In Aloha Petroleum Ltd. v. National Union Fire Insurance Company of Pittsburgh (Aloha),> the Supreme Court of Hawai'i held that, while the climate change litigation satisfied the "occurrence" requirement, greenhouse gases (GHG) are "pollutants" under a commercial general liability (CGL) policy, and the pollution exclusion precluded coverage.
Background
The city and county of Honolulu and the county of Maui (the Counties) filed lawsuits against major oil and gas companies, alleging the fossil fuel industry did not warn of the risk of climate change. The Counties allege the companies knew about these risks beginning in the 1960s but concealed their knowledge and increased production of fossil fuels, which led to climate change.
One of the defendant companies, Aloha Petroleum Ltd. (Aloha), had CGL insurance with National Union Fire Insurance Company of Pittsburgh, PA and others (National). The insurers issued consecutive CGL policies to Aloha beginning in 1978 and ending in 2010.
Aloha tendered defense and indemnity for the litigation and filed a declaratory judgment in Hawai'i federal court. There, National argued that climate change was the foreseeable result of intentional emission of GHGs and could not be an "accident." National also argued coverage was excluded under the pollution exclusion because GHGs are "pollutants."
Certified Questions
The United States District Court for the District of Hawai'i certified two questions to the Supreme Court of Hawai'i in Aloha.2 The District Court asked whether an "accident" includes an insured's reckless conduct, to which the Hawai'i Supreme Court answered "yes." The second question certified was whether GHGs are "pollutants" under the policies. The court also answered this affirmatively, but not before a lengthy analysis of the history and treatment of pollution exclusions.
Recklessness as an Accident
The relevant policies have different definitions for the term "occurrence."3 However, the court used the following post-1986 definition: "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." The policies do not define the term "accident."
The court found that under the facts of this litigation, recklessness constitutes an "occurrence" because it "honors the principle of fortuity."4 Hawai'i courts define "accident" as "not intended or practically certain from the insured's standpoint." The court distinguished risks from intentional or planned losses and noted that "[f]or the purposes of insurance, recklessness is more like negligence than intent." Therefore, in this context, the court ruled that Aloha's alleged reckless conduct constitutes an "occurrence."
The court also noted that a recent Virginia case, AES Corp. v. Steadfast Insurance Company, had a different outcome.5 In AES Corp., the Virginia Supreme Court found that climate change was not an accident because it "was the 'natural or probable consequence' of [the] emissions." Virginia courts define "accident" as "unexpected from the viewpoint of the insured." The Hawai'i Supreme Court attributes the differing outcomes to the states' different interpretations of the word "accident."
Treatment of Pollution Exclusions
Until now, Hawai'i had not adopted an interpretation of pollution exclusions in CGL policies. There is a split in states' treatment of pollution exclusions.6 Many states have adopted a "literal reading" approach to pollution exclusions. This approach is broader and applies the pollution exclusion's terms literally because those terms are clear and unambiguous. Specifically, this approach "maintains that the clause applies equally to negligence involving toxic substances and traditional environmental pollution, and that the clause is as unambiguous in excluding the former as the latter."7
The second main approach is a "traditional environmental pollution" application.8 Courts who take this approach either interpret the pollution exclusion to be ambiguous or find the exclusion contradicts an insured's reasonable expectations. Notably, the contradiction of an insured's reasonable expectation is often traced to the initial, historical development of the pollution exclusion which was arguably limited only to instances in which the environment itself was harmed. The "traditional environmental pollution" approach limits the application of the exclusion to "contaminants" that cause damage due to their presence in the environment.
In adopting a "traditional environmental pollution" application, the Hawai'i Supreme Court noted the exclusion was not ambiguous in the policy because under both a traditional and plain language reading of the pollution exclusion, GHGs that cause climate change are considered "pollution." The court "believe[s] the 'traditional environmental pollution' reading is the superior approach" and holds that "what makes a substance a 'contaminant' — and thus a 'pollutant' — is whether it causes damage due to its presence in the environment."
According to the court, "[b]y plain language, GHGs are 'gaseous,' 'contaminants' that are 'released' causing 'property damage.'" The court also provided three key features of the "traditional environmental" approach: "(1) the release of a damaging substance, (2) into the environment, (3) that causes harm because of its presence in the environment."9
Conclusion
In Aloha, the Hawai'i Supreme Court expressed its view that even under a "traditional" environmental pollution approach, GHGs constitute a "pollutant" as defined in modern CGL policies.10 Further, while Aloha concludes the "occurrence" requirement is met, the court emphasizes the importance of state law defining "occurrence" and expressly attributes its differing conclusion from a prior Virginia decision on that basis.11
Climate change litigation is not limited to particular companies or industries and may also target municipalities, counties, or entire countries. Investors, stakeholders, and regulators require increasing disclosure of these risks. In a changing and uncertain political landscape, monitoring these risks becomes even more important.
Insurance coverage for climate change litigation will likely continue to turn on state-specific insurance laws, including the "occurrence" definition, the "pollutant" definition, and the approach (if any) adopted for interpreting pollution exclusions. In the meantime, carriers may consider adding policy language expressly addressing climate change litigation.
Footnotes
1 2024 WL 4431797 (Oct. 7, 2024).
2 Aloha Petroleum, Ltd. v. Nat'l Union Fire Ins. Co. of Pittsburgh et al., 690 F.Supp.3d 1168 (2023).
3 The court notes that generally policies before 1986 define occurrence 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." Aloha, 2024 WL 4431797, at *7. After 1986, policies changed to "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." Id.
4 Id. at *1.
5 725 S.E.2d 532 (Va. 2012).
6Apana v. TIG Ins. Co., 574 F.3d 679, 682 (9th Cir. 2009).
7 MacKinnon v. Truck Ins. Exch., 73 P.3d 1205, 1209 (2003),&small>dclimate-change-litigation-occurrence-requirement-met-but-pollution-exclusion-applies-to-greenhouse-gases.html#_ftnref8">[8] Apana, 574 F.3d at 682-83.
9 Id.
10 The Hawai'i Supreme Court sent the case back to the District Court to assess coverage under policy years that did not contain relevant pollution exclusions.
11 We note there is a lengthy concurring opinion issued by J. Ginoza on the first issue certified to the Court. Ginoza's concurrence provides a thorough comparison of this case with prior Supreme Court of Hawai'i opinions discussing the definition of "occurrence" in insurance policies.
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