In a rapidly changing landscape of environmental concerns and legal action, a new report by Gallagher Re sheds light on the escalating wave of climate litigation and its profound implications for the (re)insurance industry.
This report highlights key trends and challenges associated with climate change litigation, emphasising the need for insurers to reevaluate their portfolios and risk profiles.
The report underscores a notable shift in the focus of climate activists and legal actions. No longer limited to governments and traditional “dirty” industries, climate activists are now targeting corporations, creating ripples throughout the corporate sector.
The successful legal action against Shell in 2021 set an important precedent, alerting businesses to the potential risks of climate-related litigation.
One emerging concern is the rise of “greenwashing” claims, where companies are accused of misleading environmental claims. This adds a layer of complexity to climate litigation, potentially impacting a broader range of insurance clients.
Insurers should be vigilant about a growing number of cases that have the potential to establish legal precedents, making companies and their directors liable for climate-related harm or failures in disclosure.
Insurers themselves may also face exposure when companies have policies covering them against litigation costs, particularly under Directors & Officers (D&O) or Errors & Omissions (E&O) policies.
While successful climate litigation actions have been relatively few in number, climate activists as plaintiffs are motivated by a desire to drive change rather than solely seeking massive financial damages. This may mitigate the immediate financial impact on insurers in the event of successful lawsuits.
Future risks include the involvement of third-party litigation funders supporting climate actions and the possibility of new legal avenues, such as actions brought under anti-racketeering legislation.
From the (re)insurance industry’s perspective, this report emphasises the necessity of reviewing and reappraising entire portfolios of insurance business in response to the expanding legal ambitions of climate campaigners. Regulators have shown awareness of this issue, adding to the urgency of the situation.
Recent years have also witnessed the first coverage disputes coming to court, where insurers argue that common exclusions for “pollution” absolve them from covering companies’ legal expenses.
The outcomes of these cases will be closely monitored by the industry, potentially shaping future approaches to climate-related claims.
Steve Bowen, Chief Science Officer at Gallagher Re, suggests that as we approach the greenhouse gas reduction targets outlined in the Paris Agreement, activism may intensify, particularly as concerns mount about reaching the critical 1.5°C benchmark temperature threshold above pre-industrial levels.
