Corporations buy insurance as an embedded cost of doing business, with the expectation that policies cover claims where the underlying damages sought bear a connection to alleged bodily injury or property damage. When it found it in its interest to do so, the insurance industry is on record as embracing the proposition that the cause of the underlying harm dictates coverage.
In coverage litigation related to coronavirus claims, for example, the industry sought to deny coverage based on the sweeping contention that the virus was, in their own words, the only explanation for the losses alleged.
For novel or evolving claims based on climate change, plastic-related property damage, or baby food contamination, however, the insurance industry has reversed course. It ignores the underlying cause of the harm alleged and presses instead an entirely different self-serving proposition that coverage can be denied based solely on its restrictive reading of the causes of action pursued by the underlying plaintiff.
An Unwarranted Gatekeeper Defense
These claims are being pursued in the context of, among others, consumer protection statutes, or by consumer or environmental organizations. Insurers are attempting to use the identity of underlying plaintiffs’ causes of action as a defense to deny coverage, despite the undeniable existence of either property damage or bodily injury.
For insurance purposes, however, the predominant alleged cause and resulting harm is connected to the insurance policy to determine, in the first instance, whether a potentially covered claim exists.
Insurance Coverage for Climate Change Litigation
In the climate change litigation, city, state, and municipality claimants have articulated, among others, nuisance and state consumer protection theories of the case in their effort to allege state law claims rather than claims under federal statutes.
The insurance industry views these consumer protection or nuisance allegations as either seeking purely economic losses (such that the economic loss rule might, in their view, preclude coverage); or argues that the elements of the causes of action do not require proof of property damage or bodily injury.
The various complaints’ undeniable genesis is climate change and the harm to man-made infrastructure such as roads, bridges, railroads, dams, homes, businesses, and electric grids. From a city or state’s historic powers to protect the health, safety, and property rights of its citizens, the sole reason the litigation was initiated was because of climate change.
The ultimate efficient proximate cause and resulting harm are the seamless effects of such alleged climate change. Those effects and impacts also form the basis of claimed relief to abate, mitigate, and remediate the damage that allegedly has been incurred and will continue.
Insurance Coverage for Plastic Litigation
The plastic-related litigation is no different. The complaints, brought by groups under consumer protection laws, allege torts occurring on waterways and coasts. The plastic litigants allege that they have diverted more resources to remediating California coasts and waterways impacted by plastic.
Insurance Coverage for Baby Food Litigation
To date, most of the baby food litigation is brought under consumer protection statutes (although there is one claim alleging direct injury to an infant). Again, and notwithstanding the causes of action, each of the cases allege that toxic metals contaminated the baby food causing harm or a risk of harm. Contaminating food products is considered covered property damage regardless of the label attached to the cause of action.
For Insurance, Nature of the Alleged Harm Controls
The insurance industry’s almost reflexive dispute of coverage for these exposures is not surprising. It has been said that an insurance company considers it a good day when it pays less than the otherwise agreed to limits of liability in any given policy.
Claims arising out of climate change or plastics or baby food contamination represent insurable risks and coverage cannot be rejected automatically based solely on the elements that underlie a plaintiff’s chosen causes of action. This is because climate change is the only explanation underlying all the litigation regardless of the form of the cause of action (nuisance, consumer protection, citizen suits, etc.).
Similarly, the plastic litigation’s explanation is solely predicated on the harm allegedly caused to waterways and coastlines. The baby food litigation, too, only exists because the heavy metals allegedly contaminated the baby food products.
These represent just three examples. With the proliferation of consumer protection and public nuisance litigation, additional formulations will continue to surface, just as new pandemics and climate change effects will continue.
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
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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 claims involving risk and exposure such as those arising out of products, securities, directors & officers, energy, automotive, financial institutions, medical devices, and health.
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.
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