An Introduction to Environmental
and Toxic Torts and Insurance
An Introduction to Tort Law
University of Insubria, Como, Italy
Jeffrey W. Stempel and Ann C. McGinley
William S. Boyd School of Law
University of Nevada, Las Vegas
Insurance in the USA
General Operations; Role in
Environmental Claims; Possible Climate
Change Solution
Lawsuits and Chemicals
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Historically the Tort of Nuisance
Smokestacks blowing over neighborhoods
Loud noises from construction
Encroachment on property boundaries
But little knowledge of non-immediate harms
Mining Injuries an exception of sorts but with
little compensation
• Hawk Mountain Silica Claims
What is Insurance?
• A Transfer of Risk
– But every Contract does that – at least to some extent
• A pooling of risks by the Insurer that received
premium payments from the members of the
pool
• Policyholder incurs a certain, relatively small loss
(premium payment) in return for protection
against a contingent but potentially much larger
(or even catastrophic) loss
Insurance Regulation
• Regulation Largely by States (rather than the
national government)
• Major concern of regulators is solvency – making
sure the insurance company has enough funds to
pay claims after a catastrophe or mass tort
• Also some regulation of:
– rates
– minimally acceptable contract terms
– forbidden contract terms
Types of Insurance
• Two General Divisions
– Life/Health
– Property/Casualty
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Within Property/Casualty: Several Types
Automobile
Homeowners
Business property
More on Types of Insurance
• General Liability: protects against “typical” tort
claims against a business
• Both “Operations” Liability
– Claims arising out of the regular activity of the
business
• And “Completed Operations” Liability
– Claims arising out of the finished work of the business
• And “Products” Liability
– Claims arising from injury caused by products made or
sold by the business
More on Types of Insurance
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Specialized Liability
Directors & Officers Liability
Professional Liability
Errors & Omissions
Employment Practices Liability
Employers’ Liability/Workers Compensation
Insurance Industry Interest in Climate
Change
• Property Insurers – provide “first-party”
coverage (between the policyholder and the
insurer) that covers damage to the insured
property
• Floods, Hurricanes, Tornados, Ice Storms – all
are major sources of insured loss
• Insurance companies would rather pay for
fewer losses – this makes them relatively
progressive about climate change issues
Insurance Industry Interest in Climate
Change (con’t)
• Property insurers also vulnerable to sudden
outbreak of widespread or multiple natural
disasters
– Forces the insurers to unexpectedly pay a lot of
money in a short time
– By contrast, life insurers can predict. Health and
liability insurers can get away with delaying payment.
But a property insurer has to get a roof back on a
house fast after a tornado.
– And after a disaster, construction prices soar due to
shortages and high demand.
Property Insurer Response to Climate
Change
• Higher premiums
• Lower limits, higher deductibles, co-insurance
– Policy limit – the maximum the insurer will pay for a
single loss or for all losses during the policy period
(usually one year)(the “aggregate” limit).
– Deductible: the first portion of the loss (e.g., $1,000)
the policyholder must pay before the insurance
company begins paying
– Co-Insurance: A requirement that the policyholder
pay some percentage of the loss even after the
deductible has been paid
Property Insurer Response to Climate
Change
• Limiting the Insurer’s Risk
• Forcing the Policyholder to share more of the risk
• Diversifying the pool of risk (e.g., balancing the
proportion of beach property and mountain
property insured)
• Refusing to sell policies in particularly
dangerous/difficult regions
• Some restrictions or modifications of the
coverage provided
Property Insurer Response to Climate
Change – Beyond the Policy Itself
• Insurers lobby for more government study,
conduct their own studies
• Insurers lobby for tougher building codes
– homes on stilts at the beach;
– homes more likely to remain standing after a
hurricane;
– better insulation against frozen pipes)
• Insurers lobby for better flood control (dikes,
canals, etc.)
Property Insurer Response to Climate
Change – Beyond the Policy Itself
• Insurers may even lobby for public policy
designed to reduce greenhouse gas emissions
(better fuel economy; more use of solar and
wind energy)
• Or at least Insurers will not be fighting climate
change efforts as are many (most?) other
businesses such as those in the Chamber of
Commerce
The Indirect Way Insurers May Help
Force Better Public Policy
• Scarcity and Shortages
– If insurance is not available for middle class and wealthy
homeowners near the coastline, other water, they will
demand a response from their governments
• Higher Premiums
– If insurance is too expensive, voters will complain and act
– And they will respond in other ways (construction
slowdown, which also creates pressure on politicians
• Increased Knowledge because of insurer studies
• Change in Business Community Views
– Other businesses will see that the anti-reglation Chamber
of Commerce view is not the only “acceptable” position
Liability Insurance
• There is an extensive history of liability
insurance involvement in toxic torts and
environmental claims
• Because climate change lawsuits have not yet
been very successful or have not sought
monetary damages, little liability insurance
presence to date.
• But that could change as the nature of climate
change litigation changes.
Liability Insurance
• Generally provides coverage for “bodily injury” or
“property damage” that the policyholder inflicts
on a plaintiff
• Or even allegedly inflicts. Most general liability
insurance imposes a “duty to defend” claims on
the insurer even if the claims have no merit
(because it still costs money to defend the claims;
the policyholder has paid for this “litigation
insurance” through the premiums.
Liability Insurance
• Liability insurance is “third-party” insurance
involving the policyholder (the first party), the
insurer (the second party) and the plaintiff
filing the lawsuit (the third-party)
• The insurer defends the lawsuit and may pay
to make a settlement or go to trial. If the
plaintiff wins at trial, the insurer pays the
damages judgment (up to the amount of the
policy limits)
The Liability Insurance Duty to Defend
• As part of the duty to defend, the insurer also by
contract has a right to control the disposition of
the lawsuit.
• In other words, the insurer (not the policyholder)
decides whether to settle or keep litigating
• The insurer also gets to control the defense of the
lawsuit
• Including selecting and directing the defense
lawyer (within reason; insurers cannot
micromanage the lawyer but can set guidelines)
Some History of Insurance and Toxic
Tort/Environmental Litigation
• Asbestos
• Industry knows of danger – but does not
disclose
• Small indestructible fibers in lungs doing years
of damage
• Clarence Borel – a victim who took action
• Fred Baron – arguably a “heroic” lawyer
Borel v. Fibreboard
• Discovery unearths industry deception and
manufacturer’s knowledge of danger
• Medical experts establish the injury caused by
asbestos
• Borel wins a jury verdict
• Affirmed by U.S. Court of Appeals (1973)
• Establishes favorable law for plaintiffs
The Asbestos Mass Tort
• After Borel’s success, plaintiffs’ lawyers bring tens
of thousands of claims
– And much of the case is already established by the
record in the Borel case
• The onslaught is too much for many defendants
– All manufacturers eventually file for bankruptcy
– Then come suits against the “secondary” defendants
who used asbestos in products
– And other ancillary suits (e.g., bad face masks)
The Parallel Concerns Over Pollution
• 1970 – “Earth Day”
– Clean Water Act
– Clean Air Act
– U.S. established Environmental Protection Agency
• 1972 – OSHA (Occupational Safety and Health
Administration) established
• 1973 – Asbestos banned from further use
• 1980 – Superfund (a/k/a CERCLA)
(Comprehensive Environmental Response,
Compensation, and Liability Act)
Private and Public Suits Against
Pollution
• Federal (national) government seeks cleanup
of contaminated sites pursuant to Superfund
• State governments enact state versions of
Superfund and pursue similar suits
• Those injured by contamination bring private
civil actions
• Another mass tort (but not as “mass” as
asbestos)
A Quest for Compensation – and a
Source of Funds to Provide It
• Defendants look for insurance coverage but
meet resistance
• Toxic Tort (asbestos, PCBs, etc.) and Pollution
defendants look to their liability insurers
• The large wave of new lawsuits brings a large
wave of insurance coverage lawsuits
• Insurance Co. of North America v. Forty-Eight
Insulations (1978) kicks off an era
The Insurance Coverage Wars
• Policyholders largely win for asbestos cases
and most pollution cases on the big issues
• Trigger of coverage
• Number of Occurrences
• Rejection of key insurer defenses
• Expected or intended injury
The Pollution Exclusion
• None at all under 1955 and 1966 standardized
policies for Comprehensive General Liability
(CGL) insurance
• 1970 – “qualified” pollution exclusion appears
as a common “endorsement” (amendment) to
the 1966 standard form CGL policy
• 1973 – qualified pollution exclusion becomes
part of new 1973 standardized CGL form
The Qualified Pollution Exclusion
• Bars insurance coverage for claims arising out
of release or discharge of a pollutant
• Defines pollutant as “any” chemical or irritant
• But contains an exception if the discharge is
“sudden and accidental” – then there is still
insurance coverage
The Qualified Pollution Exclusion
(continued)
• But does “sudden” mean “fast-abrupt” or
merely unexpected or unintended?
• Courts divide
– Some find coverage for slow but unintended
pollution
– Others require the pollutant to escape fast for
insurance coverage to exist
• Insurers move to tighten/toughen the
Exclusion
The “Absolute” or “Total” Pollution
Exclusion
• Added to the 1986 Standard Form CGL Policy
• Name changed from “Comprehensive”
General Liability Policy to “Commercial”
General Liability Policy
• Contains an complete exclusion of asbestosrelated claims
• And a complete exclusion of Superfund claims
• And a tougher pollution exclusion
The Absolute Pollution Exclusion
• Bars insurance coverage for any claim arising
out of release or discharge of a “pollutant”
• Defines pollutant as “any” chemical or irritant,
including dirt, smoke, etc.
• No exception for sudden, accidental, abrupt,
unintended discharges of a pollutant
The Absolute Pollution Exclusion
• Clearly excludes coverage for traditional
environmental claims
• Insurers have some success applying the
exclusion even to claims not commonly thought
of as “pollution” claims, including
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carbon monoxide poisoning from bad furnace
car crashes when driver blinded by blowing smoke
Indian curry smell from restaurant bothers neighbors
bat guano in cottage
But Pollution Coverage Still Exists – If
Policyholders Are Willing to Pay
• Insurers now sell Environmental Impairment
Liability Insurance or Environmental Claims
Liability Insurance
• Provides coverage where policyholder sued for
Superfund cleanup or contamination of property
of others or injury to others
– relatively low policy limits
– relatively high premium prices
– some significant restrictions
• e.g., pollution discharge must be abrupt and must be
reported in timely fashion
Will Liability Insurers Play a Role in
Climate Change Litigation?
• Because of the pollution exclusion, some of the
possible lawsuits against greenhouse gas emitters
may be foreclosed.
• But some possible causes of action would seek to
impose liability on greenhouse gas generators
due to their activities prior to the pollution
exclusion
• Under the rules of the Duty to Defend, the
insurer must defend if there is a “potential for
coverage”
Liability Insurers and Climate Change
Litigation
• If Insurers are forced to defend – even if plaintiff’s
chances of success are remote and even if the chance
that the insurer will be required to pay are remote –
this may at least prompt settlement of some claims
and increased political pressure by insurers for
governments to achieve a regulatory solution.
• A possible example: California v. General Motors (and
other automakers)
• Lawsuit alleges excessively emitting engines cause
climate change that resulted in floods, drought, etc.
• A hard case to win – but one with at least a potential
for coverage that would require insurers to defend?
Liability Insurers and Climate Change
Litigation
• The plaintiff chances of winning the lawsuit are
perhaps remote because it will be hard to tie a
particular defendant’s greenhouse gas emissions
to particular climate change causing particular
injury to an individual plaintiff or class of plaintiffs
– For example, the California v. General Motors lawsuit
was dismissed.
• Harder to hold defendants responsible for older
behavior – but newer behavior is covered by
insurance policies with pollution exclusions.
Liability Insurers and Climate Change
Litigation
• Have USA courts missed an opportunity to get
insurers more involved (i.e., with their funds
at risk) in climate change litigation?
• Or have plaintiffs (private and government)
missed the opportunity?
• Or are climate change lawsuits doomed to fail
because of the nature of the problem and the
limitations of civil litigation?
Major Climate Change Litigation
(so far)
• Next class meeting will examine three
prominent USA cases involving climate change
• Massachusetts v. Environmental Protection
Agency
• Connecticut v. American Electric Power
• Village of Kivalina v. ExxonMobil
– As well as some additional litigation developments
in the USA