Insurers Fail to Warm Up to Global Warming Liability

Risk managers in the auto industry and beyond breathed a sigh of relief in September when U.S. federal judge Martin Jenkins tossed out a suit by the state of California that sought to hold six large automakers responsible for global warming. But the relief will almost certainly be short-lived. Environmental advocacy groups are working hard to establish the legal grounds for future cases, legislatures in the United States and around the world are forging ahead with new regulations, and companies will face escalating demands for climate-risk disclosures for the foreseeable future.

Companies should be integrating exposure to global warming liability into their risk management programs, according to Rod Taylor, managing director with Aon's environmental services group. But it's doubtful that they can expect much help from their insurance providers in mitigating the risk. Risk managers “ought to be looking at it for a number of reasons — not necessarily because it's going to be excluded from insurance policies, but mainly because it's going to be an important risk issue which there won't be any insurance for in most cases,” says Taylor.

D&O liability is an immediate short-term concern, Taylor reports, and directors and officers need to make sure that their organizations are aware of climate change issues and responding to them. “If they're way out of step with what other people are doing, that's a potential source of liability,” he notes. Accurate disclosure is critical, too. “If they aren't careful in stating what the company's potential liabilities are, there's a good probability for future liability of directors and officers for disclosures that are either inaccurate or incomplete.”

The (relatively) good news is that damages resulting from emissions will be much more difficult to prove than those associated with, say, mold, asbestos, or tobacco use, with which bodily injury or property damage can be fairly easily established. “The connections are a long chain that will take a long time to demonstrate,” notes Taylor. “And then you'll have allocation issues: How much is, say, GM responsible for, and how much is Southern Power responsible for?”