Climate change and greenhouse gas regulation and controls are getting closer every day. The United States House and Senate are moving toward passing comprehensive climate change legislation, the United States Environmental Protection Agency (EPA) is stepping closer to implementing regulatory controls over greenhouse gases from stationary sources, and the courts are entertaining nuisance claims based on greenhouses gases after a Sept. 21, 2009, decision by the Second Circuit Court of Appeals in State of Connecticut, et al. v. American Electric Power Company Inc., et al. Additionally, insurance coverage lawsuits from alleged greenhouse gas and other catastrophic events are beginning to work their way through the courts; see, e.g., Corban vs. United Services Automobile Assn. and Comer v. Murphy Oil Co. (both relating to Hurricane Katrina coverage). As further congressional, regulatory and legal actions are taken, facilities that emit various greenhouse gases (like carbon dioxide) must begin to determine and manage their potential environmental liabilities.
In reviewing these exposures with respect to greenhouse gases, risk managers will need to be included in the corporate planning discussion. The regulated community must consider numerous types of strategies including the appropriate insurance coverage necessary for any potential claims. At issue in reviewing the appropriate coverage is the absolute pollution exclusion contained in most general liability policies for the last decade or more. The pollution exclusion may bar coverage of claims related to carbon dioxide emissions. In a recent Indiana Court of Appeals case, the court upheld a summary judgment ruling for several insurers finding that the insurers had no obligation to defend, indemnify or otherwise provide coverage for energy companies with respect to alleged Clean Air Act violations and penalties, “preventing future emissions and environmental harm is not an occurrence” under the applicable insurance policies. See Cinergy v. Surplus Lines, 32A04-0810-cv-622. Consequently, facilities that emit carbon dioxide may want to consider obtaining pollution legal liability insurance (or similar types of policies) to specifically address greenhouse gases.
Under typical absolute pollution exclusion language, insurers may deny coverage for bodily injury or property damages arising out of the "actual, alleged, or threatened discharge, dispersal, release or escape of pollutants." Policy terms generally define “pollutant” to mean any "solid, liquid, gaseous, or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acid, alkalis, chemicals and waste." In the past, courts reviewing the definition of "pollutant" have found that carbon dioxide, when related to indoor air quality claims, was not a pollutant. See Donaldson v. Urban Land Interests, 564 N.W.2d 728 (Wis. 1997). However, the source of the carbon dioxide in the Donaldson case was humans exhaling while breathing; because the source involved the fundamental activity of human respiration, the court declined to extend the pollution exclusion to the activity.
Nevertheless, courts have applied the pollution exclusion to instances of industrial activity discharges and by-products that are traditionally thought of as environmental contamination. In one case involving carbon monoxide, the insurer argued that carbon monoxide is defined as a gas that is regulated as a pollutant under state and federal law, including the Clean Air Act. In agreeing with the insurer’s argument, the court held that the pollution exclusion barred the coverage of a claim related to the accidental release of carbon monoxide from a power saw.
Carbon monoxide is not a greenhouse gas, however. Consequently, arguments may still be viable that carbon dioxide and related greenhouse gases are not pollutants. Courts in Indiana have held that pollution exclusion language that does not clearly deny coverage for a specific pollutant may be ambiguous. See e.g. American States Insur. Co. v. Ind. Dept. of Environ’l Managem’t, 662 N.E.2d 945 (1996). In that regard, as the regulations, case law, and federal legislation develop, the more likely it is insurers will change policies in order to specifically exclude greenhouse gases as part of the pollution exclusion.
Given all of the recent changes and developments with respect to greenhouse gases, regulation of greenhouse gases is an unsettled area of law with new developments occurring every day. The attorneys in our Environmental Law Practice and Insurance Recovery & Counseling Practice can assist policyholders to analyze strategies for addressing these issues.