September 29, 2009
Written By Attorneys: Michael J. Kurtis and Michael R. Fox
This article is an interpretation of current law and is offered for informational purposes only. This material is not legal advice and should not be construed or used as a substitute for the advice of an attorney.
In a decision could open the door for waves of suits against pollution emitting entities, the United States Court of Appeals for the Second Circuit allowed two related lawsuits to proceed that attempt to use the court system to halt the effects of global warming. In State of Connecticut, et al. v. American Electric Power Co., et al., ___ F.3d ___, 2009 WL 2996729 (2d. Cir. Sept. 21, 2009), the Second Circuit reversed an order of the United States District Court for the Southern District of New York granting a motion to dismiss the plaintiffs' complaint against six utility defendants. The plaintiffs (eight different states, the city of New York and three land trusts) seek a judgment ordering carbon dioxide emitting utility companies to reduce emissions. The Second Circuit's holding raises not only numerous complex defense issues, but also concerns in the area of insurance coverage.
Plaintiffs' complaints rely on federal common nuisance law to seek an abatement of defendants' ongoing contributions to the public nuisance of global warming by forcing them to cap and then reduce their carbon dioxide emissions. The defendants in the matters collectively own and operate fossil-fuel-fired power plants in twenty states. Plaintiffs alleged in their complaint that the emissions from these plants, which amount to 650 million tons per year of carbon dioxide, contributed to global warming and was therefore seriously harming the planet's natural resources and causing detrimental human health effects. In reversing the District Court's decision, the Second Circuit ruled, among other things, that the lower court erred in dismissing the complaints on political question grounds, that the plaintiffs have standing to bring the suits, and that federal nuisance law will govern the matter going forward.
The potential for litigation against electric utilities based upon their coal-burning activities contributing to global warming implicates a host of coverage issues. First and foremost, there is a question as to the trigger of coverage; namely, identifying which policies and which policy periods are triggered and how far back in time the potential exposure extends. Potentially, coverage could be triggered at the inception of the right or interest that was interfered with (i.e., the date the claimant(s) obtained an ownership interest in the property affected by the global warming issue) or, possibly, as far back as the inception of the utilities' coal-burning operations. A related issue is determining the number of occurrences implicated by such a claim, particularly where the alleged coal burning activities took place over several years at multiple sites. Moreover, where a utility was conducting such operations in more than one state, there are likely to be conflict of law issues and the proper method of allocation among policy years and among different insurers.
There is also a question as to whether a suit grounded upon federal "nuisance" common law seeks covered "damages" under the implicated policies. The answer will largely depend upon the nature of the injury claimed and the type of relief sought. The claims presented before the Second Circuit seek "abatement of defendants' ongoing contributions to a public nuisance," which on its face appears to be a claim for injunctive relief. Such a claim is typically not covered under a commercial general liability policy, although there may be coverage for such an abatement claim under more specialized policies.
Another issue is whether such a claim is one for "bodily injury" or "property damage" caused by an "occurrence." Finally, such claims will require a close look at the pollution exclusions in the subject policies. Although there appears to be a strong basis for arguing that these claims may not be covered, the emergence of such suits in the coming months or years has the potential to result in significant coverage litigation.
From a liability perspective, the Second Circuit's ruling should signal an alarm to any pollution emitting company. First, such companies should be aware that although their emissions may conform to all federal, state and/or municipal laws and regulations, this conformation will not preempt a lawsuit based on federal common nuisance law. As the Court stated, until such preemption exists "the federal courts will be empowered to appraise the equities of the suits alleging creation of a public nuisance by greenhouse gases." Without the ability to rely on such governmental standards, companies may find themselves in the dark as to how to control their emissions to avoid liability.
Also, although the present action seeks only equitable relief, companies should be concerned about the potential of a court to expand the ruling and allow monetary damages. Exposure amounts in such a case could be difficult to gauge and could potentially allow a jury to compensate a plaintiff for a wide range of property and/or health related losses.
Though this holding deals only with coal burning utility companies, the question arises as to how courts will apply this cause of action to other companies in the future. Will the courts somehow limit the types of defendants that can be liable under such laws? If not, what is to stop the cause of action from growing to a point where an individual can be sued for driving a "gas-guzzler" car or needlessly burning electricity?
Most people agree that global warning is a human crisis and steps must be taken to slow its effects on the planet. However, the question remains whether the courts are the proper venue to wage this campaign or whether it is a pure public policy issue that should instead be addressed by the state and federal legislatures.
For additional information on coverage and liability issues as they relate to global warming, please contact Michael J. Kurtis mkurtis@nldhlaw.com or Michael R. Fox mfox@nldhlaw.com at Nelson Levine de Luca and Horst.
