October 27, 2009 17:28
We trust that those of you following climate change litigation have heard the veritable tap dance of decisions emanating out of the federal courts in the last month. First, Connecticut v. American Electric Power was reversed by the Second Circuit. That was followed by the District Court for the Northern District of California dismissing Native Village of Kivalina v. ExxonMobil and rejecting the Second Circuit’s analysis. The Fifth Circuit, not to be outdone, reversed the Comer v. Murphy Oil decision, but also provided a special concurring opinion where the judge advised that he would have affirmed on alternative grounds. All of these cases are thoroughly discussed in the blogosphere.
What has been less thoroughly ventilated, however, are the implications for insurance coverage for climate change liability claims. We have discussed before the Steadfast v. AES coverage case filed in Virginia where the insurer seeks to avoid coverage for the Kivalina suit. We thought originally that Kivalina’s dismissal might have made that suit go away. However, with two climate change suits now headed back to the trial court (barring further appeal), we will be surprised if Kivalina is not appealed, and further surprised if Steadfast does not provide some law on climate change coverage.
One subject that will not be addressed in Steadfast, however, is the efficacy of an "absolute"1 carbon dioxide exclusion. Yes, you heard that correctly: the AbCDE. I regularly ask my insurer colleagues about their thinking on this and just as regularly am told that it is not in the works or even discussed. The spoken reason is fairly straightforward: if carbon dioxide is a pollutant under the terms of the policy, and damage from pollution is excluded, then claims arising from carbon dioxide emissions are already excluded by the so-called absolute pollution exclusion and the AbCDE is not needed. The unspoken reason reflects the converse: if a carbon dioxide exclusion is necessary, it must be the case that a policy without such an exclusion provides coverage for carbon dioxide liability - even if it has a pollution exclusion. From an insurer’s perspective, that could be an expensive outcome and suggests a reason to avoid implementing the AbCDE.
History and policyholder experience suggest, however, a different outcome. Many will recall the time when coverage for asbestos-related loss was hotly debated. Where insurers lacked express asbestos exclusions, they sought refuge in pollution exclusions. Success was mixed. The New York Court of Appeals’ decision in Continental Casualty Co. v. Rapid-American Corp., 593 N.Y.S.2d 966 (N.Y. 1993), is typical. Although the court concluded that asbestos could be a pollutant, irritant or contaminant within the meaning of the liability policy, it determined the policy’s pollution exclusion to be ambiguous in context and coverage for asbestos loss was found. Ultimately, the insurance industry recognized the solution to its asbestos problems and decisions like Rapid-American was to adopt universally what is referred to by some as an absolute asbestos exclusion.
Just as with asbestos, there are infirmities in the pollution exclusion as applied to carbon dioxide (such as the doctrine of reasonable expectations, whether carbon dioxide is reasonably understood to be an irritant or contaminant, whether an agency’s classification of carbon dioxide as a “pollutant” has any relevance to a contract between two private parties, among others). Indeed, one state supreme court has found that exhaled carbon dioxide was not a pollutant, and thus was not excluded by a comprehensive general liability policy’s absolute pollution exclusion. Donaldson v. Urban Land Interests, Inc., 564 N.W.2d 728, 732 (Wis. 1997). Unless carbon dioxide liability suits disappear (and the last month is not auspicious in that regard), it is inevitable that more coverage disputes will unfold and that policyholders will secure coverage victories in some cases. Against the backdrop of those victories, can it be doubted that a carbon dioxide exclusion will take shape?
1We note that the term “absolute “ is somewhat of a misnomer for any exclusion. A valuable discussion of this can be found at Ira Gottlieb, The Decline of the So-Called ‘Absolute’ Pollution Exclusion, Mealey’s Litig. Rep. (Feb. 12, 2002).