Green Energy

In today’s rapidly changing world, it is critical that insurance professionals stay abreast of new developments and remain prepared to respond when issues arise. One such issue is green energy: What type of claims can arise because of renewable energy installations? What implications are there on coverage under typical forms of insurance policies?

Through the Ontario Power Authority Feed-in Tariff (FIT) program, large renewable energy producers offer guaranteed prices for long-term contracts.¹ Under the smaller microFIT program, homeowners, farmers and small business owners have the opportunity to develop renewable energy projects that are 10 kW or less in size. Pursuant to government-guaranteed contracts, the microFIT participants receive payments for the energy their project produces for 20 years.

Anticipated coverage issues

There are many coverage questions which could arise as a result of lawsuits brought against renewable energy producers. The legal decisions suggest policyholders may be seeking insurance funded legal defenses, as well as coverage, for their own claims.

Many insurers have responded to the microFIT program by offering a floater or rider to an existing homeowner policy. It extends the liability and property coverage of the main policy to the equipment used in an approved program. Those who have not purchased a floater for their policy may find they do not have adequate coverage.

Business exclusion

The Ontario microFIT program permits homeowners to become part of the provincial energy grid. Homeowners who use their roofs for installation of solar panels sell the resulting energy to the province. These homeowners will make insurance claims when damage is sustained to the panels or their homes. The intent of the program is to provide a steady income stream to the homeowner.

Is this resulting income stream business income? Losses related to a business are typically excluded under the homeowner policy. For the most part, as long as a venture is undertaken for financial gain, provides regular remuneration and is required to be reported as taxable income, that venture is a business. Therefore, any loss to or arising from the solar panels may be excluded under the homeowner’s policy because it relates to a business.

Injunctive relief

One early reported court decisions relating to renewable energy involved wind energy in New Jersey. Rose v. Chaikin.² The 1982 decision was based on allegations by residents that a neighbouring windmill created excessive noise, was a public nuisance and caused nervousness, dizziness, loss of sleep and fatigue. The court found the windmill violated noise ordinances and constituted an actionable nuisance. Accordingly, it was held the property owners were entitled to an injunction prohibiting operation of the windmill.

Claims for purely injunctive relief are not covered under a CGL policy. Many court actions will seek injunctions to halt the construction of renewable energy facilities. Unless the parties constructing the energy facilities are properly insured they will not be entitled to a defense/indemnity under CGL policies with respect to defending the claims for injunctions.

Economic loss

CGL policies do not respond to claims for pure economic loss. While economic losses, such as loss of income, are not subject to significant challenge, claims of diminished property value are the subject of frequent litigation and are normally denied by insurers on the basis that they constitute pure economic loss. The key issue in the diminished value claims is whether there has been physical injury or loss of use to the property. If there has been no physical or tangible injury, neither a defense nor indemnity will be owed by the insurer.

The renewable energy case law reviewed contains allegations relating to diminished property values. The diminished value arises from the changed landscape, and noise and light pollution. It is unlikely that as the law stands, these claims would be covered under a typical CGL policy.

Nuisance

Nuisance is focused on the effects of the activities of property owners on their neighbours. Nuisance is defined as “unreasonable and substantial interference with another’s reasonable use and enjoyment of his or her property.” In the context of renewable energy installations, claimants/neighbours are concerned with the aesthetics of their property, as well as noise and unnatural light patterns from the movement of wind turbines.

With respect to duty to defend and indemnity for a nuisance lawsuit, the definition of personal injury should be reviewed. Some definitions of personal injury include the torts of nuisance and trespass. One of the offenses listed within the definition of personal injury in a CGL policy is “wrongful entry into, or eviction of a person from, a room, dwelling or premises that the person occupies.” Some CGL policies also include the second phrase “or other invasion of the right of private occupancy.” It is this second phrase in the coverage definition that could give rise to coverage for nuisance claims.

A Texas decision considered the construction/operation of a wind farm.⁴ The applicants’ claims were founded in nuisance and relied upon the negative visual impact the wind farm would have on the applicants’ property. The court noted that successful nuisance actions typically involve an invasion of the neighbours’ property by “light, sound, odor, or foreign substance.” An example given was that of noisy air-conditioners which interfered with conversation in a neighbouring backyard. The air-conditioners were held to constitute a nuisance. The applicant argued aesthetics may be considered as one of the conditions that create a nuisance. They contended the jury was entitled to consider the wind farm’s visual impact together with other conditions such as “the turbines’ blinking lights, the shadow flicker effect they created early in the morning and late at night, and their operational annoyances.” The applicants argued that nuisance law is dynamic, fact specific, evolving and should not be blindly followed without considering societal changes.

Despite the applicants’ persuasive arguments, the court ruled aesthetic impact was not to be considered in deciding whether the wind farm constituted a nuisance. The court noted conflicting interests are balanced by limiting nuisance actions to circumstances in which the activity resulted in some invasion of the neighbour’s property and not emotional reaction alone. It is anticipated Canadian plaintiffs will be creative in how they craft their objections to wind farms, when much of that objection will be related to the appearance of the turbines.

Whether the owners of the windmill in the Rose v. Chaikin case above, or the company erecting the wind farm in the Texas decision would have been entitled to an insurance funded defense as a result of the claims of nuisance is questionable. The courts have held that for a claim arising out of interference with private occupancy to be covered under a CGL policy, there must be physical interference with an interest in real property. Mere interference with a legal right is not sufficient.⁵ It is a well understood principle that there is no legal right to an unobstructed view.  It will be necessary to consider coverage cases alleging nuisance from renewable energy installations individually on their facts.

Conclusion

As additional wind farms, solar installations and other forms of renewable energy are constructed, increasing claims and lawsuits are likely.  For insurers, the claims will raise questions about whether the allegations fall within the terms of the standard policy.  It is anticipated that this will be an evolving area of law for some time.

Allison Klymyshyn is a senior associate with Kelly Santini LLP. Kelly Santin
i is a member group of the Risk Management Counsel of Canada.

1.  http://fit.powerauthority.on.ca/
2.  Rose v. Chaikin , 453 A.2d 1378
3.  Vancouver General Hospital v. Scottish & York Insurance Co., (1988), 55 D.L.R. (4th) 360 (C.A.)
4. Dale Rankin et al, Appellants, v. FPL Energy, LLC et al, Appellees. 266 S.W. 3d 506 (2008)
5. Sterling Builders, Inc. V. United National Insurance Co., 93 Cal.Rptr.2d 697