The Hawaii Supreme Court's decision in the Aloha Petroleum verses American Insurance Group (AIG) case could prompt insurers to re-evaluate the scope of their historical liability policies, according to insurance legal expert Denise Eastlake.
The case involved the oil company seeking defence cost coverage from two AIG subsidiaries, National Union Fire Insurance Company of Pittsburgh and American Home Assurance Company, for lawsuits related to climate change damages.
Plaintiffs alleged that Aloha Petroleum was aware that its products caused catastrophic climate change because the industry had been advised in the 1960s of the impacts that burning fossil fuels would have on the climate.
Law firm DAC Beachcroft said it was the first case of its kind to consider policy coverage in the context of climate change litigation.
In its judgement last month, Hawaii's Supreme Court ruled that reckless conduct could be classified as accidental, potentially triggering defence cost coverage under Aloha's policies.
Eastlake, who is a partner at boutique insurance law firm Indemnity Law, told InsuranceERM: "This is important because this is the trigger for cover under the policy." Aloha argues that damages claimed in the lawsuits, such as flooding, beach erosion, and harm to water infrastructure, were accidental.
The Supreme Court also determined that greenhouse gases (GHGs) qualify as pollutants under the policies' exclusions. Eastlake said: "For those years where there was a pollution exclusion in the policy (which wasn't every policy year interestingly), the claims may fall within the scope of the policies, but are then excluded by the pollution exclusion."
Eastlake added: "This ruling does not shut down the possibility of coverage for defence costs arising from the claims Aloha is facing, and no doubt other high-carbon emitters facing similar claims will reconsider cover under their policies".
However, she highlighted that jurisdictional differences play a critical role in these types of cases.
She said the Hawaii ruling diverges from a decision in Virginia in the US, where under that state's law, reckless conduct would not be considered accidental if harm was a "natural or probable consequence" of the insured's actions.
Eastlake also stated: "Under English law, if the consequences were intended, or if while unintended were inevitable so that the insured acted with reckless disregard for them, then there is no accident. As a result... the decision may well be different."
Insurers have already begun adopting measures to address potential liabilities from climate-related claims, Eastlake said. For example, "a number of energy insurers have started using the Lloyd's Market Association's model climate change exclusion... to guard against the possibility of cover for climate-related property damage."
People:Denise Eastlake
