A central theme of our practice in the climate change area is that there are certain to be lots of opportunities created. The renewable energy sphere is one, carbon trading is another. Niche insurance coverage is a third.

There will be exotic products addressing the viability and deliverability of carbon and renewable energy credits. And extensions of typical products to cover things like green buildings. But even something as prosaic as basic property insurance will see innovation and opportunity precipitated by climate change risks.

We have written before of the potentially dire situation in Florida regarding property insurance. See Feb. 5, 2009 blog. The exit of State Farm at the beginning of this year was a significant blow. More than 1,000,000 homeowners are scrambling for coverage. A new report this week assesses how Florida domestic insurance companies have attempted to fill the void left by the major insurance companies' hesitation to insure in Florida. Andrew G. Simpson, Insurance Journal (May 7, 2009).

Fifty-nine Florida domestics rely on the Florida Hurricane Catastrophe Fund to back up their policies as reinsurer. The unique difference is that, unlike a typical reinsurer, the FHCF is likely to have to fund its liabilities after the event. So, these companies rely on a government guarantee as a central element of their business plan (and join those entities needing to address nuclear power risks, terrorism risks and flood risks in bringing the government into the insurance picture).

The auditor of these companies, Demotech, reports that the majority are doing well. Still, it is expected that over 10% are going to be downgraded. Id. Of note, the majority of these companies are not rated by A.M. Best. See Florida Trend (June 1, 2008). Still, it is a niche where some are doing exceedingly well. And are certainly doing better because the major insurers (like State Farm) choose not to write.

To be sure, the Florida domestic insurance industry got its start following 1993's Hurricane Andrew - before climate change was a household word. Nevertheless, the continuing pressure on homeowners caused by increased hurricane losses - consistent with climate change theory of more severe storms - has increased the need for, and circumstances favorable to, these new market entities.  Will this hurricane season be the one that tests the staying power of the Florida domestic insurers?  We defer our answer till next December. 

"If pigs could fly" is used to belittle wishful thinking. If only words could solve a different kind of airborne porcine problem, swine flu, which international airline travel has catapulted to the nation's, and the world's, attention. Two questions relevant to this blog suggest themselves: 1) is this new H1N1 virus a result of climate change, and 2) is there insurance for this sort of thing?

We'll take the easiest question first, is there insurance? It depends. With respect to liability policies, there is nothing to preclude a claim, for example, that inadequate airplane ventilation led to a person's swine flu infection. That could meet the definition of an occurrence and should trigger coverage - unless an exclusion applies. Following the SARS outbreak in 2003, many insurers modified their mold or pollution exclusions to address viruses. Accordingly, close examination of the exclusionary language is in order.

With respect to property and business interruption policies, similar review of the potentially applicable exclusions is also in order. However, it may be the case that those policies are not even triggered, as it is generally the case that there must be physical damage to insured property before coverage is available. Note, however, that the Mandarin Oriental Hotel recovered $16 million on its property policies in connection with the 2003 SARS (Severe Acute Respiratory Syndrome) outbreak, apparently as a result of a "contagious disease" rider it purchased.

Now we turn to the more difficult question: is the swine flu pandemic caused by climate change? As many are probably aware, one of the concerns of climate change is that changing temperatures may increase the natural range of tropical illnesses such as malaria and dengue fever as the vectors of these diseases find more environments to their liking. E.g., IPCC, Regional Impacts of Climate Change, http://www.ipcc.ch/ipccreports/sres/regional/039.htm.  Additionally, researchers considering the impact of climate change on avian flu ponder whether alterations in bird migration paths will impact the distribution and transmission of the illness. See K. Duncan, Climate change, migratory species and pandemic influenza. Swine flu would seem to be amenable to neither vector nor migration issues. But I would submit, its prevalence and impact on human beings will be exacerbated by climate change. The mantra of medical authority is "wash your hands, wash your hands, wash your hands." This assumes the availability of water. But, one of the harshest effects of climate change is the increased duration and severity of droughts. See this blog (April 7, 2009). In other words, one of the easiest ways to contain the illness will be unavailable to many individuals.

A review of the countries reporting confirmed cases shows no nations from Africa. The tragedy of Darfur has been attributed to climate change-induced drought. What treatment or prevention will be available there, if the virus touches down, and no one can wash their hands?