Insurance industry climate change strategy has serious potential implications for corporate policyholders
Historically, when a significant liability risk begins to emerge, the insurance industry employs a three-pronged strategy in response. Signs of this three-pronged strategy by the insurance industry are already manifesting themselves in the climate change arena. First, as noted in a prior blog entry, insurers are beginning to litigate aggressively against policyholders seeking coverage for climate change claims. Second, the insurance industry is carefully monitoring legislation and public policy initiatives in order to shape the debate (and limit their financial exposure). Finally, the insurance industry is beginning to market “new” policies to address climate change risks.
Corporate policyholders should monitor the insurance industry efforts closely including: (1) being alert to new exclusions being added to policies; (2) watching legislative efforts that might result in valuable coverage being undermined; and (3) evaluating whether new insurance products being marketed are necessary to address potential gaps in a company’s existing coverage.
The goals of the three-pronged strategy in the insurance industry are: (1) to limit its financial exposure under policies it has already sold by mounting an aggressive litigation campaign against coverage; (2) to influence public policy and legislation in a manner that limits its potential financial and legal exposure to such claims; and (3) to begin developing new insurance products to maximize profit opportunities from the emerging risk.
A classic example of this three-pronged strategy was the insurance industry’s response to the enactment of Superfund legislation. Beginning immediately after the passage of Superfund legislation in 1980, the insurance industry has spent the last three decades aggressively litigating against policyholders over environmental coverage claims. Those environmental coverage wars have spawned thousands of court decisions with billions of dollars in judgments and settlements. At the same time that the insurance industry began preparing for this nationwide coverage litigation battle, it was also lobbying Congress for amendments to the Superfund legislation that would have eliminated the availability of historical insurance coverage to respond to environmental claims. While the insurance industry’s efforts in that regard were ultimately unsuccessful, the inclusion of such an amendment would have cost policyholders billions of dollars in coverage under historical policies for which policyholders had paid premiums for decades. Finally, insurers began adding exclusions in new policies while developing “specialty” insurance policies such as environmental impairment liability (EIL) policies. The insurance industry took away coverage that had traditionally been afforded under comprehensive general liability (CGL) policies (even renaming them “commercial” rather than “comprehensive” general liability policies to make them seem to provide narrower coverage). Simultaneously, the insurance industry began marketing different insurance products for environmental liabilities for a dual purpose – to generate a new source of premium revenue and to create an implication that CGL policies did not already cover many of the emerging liabilities.
Corporate policyholders should monitor insurance developments in the climate change arena closely, as history appears to be repeating itself with recent insurance industry efforts to simultaneously limit their financial exposure to emerging risks and capitalize on new profit opportunities.
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