It appears that there is indeed awareness of this litigation within the insurance sector. Do we observe this awareness translating into concrete actions or responses?
SA: There were a few big cases regarding coverage under general liability policies that have made it to court, although there haven't been any significant losses to date, which I think is partly the reason why we haven't seen strong action from the industry just yet.
For example, AES, a big utilities company in the United States, litigated against its insurer for coverage of climate change actions under their policy, while the insurer contended that it was an exclusion. The case went up to the Supreme Court of Virginia, which ruled that climate change harms shouldn't be covered under the policy.
There are similar cases with Gulf Oil6 and Aloha Petroleum7 against their respective insurers, which are still ongoing or have had been settled out of court.
Nevertheless, important to note that the absence of such losses does not guarantee that these cases won't be successful in the future.
Considering the trends in climate litigation, we have mainly observed a dominance of US cases thus far. Does GRI anticipate this phenomenon becoming more global in scope?
JS: Historically, the US still represents most cases and is a country where litigation will remain significant. However, we're now seeing interesting trends within the US, for example with cities and regional governments bringing compensation claims against Carbon Majors and at the same time dealing with the implementation of climate policies.
Meanwhile, there are more climate litigation cases arising in countries where it was previously almost non-existent. In addition, at the international level, there are cases being brought before international courts, like the International Court of Justice, and investor-state dispute settlement mechanisms are increasingly handling climate related cases.
We're also seeing that countries with existing climate legislation are experiencing an increase in climate litigation cases, not just in numbers but also in scope, case type, and litigation strategies.
Figure 3: Global occurrences of climate litigation cases by country, 1986 — 2023. Data is taken from Global Trends report1 and the Sabin Center for Climate Change Law2
Other trends are also emerging, such as increasing divisions per sector. Is this something we anticipate seeing more frequently?
JS: Absolutely — you've not just got cases brought against fossil fuel producers, but we're seeing cases against food manufacturers, automobile and airlines companies, as well as financial institutions.
And this latter sector is interesting. Everyone knows that fossil fuel companies are big emitters, so it is understandable that litigators would go after those first. But now we're seeing more nuance in terms of who is responsible. It's obvious which companies emit, but who is financing and insuring them?
And beyond just carbon emissions, we're seeing more cases against greenwashing, which can affect all sectors. Increasingly, companies are announcing that they are net zero, and carbon neutral, but consumers are keen to hold them accountable.
Figure 4: Climate litigation cases by industry sector, 2015 — 2022. Data is taken from the Grantham Research Institute Global Trends report1 and the Sabin Center for Climate Change Law2
Other types of cases we're seeing are against corporate directors and officers, where specific individuals are being litigated against for their role in their company's climate impacts.
Speaking of D&O and professional liability, is this something we expect to see more of in climate litigation?
JS: Yes, I think it is something to expect, and there are several reasons for that from the litigant's perspective, in terms of strategy.
It's a well-known phenomenon that people and decision makers, are often more responsive if they are personally liable than if a company is just liable. No individual wants bad publicity.
As a result, plaintiffs are beginning to use this strategy in their litigation plans.
Moreover, shareholder activism has been growing in recent years, wherein activists buy shares in a company and then proceed to bring litigation as shareholders. This happened with Client Earth, an NGO, in several cases against directors who shareholders felt were not adequately managing climate risks.
It remains to be seen how the insurance sector will respond to climate risk for directors and officers, as D&O cases related to climate change have not seen huge successes so far. However, if precedents are set in future cases, it could lead to even more scrutiny of D&O actions, including potential questions for insurance coverage.
In turn, if insurance coverage is not available for this risk, or if premiums rise significantly for coverage, companies may begin to reassess how they make climate risk decisions.
From an insurance standpoint, there seem to be two potential paths. Either premiums rise to accommodate the new climate litigation risk, or insurers withdraw from covering it altogether. Is there a sense of whether this could eventually become something deemed uninsurable?
SA: If we stopped insuring all the carbon majors, there'll be a significant loss for the industry and also the private sector as well. But there is also the question surrounding whether insurance companies continue to support these heavy emission emitting companies, and we're trying to figure that out.
It's not a one-size-fits-all solution, and I think there'll be a lot of struggles in the coming years to find what works for the industry and the policyholders as well.
Obviously, we are seeing significant victories in cases involving governments. However, do you foresee the success of climate litigation cases expanding into the private sector and a tipping point there?
JS: Indeed, high profile cases against governments have been relatively successful. If we look at cases that have made it all the way to the Supreme Court, where there is no further appeal, seven out of nine cases recorded received climate aligned decisions.
When recording non-US cases in our database, we also look at whether the case is aligned with climate protection. For the countries where we do that, we found that 55% of cases result in outcomes that are aligned with climate protection.
This perception of lower success rates is often due to high-profile cases against corporations, which have been less successful in the traditional sense. However, a loss is not always a complete defeat in strategic litigation, which we refer to as 'failing with benefits.' Even if a case is lost, the plaintiff can still manage to bring about change. For example, a company might cease advertising, implement mechanisms to improve reporting, or simply raise awareness on an issue. Thus, litigation can bring about change without necessarily winning the case.
In the future, an area we may see more of a shift is with high profile cases winning compensation, not just strategic wins. This has been tried mostly in the US, but we're now seeing examples abroad. For example, in the case of the indigenous Peruvian farmer, Saúl Luciano Lliuya, who has brought a lawsuit8 against German energy company RWE AG to cover the costs of protecting his hometown against flooding from the glacial Lake Palcacocha. RWE AG was identified as one of the major emitters in the Carbon Majors Database we discussed earlier, and Lliuya is suing for the proportional costs of flood prevention.
Additionally, four residents from Pulau Pari, an island in Indonesia, are bringing a case9 against Holcim, a Swiss cement group, which mirrors the rationale in Luciano Lliuya vs RWE AG: plaintiffs aim to hold Holcim liable for its global emissions identified in the Carbon Majors Database3, seeking compensation for climate damages from sea level rise and flooding.
And what could a tipping point look like in the insurance sector?
SA: It's worth noting that even if corporate cases remain unsuccessful, defence costs alone can be extremely high, especially for high-profile cases — costing $3 million USD on average. So, even without losses from compensation, there is risk for insurers in terms of accumulation of defence costs if more of these cases arise.
This is where we're starting to see more questions arise about policy exclusions and litigation for this, including the Gulf Oil, Aloha Petroleum and AES Corp cases mentioned earlier, which all focus on whether the insurer in question is required to cover these corporations for climate change impacts because of their actions.
However, even though many of these cases are in favour of insurers and not requiring them to cover corporations against climate related losses, it still requires significant money and resources on the insurer's end to investigate clams, hire loss adjusters, hire legal counsel and so on.
(Re)insurers could also become more exposed to claims under occurrence-based GL policies that were written years ago, some of which may not have an adequate pollution exclusion. Retrospective reinsurance cover, such as Loss Portfolio Transfer (LPT) and Adverse Development Cover (ADC), can help remove such legacy exposures from affected balance sheets, but it's something we may see more of in the future.
So, I don't know when and how the tipping point will come, or even if it will, but I expect we will see considerable focus on insurance pricing from these cases because of the defence costs and in claims adjustment costs.
