Property and casualty (P&C) insurance headlines these days generally focus on issues relevant to current policies. Although not receiving as much attention, historical accident years have also been experiencing deteriorating trends, both for mature exposures such as asbestos, environmental pollution, and construction defect claims as well as for emerging exposures related to talc, sexual abuse, and opioid litigation.
Understanding the impact of these potential legacy losses is important, not only in the context of establishing an appropriate reserve, but also to form a view of the load for mass torts needed for pricing current policy years. Very often insurance companies segregate these mass tort claims, housing them in discontinued operations, ceding such exposures as part of adverse development covers or simply removing them from actuarial analyses to prevent them from “distorting” the analyses of the “normal” claims.
In this article, Milliman’s Raji Bhagavatula, Mark Goldburd, and Jason Russ discuss a number of these “legacy” topics that affect the general liability books of commercial insurance companies.
In the future will corporations emitting greenhouse gases be held liable for environmental damages induced by climate change? At present, there exists no coverage for damages stemming from climate change.
In a new article entitled “The cost of climate change: Will companies pay in court?,” Jill Rosenblum discusses how the uncertainty surrounding “climate risk liability” is creating an ideal situation for the next mass tort.
Here is an excerpt:
According to the U.S. Environmental Protection Agency (EPA), “Climate change is happening. Our Earth is warming… Small changes in the average temperature of the planet can translate to large and potentially dangerous shifts in climate and weather.” These environmental changes could translate to big costs for the property and casualty insurance industry. Of these estimated costs, property liability is the most obvious business line that would be affected as a result of an increase in frequency or severity of natural disasters. Other casualty lines that may be affected include flood, product, directors and officers (D&O) liability, and environmental, among others.
“Most of the observed warming since the mid-20th century is due to human-caused greenhouse gas emissions,” the EPA concluded. Furthermore, “The majority of greenhouse gases come from burning fossil fuels to produce energy, although deforestation, industrial processes, and some agricultural practices also emit gases into the atmosphere.” If future litigation is able to demonstrate a link between environmental damages and greenhouse gas emissions by large corporations, could environmental damage caused by climate change be the next mass tort?
Currently the biggest case tried on the topic is the 2011 U.S. Supreme Court case of American Electric Power (AEP), which pitted five large-scale private electric power companies emitting greenhouse gases against the City of New York and eight additional states. Dr. Richard H. Murray, special advisor to the Geneva Association, describes the case’s verdict as “unusually opaque, generating a multitude of conflicting interpretations.” While little was decided by the case, Murray explains, “The decision may fairly be described as either approving, or not specifically disapproving, of any of the avenues for climate risk liability that were presented in the case. That is why the U.S. floodgates of liability claims will be open for the foreseeable future.” This is evocative of the tobacco litigation of the mid-1990s. Michael B. Gerrard, director of the Columbia University Law School Center for Climate Change Law, explains, “They lost the first cases; they kept on trying new theories and eventually won big.” So while the AEP case may not have specifically created a path to indemnification, the fact that it didn’t rule out any possible future litigation efforts speaks volumes. The ruling may be an indication that such potential efforts may in fact be successful in the future.