The insurance industry claims that two alleged existential threats—climate change and coronavirus— are uninsurable.
In a breathtaking statement, the Association of British Insurers (ABI) proclaimed that “no insurance market in the world provides widespread insurance coverage for pandemics and the U.K. is no exception.”
Similarly, the industry seeks to make the case that climate change exposure is, for all practical purposes, also uninsurable. Strikingly, neither is tethered to insurance policy language, facts or even specific underwriting
For its part, the ABI vaguely hedges its observation by inserting the concept widespread. In the climate change context, the insurance industry defines the energy companies as carbon majors. The purpose, one assumes, is to insinuate that energy companies knew they were damaging the environment and, as such, the risk is an uninsurable foreseeable occurrence.
The insurance industry’s approach to climate change and coronavirus seeks to remove from coverage risks that it deems either to be too unforeseeable to insure (i.e., coronavirus) or too foreseeable (i.e., climate change). The insurers attempt to have it both ways reveals the weakness of that position.
‘Too Unforeseeable to Insure’ No Substitute for Insurance Policy Terms
The insurance industry infers that it does not create actuarial models to sell insurance that might cover a pandemic such as coronavirus. However, coronavirus itself did not have to turn into a pandemic. So, is the ABI saying that losses connected to coronavirus might be covered until some point when its scope qualifies as a pandemic?
By that logic, we could conclude that a second coronavirus wave might be covered if the failures experienced in this first wave are not repeated. It is precisely the events that turned the scope of coronavirus into a pandemic that makes it insurable in the first instance subject to the terms and conditions of policyholder’s respective policies. The concept that a loss is too unforeseeable to be insurable is arbitrary and does not work.
Foreseeability Is Another Ill-Conceived Concept
Insurance policies do not include the word foreseeability which raises a number of disputed issues. Insurance policies cover injury or damage that is neither expected nor intended. The insurers seeks to avoid individual facts, underwriting and their own decisions to cover specific companies in order to argue that foreseeability is a creature of objective expectations.
According to them, if something could happen, regardless of scale, it is uninsurable. Thus, by labeling energy companies as carbon majors the insurance industry seeks to automatically remove from coverage losses alleged to be connected to climate change. Carriers seek to remove from coverage any losses that they deem foreseeable and naturally probable consequences.
In contrast, it is not enough to fear that a loss might occur. The policyholder must believe that the loss will happen. Expectation remains more than recognition of risk; the very core of insurance. Knowledge of damage should be certain and specific; it should not be enough to anticipate a chain of events with intervening acts that might cause damage.
In few areas of the law does consideration of circumstances commend itself with more force than applying the principle of fortuity. Foreseeability should be grounded in subjectivity.
A Common Thread—Intervening Acts
The “too foreseeable” or “too unforeseeable” concepts are irreconcilable. Each ignores the weight of intervening acts and individualized facts. The mere existence or outbreak of coronavirus is not a pandemic that insurers can assert is uninsurable.
Likewise, the energy industry is not a monolithic entity: insurance companies sell individual polices to individual companies. To then say that the carbon emitted and aggregated together by all companies supposedly caused foreseeable climate change, including the losses alleged in the climate litigation, distorts the very genesis of insurance and it is incompatible with how the insurance industry underwrote the risk of selling insurance to energy companies.
The insurer knows its policyholder and knows its business and risks. It is the carrier’s obligation to tailor policies it offers to energy companies if it seeks to avoid certain types of risks. The policies sold to the energy industry do no such thing.
The Insurance Business Is All About Risk
Exposure to coronavirus and climate change should not fall outside the potential for coverage by allowing the insurance industry to deny whole categories of risks by pronouncement. Rather, the normal tools apply to both, i.e., exclusions, retentions, premiums, and insurers’ other devises to limit exposure. The insurance industry knows that.
Thus, insurers’ resort to assertions divorced from actual policy language to avoid coverage indicates that the policy language is inadequate to limit exposure. In the coronavirus context, the carriers know that they have either no or limited virus-related exclusions. This explains a pivot to ABI-type of self-serving conclusions that no insurance market covers pandemics. But saying it does not make it so.
Likewise, in the context of climate change, the insurance industry now seeks to recast its relationship between individual insurers and individual policyholders in the energy industry to whom insurers sold separate policies for decades that cover losses arising from the policyholders’ specific operations.
The only way to do that is to depersonalize their contractual relationships with individual policyholders, and then group the energy industry together to say that damages arising from the climate litigation is supposedly per se not covered. Grouping the energy companies together in the underlying climate litigation cannot be imported by the carriers for coverage purposes.
There is no support for the categorical proposition that coronavirus and climate change are not Insurable. Insurers’ conflicting positions with respect to coverage for coronavirus and climate change illustrate the flaw with efforts to avoid coverage based on categorical pronouncements.
Both coronavirus and climate change present the very type of risk and exposure that are covered or potentially covered by insurance policies. Under the proper framework, coverage will be determined by examination of the terms of policyholders’ individual policies, specific facts, and governing law; not broad conclusory assertions.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Robert Shulman chairs the Insurance Recovery practice at Paley Rothman where he litigates complex disputes against insurance companies on behalf of corporations seeking coverage for all manner of claims involving every form of risk and exposure such as those arising out of products, securities, directors & officers, energy, automotive, financial institutions, medical devices and health, among others.
Cristen Rose is a principal in the Regulatory Law & Litigation practice at Paley Rothman, where she handles commercial & business litigation, including mass torts, class actions, product liability defense, environmental litigation, contractual disputes, regulatory compliance, and insurance recovery.