Abstract:
Climate change has been tied to the recent increase in catastrophic weather events. Insurance coverage for often billions of dollars in damage becomes a source of argument between insurers, who want to limit their exposure, and policyholders, who want the coverage they argue the carriers are contractually obligated to pay. The authors discuss the nature of the underlying suits and the potential coverage issues; the types of policies implicated; cases that have addressed these issues; the rising societal concern over climate change that have played a role in the new corporate emphasis on environmental, social, and governance, or ESG, and the insurance industry’s response to this trend.

Excerpts:
Directors and Officers (D&O) policies [are] directly affected by climate change. Two types of suits are already happening. First, there are at least 1,375 climate change–related suits pending in the United States, about two dozen of which have been filed by local municipalities and states seeking damages because of climate change. For example, the attorneys general of New York, Massachusetts, and the U.S. Virgin Islands launched investigations to determine whether Exxon Mobil Corporation misrepresented to investors the risks of how climate change might impact its business. Although the U.S. Virgin Islands attorney general terminated its investigation, the New York and Massachusetts attorneys general filed separate suits against Exxon.

In the seminal case People of the State of New York, By Letitia James v. Exxon Mobil Corporation, 119 N.Y.S.3d 829 (N.Y. Sup. Ct. 2019), the State of New York sued Exxon, alleging that it violated the state’s securities act by making materially false and misleading statements to the public and investors about how the company manages risks of climate change and the cost of carbon in assessing demand for its products. The state dropped its common law fraud claims prior to trial, but proceeded with a claim under New York’s Martin Act, which permits the attorney general to sue for fraud in connection with the marketing of securities without requiring proof of scienter, reliance, and damages, as well as under New York’s Executive Law, which prohibits persistent fraudulent acts. After a trial, the New York Supreme Court held that the state failed to demonstrate by a preponderance of the evidence that Exxon made any material misrepresentations to investors ….

As regulatory activity and private litigation activity surrounding climate change issues continue to increase, liabilities likely will follow. D&O insurance companies will be called on to address those liabilities with increasing frequency.

Those claims will present complex coverage issues of first impression, and policyholders can expect a fight. Policyholders also should be on the lookout for more restrictive coverage terms on D&O renewals. Policyholders should work with their brokers to obtain the broadest coverage available, and consult with sophisticated coverage counsel in the event that they are faced with climate change–related claims.