1. An Introduction to Environmental and Toxic Torts and Insurance An Introduction to Tort Law University of Insubria, Como, Italy Jeffrey W. Stempel and Ann C. McGinley William S. Boyd School of Law University of Nevada, Las Vegas

2. Insurance in the USA General Operations; Role in Environmental Claims; Possible Climate Change Solution

3. Lawsuits and Chemicals Historically the Tort of Nuisance Smokestacks blowing over neighborhoods Loud noises from construction Encroachment on property boundaries But little knowledge of non-immediate harms Mining Injuries an exception of sorts but with little compensation Hawk Mountain Silica Claims

4. What is Insurance? A Transfer of Risk – But every Contract does that – at least to some extent A pooling of risks by the Insurer that received premium payments from the members of the pool Policyholder incurs a certain, relatively small loss (premium payment) in return for protection against a contingent but potentially much larger (or even catastrophic) loss

5. Insurance Regulation Regulation Largely by States (rather than the national government) Major concern of regulators is solvency – making sure the insurance company has enough funds to pay claims after a catastrophe or mass tort Also some regulation of: – rates – minimally acceptable contract terms – forbidden contract terms

6. Types of Insurance Two General Divisions – Life/Health – Property/Casualty Within Property/Casualty: Several Types Automobile Homeowners Business property

7. More on Types of Insurance General Liability: protects against “typical” tort claims against a business Both “Operations” Liability – Claims arising out of the regular activity of the business And “Completed Operations” Liability – Claims arising out of the finished work of the business And “Products” Liability – Claims arising from injury caused by products made or sold by the business

8. More on Types of Insurance Specialized Liability Directors & Officers Liability Professional Liability Errors & Omissions Employment Practices Liability Employers’ Liability/Workers Compensation

9. Insurance Industry Interest in Climate Change Property Insurers – provide “first-party” coverage (between the policyholder and the insurer) that covers damage to the insured property Floods, Hurricanes, Tornados, Ice Storms – all are major sources of insured loss Insurance companies would rather pay for fewer losses – this makes them relatively progressive about climate change issues

10. Insurance Industry Interest in Climate Change (con’t) Property insurers also vulnerable to sudden outbreak of widespread or multiple natural disasters – Forces the insurers to unexpectedly pay a lot of money in a short time – By contrast, life insurers can predict. Health and liability insurers can get away with delaying payment. But a property insurer has to get a roof back on a house fast after a tornado. – And after a disaster, construction prices soar due to shortages and high demand.

11. Property Insurer Response to Climate Change Higher premiums Lower limits, higher deductibles, co-insurance – Policy limit – the maximum the insurer will pay for a single loss or for all losses during the policy period (usually one year)(the “aggregate” limit). – Deductible: the first portion of the loss (e.g., $1,000) the policyholder must pay before the insurance company begins paying – Co-Insurance: A requirement that the policyholder pay some percentage of the loss even after the deductible has been paid

12. Property Insurer Response to Climate Change Limiting the Insurer’s Risk Forcing the Policyholder to share more of the risk Diversifying the pool of risk (e.g., balancing the proportion of beach property and mountain property insured) Refusing to sell policies in particularly dangerous/difficult regions Some restrictions or modifications of the coverage provided

13. Property Insurer Response to Climate Change – Beyond the Policy Itself Insurers lobby for more government study, conduct their own studies Insurers lobby for tougher building codes – homes on stilts at the beach; – homes more likely to remain standing after a hurricane; – better insulation against frozen pipes) Insurers lobby for better flood control (dikes, canals, etc.)

14. Property Insurer Response to Climate Change – Beyond the Policy Itself Insurers may even lobby for public policy designed to reduce greenhouse gas emissions (better fuel economy; more use of solar and wind energy) Or at least Insurers will not be fighting climate change efforts as are many (most?) other businesses such as those in the Chamber of Commerce

15. The Indirect Way Insurers May Help Force Better Public Policy Scarcity and Shortages – If insurance is not available for middle class and wealthy homeowners near the coastline, other water, they will demand a response from their governments Higher Premiums – If insurance is too expensive, voters will complain and act – And they will respond in other ways (construction slowdown, which also creates pressure on politicians Increased Knowledge because of insurer studies Change in Business Community Views – Other businesses will see that the anti-reglation Chamber of Commerce view is not the only “acceptable” position

16. Liability Insurance There is an extensive history of liability insurance involvement in toxic torts and environmental claims Because climate change lawsuits have not yet been very successful or have not sought monetary damages, little liability insurance presence to date. But that could change as the nature of climate change litigation changes.

17. Liability Insurance Generally provides coverage for “bodily injury” or “property damage” that the policyholder inflicts on a plaintiff Or even allegedly inflicts. Most general liability insurance imposes a “duty to defend” claims on the insurer even if the claims have no merit (because it still costs money to defend the claims; the policyholder has paid for this “litigation insurance” through the premiums.

18. Liability Insurance Liability insurance is “third-party” insurance involving the policyholder (the first party), the insurer (the second party) and the plaintiff filing the lawsuit (the third-party) The insurer defends the lawsuit and may pay to make a settlement or go to trial. If the plaintiff wins at trial, the insurer pays the damages judgment (up to the amount of the policy limits)

19. The Liability Insurance Duty to Defend As part of the duty to defend, the insurer also by contract has a right to control the disposition of the lawsuit. In other words, the insurer (not the policyholder) decides whether to settle or keep litigating The insurer also gets to control the defense of the lawsuit Including selecting and directing the defense lawyer (within reason; insurers cannot micromanage the lawyer but can set guidelines)

20. Some History of Insurance and Toxic Tort/Environmental Litigation Asbestos Industry knows of danger – but does not disclose Small indestructible fibers in lungs doing years of damage Clarence Borel – a victim who took action Fred Baron – arguably a “heroic” lawyer

21. Borel v. Fibreboard Discovery unearths industry deception and manufacturer’s knowledge of danger Medical experts establish the injury caused by asbestos Borel wins a jury verdict Affirmed by U.S. Court of Appeals (1973) Establishes favorable law for plaintiffs

22. The Asbestos Mass Tort After Borel’s success, plaintiffs’ lawyers bring tens of thousands of claims – And much of the case is already established by the record in the Borel case The onslaught is too much for many defendants – All manufacturers eventually file for bankruptcy – Then come suits against the “secondary” defendants who used asbestos in products – And other ancillary suits (e.g., bad face masks)

23. The Parallel Concerns Over Pollution 1970 – “Earth Day” – Clean Water Act – Clean Air Act – U.S. established Environmental Protection Agency 1972 – OSHA (Occupational Safety and Health Administration) established 1973 – Asbestos banned from further use 1980 – Superfund (a/k/a CERCLA) (Comprehensive Environmental Response, Compensation, and Liability Act)

24. Private and Public Suits Against Pollution Federal (national) government seeks cleanup of contaminated sites pursuant to Superfund State governments enact state versions of Superfund and pursue similar suits Those injured by contamination bring private civil actions Another mass tort (but not as “mass” as asbestos)

25. A Quest for Compensation – and a Source of Funds to Provide It Defendants look for insurance coverage but meet resistance Toxic Tort (asbestos, PCBs, etc.) and Pollution defendants look to their liability insurers The large wave of new lawsuits brings a large wave of insurance coverage lawsuits Insurance Co. of North America v. Forty-Eight Insulations (1978) kicks off an era

26. The Insurance Coverage Wars Policyholders largely win for asbestos cases and most pollution cases on the big issues Trigger of coverage Number of Occurrences Rejection of key insurer defenses Expected or intended injury

27. The Pollution Exclusion None at all under 1955 and 1966 standardized policies for Comprehensive General Liability (CGL) insurance 1970 – “qualified” pollution exclusion appears as a common “endorsement” (amendment) to the 1966 standard form CGL policy 1973 – qualified pollution exclusion becomes part of new 1973 standardized CGL form

28. The Qualified Pollution Exclusion Bars insurance coverage for claims arising out of release or discharge of a pollutant Defines pollutant as “any” chemical or irritant But contains an exception if the discharge is “sudden and accidental” – then there is still insurance coverage

29. The Qualified Pollution Exclusion (continued) But does “sudden” mean “fast-abrupt” or merely unexpected or unintended? Courts divide – Some find coverage for slow but unintended pollution – Others require the pollutant to escape fast for insurance coverage to exist Insurers move to tighten/toughen the Exclusion

30. The “Absolute” or “Total” Pollution Exclusion Added to the 1986 Standard Form CGL Policy Name changed from “Comprehensive” General Liability Policy to “Commercial” General Liability Policy Contains an complete exclusion of asbestos- related claims And a complete exclusion of Superfund claims And a tougher pollution exclusion

31. The Absolute Pollution Exclusion Bars insurance coverage for any claim arising out of release or discharge of a “pollutant” Defines pollutant as “any” chemical or irritant, including dirt, smoke, etc. No exception for sudden, accidental, abrupt, unintended discharges of a pollutant

32. The Absolute Pollution Exclusion Clearly excludes coverage for traditional environmental claims Insurers have some success applying the exclusion even to claims not commonly thought of as “pollution” claims, including – carbon monoxide poisoning from bad furnace – car crashes when driver blinded by blowing smoke – Indian curry smell from restaurant bothers neighbors – bat guano in cottage

33. But Pollution Coverage Still Exists – If Policyholders Are Willing to Pay Insurers now sell Environmental Impairment Liability Insurance or Environmental Claims Liability Insurance Provides coverage where policyholder sued for Superfund cleanup or contamination of property of others or injury to others – relatively low policy limits – relatively high premium prices – some significant restrictions e.g., pollution discharge must be abrupt and must be reported in timely fashion

34. Will Liability Insurers Play a Role in Climate Change Litigation? Because of the pollution exclusion, some of the possible lawsuits against greenhouse gas emitters may be foreclosed. But some possible causes of action would seek to impose liability on greenhouse gas generators due to their activities prior to the pollution exclusion Under the rules of the Duty to Defend, the insurer must defend if there is a “potential for coverage”

35. Liability Insurers and Climate Change Litigation If Insurers are forced to defend – even if plaintiff’s chances of success are remote and even if the chance that the insurer will be required to pay are remote – this may at least prompt settlement of some claims and increased political pressure by insurers for governments to achieve a regulatory solution. A possible example: California v. General Motors (and other automakers) Lawsuit alleges excessively emitting engines cause climate change that resulted in floods, drought, etc. A hard case to win – but one with at least a potential for coverage that would require insurers to defend?

36. Liability Insurers and Climate Change Litigation The plaintiff chances of winning the lawsuit are perhaps remote because it will be hard to tie a particular defendant’s greenhouse gas emissions to particular climate change causing particular injury to an individual plaintiff or class of plaintiffs – For example, the California v. General Motors lawsuit was dismissed. Harder to hold defendants responsible for older behavior – but newer behavior is covered by insurance policies with pollution exclusions.

37. Liability Insurers and Climate Change Litigation Have USA courts missed an opportunity to get insurers more involved (i.e., with their funds at risk) in climate change litigation? Or have plaintiffs (private and government) missed the opportunity? Or are climate change lawsuits doomed to fail because of the nature of the problem and the limitations of civil litigation?

38. Major Climate Change Litigation (so far) Next class meeting will examine three prominent USA cases involving climate change Massachusetts v. Environmental Protection Agency Connecticut v. American Electric Power Village of Kivalina v. ExxonMobil – As well as some additional litigation developments in the USA