In this paper, launched to coincide with New York Climate Week 2023, we combine the expertise of WTW's Susan Doering and Michelle Radcliffe (Corporate Risk & Broking and Insurance Consulting & Technology respectively), along with Martin Lockman, Climate Law Fellow at the Sabin Center for Climate Change Law and Associate Research Scholar at Columbia Law School, to focus on the relatively less well documented impact of climate litigation on the insurance market. As regulators, shareholders, and investors increasingly focus on the risk of climate litigation, it is crucial for (re)insurers to understand their potential exposure to climate litigation across different lines of business.
The paper aims to help non-life (re)insurers understand the scope of private sector climate litigation, highlight its potential impact on different policy lines, and present (re)insurers with an overview of coverage considerations, risk assessment measures, and areas for future innovation. We also identify how reinsurers can be proactive in addressing the global climate transition. Many categories of climate litigation arise from companies' failure to plan for and protect against the impacts of global climate change. By building tools, scenarios and systems to identify, assess, and mitigate climate litigation risk, (re)insurers can work with their clients to identify and mitigate risk, resulting in a mutually beneficial outcome for all parties.
We focus on a high-level discussion of risks, mitigants, and opportunities, and do not provide any legal advice. The question of whether any specific cost will be covered under a particular policy will depend on a number of factors, including details of the underlying climate lawsuit, the wording of any relevant policies, and the governing law of the applicable jurisdiction. The high-level frameworks discussed in this paper emphasize one point: while climate litigation is often novel, it is rarely unpredictable. With the requisite knowledge, care, and diligence, (re)insurers can work with their clients to reduce risks across their portfolios and in the real world.
Introduction
Since the United Nations Environment Programme began surveying global climate litigation in 2017, the volume of climate lawsuits worldwide has more than doubled. As of December 31, 2022, the UN reported that excess of 2,180 climate lawsuits had been filed in more than 65 jurisdictions across the world.1 While the majority of climate lawsuits target governments, an increasing number of lawsuits are being brought against private sector companies under a growing variety of legal theories.2 While much of this litigation is in its early stages, significant defense costs are already being incurred by defendant entities.3
This growing litigation risk has caught the attention of insurance regulators around the world. The Bank of England's 2021 climate stress-test found that insurers often struggle to estimate their exposure to climate litigation risk.4 In 2023, Canada's federal insurance regulator emphasized the need for insurers to prepare for "climate-related claims under liability policies," and warned that insurers and their directors and officers may face liability for neglecting climate-related risks.5
What is climate litigation?
To understand the scope of climate litigation risk, we need to first answer a deceptively complicated question: what is climate litigation? The news is dominated by high-profile lawsuits that bring broad, society-changing claims about greenhouse gas (GHG) emissions and seek to assign responsibility for climate change itself or hold fossil fuel companies responsible for the harms associated with their products. These cases are hugely important, but just as important for insurers are the myriad of other disputes driven by climate change: contracts thrown into confusion by unanticipated weather, climate-stressed infrastructure failing with calamitous effect, directors and officers sued by shareholders for ignoring corporate climate risks.
For the purposes of this paper, "climate litigation" refers to disputes that arise from, or are related to:
- a party's contribution to climate change,
- the physical consequences of climate change, or
- laws, regulations, and legal duties related to climate change.6
Within this definition, private sector climate litigation can be sorted into three broad categories:
- mitigation claims,
- adaptation claims, and
- governance and regulatory claims.
Two of these categories match terms used in climate change policy: "mitigation" refers to efforts to slow, halt, or reverse climate change itself, while "adaptation" looks at efforts to adapt to the physical, societal, economic, and legal changes associated with climate change.7Unsurprisingly, these policy goals are identifiable in the associated categories of litigation. "Mitigation claims" can arise either from a defendant's historic GHG emissions or attempt to prevent future GHG emissions. "Adaptation claims," arise from a defendant's failure to plan for or adapt to climate change. "Governance and regulatory claims," arise from a defendant's breach of established legal duties related to climate change. These legal duties can originate from many sources. In some cases, the relevant laws and legal duties might have been explicitly designed with climate change in mind—for instance, an upstream natural gas company that vents methane into the atmosphere might be sued for violating emissions permits in a jurisdiction that regulates GHG emissions. Other governance and regulatory suits might claim that a defendant breached a generally applicable law in a way that raises issues of law or fact related to the science of climate change. For example, "greenwashing" suits alleging that a defendant misrepresented the climate benefits of a product often arise under longstanding consumer protection laws, some of which are now being updated to reflect the intricacies of alleged 'greenwashing' suits.
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