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Anticipating Insurance Issues Raised By Climate Change Suits

By Damon Vocke and J. Robert Renner
August 22, 2019
Law360

Anticipating Insurance Issues Raised By Climate Change Suits

By Damon Vocke and J. Robert Renner
August 22, 2019
Law360

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photo of attorney Damon Vocke

Damon Vocke

photo of attorney J. Robert Renner

J. Robert Renner

Since 2017, there has been a resurgence in litigation attempting to impose liability on businesses (including both fossil-fuel producers and carbon-dioxide emitting utility companies) for the consequences of global warming and rising sea levels. A majority of these suits are brought by state attorneys general and city authorities, seeking billions of dollars for "climate resiliency costs" allegedly incurred by states and cities, which largely outsource these claims to contingency fee lawyers.

Each of these lawsuits is founded on a common-law claim for public nuisance under tort law, although other theories of recovery are usually pleaded as well. These cases represent a second round of litigation, after an earlier round concluded in 2012. All of the cases in the earlier round were unsuccessful, but the plaintiffs lawyers press on. While there has been a focus on the oil and gas industry, the underlying legal theories could extend to transportation and other industry sectors (auto, rail, aerospace, shipping, power and utility companies).

Surprisingly, there have been no insurance coverage lawsuits (at least so far) associated with this current round of litigation, although that is likely to change if any of these claims gain traction. We further note that, perhaps as a measure of corporate social responsibility or risk management in light of existing and anticipated climate change related litigation, several insurers and reinsurers have publicly declared that they will not underwrite or invest in certain coal-related businesses.

The key case from the prior round was American Electric Power Company v. Connecticut.[1] In AEP, eight states, New York City and three land trusts sued six electric power companies, alleging a public nuisance under state and federal common law, and seeking injunctive relief in the form of an immediate cap and future reductions in the defendants' carbon-dioxide emissions. The district court dismissed the complaints as presenting nonjusticiable political questions, but the U.S. Court of Appeals for the Second Circuit reversed, ruling that the plaintiffs had standing, that the dispute did not constitute a political question, that the plaintiffs had stated a claim for nuisance under federal common law and that the federal common law claims were not displaced by any federal statute.

On certiorari, the U.S. Supreme Court reversed in part. The court split 4-4 on standing and other justiciability doctrines. On the merits, the court held that the plaintiffs could have stated a claim for nuisance under federal common law, except that the Clean Air Act displaced any federal common-law right to seek abatement of emissions from fossil-fuel fired power plants. Lastly, the court acknowledged that the plaintiffs had alleged claims under state law, but did not address those claims. On remand, the plaintiffs voluntarily dismissed their state-law claims.

The following year, in a case brought against an assortment of energy companies (including both petroleum producers and electric utilities) by a native Alaskan village threatened by coastal erosion, the U.S. Court of Appeals for the Ninth Circuit extended AEP to actions seeking damages as opposed to injunctive relief, reiterating that federal common-law nuisance claims are displaced by the Clean Air Act.[2] Once again, the plaintiffs chose not pursue their state-law claims, which had been dismissed by the district court without prejudice.

The bulk of the current crop of litigation attempts to pursue a new theory that plaintiffs contend (and defendants vigorously contest) was left open by AEP and Kivalina — that is, to pursue state law claims, and, if possible, in state courts. Plaintiffs have little choice, since, in light of AEP, any claim based on federal common law will almost certainly be displaced by the Clean Air Act. Actions in federal court, moreover, are subject to significant justiciability requirements not normally present in state courts — standing, the political question doctrine and case or controversy. Filing in state court also potentially gives plaintiffs the option of choosing a state where the law is thought to be favorable.

At the same time, these claims must overcome a number of difficult questions. First among them is whether it is even possible, in the context of an interstate pollution dispute, for the plaintiffs to state a claim for nuisance under state law as opposed to federal common law. The plaintiffs contend that AEP itself contains seemingly contradictory passages, at one point stating that when we deal "with air and water in their ambient or interstate aspects, there is a federal common law," at another point stating that "if a case should be resolved by reference to federal common law, state common law is preempted," before finally concluding by declining to address the availability of a claim under state law.[3]

Another issue concerns whether state common law, if otherwise available, is preempted by the Clean Air Act, as defendants assert. In this regard, the plaintiffs assert that legislative preemption of state law is, in general, judged by a more demanding standard than legislative displacement of federal common law, thereby allowing the state common-law claims to survive. The plaintiffs also assert that the Clean Air Act, moreover, has savings clauses that may limit, to some extent, the preemption of state law.[4] Suffice it to say, there are a number of hotly contested issues before the courts on these issues.

Another point of contention concerns how the substantive law of nuisance would be applied in the context of a global warming claim. It is well recognized that nuisance standards are "vague and indeterminate," and, indeed, that "there is perhaps no more impenetrable jungle in the entire law than that which surrounds the word 'nuisance.'"[5] The restatement defines a public nuisance as "an unreasonable interference with a right common to the general public."[6] Whether an intentional interference will be deemed unreasonable involves "weighing the gravity of the harm against the utility of the conduct."[7] The decision of whether the utility of the conduct outweighs the gravity of the harm is normally made by the trier of fact.[8]

Important differences exist among the states. California, for example, has a statutory definition of nuisance. "Anything which is injurious to health … or is indecent or offensive to the senses, or an obstruction to the free use of property, so as to interfere with the comfortable enjoyment of life or property … is a nuisance."[9] Applying this standard, California courts have approved actions for public nuisance based on the sale and promotion of commercial products, including lead paint,[10] and polychlorinated biphenyls.

The plaintiffs rely on these precedents for fossil fuels. We also note that public nuisance claims are being tested in the ongoing opioid litigation matters, in which states and municipalities are attempting to recover substantial abatement costs associated with the public health consequences of addiction. The outcome of these could provide relevant precedents to claims associated with the production of fossil fuel-related products and industries allegedly responsible for the emission of greenhouse gases.

The common-law-based climate change cases that are currently pending against businesses in the United States include the following:

County of San Mateo v. Chevron

Starting in July 2017, a number of California counties and cities filed separate but substantially similar complaints in state court against a common set of fossil-fuel production companies. The complaints allege common-law causes of action, starting with public nuisance, and seek damages and abatement based on the defendants' production and promotion of fossil fuels. The defendants removed to federal court. The district court[11] remanded the actions to state court based on the lack of a federal question.[12] The remand orders are currently on appeal to the Ninth Circuit.[13]

City of Oakland v. BP

In September 2017, Oakland and San Francisco filed separate but substantially similar complaints in state court against five major petroleum companies based on the defendants' production and promotion of fossil fuels. The original complaints asserted a single claim for public nuisance under California law and sought the establishment of an abatement fund. The defendants removed to federal court. The district court[14] denied plaintiffs’ motion to remand, reasoning that the claims were governed by federal common law.[15] The district court subsequently dismissed the actions based on separation of powers and foreign policy concerns.[16] Several defendants were also ordered dismissed for lack of personal jurisdiction. These orders and the resulting judgments are currently on appeal to the Ninth Circuit.[17]

City of New York v. BP

In January 2018, the city of New York filed a complaint in federal court against five major petroleum companies based on the defendants' production and promotion of fossil fuels. The complaint asserts claims for public and private nuisance and trespass, and requests damages and injunctive relief. The district court[18] dismissed the action on the grounds that federal common law displaced state law, the Clean Air Act displaced federal common law as to domestic emissions, and any claims over foreign emissions would interfere with separation of powers and foreign policy.[19] The order and resulting judgment are currently on appeal to the Second Circuit.[20]

Board of County Commissioners of Boulder County v. Suncor Energy (U.S.A.)

In April 2018, three Colorado local government entities filed a complaint in Colorado state court against Suncor Energy and Exxon based on based on the defendants’ production and promotion of fossil fuels. The complaint, which alleges common-law causes of action, starting with public nuisance, as well as violation of the Colorado Consumer Protection Act, seeks damages, remediation and abatement. The defendants removed to federal court. A motion to remand is pending.[21]

King County v. BP

In May 2018, King County, Washington, filed a complaint in Washington state court against five major petroleum companies based on the defendants' production and promotion of fossil fuels. The complaint alleges state-law claims for public nuisance and trespass, and seeks an abatement fund and compensatory damages. The defendants removed to federal court. The case has been stayed on plaintiff’s motion pending the outcome of the appeal in City of Oakland.

Rhode Island v. Chevron

In July 2018, the state of Rhode Island filed a complaint in Rhode Island state court against a large set of petroleum companies based on the defendants' production and promotion of fossil fuels. The complaint, which alleges common-law causes of action, starting with public nuisance, as well as impairment of public trust and violation of the state Environmental Rights Act, seeks compensatory damages and abatement. The defendants removed to federal court. A motion to remand was heard on Feb. 6, 2019, and is under submission.[22]

Mayor & City Council of Baltimore v. BP

In July 2018, the city of Baltimore filed a complaint in Maryland state court against a large set of fossil-fuel production companies based on the defendants' production and promotion of fossil fuels. The complaint, which alleges common-law causes of action, starting with public nuisance, as well as violation of the state Consumer Protection Act, seeks compensatory damages and abatement. The defendants removed to federal court, and the district court[23] granted the city's motion to remand, finding no basis for federal jurisdiction.[24] Defendants have appealed to the U.S. Court of Appeals for the Fourth Circuit.[25]

Pacific Coast Federation of Fishermen's Associations v. Chevron

In November 2018, a commercial fishermen’s association filed a complaint in California state court against a set of fossil-fuel production companies for alleged harm to crab fisheries caused by global warming. The form of the complaint is similar to County of San Mateo (the plaintiff's private counsel is the same). The defendants removed to federal court, and the case has been assigned to the same judge who granted remand in County of San Mateo.[26]

Conclusion

None of these cases are concluded, and most are in the early procedural stages. So far, the results in the federal district courts are mixed, with appeals pending. There are so far no decisions from any state courts on the merits of the state-law claims being asserted. What happens next on the litigation front is likely to be determined by the results of the current round of cases. If one case succeeds, more will surely be filed, regardless of any political calculation.

It should be recognized that these cases are only one subset of the climate change-related litigation currently pending worldwide. For example, there is a noteworthy case now pending in Germany, Lliuya v. RWE AG, in which a Peruvian farmer filed suit in a German court against a German electricity producer for damages allegedly resulting from global warming. On Nov. 30, 2017, a regional appeals court in the city of Essen recognized the complaint as validly pleaded, with the defendant potentially responsible for damages in the percentage of the defendant’s contribution to global greenhouse gas emissions.

Another category of cases concerns "public trust" claims, in which citizens bring suit against the government alleging that government policy on fossil fuels deprives them of their rights under the common-law doctrine that natural resources are held in public trust, or of analogous constitutional rights. The most noteworthy of these cases is Juliana v. United States, currently under submission before the Ninth Circuit, after an oral argument on June 4, 2019.[27] Another category of climate change cases concerns alleged violations of state or federal securities laws, a prominent example being the New York attorney general’s recent suit against Exxon for alleged misrepresentations in its climate disclosures.[28]

The only coverage case relating to these climate change cases so far, AES Corp. v. Steadfast Insurance Co.,[29] arose out of the Kivalina case, described above. In Steadfast, the Virginia Supreme Court held that AES was not entitled to a defense because the complaint "plainly alleges that AES intentionally released carbon dioxide into the atmosphere as a regular part of its energy-producing activities," and "the natural and probable consequence of such emissions is global warming and damages such as [what] Kivalina [had] suffered."[30]

Therefore, "if an insured knew or should have known that certain results were the natural or probable consequences of intentional acts or omissions, there is no 'occurrence' within the meaning of a CGL policy."[31] To the extent the current round of climate-change litigation gains traction as the state public nuisance claims are sorted out, insurers will need to carefully evaluate the allegations supporting these claims, and whether they give rise to coverage defenses arising from pollution exclusions, expected or intended injury, known loss and products completed operations, among others.

Given the potential that climate change litigation is here to stay, business policyholders should take steps to minimize their exposure to these types of claims. These policyholders should be scrupulous to comply with all applicable environmental regulations, especially those businesses that produce fossil fuel-related products, or products, services or operational processes which result in greenhouse gas emissions. These policyholders should also ensure their public disclosures about climate change (if applicable) – or those of trade associations of which they are members – are complete and accurate. Lastly, businesses of these types and their insurers should closely monitor ongoing climate change litigation, especially since our sharply divided political dynamics across the states and federal governments will continue to include constituencies looking to deep pocket sources of recovery for "resiliency" costs.

Damon N. Vocke and J. Robert Renner are partners at Duane Morris LLP.

Disclosure: Duane Morris is counsel of record for Encana Corporation in the County of San Mateo, County of Marin, City of Imperial Beach, County of Santa Cruz, City of Santa Cruz and the City of Richmond, as well as Pacific Coast Federation of Fishermen’s Associations v. Chevron.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] American Electric Power Company v. Connecticut, 564 U.S. 410 (2011) ("AEP")

[2] Native Village of Kivalina v. ExxonMobil Corp., 696 F.3d 849 (9th Cir. 2012).

[3] AEP, 564 U.S. at 421, 429 (quoting Illinois v. Milwaukee, 406 U.S. 91, 103 (1972), and International Paper Co. v. Ouellette, 479 U.S. 481, 488 (1987)).

[4] 42 U.S.C. § 7416 (retention of state authority), § 7604(e) (citizen suits).

[5] Ouellette, 479 U.S. at 496.

[6] Restatement (Second) of Torts § 821B(1).

[7] Id. at § 821B cmt. e; see also §§ 826-831.

[8] Id. at § 826 cmt. e.

[9] Civ. Code § 3479.

[10] See, e.g., People v. ConAgra Grocery Products Co., 17 Cal.App.5th 51 (2017).

[11] Vince Chhabria, N.D. Cal.

[12] 294 F.Supp.3d 934 (N.D. Cal. 2018).

[13] Docket Nos. 18-15499, et al. [consolidated].

[14] William Alsup, N.D. Cal.

[15] 2018 WL 1064293 (N.D. Cal. February 27, 2018).

[16] 325 F.Supp.3d 1017 (N.D. Cal. 2018).

[17] Docket No. 18-16663.

[18] John Keenan, S.D.N.Y.

[19] 325 F.Supp.3d 466 (S.D.N.Y. 2018).

[20] Docket No. 18-2188.

[21] William Martinez, D. Colo.

[22] William Smith, D.R.I.

[23] Ellen Hollander, D. Md.

[24] 2019 WL 2436848 (D. Md. June 10, 2019)

[25] Docket No. 19-1644.

[26] Vince Chhabria, N.D. Cal.

[27] Docket No. 18-36082 [an interlocutory appeal of orders denying motions to dismiss, for judgment on the pleadings, and for summary judgment].

[28] People of the State of New York v. Exxon Mobil Corp., N.Y. Sup. Ct. No. 452044/2018, filed October 24, 2018.

[29] AES Corp. v. Steadfast Ins. Co. , 725 S.E.2d 532 (Va. 2012).

[30] Id. at 537.

[31] Id. at 538.

Reprinted with permission of Law360.