environmental insurance coverage: latest developments

Presenting a live 90‐minute webinar with interactive Q&A

Environmental Insurance Coverage: Latest DevelopmentsIdentifying Coverage in Existing Policies, Navigating Pollution and Owned Property Exclusions, and Determining Scope of Damages

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

THURSDAY, DECEMBER 8, 2011

Today s faculty features:

Ira M. Gottlieb, Partner, McCarter & English, Newark, N.J.

Robert M. Horkovich, Shareholder, Anderson Kill & Olick, New York

Scott M. Seaman, Partner, Meckler Bulger Tilson Marick & Pearson, Chicago

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Environmental Insurance Coverage: Environmental Insurance Coverage: Latest Developments Latest Developments Identifying Coverage in Existing PoliciesIdentifying Coverage in Existing Policies

Strafford Publications Strafford Publications –– WebinarWebinarDecember 8, 2011December 8, 2011

Ira Gottlieb, Esq.Ira Gottlieb, Esq.McCarter & English, LLPMcCarter & English, LLPMcCarter & English, LLPMcCarter & English, [email protected]@mccarter.com

OverviewOverview

Basics of NRD Liability

T f t ti ll il bl f NRD Types of coverage potentially available for NRD claims and private property damage losses

The potential effects of settlement of past environmental claims

Climate Change and Insurance – Basic Overview

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NRD Claims: Federal StatutesNRD Claims: Federal Statutes

• Federal NRD Claims - 5 Statutory Regimes: CERCLA, 42 U.S.C. §9607, § Oil Pollution Act of 1990, 33 U.S.C. §2710(b)(2)(A)

Clean Water Act, 33 U.S.C. §1321(f)

Marine Protection, Research & Sanctuaries Act, 16 U.S.C. §1443

Park System Resources Protection Act, 16 U.S.C §19

• Most States/Territories/Tribes Have Statutory NRD claims

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NRD Claims: CERCLA NRD Claims: CERCLA

Definition of Natural Resources Under CERCLA

“land, fish, wildlife biota, air, water, ground a d, s , d e b ota, a , ate , g ou dwater, drinking water supplies, and other such resources belonging to, managed by, held in trust by, appertaining to, or otherwise controlled by the United States any Statecontrolled by the United States, . . . any State or local government, any foreign government, any Indian tribe, or, if such resources are subject to a trust restriction on li ti b f I di t ib ”alienation, any member of an Indian tribe.”

42 U.S.C §9601 (16)

8

NRD Claims: OPANRD Claims: OPA

Definition of Natural Resources Under the Oil Pollution Act (OPA):(OPA):

“Damages for injury to, destruction of, loss of, or loss of

f t luse of, natural resources, including the reasonable costs of assessing the damage, which shall be recoverable by a Unitedshall be recoverable by a United States trustee, a State trustee, an Indian tribe trustee, or a foreign trustee.”

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trustee.

33 U.S.C §2702 (b)(2)(A)

Common Law NRD ClaimsCommon Law NRD Claims

C l l i f NRD l• Common law claims for NRD may also exist for resources “belonging to, managed by, held in trust by, appertaining a aged by, e d t ust by, appe ta gto, or otherwise controlled by the United States, . . . any State or local government,

f i t [ ] I diany foreign government, [or] any Indian tribe ….” N i Nuisance

Trespass to resources

N li

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Negligence

Federal Federal NRD: Essence of the ClaimNRD: Essence of the Claim

“….(N)atural resources damages are viewed as the difference between the natural resource in its pristine [or baseline] condition and the natural p [ ]resource after the cleanup, together with the [past or future] lost use value and the costs of assessment. As a residue of the cleanup action, in effect, [damages] are thus not generally settled prior to a cleanup settlement.”

In Re Acushnet River & New Bedford Harbor, 712 F. Supp. 1019, 1035 (D. Mass. 1989). (Bracketed language and emphasis added.)

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Natural Resource Natural Resource DamagesDamages DefinedDefinedgg

• CERCLA § 107 provides that a “trustee” may recover damages for injury to, destruction, or loss of natural resources, including reasonable cost of assessment, resulting from the release of hazardous substances Cleanresulting from the release of hazardous substances. Clean Water Act (“CWA”) and Oil Pollution Act (“OPA”) also have similar provisions.

• NRD is the dollar or other value of the restoration and/or• NRD is the dollar or other value of the restoration and/or replacement that is necessary to restore an injured resource and to compensate the public for the injury to natural resources as a result of a discharge.

• Restoration is the action that returns the natural resources to pre-discharge conditions. It includes the rehabilitation of injured resources, replacement, or acquisition of natural

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resources and their services which were lost or impaired.

CERCLA NRD LIABILITYCERCLA NRD LIABILITY

CERCLA Authorizes Trustees to RecoverCERCLA Authorizes Trustees to Recover

CERCLA NRD LIABILITYCERCLA NRD LIABILITY

CERCLA Authorizes Trustees to RecoverCERCLA Authorizes Trustees to Recover

Assessment costs and damages

F i j d i f l f f l For injury to, destruction of, or loss of use of natural resources

Resulting from release of hazardous substances Resulting from release of hazardous substances

CERCLA Recognizes a Distinction BetweenCERCLA Recognizes a Distinction Between

Liability for damages Liability for response costs

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Insurance PoliciesInsurance Policies

POLICY TYPESPOLICY TYPESPOLICY TYPESPOLICY TYPES

Comprehensive General Liability

Pollution Legal Liability Pollution Legal Liability

First Party Property

Debris remo al Debris removal Sue and labor expenses – reasonable expenses

incurred to avoid or mitigate the impact of an eventevent

Business Interruption Civil Authority

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Settlement of Past Environmental ClaimsSettlement of Past Environmental Claims

Do NRD Insurance Claims Still Exist Under Do NRD Insurance Claims Still Exist Under Policies?

Are settlements for policy buy backs, for specific lines of coverage, site specific and/or claim specific?p

Policy buy backs may negate coverage, including NRD

Look for carve outs

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Do NRD Insurance Claims Still ExistDo NRD Insurance Claims Still Exist Under Policies?

Settlements and Releases may allow for Settlements and Releases may allow for NRD claims to survive

Carefully examine the terms and scope of all settlements and releases, orders and judgments

Look for potentially ambiguous definitions Look for potentially ambiguous definitions and terms related to settled “environmental claims”

16


Do NRD Insurance Claims StillDo NRD Insurance Claims Still Exist Under Policies?

Pay attention to key terms and Pay attention to key terms and definitions

17

Climate Climate Change Change Cases:Cases:Is this Property Damage?Is this Property Damage?Is this Property Damage? Is this Property Damage? Climate Change Complaints (2004 to 2010)

• Connecticut v. American Electric Power Co., Docket No. 1:04-CV-05669 (S.D.N.Y. July 21, 2004). State governments and environmental groups seeking injunctive relief against utilities under theories of public nuisance.• CA ex rel. Lockyer v. General Motors, Docket No. 06-CV-05755 (N.D. Cal. y , (Sept. 20, 2006). State government sought damages against automobile manufacturers under theories of public nuisance.• Comer v. Nationwide Mutual Ins., Docket No. 1:05-CV-00436 (S.D. Miss. Sept. 30, 2006). Private parties sought certification for class action for damagesSept. 30, 2006). Private parties sought certification for class action for damages against oil and chemical company defendants under theories of public and private nuisance, unjust enrichment, negligence, conspiracy, fraudulent concealment, and trespass.• Native Village of Kivalina v Exxon Mobil Docket No 08-CV-1138 (N D Cal• Native Village of Kivalina v. Exxon Mobil, Docket No. 08-CV-1138 (N.D. Cal. Feb 26, 2008). Native tribe and municipal government sought injunctive relief and damages against energy companies and utilities under theories of private and public nuisance and conspiracy.• Our Children’s Trust Lawsuits Filed in numerous States and Federal Court

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• Our Children s Trust Lawsuits. Filed in numerous States and Federal Court in May 2011, seeking injunctive relief to limit GHG emissions.

Climate Climate Change: If Change: If it Walks Like a Duck …it Walks Like a Duck …Property Damage/Trigger?Property Damage/Trigger?

Do These Allegations Sound Like Property DamageDo These Allegations Sound Like Property Damage Claims?

Connecticut v AEP:Connecticut v. AEP:“With regard to future injuries, the complaint categorizes in detail a range of injuries the States expect will befall them within a span of ten to 100 years if global warming is not abated Amongspan of ten to 100 years if global warming is not abated. Among the injuries they predict are: … significant beach erosion; accelerated sea level rise and the subsequent inundation of coastal land and damage to coastal infrastructure;coastal land and damage to coastal infrastructure; salinization of marshes and water supplies; lowered Great Lakes water levels, and impaired shipping, recreational use . .

resulting in property damage; increased wildfires and the

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. resulting in property damage; increased wildfires . . . and the widespread disruption of ecosystems....”

AEPAEP CourtCourt: : Effects Effects on on EcosystemsEcosystemsIs This Property Damage?Is This Property Damage?Is This Property Damage?Is This Property Damage?

“Consequent dangers of greenhouse gas emissions EPAConsequent dangers of greenhouse gas emissions, EPA determined, included increases in heat-related deaths; coastal inundation and erosion caused by melting icecaps

d i i l l f t d i t h iand rising sea levels; more frequent and intense hurricanes, floods, and other “extreme weather events” cause death and destroy infrastructure; drought due to reductions in mountain snow pack and shifting precipitation patterns; destruction of ecosystems supporting animals and plants; and potentially “significant disruptions” of food production ”and potentially significant disruptions of food production.

AEP v. CT, 131 S.Ct. 2527, 2533,180 L.Ed.2d 435 (2011).

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AES Corp. v. Steadfast Ins. CoAES Corp. v. Steadfast Ins. Co.*.*Climate Change: Issues to ConsiderClimate Change: Issues to ConsiderClimate Change: Issues to ConsiderClimate Change: Issues to Consider

• Is There an Occurrence?• Number of Occurrences?• Are Damages Expected or Intended?• Pollution or not Pollution?

Ch i f L• Choice of Law

* 715 S.E.2d 28, 282 Va. 252 (Sept. 16, 2011 Va). 715 S.E.2d 28, 282 Va. 252 (Sept. 16, 2011 Va).

21

QuestionsQuestions?

Pl t t ti ith dditi lPlease contact me anytime with additional questions:

Ira Gottlieb(973) 639-7984

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[email protected]

Environmental Insurance Coverage: Latest DevelopmentsLatest Developments

Identifying Coverage in Existing PoliciesIdentifying Coverage in Existing Policies

Strafford PublicationsStrafford Publications

December 8 2011Presenter:

Robert M. Horkovich, Esq.

December 8, 2011

Anderson Kill & Olick, P.C.(212) 278-1322

[email protected]

Robert M. HorkovichJoshua GoldJoshua Gold

Alex Hardiman

D&O INSURANCE COVERAGEFor Environmental LiabilitiesFor Environmental Liabilities

24 979384_1.PPT©2010 Anderson Kill & Olick, P.C.

All Rights Reserved.


Alex Hardiman

Cases Applying D&O InsuranceCases Applying D&O InsuranceTo Environmental Liabilities

Sealed Air (NJ Super. Ct. 2008)• D&O Coverage not barred as allegations against the

company were based in securities fraud and i t ti t ll timisrepresentation, not pollution.

Boliden Ltd. (Ont. 2007)Cl i f i t ti t ti d f t d• Claims for misrepresentation, construction defects, and other omissions arising from pollution are covered, but claims from discharge of pollution are not.




Alex Hardiman

Cases Refusing to ApplyD&O Coverage to Pollution

US Liquids (5th Cir. 2004)• Pollution exclusion applied to securities and derivative

litigation claims over waste disposal practiceslitigation claims over waste disposal practices.

High Voltage (1st Cir. 1992)• Pollution exclusion barred coverage of Massachusetts• Pollution exclusion barred coverage of Massachusetts

unfair deceptive trade statute allegations.




Alex Hardiman

Cases Refusing to ApplyD&O Coverage to Pollution

Duplan (SDNY 1995)• Pollution exclusion barred coverage for claim of breach of

fiduciary dutiesfiduciary duties.

Davis (Ohio Ct. App. 2004)• Corporate restructuring claims barred as based in pollution• Corporate restructuring claims barred as based in pollution

liability.



Robert M. HorkovichFinley T. Harckham

First Party Property CoverageFirst Party Property CoverageFor Environmental Liabilities




E lExamples• Fire results in a spill or fire hose spray

run-off contamination of a pond on the policyholder’s property or an adjoining river necessitating remediationriver necessitating remediation.

• Wind storm or tornado spreads chemicals necessitating remediationchemicals necessitating remediation.




Ch k P li P i iCheck Policy Provisions• Many first party property policies have

express environmental contamination coverage subject to a sub-limit.

• Floods usually are excluded, but check for express flood coverage subject to a sub-limitsub-limit.



Robert M. HorkovichJohn G. Nevius

Insurance Coverage for RCRAInsurance Coverage for RCRA

Corrective Action CostsCorrective Action Costs




B k dBackground• RCRA: Resource Conservation and

R A tRecovery Act.• Enacted in 1980 to regulate hazardous

waste “from cradle to grave”waste from cradle to grave .• Amended in 1984 to add “Corrective

Action” provision for conducting cleanup p g pof contamination.




RCRA d CERCLARCRA and CERCLARCRA Corrective Action “wasRCRA Corrective Action was designed to be the analogue to the CERCLA program’s National Oil p gand Hazardous Substances Pollution Contingency Plan”.




“th t it ill b dd d t“that many more sites will be added tothe future burdens of the [CERCLA] Superfund program with little prospect for control or cleanup The responsibilityfor control or cleanup. The responsibility to control [hazardous constituent] releaselies with the [RCRA] facility owner and operator and should not be shifted to the pSuperfund program, . . . “

HR Rep No 198 98th Cong 1st Sess part 1 61HR Rep No 198, 98 Cong, 1 Sess, part 1, 61 (1983).




• RCRA requires Corrective Action for anyRCRA requires Corrective Action for any continuing environmental property damage.

• RCRA requires the EPA to incorporate Corrective Action into a RCRA facility’s operating permitAction into a RCRA facility s operating permit (“Part B”).

• A RCRA Part B permit is required if the company h t t t t f ilithas a waste treatment facility.

• Failure to comply with a Part B permit can result in fines of $25,000 per day and permit revocation , p y pcausing a shut down of operations.




Courts Holding That ClearingCosts Incurred Pursuant

to RCRA Corrective Actionare “Damages”are Damages

Lindsay Manufacturing (8th Cir. 1997)Eighth Circuit predicted NebraskaEighth Circuit predicted Nebraska Supreme Court would interpret “damages” to encompass RCRA Corrective Action.

Brown Group Inc (Mo Ct App 1997)Brown Group, Inc. (Mo. Ct. App. 1997)RCRA imposed response costs andremediation costs are “damages”.




A Y McDonald (Iowa 1991)A.Y. McDonald (Iowa 1991)EPA complaint alleging RCRA violationsand subsequent administrative proceedings

l i ti i t d tit t dculminating in a consent order constituted a“suit” triggering a duty to defend, but a civilpenalty for failure to comply with RCRAnotification permit and ground waternotification, permit and ground watermonitoring regulations was not “damages” even though CERCLA response costs were “damages”.da ages




Texas Eastern (E D Pa ’92) affdTexas Eastern (E.D. Pa ’92) affd.(3d Cir. ’93)

Policyholder’s cost of complying with a demand or injunction to remediate propertydamage is the same whether under CERCLAdamage is the same whether under CERCLAor RCRA and therefore is recoverable as “damages”.



Environmental Insurance Coverage:Latest Developments

Scott M. SeamanMeckler Bulger Tilson Marick & Pearson LLPMeckler Bulger Tilson Marick & Pearson LLP

[email protected]

The information contained in this presentation is provided for informational purposes only and is not intended and shall not be deemed to constitute legal advice. The views expressed herein do not necessarily reflect the views of Meckler Bulger Tilson Marick & Pearson LLP or any of its clients.

39

or any of its clients.

Scott M. Seaman is a partner at Meckler Bulger Tilson Marick &Pearson LLP and Chairman of the firm’s Insurance CoverageLitigation & Counseling Practice Group. He concentrates hispractice in complex commercial law and litigation, includinginsurance and reinsurance matters. He has successfully representedcompanies in trial courts appellate courts and arbitrations acrosscompanies in trial courts, appellate courts, and arbitrations acrossthe country in a variety of high stakes matters, including cases andcessions involving general liability coverage (primary, umbrella,

and excess), professional liability coverage, first-party property coverage, bad faithand extra-contractual matters, fee disputes, and facultative and treaty reinsurancecontracts.

S tt i li t d i B t L i A i L di L Illi i S LScott is listed in Best Lawyers in America, Leading Lawyers, Illinois Super Lawyers,and is rated AV Preeminent 5.0/5.0 by Martindale & Hubbell. According toChambers USA (2011), “Scott Seaman is an eminent coverage lawyer with extensiveexperience in insurance and reinsurance, and besides practicing he writes prolificallyp p g p yon both topics.” His treatise Allocation of Losses in Complex Insurance Claims (2dEd. Thomson Reuters 2010) addresses many of the important issues involved incontemporary insurance and reinsurance disputes.

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Y2K OR ASBESTOS

• Global Warming Already Has Had A Profound Impact On Insurers And Policyholders.p y

• First-Party Claims – Hurricanes $$$. • Global Warming Has Had A Huge Impact Insofar g g p

As It Has Contributed To The Frequency/Severity Of Casualties/Natural Disasters.

• Underwriting Practices, Insurance Products, Risk Management Services, Loss Control.

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REG. ACTIONS/MASS v. EPAREG. ACTIONS/MASS v. EPA• Actions Against Governmental Regulatory Authorities g g y

Seeking To Compel Their Adoption Of Environmental Regulations That Would Require Corporate Entities To Reduce Their Emissions Of Greenhouse Gases. Mass. v. EPA, Is A Leading Case In This Category.

• Actions By EPA/Others Against Companies Seeking To Regulate Greenhouse Gas Emissions.Regulate Greenhouse Gas Emissions.

• Fundamentally, Regulatory Compliance Costs Are Not Covered Under GL Policies As They Are Not Damages Because Of BI/PB Caused By An OccurrenceBecause Of BI/PB Caused By An Occurrence.

4242

CINERGYCINERGY• In Cinergy Corp. v. Associated Elec. & Gas Ins. Services, Ltd., 865

N E 2d 571 (I d 2007) Th I di S C t C id d ThiN.E.2d 571 (Ind. 2007), The Indiana Supreme Court Considered This Precise Issue. In Cinergy, Several Insurers Filed A Declaratory Judgment Action Against Cinergy Seeking To Determine The Extent Of Coverage Obligations For An Underlying Lawsuit Brought By The United States And Se eral Inter ening Parties Asserting Claims ForUnited States And Several Intervening Parties Asserting Claims For Injunctive Relief To Force Cinergy To Comply With The CAA By Installing Pollution Control Equipment To Reduce Future Emissions Of Pollutants And Seeking The Imposition Of Fines And Penalties For Cinergy’s Failure To Comply With The CAA Id At 572 Cinergy FiledCinergy s Failure To Comply With The CAA. Id. At 572. Cinergy Filed A Motion For Summary Judgment Against One Of Its Primary Insurers, AEGIS, Seeking Payment Of Past Defense Costs, Pre-judgment Interest, And An Order Directing AEGIS To Pay Future Defense Costs As Incurred The Trial Court Denied The Motion And The MatterIncurred. The Trial Court Denied The Motion And The Matter Ultimately Was Decided By The Indiana Supreme Court.

4343

CINERGYCINERGY• In Affirming, The Indiana Supreme Court Noted The Insurance Policy

Provided Coverage For Damages “Because Of Bodily Injury Or Property D ‘C d B A OCCURRENCE ’” Id At 582 Th C tDamage ‘Caused By An OCCURRENCE.’” Id. At 582. The Court Explained:

The Clear And Unmistakable Import Of The Phrase Caused By Is That The Accident, Event Or Exposure To Conditions Must Have Preceded The D Cl i d H Th C t Of I t lli E i i E i t B tDamages Claimed – Here The Costs Of Installing Emissions Equipment. But What The Power Companies Here Claim To Be Covered, The Installation Costs For Equipment To Prevent Future Emissions, Is Not Caused By The Happening Of An Accident, Event, Or Exposure To Conditions But Rather Result From The Prevention Of Such An Occurrence. We Cannot Read TheResult From The Prevention Of Such An Occurrence. We Cannot Read The Policy Requirement That Covered Damages Result From The Happening Of An Occurrence To Mean That Coverage Extends To Damages That Result From The Prevention Of An Occurrence. . . . [W]e Discern No Ambiguity Here That Would Permit The Occurrence [ ] g yRequirement Reasonably To Be Understood To Allow Coverage For Damages In The Form Of Installation Costs For Government Mandated Equipment Intended To Reduce Future Emissions Of Pollutants And To Prevent Future Environmental Harm.Id 581

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Id. at 581.

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CINERGYCINERGY• Cinergy Claimed That Plaintiffs Also Sought Damages To Clean-Up Past

Harm Caused By Cinergy’s Prior Emissions. The Court Rejected This y gy jArgument:

Notwithstanding The Federal Lawsuit’s Various References To Seeking Relief That Would ‘Remedy’ Past Violations And Harm To Public Health, The Power Companies Acknowledge That The Injunctive Remedy Sought p g j y gBy The Federal Lawsuit Is To Force Cinergy To Install Equipment To Contain Any Future Excess Emissions And Allow The Environment To Recover. . . . The Federal Lawsuit Is Directed At Preventing Future Public Harm, Not At Obtaining Control, Mitigation, Or Compensation For Past Or Existing Environmentally Hazardous Emissions Id at 582 See alsoExisting Environmentally Hazardous Emissions. Id. at 582. See alsoCinergy v. St. Paul Surplus Lines Ins. Co., 873 N.E.2d 105 (Ind. Ct. App. 2007) (Affirming Separate Summary Judgment Grant To Other Insurers Ruling That There Was No Actual Or Potential Occurrence Based Upon The Indiana Supreme Court Decision); Newman Manufacturing Inc. v. p ) gTranscontinental Ins. Co., 871 N.E.2d 396 (Ind. Ct. App. 2007).

4545

NON-COVERED COSTSNON COVERED COSTS

• Similarly Several Cases Have RecognizedSimilarly, Several Cases Have Recognized That Costs Of Doing Business, Maintenance, Facility Improvements Civil PenaltiesFacility Improvements, Civil Penalties, Economic Loss, And Regulatory Compliance Costs Generally Are Not Covered UnderCosts Generally Are Not Covered Under Third-Party Liability Contracts.

4646

CLAIMANTS SEEKING TO REACHMORE AND DEEPER POCKETSMORE AND DEEPER POCKETS

H S f l Will Pl i iff B I U i Gl b l• How Successful Will Plaintiffs Be In Using Global Warming As A Tool/Theory To Hold Entities Responsible For: p– Casualties/Natural Disasters; – Property Damage, Bodily Injury, Personal

I j F E t bli h d A d N C/AInjury For Established And New C/A. • This Potentially Impacts First-Party, General

Liability, And Professional Liability PolicyholdersLiability, And Professional Liability Policyholders And Their Insurers.

• Examples Of GL, First Party, D&O/Professional

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Liability Claims.

EMERGING THEORIES/TORT /ACTIONS FOR DAMAGES

• Legal Theories: – NuisanceNuisance– Negligence

Strict/Products Liability– Strict/Products Liability – Conspiracy

Fraud– Fraud – Intentional Misconduct

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CLAIMANTS FACE MANY HURDLES TO RECOVER AGAINST

COMPANIES CO S• Procedural/Justiciability Defenses (Political Question;

Justiciability; Standing) (e.g., American Electric Power v. J y; g) ( g ,Conn.)

• Preemption.• Requiring Plaintiffs To Meet Their Burden Of Establishing• Requiring Plaintiffs To Meet Their Burden Of Establishing

Requisite Elements Of C/A (e.g,. Arguing/Establishing No Duty, No Breach, No Privity, Lack Of Proximate Cause, Inter ening/Super ening Cause Lack Of Forseeabilit )Intervening/Supervening Cause, Lack Of Forseeability).

• Substantive/Affirmative Defenses.• No Such Thing As Global Warming?

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No Such Thing As Global Warming?

GENERAL LIABILITY COVERAGEGENERAL LIABILITY COVERAGE

• Many Global Warming Claims For Which Policyholders y g yMay Seek Coverage Will Resemble And Raise Many Of The Same Issues As Prior “Long-Tail” Coverage Claims Such As Pollution, Asbestos, Or Toxic Tort Claims.

• Global Warming Is Not A Phenomenon That Is Limited In Time, Space, And Place. Instead, Global Warming Developed Over Time And The Allegations Will Likely BeDeveloped Over Time And The Allegations Will Likely Be That It Was Caused, At Least In Part, By Acts Or Omissions Of Policyholders Such As Emitting Or Manufacturing Or Selling Products That Emitted Greenhouse Gases OverSelling Products That Emitted Greenhouse Gases Over Many Decades. Similar To Many Pollution And Toxic Tort Claims, The Acts, Omissions, And Knowledge Of Many Companies Will Be Implicated By Plaintiffs’ Allegations

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Companies Will Be Implicated By Plaintiffs Allegations.

DUTY TO DEFENDDUTY TO DEFEND

• Duty To Defend Verses Duty To Indemnify.y y y• Policyholders’ Success In Underlying Litigation

Serves As Protection Against Indemnity PPayments.

• Primary CGL Policies With Defense Obligations May Be Required In Particular Cases To DefendMay Be Required In Particular Cases To Defend The Policyholder Or To Pay For The Defense Of The Policyholder Where There Is A Potential For Coverage Based Upon The Allegations Of The Underlying Complaint, Depending Upon The Law And Policy Language

51

The Law And Policy Language.

DUTY TO DEFENDDUTY TO DEFEND• Other Issues May Be Presented Such As Whether y

The Insurer May Control The Defense, Whether The Policyholder May Select Defense Counsel And Obtain Reimbursement In A Peppers Or CumisppSituation, And Division Of Responsibilities Among Multiple Insurers With Defense Obligations And The Policyholder.The Policyholder.

• In Many Instances, The Insurer May Have Strong Arguments That There Is No Duty To Defend B Th All ti D N t I li t A P liBecause The Allegations Do Not Implicate A Policy Or An Exclusion (Such As A Pollution Exclusion) Bars Coverage.

52

TRIGGER OF COVERAGETRIGGER OF COVERAGE• Most Occurrence-Based General Liability

Policies Potentially Respond Only ForPolicies Potentially Respond Only For “Injuries” Or “Damages” That Take Place During The Policy Period. u g e o cy e od.

• Most Policyholders/Counsel Believe In Inviting A Lot Of Insurers To Their Coverage g gParties.

• Allege That Lots Of Policies Potentially g yRespond/Potentially Provide Coverage.

53

TRIGGER OF COVERAGETRIGGER OF COVERAGE

• Although Plaintiffs May Allege Conduct GoingAlthough Plaintiffs May Allege Conduct Going Back For Several Decades In Terms Of Greenhouse Gas Emission Or Other Conduct Contributing To Climate Change, That Does Not Mean That Policies Going Back That Far Are Triggered By Claims E I J i di ti Th t H A li dEven In Jurisdictions That Have Applied Continuous Or Multiple Policy Triggers In The Context Of Asbestos Or Environmental ClaimsContext Of Asbestos Or Environmental Claims.

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TRIGGER OF COVERAGETRIGGER OF COVERAGE• Usually Not The Global Warming That Is The

I j O D I lf F Whi h R IInjury Or Damage Itself For Which Recovery Is Sought. Nor Is It The Emissions Themselves. Rather, It Usually Is The Damage Or Injury That y g j yTakes Place Relatively Recently For Which Damage Is Sought.

• Indeed There Typically Would Be Gaps BetweenIndeed, There Typically Would Be Gaps Between The Emissions, The Cumulative Effect Producing Climate Change, The Event (Hurricane), And The Injury Or Damage For Which Recovery Is SoughtInjury Or Damage For Which Recovery Is Sought.

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TRIGGER OF COVERAGETRIGGER OF COVERAGE

• Accordingly, In Many Cases The Trigger PeriodAccordingly, In Many Cases The Trigger Period Properly May Be Limited, For Example, To The Time After The Commencement Of The Damage-Causing Storm Or Portion Of Time Thereof.

• Trigger Of Coverage Is An Area In Which Parties And Courts Must Consider The Particular Global Warming Claim Without Rote Application Of Cases Decided In The Context OfApplication Of Cases Decided In The Context Of Asbestos Or Long-Tail Claims.

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SATISFACTION OF CLAIMS MADE REQUIREMENTS

• Professional Liability Policies And Some General Liability Policies Are Written On A Claims-Made Basis.Cl i M d C t t G ll C Cl i Fi t M d• Claims-Made Contracts Generally Cover Claims First Made During The Policy Period.

• Coverage Only For Claims Based On Acts That Occur Only On Or After A Specified Date (Retroactive Date).

• Some Policies Exclude Coverage If, Before The Retroactive Date, The Policyholder Was Aware Of The Claim, Dispute, , y , p ,Or Event That Could Give Rise In The Future To A Claim.

• Related Claims Language.

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PRIOR SETTLEMENTS AND RELEASES

• Important To Look At Any Prior Settlements And Releases Involving The Insurer And gPolicyholder.

• Policy Releases, General Releases, PolicyPolicy Releases, General Releases, Policy Buybacks, And Many “Environmental” Releases May Be A Bar To Global WarmingReleases May Be A Bar To Global Warming (And NRD) Claims.

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ALLOCATION OF LOSSESALLOCATION OF LOSSES

• To What Extent Will The Allocation PeriodTo What Extent Will The Allocation Period Be Limited By The Trigger Ruling.

• Allocation Methodology (All Sums Or ProAllocation Methodology (All Sums Or Pro Rata (Time-On-The-Risk/Time & Limits/Other).

• Proper Exhaustion.• Multi-Year/Stubs.Multi Year/Stubs.• Number Of Occurrences.• Treatment Of Defense Costs

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Treatment Of Defense Costs.

OCCURRENCE/FORTUITY ISSUESOCCURRENCE/FORTUITY ISSUES• The Policyholder Bears The Burden Of Establishing The

Existence Of An “Occurrence ” The Policyholder MustExistence Of An Occurrence. The Policyholder Must Demonstrate That The Damage Or Injury Resulted From An Occurrence Which Is Defined, For Example, By The 1973 ISO Form As “An Accident Including Continuous OrISO Form As An Accident, Including Continuous Or Repeated Exposure To Conditions Which Results In Bodily Injury Or Property Damage Neither Expected Nor Intended From The Standpoint Of The Insured ”From The Standpoint Of The Insured.

• Damages Or Injuries Expected Or Intended By The Policyholder Do Not Satisfy The “Occurrence” Definition Or Are Other ise E cluded B The Polic And/Or BOr Are Otherwise Excluded By The Policy And/Or By Governing Law.

• In Many Cases, Insurers Will Argue There Is No Coverage.

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OCCURRENCE/FORTUITY ISSUESOCCURRENCE/FORTUITY ISSUES

• In Comer v. Nationwide Ins. Co., 2006 WL 1066645 (S.D. Miss. Feb. 23, 2006), Plaintiffs Attempted To Establish A Causal Chain Between Defendants’ Continuing Greenhouse Gas Emissions And The Creation Of Climatic Conditions Allowing Hurricane Katrina To Develop And Cause Damage. The Pleadings In Comer Alleged That Corporate Defendants, Despite Their “Knowledge Of Warnings” p g gConcerning The Linkage Between Greenhouse Gas Emissions And Climate Change, “Knowingly” And “Intentionally” Continued To Engage In Activities That y g gCaused Such Emissions And/Or Continued To Manufacture Emissions-Generating Products.

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AES CORPORATION v. STEADFAST INS COSTEADFAST INS. CO.

f l f / /• Virginia Court of Appeals Decision of 9/16/11.• Native Village Of Kivalina And City Of Kivalina Sued AES

And Others Claiming Emission Of Greenhouse Gases On P bli A d P i N i Th iPublic And Private Nuisance Theories.

• Steadfast Defended Under ROR And Instituted A DJ.• Trial Court Ruled On SJ That The Underlying Complaint y g p

Did Not Allege An Occurrence Covered By The Policies.• Court Of Appeals Affirmed. • Court Did Not Address The Pollution Exclusion Or Trigger gg

Issues.

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NO OCCURRENCE • Applying The “Eight Corners” Rule, We Must Consider The Terms Of The Relevantpp y g g ,

Insurance Policies And The Allegations In The Complaint. Unlike The Policy At Issue InParker, The Instant Policies Do Not Provide Coverage Or A Defense For All Suits AgainstThe Insured Alleging Damages Not Caused Intentionally. Likewise, The Policies In ThisCase Do Not Provide Coverage For All Damage Resulting From AES’s Negligent Acts. TheRelevant Policies Only Require Steadfast To Defend AES Against Claims For Damages Fory q g gBodily Injury Or Property Damage Caused By An Occurrence Or Accident.

• In The Complaint, Kivalina Plainly Alleges That AES Intentionally Released CarbonDioxide Into The Atmosphere As A Regular Part Of Its Energy-producing Activities.Kivalina Also Alleges That There Is A Clear Scientific Consensus That The Natural AndProbably Consequence Of Such Emissions Is Global Warming And Damages Such AsProbably Consequence Of Such Emissions Is Global Warming And Damages Such AsKivalina Suffered. Whether Or Not AES’s Intentional Act Constitutes Negligence, TheNatural And Probable Consequence Of That Intentional Act Is Not An Accident UnderVirginia Law.

• Kivalina Alleges That AES Knew Or Should Have Known The Damage That Its ActivitiesWould Cause That AES Was Negligent If It Did Not Know And That AES Was NegligentWould Cause, That AES Was Negligent If It Did Not Know, And That AES Was NegligentIn Acting In Concert With Other Defendants In Creating A Nuisance.

• However, Allegations Of Negligence Are Not Synonymous With Allegations Of AnAccident, And, In This Instance, The Allegations Of Negligence Do Not Support A ClaimOf An Accident. Even If AES Were Negligent And Did Not Intend To Cause The DamageTh t O d Th G Of Ki li ’ N i Cl i I Th t Th D ItThat Occurred, The Gravamen Of Kivalina’s Nuisance Claim Is That The Damages ItSustained Were The Natural And Probably Consequences Of AES’s Intentional Emissions.

• Kivalina Asserts That The Deleterious Results Of Emitting Carbon Dioxide AndGreenhouse Gases Is Something That AES Knew Or Should Have Known About. InherentIn Such An Allegation Is The Assertion That The Results Were A Consequence Of AES’s

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g qIntentional Actions That A Reasonable Person Would Anticipate. When The InsuredKnows Or Should Have Known Of The Consequences Of His Actions, There Is NoOccurrence And Therefore No Coverage.

POLLUTION EXCLUSIONSPOLLUTION EXCLUSIONS

• Insurers Will Generally Maintain ThatInsurers Will Generally Maintain That Global Warming Claims Are Barred By Pollution ExclusionsPollution Exclusions.

• Not All Policies Have Pollution Exclusions And Policyholders Will Challenge TheAnd Policyholders Will Challenge The Application Of Exclusions.S dd A d A id l Ab l T l• Sudden And Accidental, Absolute, Total, And Other Exclusions.

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ARE GHGs POLLUTANTS?ARE GHGs POLLUTANTS?• US Supreme Court Held That GHGs/Carbon Dioxide A

Pollutant For Purposes Of The Clean Air Act (Mass vPollutant For Purposes Of The Clean Air Act. (Mass. v. EPA).

• For Years, Even Policyholders Have Argued That PEs Are Intended To Exclude Traditional Environmental PollutionIntended To Exclude Traditional Environmental Pollution. This Appears To Be Traditional Environmental Pollution.

• Now Policyholders Will Attempt To Divorce Themselves From That Tie To Underlying EPA Regulation And ArgueFrom That Tie To Underlying EPA Regulation And Argue That The Case Dealt With Broad Agency Authority To Regulate.

• Policyholders Will Point Out That Sup Ct Was AddressingPolicyholders Will Point Out That Sup. Ct. Was Addressing An Issue Of Federal Law And Authority To Regulate And Not State Insurance Contract Law.

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GHGs ARE POLLUTANTSGHGs ARE POLLUTANTS

• Look At The Express Language Of TheLook At The Express Language Of The Contract.

• GHGs Falls Squarely Within The Definition• GHGs Falls Squarely Within The Definition Of “Pollutant.”Th A “Li id O G ”• They Are “Liquids Or Gasses.”

• They Are “Other Irritants, Contaminants Or Pollutants.”

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S&A POLLUTION EXCLUSIONS&A POLLUTION EXCLUSION

• Policyholders Could Avoid Exclusion If ThePolicyholders Could Avoid Exclusion If The Emissions Were “Sudden And Accidental.”

• Many Courts Have Held Exclusion Clear And Bars yCoverage For Gradual Pollution.

• Others Have Held Coverage Barred Only Where g yDischarge Was Unexpected And Unintended. In Some Instances Policyholder May Be Able To D l O A id S J d B i E dDelay Or Avoid Summary Judgment Being Entered Against It.

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IS MOLD A POLLUTANT FOR POLLUTION EXCLUSION

PURPOSES?• YES

See, e.g., American Western Home Ins. Co. v. Utopia Acquisition,No 08 0419 CV ODS 2009 WL 792483 (W D Mo Mar 24 2009)No. 08-0419-CV-ODS, 2009 WL 792483 (W.D. Mo. Mar. 24, 2009).

• NOSee, e.g., Johnson v. Clarendon Ins. Co., 2009 WL 252619 (Cal. Ct.App. 2009); Stillman v. Travelers Ins. Co., No. 1949-CV (S.D. Fla. June18, 1993).

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MOLD EXCLUSIONSMOLD EXCLUSIONS

FUNGUS (INCLUDING MOLD) EXCLUSION ENDORSEMENT

DEFINITIONS

2) Any Remediation Of Fungus,Including The Cost To:

A. Remove The Fungus From TheCovered Property Or To Repair,Restore Or Replace That Property;

The Following Definition Is Added:“Fungus” Means Any Type Of Form OfFungus, Including Mold, Mildew, Mycotoxins,Spores, Scents Or Byproducts Produced OrR l d B F i

Restore Or Replace That Property;Or

B. Tear Out Or Replace Any Part OfThe Building Or Other Property AsNeeded To Gain Access To The

Released By Fungi.

* * *

g. Fungus. We Also Do Not Cover:

Fungus;

3) The Cost Of Any Testing OrMonitoring Of Air Or Property ToC fi Th T Ab P O

1) Any Loss Of Use Or Delay InRebuilding, Repairing Or ReplacingCovered Property, Including AnyAssociated Cost Or Expense, Due To

Confirm The Type, Absence, Presence OrLevel Of Fungus, Whether PerformedPrior To, During Or After Removal,Repair, Restoration Or Replacement OfCovered Property.

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Interference At The Residence Premises OrLocation Of The Rebuilding, Repair OrReplacement, By Fungus; FE-5398

MOLD EXCLUSIONS• We Never, Under Any Circumstances, Cover Rust, Mold, Fungus,

MOLD EXCLUSIONSWe e e , U de y C cu sta ces, Co e ust, o d, u gus,Or Wet Or Dry Rot, Even If Resulting From [The Exceptions]Above. * * * Whenever Rust, Mold, Fungus, Or Wet Or Dry RotOccurs, The Rust, Mold, Fungus, Wet Or Dry Rot And AnyResulting Loss Is Always Excluded Under This Policy, HoweverCaused.

-- De Bruyn v. Superior Court, 158 Cal. App. 4th 1213 (2008).

• We Do Not Cover Loss To The Property * * * Resulting DirectlyOr Indirectly From Or Caused By One Or More Of TheFollowing Such Loss Is Excluded Regardless Of Any OtherFollowing. Such Loss Is Excluded Regardless Of Any OtherCause Or Event Contributing Concurrently Or In Any SequenceTo The Loss.

-- DeVore v Am Fam Mut Ins Co 891 N E 2d 505 (Ill App

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DeVore v. Am. Fam. Mut. Ins. Co., 891 N.E.2d 505 (Ill. App. 2008).

OWNED PROPERTY EXCLUSIONOWNED PROPERTY EXCLUSION

• On Site/Off SiteOn Site/Off Site.• Groundwater/Soil.

Wh O Th G d– Who Owns The Groundwater.– Who Cares.

• Threat/Immediate Harm To Third Parties.• Many Cases Involve Apportionment.y pp

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NATURAL RESOURCE DAMAGESNATURAL RESOURCE DAMAGES

• What “Damages” Are Within The CoverageWhat Damages Are Within The Coverage Of The Policy?

• Have The Claims Been Released?• Have The Claims Been Released?• How Many (If Any) Occurrences Are

I l d?Involved?

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DAMAGESDAMAGES

• Trends And Approaches Regarding DamagesTrends And Approaches Regarding Damages Sought In Environmental Coverage Actions.

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environmental insurance coverage: latest developments

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