One of the great battles that will be fought out in the next several decades is who will bear the costs of climate change. One target will be insurance companies, who have borne and continue to bear the costs of asbestos (formerly thought of as a "miracle mineral") and the cleanup of environmental pollution (many sites of which were permitted disposal sites or were the result of compliance with customary and even recommended practices).  These losses have been found covered by insurance by numerous courts, notwithstanding insurer arguments that the losses were never intended to be covered. 

After the recent floods, citizens of Iowa must certainly be considering whether there will be any succor under their property policies. Although some will have flood insurance under the National Flood Insurance Program, most will not. (The NFIP estimates they have only 700 policyholders in the area.) Sadly, those homeowners and business owners will be faced with the certain assertion of a flood exclusion in their policies. Will there be any way around that?

Insurers will certainly assert there is not. Many readers will be familiar with the battles between policyholders and insureds over whether property damage was caused by wind or flood following Hurricane Katrina. When all that was left was a concrete slab experts were left to opine that a building was destroyed (or not) by the storm's great winds before the flood washed the building away. Iowans will not have that option.

However, perhaps they or other insureds could take a page from the asbestos coverage wars. Asbestos? Flooding? How could they possibly be connected? Asbestos coverage unfolded as follows (in some small part). When asbestos first surfaced as a source of liability for policyholders, one of the defenses asserted by insurers was that each claim was a single "occurrence." Since most policies had "per occurrence" deductibles, and most claims were resolved for far under the limit of the deductible, under this theory the insurers would not have to pay for the vast majority of the asbestos claims.

Policyholders saw things differently. Rather than thousands of occurrences, insureds argued that there was but a single occurrence: the decision to manufacture or otherwise utilize asbestos. Every claim derived from that decision. Many courts agreed and thus (in combination with many other arguments necessary to defeat the insurers' coverage-defeating assertions), by and large, asbestos claims from exposures before 1986 are covered today by literally billions of dollars of insurance.

Is there a parallel between this notion of seeking a singular cause for a loss that might otherwise be thousands of losses and attributing numerous flooding losses not to rising rivers but to climate change that caused weather patterns that made the flood-plain maps nearly irrelevant. The obvious difference is that for asbestos claims, the claims were covered. In the flooding scenario, they are excluded. But they are similar in at least two ways. First, both claims were at first look - not going to be paid. Second, the pain that is going to be felt by broad segments of society as climate change takes hold may give courts an incentive to have a fresh look at doctrines of causation and perhaps grant coverage.

Is this far-fetched? Some will likely argue that it is. We only point out that plaintiffs already are testing the legal waters as to causation in the tort context. In Comer v. Murphy Oil USA, No. 07-60756 (5th Cir.) (a Hurricane Katrina case now on appeal), plaintiffs asserted that defendant oil companies were liable for causing global warming which led to the unprecedented fury of Katrina. To the extent plaintiffs are successful in re-working state causation law, one can be sure that precedent will make its way into causation arguments by policyholders.

The carriers already have their response in hand: the anti-concurrent causation clause, and despite policyholder success in the district court, the carriers have prevailed on appeal.  See Tuepker v. State Farm (5th Cir. 2008).  We will address this topic in a subsequent post.

The U.S. Court of Appeals for the District of Columbia Circuit declined this week to order the U.S. Environmental Protection Agency (EPA) to complete its review within 60 days concerning the public health impact of greenhouse gas emissions (GHGs) from new motor vehicle exhaust.

In denying the request of Massachusetts and 16 other states and environmental groups, the Appellate Court on June 26, 2008 left EPA to continue to move at its own pace in responding to the April 2007 landmark decision of the U.S. Supreme Court in the case known as Massachusetts v. EPA. 127 S. Ct. 1438 (2007).

In Massachusetts v. EPA, the Supreme Court held that the EPA has the authority under the Clean Air Act to regulate GHGs from new motor vehicle exhaust. In sending the case back to the EPA, the Supreme Court said that the “EPA can avoid regulating GHGs only if it determines that GHGs do not contribute to climate change or if it provides some reasonable explanation as to why it cannot or will not exercise its discretion to determine whether they do.” 127 S. Ct. at 1462.  After roughly a year passed since that decision without formal EPA action, the petitioners urged the Appellate Court this Spring to issue an order setting a 60-day deadline for the EPA to act.

While Massachusetts v. EPA is limited directly in its applicability to new motor vehicle exhaust and most concerns the automobile industry, the case is important for other stationary sources of air pollution regulated by the Clean Air Act because the same statutory language at issue can be found in other sections of the Clean Air Act. The case, and the EPA’s regulatory response, therefore has broader impacts for other industries, including the energy industry.

While the one-sentence order of the three-judge panel this week simply rejected the request for a mandamus, Circuit Judge David S. Tatel wrote separately, concurring in part and dissenting in part, to explain his rationale for his vote; his writing sheds light on the details behind the latest development in climate change law and litigation.

Although a mandamus is an extraordinary remedy reserved for extreme circumstances, an administrative agency’s unreasonable delay presents such a circumstance because it “signals a breakdown of regulatory processes.”  Circuit Judge Tatel cited the following factors as guiding the DC Circuit Court’s evaluation of unreasonable delay claims: (1) time agency takes to decide must be governed by “rule of reason;” (2) where Congress specified deadline or timetable, this will supply content for rule of reason; (3) delays that might be reasonable in economic regulation are less tolerable when human health and welfare are at stake; (4) court should consider effect of expediting delayed action on agency activities of higher or competing priority; (5) court should consider nature and extent of interests prejudiced by delay; and (6) court need not find “impropriety lurking” behind agency inaction in order to find unreasonable delay.

In applying the factors, Judge Tatel concluded that factors (3), (4) and (5) are satisfied in this case. Human health and welfare are plainly at stake, ordering EPA to act would have little impact on other agency activities (this was a given in that the EPA has already prepared a draft of the endangerment finding and sent it to the White House for review), and the nature and extent of interests prejudiced by delay are deep and fundamental.

On the contrary, however, Circuit Judge Tatel found that factors (1) and (2) tip in favor of the EPA in that nothing in Section 202 of the Clean Air Act or the Supreme Court’s decision imposed a specific deadline by which EPA must decide whether a particular air pollutant imposes a threat to public health and welfare.  In addition, he said that there has been no case presented in which a court issued a mandamus for a delay of less than a year. “EPA has every right to issue regulations implementing its possible endangerment finding concurrently with that finding, and given the dramatic impact such regulations could have on the auto industry and American life generally, there is nothing inherently unreasonable in the agency’s taking over a year to develop them,” Circuit Judge Tatel wrote.

In suggesting that White House intervention, rather than EPA inaction, is likely at the root of the delay, Circuit Judge Tatel noted that the EPA administrator was on record last year indicating that the EPA would issue its finding and proposing regulations in response to Massachusetts v. EPA by December 2007 and that these documents were actually completed on time and submitted to the White House in December 2007. Several months later, in quoting from a letter from EPA Principal Deputy Assistant Administrator Robert J. Meyers to Massachusetts Attorney General Martha Coakley, Circuit Judge Tatel noted that the EPA was writing to Congress indicating that the EPA “does not have a specific timely for responding” to the Supreme Court.”  In March, EPA announced a new approach that signaled it was essentially postponing regulation indefinitely by announcing it planned to issue an Advance Notice of Proposed Rulemaking, which is a preparatory step antecedent to potential future rulemaking.

And so, Circuit Judge Tatel concluded, he would not deny the petition for mandamus but would rather hold it in abeyance, directing the EPA to file a detailed schedule for compliance and requiring the EPA to issue periodic progress reports. “In this way, we could ensure future compliance with the statute without having to speculate over the possibility of future agency delays,” he concluded.

Given the developments before the DC Court of Appeals this week, it now appears quite clear that the EPA intends to let the clock run out on the Bush Administration before issuing regulations in response to the Massachusetts v. EPA case, thus leaving this issue waiting for the next administration to handle in 2009 and beyond.

The question remains whether the absolute pollution exclusion, the most typical pollution exclusion found in CGL policies today, would bar coverage for climate-change related liabilities associated with the release of carbon dioxide; in other words, whether carbon dioxide would qualify as a “pollutant” as defined in a typical absolute pollution exclusion.

The so-called absolute pollution exclusion purports to bar coverage for property damage or bodily injury only if it arises out the release of a “pollutant,” which is generally defined as an “irritant,” or “contaminant.”  As those terms typically are not defined in the policy, it is necessary to turn to various courts’ interpretations of the terms “irritant” and “contaminant.”  Those interpretations suggest that carbon dioxide is neither an irritant nor a contaminant, and therefore would not qualify as a “pollutant.”

Some courts have interpreted those terms so as to include only toxic substances.  Under that interpretation, coverage is excluded only when damage is caused by a pollutant’s toxic nature.  For example, in Beahm v. Pautsch, 510 N.W.2d 702, 705 (Wis. Ct. App. 1993, smoke from an intentionally set brush fire blew onto a nearby roadway, causing a multi-vehicle accident.  Because it was not the toxic nature of the smoke that caused the accident, but rather its property of obscuring vision, it did not qualify as a pollutant so as to bar coverage.  Similarly, carbon dioxide is non toxic (and only causes harm, at levels far in excess of conceivable atmospheric concentrations, as an asphyxiant; i.e., by displacing oxygen available for breathing).  Even if carbon dioxide's potential as an asphyxiant were considered, it would still not qualify as a pollutant under Beahm because it causes harm by virtue of its heat-trapping characteristics, rather than from any potential asphyxiation.  Therefore, under the “toxic” definition of “pollutant,” damages resulting from carbon dioxide emissions should not be precluded from coverage under a CGL policy's absolute pollution exclusion.

Courts that do not adhere to a “toxicity” limiting principle often determine whether a substance is a “pollutant” by turning to the common usage (i.e., the dictionary definitions) of the terms “irritant” or “contaminant.”  Because the term “irritant” normally connotes a biological or physiological response to stimulus, it does not apply to atmospheric carbon dioxide (which does not evoke such a response).  Nor would the term apply as a general matter to property damage (as opposed to physical harm) allegedly resulting from carbon dioxide emissions. 

Therefore, we are left with a “pollutant” defined as a “contaminant.”  In common usage, a “contaminant” is something that is introduced into an environment in which it (a) does not naturally occur and (b) renders that environment “impure” and “unfit for use.”  See Websters Third New International Dictionary (definition of “contaminant”).  Courts have often adopted this definition of “contaminant” in interpreting the absolute pollution exclusion.  Examples of contaminants under such an interpretation include fertilizer in the form of liquid cow manure that migrates into drinking water, and petrochemicals that have leaked into soil.  Examples of non-contaminants are discarded sand and excess rainwater.

As we have discussed in a prior entry, carbon dioxide is a natural component of the biosphere, and its atmospheric concentration has fluctuated greatly over the Earth’s past, such that present levels are well within geohistorical ranges.  As such, it is doubtful whether carbon dioxide can properly be considered a “contaminant,” and hence a “pollutant,” so as to preclude coverage under a CGL policy’s absolute pollution exclusion.

For a fuller discussion of these concepts, the interested reader can consult J. Wylie Donald & Craig W. Davis, Carbon Dioxide: Harmless, Ubiquitous and Certainly Not a “Pollutant” Under a Liability Policy’s Absolute Pollution Exclusion, forthcoming in Volume 39 of the Seton Hall Law Review, and currently available at the Social Science Research Network, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1137959.

Although the U.S. Supreme Court's foray into the area of carbon dioxide emission regulation, Massachusetts v. EPA, garnered significant media attention, for liability purposes corporations and their insurance companies are paying attention to a different type of case: claims alleging injury arising from certain industries' emissions of carbon dioxide. These claims raise the issue of whether commercial general liability (CGL) policies will cover the defense and indemnification costs incurred in defending, settling, and, perhaps, paying judgments on these lawsuits. Thus, insurance coverage is an important legal issue in the climate change context. We intend to address the subject from numerous angles in subsequent blogs.

Most CGL policies issued during and after the mid-1980s contain a coverage exclusion, termed the "Absolute Pollution Exclusion" or "Total Pollution Exclusion" that in simplified terms precludes insurance coverage for the discharge or emission of a pollutant, which is in turn defined as an "irritant" or "contaminant." (I would not be a lawyer if I didn't throw an important caveat in: READ THE POLICY.) Therefore, an important threshold insurance coverage issue is whether carbon dioxide qualifies as a pollutant under the Absolute Pollution Exclusion, thus potentially barring coverage for climate-change related liabilities. To reach that issue, it is necessary to gain a basic understanding of carbon dioxide's ubiquitous and anonymous nature and the role it plays in the earth's atmosphere.

Carbon dioxide is present in the atmosphere and the oceans and incorporated into the earth's crust in substantial volumes, and in fact is essential to life on Earth. Atmospheric carbon dioxide has a variety of sources--some man-made, but mostly natural--including animal and plant respiration, volcanic eruptions and other geologic activity, and decomposition of dead plant and animal matter. The burning of fossil fuels and deforestation by humans is also a source of atmospheric carbon dioxide. Nonetheless, were humans not contributing to atmospheric carbon dioxide, billions and billions of tons of carbon dioxide would still be present performing in its function as a natural and essential component of the earth's atmosphere. Indeed, by trapping the sun's heat within the envelope of the atmosphere, carbon dioxide fulfills its benign function of maintaining temperatures conducive to life. As levels of carbon dioxide and other "greenhouse gases," such as methane and water vapor, increase, so can atmospheric temperatures, due to the heat-trapping effect of those substances.

Carbon dioxide constitutes a fraction of one percent of the Earth’s atmosphere (more precisely, about 0.037%), thus constituting somewhat more than 750 billion metric tons of atmospheric carbon. It is estimated by some climate scientists that in 2004 human activity contributed about 8 billion metric tons of carbon dioxide into the atmosphere.  None of this carbon dioxide is traceable to any particular emission source, whether natural or man-made.  Not all of the carbon dioxide released into the atmosphere remains in the atmosphere. The carbon dioxide in the atmosphere is part of an extremely complex chemical system involving such diverse factors as animal respiration, ocean absorption and plate tectonics, and, within that system, carbon dioxide cycles through the Earth's environment in various forms--as a component of the atmosphere, as dissolved in the oceans, and as locked up in rocks and sediments. A simple subset of this vast cycle is the process of photosynthesis, whereby plants take up (i.e., remove) carbon dioxide from the atmosphere, and convert it into sugar and starch, which is consumed by a plant eating animal that, while alive, breathes carbon dioxide back into the atmosphere, and, after it dies, decomposes, again releasing carbon dioxide back into the atmosphere. Another part of the cycle involves the erosion and chemical weathering of rocks (which removes carbon dioxide from the environment), the transport and deposition of the resulting sediment, and the burial and transformation of that sediment back into rock, which releases carbon dioxide and other volatile materials back into the environment. A fuller discussion of carbon dioxide and the carbon cycle as it relates to climate change can be found in the author's forthcoming article in volume 39 of the Seton Hall Law Review, Carbon Dioxide: Harmless, Ubiquitous and Certainly Not a "Pollutant" Under a Liability Policy's Absolute Pollution Exclusion, which he co-authored with Craig Davis, Esq.

Thus, for purposes of insurance coverage under a typical CGL policy, it is important to understand that carbon dioxide--in and of itself--is far from an alien or even a harmful substance in the environment, and that its presence in the environment is a result of an enormously diverse array of activities and processes--both man-made and natural. Consideration of carbon dioxide's fundamental character will be an important factor when it comes to analyzing the applicability of the Absolute Pollution Exclusion to an insured's coverage claim for climate-change related liabilities.

The Connecticut General Assembly adopted a bill, which Gov. M. Jodi Rell (R) signed into law earlier this month, that sets mandatory greenhouse gas emission reduction requirements to 10 percent below 1990 levels by 2020 and 80 percent below 2001 levels by 2050. 

The law broadens the authority of Connecticut’s Commissioner of Environmental Protection (“DEP”) and other state agencies to take regulatory, policy and strategic actions necessary to ensure compliance with the mandates and authorizes cooperation with other states beyond the Regional Greenhouse Gas Initiative (“RGGI”), including Canadian provinces, and through the Northeast States for Coordinated Air Use Management, known as NESCAUM.

The law, which updates a 2004 measure that authorized RGGI participation, includes reporting requirements, requires formation of a climate change impacts subcommittee, and directs state agencies to identify methods to meet state agency energy savings goals and emissions limits.  The regulated community can expect to start seeing state agency actions to implement the new law beginning after October 1, 2008.

Mindful that Connecticut’s legal framework could potentially run into conflicts with any eventual federally-mandated greenhouse gas cap and trade program or other climate change law adopted in Washington, D.C., the Legislature also required that the DEP Commissioner and Connecticut Secretary of the Office of Policy and Management report back at least one year prior to the effective date of federal measures.  Such report “shall explain the differences between such federal and state requirements and shall identify any further regulatory or legislative actions needed to achieve consistency with such federal program.”

In order to achieve its stated emission reduction targets, the law requires the DEP Commissioner to use tools such as those developed by the California Air Resources Board and U.S. Environmental Protection Agency and monitor development of low-carbon fuel standards in other states or jurisdictions, evaluate the potential of such standards to achieve net carbon reductions, and assess whether analytical frameworks used to determine carbon benefits measure full lifecycles of greenhouse gas emissions, including direct and indirect emissions of greenhouse gases caused by changes in land use or other factors.  This provision is obviously targeted to address such concerns as arguments that production of alternative fuels, such as ethanol, may actually increase net greenhouse gas emissions when emissions from feedstock production, delivery and use of the finished fuel to the ultimate consumer are considered in the aggregate.

In a statement Gov. Rell issued in connection with the bill signing, she said, “Connecticut continues to lead by example in our environmental efforts. . . .This new law requires actions that will benefit not just Connecticut but the entire nation by decreasing pollution, saving energy and reducing our dependency on foreign fuel.  By capping greenhouse gas emissions, we will reduce our carbon footprint, conserve energy and improve air quality in Connecticut while leading the way for the rest of the nation.”

In enacting the measure, Connecticut joins California, Hawaii, New Jersey and Washington state, which have already adopted similar measures. Many other states, including Massachusetts, are considering passage of climate change laws or, in the case of Massachusetts, have adopted administrative policies by executive order that require consideration of greenhouse gas emissions in the planning process for major project developments.

BALTIMORE – As the U.S. Senate was voting Friday to defeat the Boxer-Lieberman-Warner legislation intended to combat global climate change, a federal energy regulator was telling a group of leading environmental lawyers assembled at a climate change conference here that he thinks it will be at least the year 2011 before the Congress passes, and the next president signs into law, a federal climate change bill.

The prediction of the Hon. Philip D. Moeller, one of five commissioners of the Federal Energy Regulatory Commission (FERC), surprised the environmental lawyers in attendance.  While many public policy and climate change experts and commentators have been predicting for months that climate change legislation will not pass this year especially during the presidential election season, forecasters have been predicting that such legislation would pass in 2009 after the next president’s administration settles in and the next Congress gets to work on the new president’s agenda.

That’s why Moeller’s observation seemed so surprising to those attending Friday’s conference of the American Bar Association’s Standing Committee on Environmental Law, a policy-oriented group of leading environmental lawyers that holds a national conference each Spring on a major environmental issue confronting the nation.

“Even after the election,” Moeller explained, “Energy policy is still a regional issue in this country.”  He said that the issues presented in climate legislation will require a hard debate and it will be very difficult to resolve the regional issues and the “electricity industry is split on the issues” depending on the fuel sources used to generate electricity. 

Coal-burning power plant owners, he said, oppose climate legislation that imposes carbon dioxide emission limits especially if emissions allowances are to be auctioned off instead of given directly to incumbent power plant operators.  Nuclear power plant operators, however, tend to favor climate legislation, Moeller noted.  Therefore, he summarized, it will be very hard for the competing interests to reach legislative consensus anytime soon.

Moeller said that he wants his agency to focus on what FERC can do to address climate change absent a federal bill on the issue.  He discussed the increasing emphasis on renewable energy resources and the need for expanded electric transmission facilities and flexible transmission rate structures that, for example, help connect new wind generation installed in windy rural areas with load centers in urban and suburban areas.

“We can improve certainty for renewable resources to get onto the grid,” Moeller said, explaining that FERC understands the need for ratemaking approaches that are attractive to electric facility investors, especially be helping to take away the uncertainty to ensure rate recovery of expensive investments in electric transmission infrastructure. 

Welcome to our climate law blog, a legal and public policy forum presented by the Climate Change and Renewable Energy Practice Group of McCarter & English, LLP on issues concerning the legal, regulatory and business risk issues arising from global climate change.  For years, our lawyers have been drawing on their varied experiences in the areas of environmental law, energy regulation, business litigation, public strategy, real property, construction law and insurance coverage claims, to name a few of the relevant legal disciplines, to understand and be prepared for advising clients on the emerging legal issues associated with climate change. 

Over the last few years, public policy debates have accelerated as scientific consensus emerged, leading many state to enact legislative initiatives to target climate change and promote renewable energy as the federal government’s role remained limited to isolated actions, including initiatives to promote voluntary responses to climate change.

Litigators, including many states and public interest groups, have turned to the courts as an alternative strategy to encourage federal responses to climate change, with mixed results.  The April, 2007 decision of the U.S. Supreme Court in the case of Massachusetts v. EPA, in which the Court held that the U.S. Environmental Protection Agency cannot continue its policy of refusing to regulate emissions of carbon dioxide from new motor vehicle exhaust, proved to be a landmark ruling that continues to have impacts on emerging regulatory developments within the EPA, and its reach is expected to extend beyond mobile sources of air pollution, such as new motor vehicle exhaust, to stationary sources, such as power plants and industrial boilers. 

While many people expected that this Supreme Court decision would open the door for the State of California to receive a waiver (of federal preemption) from the EPA to allow California to regulate tailpipe emissions of greenhouse gases, the EPA declined, indicating in December, 2007 that new energy legislation passed by Congress and signed into law by President Bush provided a better federal fuel economy standard than could be achieved with a “patchwork” approach if California were allowed to proceed.

The vehicle emission debate over whether federal or state governments should regulate greenhouse gas emissions is a classic example of the trends that the regulated community faces these days as federal, state and even local governments attempt to target greenhouse gas emissions or promote “green” technologies or cap-and-trade programs to slow, stop and reverse the trends of climate change.  Business and industry often prefers and coordinated federal response, for example, but the federal government’s inaction has allowed states and regions, such as the Regional Greenhouse Gas Initiative (“RGGI”), to make substantial progress over the last five years in addressing the issues more locally.  The resulting framework poses greater challenges for businesses and industries to ensure compliance.

Given the foregoing background, we are confident that we will have plenty to write about in this blog and we invite comments and participation to help focus our discussions.  Wylie Donald, a partner resident in our Wilmington office, draws on substantial environmental experience, prior non-legal technical work, and deep involvement in risk management to assist clients in understanding and controlling the coming regulatory and non-regulatory impacts of climate change.  He has authored climate change articles and made leading presentations to clients and industry.  One example is his article, Climate Change and the D&O Pollution Exclusion, 41 Tort Trial & Ins. L.J. 1033 (Summer 2006), one of the first to extrapolate climate change legal impacts outside of the regulatory area.  Another, which he co-authored with Craig Davis, Carbon Dioxide: Harmless, Ubiquitous and Certainly Not a Pollutant Under a Liability Policy's Absolute Pollution Exclusion, is pending for publication in the Seton Hall Law Review and demonstrates his commitment to outstanding legal scholarship on the climate change issues.

Stephen Humes, who with Wylie Donald co-chairs the Climate Change group at McCarter & English, has also played a leading role in understanding the issues of climate change law and business risk, and has been focusing his substantial energy, utilities and environmental experience in helping clients to understand the regulatory compliance issues.  He also has written and spoken extensively on climate change issues, especially through his leadership role with the American Bar Association.  In his latest collaboration, he is co-chairing a leading national conference on climate change presented in June, 2008 by the American Bar Association’s Standing Committee on Environmental Law, entitled: Global Warming II: How the Law Can Best Address Climate Change.