Court finds an insurance policy pollution exclusion applies to claims involving liability for emissions of greenhouse gases

Overview

In the U.S., cities and states are filing climate-related lawsuits against fossil fuel companies, accusing them of misleading the public on fossil fuel risks. These companies are seeking coverage from their insurers to defend such claims and manage the potential financial exposure. The case of Aloha Petroleum Limited v National Union Fire Insurance Company of Pittsburgh and American Home Assurance Company is the first judgment of its kind to consider insurance policy coverage in the context of such litigation.

This claim

This case involved Aloha seeking defence costs from its insurers for lawsuits filed by The City and County of Honolulu and the County of Maui against Aloha for climate-change related damages. The underlying lawsuits allege that “defendants had actual knowledge that their products were defective and dangerous,” and “acted with conscious disregard for the probable dangerous consequences of their conducts and products’ foreseeable impact upon the rights of others.”

In its judgment, the court addressed two questions regarding Aloha’s insurance coverage:

1. Whether reckless conduct constitutes an "accident" under Aloha's insurance policies (required to trigger policy coverage); and
2. If greenhouse gases are considered "pollutants" under the insurance policies’ pollution exclusion clause (in which case insurers could decline cover).

Aloha claimed that their insurer is obligated to defend them in the underlying lawsuits because the lawsuits allege reckless conduct, which should qualify as an "accident" under the policies.  Aloha further asserted that greenhouse gases should not be considered pollutants under the pollution exclusion, as they differ from traditional pollutants like industrial waste. Insurers, on the other hand, contended: (i) that the lawsuits do not involve accidents but intentional and foreseeable harm resulting from Aloha’s activities; and (ii) the claim is excluded because greenhouse gases fall within the definition of pollutants, and therefore, the pollution exclusion applies.

Judgment

The court determined that “when an insured perceives a risk of harm, its conduct is an “accident” unless it intended to cause harm or expected harm with practical certainty.” The court reasoned that recklessness does not necessarily involve the intent or expectation of injury, which aligns with the definition of an accident in similar cases. Accordingly, the court found that Aloha’s conduct did amount to an ‘accident’ for the purpose of triggering cover under the relevant insurance.

However – and arguably of more interest – the court ruled in favour of insurers on the second question, concluding that greenhouse gases do come within the definition of "traditional environmental pollutants". As a result, the pollution exclusion is engaged and insurers are not obligated to defend Aloha against the climate-related claims.

The court’s reasons for reaching this conclusion on the exclusion were as follows.

• Climate heating gases are an example of the “traditional environmental pollution” that the pollution exclusion was designed to exclude.
• Following a plain-language reading, greenhouse gases fit the exclusion’s definition of “pollutant”.
• The applicable “legal uncertainty” rule in the Hawaiian court should not affect the outcome because greenhouse gases are “pollutants” under any reasonable interpretation.
• The court found there were not two plausible interpretations of ‘pollutant’ and so the exclusion was not ambiguous.

Commentary

Whilst this judgment is specific to the wording and applicable law in question, it is nevertheless of broad interest given the wide usage of pollution exclusions in liability covers and their specific relevance to climate liability claims. Given the number of ‘live’ climate litigation cases involving similar issues underway across the globe (a trend that is showing no signs of slowing), defendant insureds and their insurers will be looking closely at relevant policy wordings and any findings on liability or the application of exclusions, such as in this case. This is likely to be just the first of many judgments considering insurance wordings and exclusions in the context of climate litigation and, potentially, nature and biodiversity litigation also.

Authored by Sara Bradstock and Shehrbano Pataudi.