has. Following the filing of a class action against Thomas Jefferson Law School in California over alleged misrepresentations in law school placement data, a team of lawyers coordinated by two attorneys in New York, David Anziska and Jesse Strauss, put together a mass-filing strategy similar in some respects to that followed by OCT.  Twelve apparently is the magic number.  The law school placement team brought suit against a dozen law schools in jurisdictions across the nation.  Although another twenty suits are theoretically teed up as information from prospective plaintiffs is collected, those suits were promised for Memorial Day but have not yet materialized.  A big filing day is mandatory to maximize press coverage.   As were the atmospheric trust cases, the law school placement cases were nearly all filed on the same day.  Both litigation teams have sought public exposure throughout the course of the litigation. A defendant's typical response in both sets of cases is a motion to dismiss.  Some throw in everything and the kitchen sink, others are more thoughtful.  There is a danger to the kitchen sink approach; the court may issue a ruling giving the plaintiffs a set of victories as happened with Thomas Cooley Law School in Michigan (see attached) (even though Cooley ultimately prevailed at the trial court). But this is where the mass filing paradigm falls down.  Both sets of litigation are based on state law.  In the law school placement cases, two California cases have survived demurrers because California consumer protection law includes educational services (see attached), and two have been dismissed because, among other things, Michigan consumer protection law does not reach professional schools and New York law finds law students to be sophisticated consumers.  In the atmospheric public trust cases, notwithstanding case after case rejecting the claims, courts in New Mexico and Texas find under their states' laws that the theory is well-founded.  The lesson one should take from this is that, like politics, all law is local.  Well-timed press releases and news conferences touting the ineluctable triumph of the plaintiffs, at the end of the day count for very little.  Rather, what matters is the particular law of the particular jurisdiction on the particular facts of the case.  Both plaintiffs and defendants should take note. 20120726 Filing in Florida Coastal of USF and Golden Gate decisions.pdf (366.85 kb) 20120607 Initial Thomas Cooley Law School Order re Motion to Dismissf.pdf (67.07 kb)

Carbon Dioxide | Climate Change Litigation | Legislation | Regulation

The NFIP is Renewed and Reformed, and Climate Change Is Very Much in the Picture

July 8, 2012 14:18
by J. Wylie Donald
President Obama signed the Moving Ahead for Progress in the 21st Century Act, aka "MAP-21", this past Friday.  Support was broad:  the House voted 373-52; in the Senate it was 74-19 in favor.  The bill is a potpourri.  The bulk of the enactment addresses surface transportation topics, but it also includes measures to keep down student loan interest rates, overflights of the Grand Canyon, sport fish restoration, and extensive reform of the National Flood Insurance Program (including significant climate change provisions).  Interestingly, the White House eschews both statutorily-provided titles and chooses a simpler nomenclature, the Transportation and Student Loan Bill.  According to the White House, the Bill "accomplishes two important goals -- keeping thousands of construction workers on the job rebuilding America's infrastructure and preventing interest rates on federal student loans from doubling." These features are important, but we think the bill's significance will come from the unheralded feature:  reform of the National Flood Insurance Program (NFIP).  Reform is sorely needed.  As stated on the FEMA "Rethinking the NFIP" website, "The NFIP was designed as a means of discouraging unwise occupancy of flood prone areas, yet occupancy of these areas has expanded since 1968. Additionally, as risks continue to increase, the cost of flood insurance mirrors that increase, making it unaffordable for many Americans."  Criticism of the NFIP was nearly universal following Hurricane Katrina.  The program was underfunded - premiums came nowhere near the amount needed to cover claims (the NFIP is over $15 billion in debt).  Floods were repeatedly damaging the same properties, which had been rebuilt sometimes three or four times in the same location.  Fewer than half the properties at risk were covered; in some areas uninsured properties were the substantial majority.    The Washington Post in a 2005 editorial called for compulsory insurance and the end of subsidized rates.  A Wall Street Journal article reached similar conclusions.  Notwithstanding, reform could not be obtained.  The NFIP limped along living (and, on occasion, even dying) on borrowed time.   Since 2008, it has been extended no fewer than 15 times.  Four times the program lapsed as lawmakers could not come to terms.    Somehow, however, with the most recent extension due to expire on July 31, reformers prevailed and the act was revised and extended for another five years to September 30, 2017.  The reform act, known as the Biggert-Waters Flood Insurance Reform Act of 2012 (sec. 100201)), can be found at Title II of Division F (Miscellaneous) of MAP-21.   The reforms are extensive (and they will leave many wondering how any of these reforms were opposed in the first place).  Among other things, the bill provides: Subsidies for many properties are being phased out.  For example, a "severe repetitive loss property" (i.e., where payments for flood-related damage exceed fair market value of the property) is no longer eligible for a subsidized rate (sec. 100205(a)(1)). In setting rates the principles and standards of the American Academy of Actuaries and the Casualty Actuarial Society are to be followed, including "an estimate of the expected value of future costs" (sec. 100205(b)(3)).  The "average historical loss year" is to include "catastrophic loss years" (suggesting that previous averages did not include catastrophic losses, which is a calculus many would like to use with their insurers) (sec. 100211). Insurance premiums can now rise up to 20% per year (sec. 100205(c)).  10% was the earlier cap on premium increases. Multifamily properties (greater than 4 residences) can now  purchase NFIP policies (sec. 100204). There are now minimum deductibles for flood claims (sec. 100210).. A Technical Mapping Advisory Council is established to address flood map revision and maintenance  (sec. 100215(a)). A variety of studies are required:  among others, a study of the addition of business interruption and additional living expenses coverages; a report on graduated risk behind levees; a report on privatizing the NFIP; a report on "nationally recognized building codes as part of the floodplain management criteria", and a study on participation in, and affordability of, the NFIP (secs. 100231, 100232, 100233, 100235, 100236). In light of the politicization of the climate change topic, perhaps the most astounding of all the changes in the NFIP is the acknowledgement in the bill that climate change is a critical consideration in establishing a program that works.  (We and others have called for this for some time, see Underwater?  What Climate Change Means for a Loan Portfolio Near the Flood Plain).  The Technical Mapping Advisory Council must report to the FEMA Administrator within one year of enactment on the following: 100215(d) Future Conditions Risk Assessment and Modeling Report- (1) IN GENERAL- The Council shall consult with scientists and technical experts, other Federal agencies, States, and local communities to-- (A) develop recommendations on how to-- (i) ensure that flood insurance rate maps incorporate the best available climate science to assess flood risks; and (ii) ensure that the Federal Emergency Management Agency uses the best available methodology to consider the impact of-- (I) the rise in the sea level; and (II) future development on flood risk; ... And this report cannot just sit on the shelf.  The Administrator is obligated to, "as part of the ongoing program to review and update National Flood Insurance Program rate maps ..., shall incorporate any future risk assessment submitted [in the required report] in any such revision or update." (sec. 100215(d)(2)). We note that the statute speaks definitively about sea level rise.  It is not something indefinite; rather, the report must consider the impact of the rise in the sea level.  We also note that "best available climate science" is standard phrasing at NOAA, and the National Park Service, as well as among NGOs.  How it will fare in the ultimate report is, of course, unknown.  But we do not expect the effects of climate change will be shouted down, turned away or buried.  At the end of the day, the conclusions in the report will influence how money is to be spent and who will profit.  The best way to figure that out is to use the best information.  Certainly some will have an interest in obscuring the best available science, but the bipartisan support of the bill suggests that many more may have an interest in just getting the best answer.

Climate Change | Climate Change Effects | Flood Insurance | Legislation | Regulation | Rising Sea Levels

The Top 6 at 6: A Review of the Most Important Climate Change Legal Stories in the First Half of 2012

June 30, 2012 21:01
by J. Wylie Donald
Arbitrary and capricious.  Familiar words to anyone involved in regulatory activity.  But also applicable to calendars, which willy-nilly cut off a series of events and ascribe them to one solar cycle, as if the sun gave two hoots.  As we perused the various "Climate Change: Year in Review" reviews that crossed our desk last January, we concluded 365 days are arbitrary and one year capricious in assessing what is important to resurrect and re-discuss.  We further concluded that a 12-month look-back is too long.  So, for what it is worth, here is one of six months. 1.  Cap-and-Trade in the U.S. - On January 1 the Western Climate Initiative (WCI) (or what remains of it) initiated its long-anticipated cap-and-trade program for greenhouse gas emissions.  Notwithstanding the lack of support from other WCI members, California and Quebec are moving forward with a cap-and-trade program.  California's and Quebec's mandated reporting rules applied to stationary sources emitting at or above 25,000 metric tons of CO2e per year.  On May 9 coordination between the two programs was announced  initiating the 45-day public comment period.  The first auction will be held in November and then, on January 1, 2013, enforcement begins when covered entities must participate. It is obviously too soon to tell how successful the California program will be, but when the world's eighth largest economy takes an initiative, it is likely to have impact elsewhere, particularly when it is the only program in the nation. 2.  Greenhouse Gas Liabilities and Insurance Coverage - We didn't think there would be anything to say this year about coverage for GHG liabilities.  After all, in the only case in litigation the Virginia Supreme Court issued its opinion in AES Corp. v. Steadfast Insurance Co. in September 2011 and concluded that there was no "occurrence" triggering coverage made in the allegations pleaded by the Native Village of Kivalina against AES Corporation.  But then the Court granted a motion for reconsideration in January and many puzzled as to what was going on.  Apparently nothing as the Court reiterated its previous conclusions in an April 20, 2012 opinion.  The decision will be significant in Virginia because it may have upset coverage in more conventional cases, as the concurring opinion of Justice Mims suggests.  As for the rest of the nation, it is one decision, on one issue, on one set of facts.  The case is important because it is the first, but we will be surprised if it provides guidance anywhere else. As for greenhouse gas liability that is a story unto itself.  Like something out of a Steven King novel, the Comer v. Murphy Oil case refuses to pass quietly into the night.  This is the case that was dismissed by the Southern District of Mississippi, reversed by the 5th Circuit, vacated by the 5th Circuit en banc when it accepted rehearing and then reinstated as dismissed when the 5th Circuit's quorum dissolved.  Following a denial of a request for a writ of mandamus from the U.S. Supreme Court, the Comer plaintiffs re-filed their complaint against over 100 electric utilities, oil companies, chemical companies and coal companies alleging their GHG emissions were responsible for the ferocity of Hurricane Katrina.  And the Southern District of Mississippi dismissed the plaintiffs again on March 20.  And plaintiffs appealed again.  We don't expect the case to be finally at rest until the Supreme Court denies certiorari, or accepts it (perhaps in order to address the Ninth Circuit's much-anticipated decision in Native Village of Kivalina v. ExxonMobil, which has been pending for over six months since oral argument). 3.  Natural Gas:  The Bridge Fuel - With the combining of two technologies, hydraulic fracturing and horizontal drilling, a resource of unprecedented volume is "changing the game" of energy.  "Annual shale gas production in the US increased almost fivefold, from 1.0 to 4.8 trillion cubic feet between 2006 and 2010. The percentage of contribution to the total natural gas supply grew to 23% in 2010; it is expected to increase to 46% by 2035."  Thus reported the Energy Institute at the University of Texas in February in a 400+ page tome entitled Fact-Based Regulation for Environmental Protection in Shale Gas Development.  Momentously, the UT researchers report "there is at present little or no evidence of groundwater contamination from hydraulic fracturing of shales at normal depths."  The reference to "normal depths" acknowledged that in December 2011 the EPA linked contamination in Pavilion, Wyoming to shallow fracking operations. In March 2012, however, EPA agreed to conduct further testing.  And then in May, a personal injury tort case, Strudley v. Antero Resources Corp. et al., No. 2011-CV-2218 (2d Jud. Dist. Ct. Col. May 9, 2012), brought against fracking operators in Colorado was thrown out because plaintiffs could not muster adequate proofs of specific causation. Despite some intense opposition, fracking is moving forward.  What does all of this have to do with climate change?  Natural gas when burned emits half the carbon dioxide of coal.  Accordingly, some argue that natural gas is the bridge to a low-carbon future.  If so, then fracking builds that bridge. 4.  Innovative Climate Change Legal Theories - Last spring the sound and the fury were intense as the environmental organization Our Children's Trust unleashed several dozen regulatory petitions and a dozen lawsuits across the nation.  The goal:  establish the public trust doctrine as applicable to the atmosphere and use it to implement greenhouse gas regulation.  It appears that all of that is signifying nothing. Over two dozen petitions were denied in 2011 and two lawsuits were dismissed (Montana and Colorado).  It did not get any better in 2012.  The first six months of this year delivered only bad news to OCT.  State courts dismissed lawsuits in Alaska, Arizona, Minnesota, Oregon, and Washington.  The federal court in the District of Columbia did the same.   Plaintiffs took a voluntary dismissal in California.  To be sure, OCT has filed appeals (the one in Minnesota is scheduled to be argued on July 18).  Having failed to convince a single court so far, we think we are safe in predicting an uphill battle. 5.  Power Plant Performance Standards - On April 13, 2012, a scant seven months before the presidential election, the EPA published in the Federal Register standards of performance for all new fossil fuel-fired electricity-generating units requiring them to meet an electricity-output-based emission rate of 1,000 lb of carbon dioxide for every megawatt-hour of electricity generated.  The only plants that can meet this standard without implementing costly carbon capture and storage technology are natural gas plants.  Thus, the administration took a strong stand against coal-based generation.  Or it is all smoke and mirrors.  As EPA notes in the proposed rule, because of the glut of natural gas made available by fracking, there is little likelihood of a new coal-powered plant before 2030.  Notwithstanding, industry groups have filed a half-dozen lawsuits seeking to derail the rule. 6.  EPA's Greenhouse Gas Regulatory Program - Less than a week ago USEPA and its GHG program got a firm "thumbs up" from the D.C. Circuit.  Inundated with over two dozen appeals of various USEPA GHG regulations, the Endangerment Finding, the Tailpipe Rule, the Tailoring Rule and the Timing Rule (for citations see The DC Circuit Locks in USEPAs GHG Regulations Sort Of). The court turned away every challenge, sometimes on the merits and sometimes on procedural grounds such as standing.  There is much that deserves comment not the least of which are the differences between the states with California, Connecticut, Delaware, Illinois, Iowa, Maine, Maryland, Massachusetts, New Hampshire, New Mexico, New York, North Carolina, Oregon, Rhode Island, Vermont, and Washington, lining up on one side, and Alabama, Florida, Indiana, Kansas, Kentucky, Louisiana, Nebraska, North Dakota, Oklahoma, South Carolina, South Dakota, Texas, Utah, and Virginia lining up on the other.  To focus more on legal matters, several challenges were turned away on standing.  For example, neither states nor industry groups could challenge the Tailoring Rule as they did not allege the requisite injury.  Because the Tailoring Rule benefits small businesses (who are not required to comply with certain GHG emission requirements), it would appear that the door may remain open for parties who allege competitive injury (i.e., non-regulated entities gain a competitive advantage). In the meantime, do not expect Congress this election year to touch the issue.    

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