AIG Units Notch Win in Hawaii Court Over Climate Change Coverage

Greenhouse gases fall under pollution exclusions in several policies issued by American International Group Inc. units, Hawaii’s high court said, likely closing the door on insurance coverage for climate-change related claims against a gas company.

The decision marks one of the first appellate rulings in an insurance dispute over climate change-related claims.

Two Hawaiian local government lawsuits against a Sunoco LP subsidiary alleged that greenhouse gas emissions related to its fossil fuel products caused climate change-related damages. Aloha Petroleum Ltd. sued AIG subsidiaries National Union Fire Insurance Co. and American Home Assurance Co. in the US District Court for the District of Hawaii after both insurers refused to pay its legal defense costs in the underlying disputes. The federal judge determined there was insufficient legal precedent to resolve the dispute, and that the questions in the case were governed by state law.

Hawaii’s high court heard oral arguments in June on two questions. First, does reckless conduct by a policyholder constitute an “occurrence” if the policy defines occurrences in part as an “accident”? Second, can greenhouse gas emissions be classified as pollutants under policy exclusions for pollution?

The state court’s answers to these questions will now help the federal trial court determine whether the two AIG units owe Aloha legal defense costs in the underlying suits.

“Greenhouse gases, including carbon dioxide, produce ‘traditional’ environmental pollution,” Judge Todd W. Eddins wrote for the state high court Monday. “Aloha’s gasoline produces GHGs. These gases accumulate in the atmosphere and trap heat. Because they are released into the atmosphere and cause harm due to their presence in the atmosphere, GHGs are pollutants.”

“This court respects climate science,” the judge added.

Because most of the policies contained pollution exclusions, the court’s ruling means that the underlying claims over Aloha’s fossil fuel emissions are unlikely to be covered by the AIG insurers’ policies. However, it will be up to the federal judge to make a final determination of coverage, since some of the policies from the 1980s didn’t contain pollution exclusions and it is unclear whether those policies are implicated in the underlying litigation.

Though the court determined that reckless conduct could constitute an “occurrence,” the pollution exclusion overrides the AIG units’ coverage obligations under all but those few policies.

Hawaii Supreme Court Judges Mark E. Recktenwald, Sabrina S. McKenna, Lisa M. Ginoza, and Vladimir P. Devens were also on the panel.

K&L Gates LLP and Cades Schutte LLP represent Aloha. Willkie Farr & Gallagher LLP, Starn O’Toole Marcus & Fisher, and Nicolaides Fink Thorpe Michaelides Sullivan LLP represent the AIG units.

The case is Aloha Petroleum Ltd. v. Natl. Union Fire Ins. Co., Haw., No. SCCQ-23-0000515, 10/7/24.