Insurance coverage for climate litigation: taking the temperature from US case law

By Louise Jenkins, Andrew Maher, Joshua Anderson, Sarah Ward
Climate Change & Sustainability Corporate Crime Corporate Governance Insurance Risk & Compliance

Prepare for resistance in recovering the costs of climate-related litigation 8 min read

In Australia and abroad, climate litigation filings are steadily increasing. In parallel, there is an emerging focus on how corporate insurance arrangements may respond to these types of proceedings. Court cases in the US have highlighted how insurers may react to claims seeking cover for representation costs or liabilities arising from climate-related proceedings, and the types of defences insurers may invoke.

In this Insight, we profile some of the key cases and highlight potential barriers that policyholders may face in recovering the costs of climate litigation.

Key takeaways

  • You should not assume that mainstream policy lines will cover the significant costs and liabilities that can arise from climate-related litigation.
  • You should consider your potential exposure to climate-based claims and stress test how your existing policies may respond, noting that climate activists are often entrepreneurial in the ways they seek to apply pressure on entities to take positive steps to reduce their greenhouse gas emissions.
  • Subject to the advice of your broker and the risks faced by your business, consider whether you should seek to renegotiate your existing cover, including through an express insuring clause or endorsement dealing with the liabilities associated with climate litigation.

Insuring for climate litigation

As we have reported previously, litigation is increasingly being used as a means to seek to compel governments and businesses to take action on climate change and climate-related risks.

Data collected by The Grantham Institute identifies over 2000 climate litigation filings around the world, with the lion's share of these in the United States.1 Further, while the majority of cases continue to be brought against government entities, claims against corporates are on the rise, including:

  • suits against oil and gas companies alleging environmental damage associated with their contribution to global warming; and
  • shareholder claims alleging 'greenwashing' or other misrepresentations concerning companies' preparedness for climate risks or actions to ameliorate climate change.

Faced with these proceedings, companies may turn to their existing insurance arrangements—especially Commercial General Liability (CGL), Public and Products Liability and Directors' and Officers' Liability (D&O) insurance—to cover the potentially significant liabilities that may arise. The application of these policies is yet to be fully tested, and will turn on the precise nature of the relevant allegations and the particular policy wording. However, some guidance can be found in the US as to the attitude of insurers and the arguments they may rely on in the face of such claims.

In the sections below, we profile three cases which illustrate some of the challenges policyholders may face in recovering under CGL and Public and Products Liability-type insurance policies.

Intentional conduct: Steadfast Insurance v AES2

AES Corporation is a Virginia-based energy company specialising in electricity generation and distribution. It was alleged by the Native Village and City of Kivalina—a native community located on an island off Alaska—that AES had damaged their village by causing global warming through its emission of greenhouse gases. In particular, AES was said to have:

  • intentionally emitted CO2 and other greenhouse gases into the atmosphere; and
  • done so when it knew, or ought to have known, of the impact of those emissions on global warming, and more specifically, on vulnerable communities such as Kivalina.

AES held a CGL Insurance Policy with Steadfast, under which the insurer agreed to defend AES against suits claiming damages for bodily injury or property damage caused by an 'occurrence'—defined to mean an 'accident, including continuous or repeated exposure to substantially the same general[ly] harmful condition'.

The Virginian Supreme Court held that AES could not recover under the Policy. There was no 'accident' in the necessary sense as: (i) AES's conduct was intentional (in emitting greenhouse gases); and (ii) global warming, and the associated damage alleged by Kivalina, was the 'natural or probable consequence' of that conduct, according to the clear scientific consensus on this topic.

Key takeaways: The definition of 'event' or 'occurrence' in CGL insurance policies typically includes a requirement that the relevant personal injury or property damage be 'unexpected and unintentional' from the standpoint of the insured. Many policies also contain exclusions for intentional acts.

For this reason, where climate-related proceedings allege intentional wrongdoing on the part of a policyholder, this may preclude the insured from recovery. A possible response may be for corporate insureds to challenge the causal link between their own greenhouse gas emissions and the overall result, but such arguments are not free from difficulty.

Allegations of intentional historical wrongdoing may also bring into play 'known circumstance' exclusions, as it is unlikely policyholders will have historically disclosed their CO2/greenhouse gas emissions as a potential occurrence under previous policy periods.

No occurrence: Everest Premier Insurance v Gulf Oil3

In July 2021, the Conservation Law Foundation (CLF) filed a civil suit alleging that Gulf Oil—a supplier and distributor of refined petroleum—had breached provisions of the Federal Water Pollution Control Act 1948 and other US-based legislation.

The crux of these allegations was the failure by Gulf Oil to take sufficient steps to prepare its storage facilities against potentially extreme weather events, as a result of climate change, in order to eliminate the risk of pollutants escaping into nearby rivers and waterways.

Gulf Oil held various General Liability Policies with Everest, which covered Gulf Oil for any sums it became legally obligated to pay as damages from bodily injury or property damage caused by an 'occurrence' and associated defence costs. Initially, Everest sought declaratory relief that it was not required to indemnify Gulf Oil on various grounds, including that there was no 'occurrence' causing injury or damage during the relevant policy period, as CLF's allegations instead focused on potential future incidents. However, in a recent turn of events, Everest has agreed to voluntarily withdraw its application as part of a likely settlement with the insured.

Key takeaways: This case is a good illustration of the innovative types of claims that can be brought by climate activists to exert pressure on companies, including those associated with the fossil fuels industry. While the case was ultimately withdrawn by Everest, it still demonstrates the risks policyholders may face in seeking insurance cover for claims based on alleged compliance failures, in the absence of any actual property damage or personal injury.

Pollution exclusions: Aloha Petroleum v National Union Fire Insurance4

In another recent case filed in March 2020, the City and County of Honolulu alleged that Aloha Petroleum committed various torts by failing to warn of the hazards presented by the petrol they sold, leading to increased emissions with resulting injuries to property and assets.

Aloha held a number of CGL Insurance Policies with National Union, which required the insurer to cover any liabilities sustained by Aloha because of bodily injury or property damage, and to defend such claims even if groundless or false.

In response to a claim by Aloha, National Union denied all forms of cover—both indemnity and defence costs—on the basis of a pollution exclusion in the relevant policies. This clause provided that the policies did not cover:

…bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any water course or body of water: but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental.

Key takeaways: Aloha's claim is yet to be determined by the United States District Court. However, it touches on an important issue, as many policies—both CGL and D&O—contain pollution exclusions that serve to bar, in general terms, any liability arising from the pollution of air, water or soil unless the discharge was 'sudden and unintended'. The release of greenhouse gasses through the burning of fossil fuels is, by its very nature, prolonged and intentional.

So can CO2 and other greenhouse gas emissions be regarded as a form of pollution? This is a vexed question that has not yet been resolved in the US, nor considered by an Australian court. On the one hand, CO2 is naturally occurring in the atmosphere and does not neatly fit within the scope of concepts like 'irritant or contaminant'. Further, it may be said that the commercial intention of pollution exclusions is directed to the discharge of toxic chemicals and not the centuries-old practice of burning fossil fuels. Where insurers seek to rely on pollution exclusions, issues of causation may also come to the fore in assessing whether the alleged bodily injury or property damage arose out of the insured's conduct.

On the other hand, there is now a clear scientific consensus as to the harmful effect of fossil fuels, and legislation in many jurisdictions—including the Environment Protection Act 2017 (Vic)—clearly defines greenhouse gas emissions as a 'waste' product. In light of this, especially where the term 'pollution' is not defined in the relevant policy, we expect insurers may seek to contend that greenhouse gas emissions fall squarely within the ordinary meaning of this expression.

Where are we headed?

In perhaps a sign of things to come, in November 2021 the Lloyds Market Association published a model climate change exclusion clause (LMA5570) for use in liability insurance policies:

Notwithstanding any other provision in this Policy or any endorsement hereto, this Policy excludes any loss, liability, cost or expense arising out of any allegation or claim that the (Re)Insured caused or contributed to Climate Change or its consequences.

The clause is expansive in its language and will likely preclude recovery for a broad range of climate-related claims, so long as it is alleged that the insured contributed to climate change in some way.

Similar standard-form exclusions—such as LMA5400 for cyber incidents and LMA5393 for communicable diseases—are now ubiquitous in the market and increasingly presented to policyholders as a non-negotiable requirement during annual renewals. While the model climate change exclusion is yet to rise to this level, if climate claims and associated losses continue to rise, we expect pressure may build for this type of exclusion to be included across the board.

In parallel with this trend, we expect to see increasing demand on the part of Australian policyholders for dedicated insuring clauses or endorsements dealing with the costs of climate litigation. This emerging form of cover will help mitigate the risk of insurers relying on some of the various defences canvassed above. For example, in exchange for increased premium, insureds may be able to purchase specific cover for items such as ESG reporting, granting them (or their directors and officers) cover for claims arising out of their representations on climate targets or other pledges on sustainability issues.


  1. London School of Economics and Political Science, Climate Change Laws of the World (Web Page)

  2. Steadfast Insurance Company v The AES Corporation, 858 Va (2008).

  3. Everest Premier Insurance Company, Everest National Insurance Company v Gulf Oil Limited Partnership, 1292 Mass (2022).

  4. Aloha Petroleum Ltd v National Union Fire Insurance Co. of Pittsburgh PA, 0372 D Haw (2022).