Robert D. Chesler, Dennis J. Artese, and Joseph Vila *
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.
Introduction
Catastrophic loss because of climate change is here: witness the recent damage caused by flooding from Hurricane Ida and the swathe of destruction created by the tornados in the Southeast and Midwest. Climate change has disrupted traditional weather patterns. What was a once a hundred-year risk of a catastrophic hurricane is now occurring with frightening frequency. Wildfires ravage the West Coast and are spreading inland as well. Tornados also are occurring with increased frequency and destructiveness.
The most obvious insurance policy implicated by catastrophic climate change is the first-party property policy, which responds to damage to the policyholder's own property and to business interruption. Historically, insurance disputes principally meant disputes over liability insurance coverage. Now, because of the calamitous property loss caused by climate change events, property insurance
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disputes, too, are quickly rising in number and complexity. The insurance industry is aware of these increasing risks. Reports in the insurance industry press indicate that the industry is considering a variety of changes to property policies aimed at curtailing climate change coverage—and increasing the uninsured exposure to policyholders.
Nature of Underlying Suits and Potential Coverage Issues
Directors and Officers (D&O) policies, however, are also 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...
