2/26/2019
A Rising Tide in Climate Change Litigation

A Rising Tide in Climate Change Litigation

Could a precedent-setting ruling be coming soon?

By Nigel Brook , Edward Kirk , James Koelzer

Last year was a busy year for climate change litigation. Although a few claims already have been dismissed, the significant surge of litigation is expected to continue in 2019. Many insurers are following these developments closely, not least to see whether plaintiffs are able to develop a viable theory of liability that links their losses back to defendants’ activities.

In several jurisdictions around the world, particularly those where government responses to climate risk have lagged, activists are addressing climate change increasingly through various litigation strategies.

Climate change litigation is being logged by key databases maintained by the Sabin Center at Columbia University and the Grantham Institute at the London School of Economics. To date, more than 1,200 climate change cases have been filed in more than 30 jurisdictions, including the U.S., Australia, the UK, the EU, New Zealand, Brazil, Spain, Canada, and India.

Historically speaking, most climate change litigation has been brought by environmental activists against governments. But the universe of plaintiffs is expanding, and now municipalities and investors are seeking to hold private companies accountable.

Despite the rise in activity, we have yet to see a true breakout tort case that sets the standard for liability in climate change litigation. In particular, activists have not cracked the code to prove causation, but the rise in cases seems to indicate that a precedent-setting ruling could be coming soon. A review of how climate change litigation has evolved over the past several years is very telling and provides useful insight into the strategies that plaintiffs will continue to take to drive change—and how those actions will be viewed by the courts.

Challenging Governments to Take Action

As history has shown, when governments pull back on environmental protections, activists fight back through the courts. Cases against governments or public bodies aim to challenge decisions, influence conduct, and draw attention to climate change risks. Such cases focus either on climate change mitigation, particularly the reduction of greenhouse gas (GHG) emissions, or on adaptation to a changing climate—for instance, the protection of coastal cities from rising tides.

The first examples of climate change litigation were actions against public bodies. For instance, in 1986, a suit was filed by a group of plaintiffs that included the cities of Los Angeles and New York against the National Highway Traffic Safety Administration (NHTSA). The claim was brought under the National Environmental Policy Act (NEPA) regarding NHTSA’s decision not to prepare an environmental impact statement to cover its Corporate Average Fuel Economy (CAFE) standards. Although the court held that the plaintiffs had standing to sue under NEPA based on their obligations under the Clean Air Act (CAA), the challenge failed because the plaintiffs failed to explain how the alleged injury from global warming could be traced causally to the agency’s decision setting the NY 1989 CAFE standard. This case serves as an early example of the difficulties faced in proving causation in the context of climate change litigation.

By the 2000s, what started as a trickle of climate change litigation by activists grew into a steady stream as administrative cases gradually began to achieve notoriety, and some success. Notably, in Massachusetts v. EPA (2007), the U.S. Supreme Court found in favor of Massachusetts and ordered the Environmental Protection Agency (EPA) to fulfill its responsibility under the CAA to regulate GHG emissions. The Supreme Court ruled that the EPA’s refusal to regulate GHG emissions presented an actual and imminent risk of harm to Massachusetts.

Tort Cases

The early 2000s saw the advent of “private” climate change litigation against corporations alleging that the defendants’ carbon-emitting activities contributed to climate change. Some take the view that litigation against corporations directly involved in producing GHGs and GHG-emitting products is potentially more effective than litigation against regulators.

The first wave of such tort cases was brought as public nuisance claims against corporations, which were largely unsuccessful. A main hurdle on the procedural side was standing, which required plaintiffs to show that injuries were fairly traceable to defendants’ misconduct. Some courts also suggested that climate harms were inherently unresolvable. Others indicated that the questions posed by plaintiffs were fundamentally political, meaning that the courts were inappropriate forums for resolution.

Despite limited successes, this first wave of cases established the foundations for future climate change litigation by focusing attention on key legal issues and suggesting what might be required—in evidentiary terms—to uphold such claims in the future.

Around 2015, a range of plaintiffs began a second wave of climate change cases against corporations with renewed zeal. Some commentators attribute this to a changing scientific, discursive, and constitutional context.

A number of lawsuits have now been brought by cities and municipalities in the U.S., including New York; Boulder, Colorado; Seattle; and Baltimore. In July 2018, Rhode Island became the first state to bring climate change litigation against corporate actors.

Additionally, a series of such complaints filed in California details past and projected effects of global warming, particularly on coastal communities. They allege that, from 1965, fossil-fuel companies have caused a significant percentage of global GHG emissions, wrongfully promoted their fossil-fuel products, concealed known hazards associated with the use of those products, championed anti-regulation and anti-science campaigns, and failed to pursue less hazardous alternatives available to them.

The San Francisco and Oakland complaints are brought under public nuisance theories of liability only. However, the Marin, San Mateo, Imperial Beach, city and county of Santa Cruz, and the city of Richmond complaints are not made under federal environmental law but under common law and, in some cases, codified state law, including public nuisance, private nuisance, product liability, negligence, and trespass.

The California cases have sought to build on the legacy of the tobacco and asbestos litigation but, unlike the tobacco suits, the dominant focus of these actions is future harm and future costs. In this context, tortious liability as it currently works in the U.S. seems ill-equipped insofar as it is designed to redress measurable damage that has already occurred, not anticipated harm. The Oakland and San Francisco lawsuits have been dismissed on jurisdictional grounds, while the Marin, Imperial Beach, San Mateo County, city and county of Santa Cruz, and the city of Richmond suits have been remanded to California state court. All of these cases are currently on appeal.

In November 2018, the Pacific Coast Federation of Fishermen’s Associations (PCFFA), which is the largest commercial fishing association on the U.S. west coast, filed a complaint against fossil-fuel companies. According to PCFFA, huge algae blooms off the west coast are poisoning crabs, which has had a severe impact on crabbers in California and Oregon. The complaint alleges that warmer seas are to blame, and that fossil-fuel companies are accountable.

While past claims based on public nuisance against fossil-fuel producers have failed, it is possible that other tortious claims, particularly product liability claims, may be more successful. And there is an expanding body of litigation claiming damages from the effects of manufactured products.

For example, lawsuits have been brought in the U.S. against gasoline manufacturers regarding the fuel additive MTBE, which has leached into groundwater. Normally, a plaintiff would have to show that its loss would not have occurred but for the defendant’s act or omission. In the context of MTBE, that is all but impossible. Some courts, however, have assisted plaintiffs by developing and adopting “commingled product theory,” which attributes liability to individual manufacturers by reference to their market share for gasoline containing MTBE. As a result, manufacturers with a historic 10 percent market share may be held liable for 10 percent of the total harm.

A similar approach has been advocated in numerous lawsuits against the petrochemical and energy industries for causing climate change. For example, in Lliuya v RWE, which is pending in Germany, a Peruvian farmer seeks to hold a German energy company liable for 0.47 percent of his losses arising from the melting of a local glacier, based on the company’s alleged contribution to global GHG emissions.

The perfluorooctane sulfonate and perfluorooctanoic acid (PFOA/PFOS) litigation in the U.S. gives rise to a slightly different problem for plaintiffs. In that case, the primary polluter was the U.S. military, which developed a firefighting foam and used it in military exercises over several decades. PFOA and PFOS chemicals accumulated in the water table, affecting municipal water supplies. As the U.S. military enjoys immunity from suit, numerous actions have been filed against the corporations that manufactured the product. Again, attribution theory forms the basis of the claim.

The environmental accumulation of plastics, such as microbeads, cups, straws, and bags, might form the basis for the next targets of climate change product liability cases.

Investors Making Moves

Investors are the latest group to take action. Climate change claims that impact D&O policies have been relatively slow to materialize. However, this could soon change in view of increasing interest in this area by investors, regulators, and the plaintiffs’ bar, as well as a recent decision in a putative securities class action against ExxonMobil.

Plaintiffs’ firms are increasingly focusing on the adequacy of corporate disclosures relating to climate change exposures and opportunities not only in the energy sector, but also in other areas such as mining, transportation, and insurance. Climate change has become an important board-level issue, and corporations themselves as well as their directors and officers may be held accountable if disclosures are not adequate.

Recent regulatory investigations and shareholder litigation against ExxonMobil and its officers demonstrate that D&O insurers may soon be impacted by climate change disclosure claims and how the early stages of such claims may develop. On Aug. 14, 2018, the court denied ExxonMobil’s motion to dismiss a purported securities class action, finding that the complaint sufficiently alleged securities fraud based on disclosures regarding the company’s climate change exposures. On Oct. 24, 2018, the New York Attorney General filed a 91-page complaint against ExxonMobil alleging that it “essentially kept two sets of books when accounting for the effects of climate change.” And the U.S. Supreme Court has just declined to hear ExxonMobil’s appeal of a court ruling that it must hand over records to the Massachusetts Attorney General, who is carrying out a similar investigation.

The wider issue relates to “transition risk,” or the potential impact of the shift toward a low-carbon global economy driven not only by political action (such as carbon pricing), but also by market forces, such as renewables continuing to fall in price and electric vehicle sales taking off. In light of this, are oil and gas companies confident that they will be able to exploit all of their reserves? If the market were to take the view that some of these assets are stranded and reprice the stocks accordingly, then that could result in a wave of lawsuits against asset managers who did not get out of the stocks in time.

Further, climate change may lead to shareholder litigation against companies whose stock prices are negatively impacted by adverse environmental events caused by global warming, such as wildfires, flooding, drought, and violent storms. For example, following the 2018 California wildfires, shareholders of Edison International, a California utility company, filed a securities class action in November 2018 alleging that the company and its directors and officers made misrepresentations and omissions regarding its fire safety preparedness and potential exposure to wildfires. Similarly, shareholders in Pacific Gas & Electric (PG&E) filed a securities class action against the company and its directors and officers following the October 2017 California wildfires. After the recent Camp wildfire, PG&E shareholders filed a derivative action against its directors and officers for alleged misrepresentations and omissions regarding the company’s compliance with fire safety requirements, regulations, and preparedness relating to both the October 2017 wildfires and the 2018 Camp wildfire.

Activists have filed lawsuits in other jurisdictions regarding the failure to properly report climate change exposures. For example, in August 2018, Client Earth filed complaints against three UK insurers with the Financial Conduct Authority alleging that the insurers’ annual reports failed to comply with disclosure rules because they failed to address climate change exposures. In August 2017, investors in the Commonwealth Bank of Australia filed a lawsuit in Australia federal court alleging that the bank’s annual report failed to disclose climate change risks to its business, including a possible investment in a coal mine. Although the shareholders withdrew the lawsuit after the bank made additional disclosures in its 2017 annual report regarding climate change risk to its business, the Commonwealth Bank case confirms that investors around the world are taking action relating to the impact of climate change on different lines of business.

Activity on the Horizon

Despite their limited success in court to date, activists, investors, and governmental entities have made it clear that they will continue to utilize litigation and other means to address climate change. Plaintiffs’ lawyers will continue to test various claims and theories of liability, as they did with tobacco, asbestos, and other mass tort claims.

While the future course of these cases remains to be seen, it is clear that the broader political environment has led a growing range of plaintiffs to seek a judicial route to address the anticipated costs associated with climate change. Insurers would do well to take note of the increase in cases of this kind. In the near term, insurers may find that there is an increase in claims for coverage for the considerable costs of defending against these actions. In the long term, whether they will lead to indemnity claims—and indeed, whether they will be covered by insurance policies—is far less clear.

 



Nigel Brook (London) is a partner at Clyde & Co. He can be reached at nigel.brook@clydeco.com.

Edward Kirk (New York) is a partner at Clyde & Co. He can be reached at edward.kirk@clydeco.us.

James Koelzer (Los Angeles) is a partner at Clyde & Co. He can be reached at james.koelzer@clydeco.us.

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