Climate change exclusions likely to be written into commercial general and excess liability policies

Risks related to climate change are so expansive as to be uninsurable, and therefore it is likely climate change exclusions will be written into general commercial and excess liability insurance policies in the near future, predicts Rodney Taylor, managing director of Aon Environmental Services Group.
Taylor spoke at ‘Environmental Risks,’ a seminar organized by The ARC Group Canada and held in Toronto.
“All of the kind of major insurance policies, and that includes liability polices, have no specific exclusions for climate change or global warming,” Taylor noted, adding that the only type of exclusion that comes close is a pollution exclusion.
“While [climate change] claims are not specifically excluded, the coverage will be challenge… I anticipate, and I have actually had policies now issued with, a specific climate/change global warming exclusion…
“I think you’re going to see that happening at a reinsurance level first, from [reinsurers] like Munich Re, Swiss Re — people who have been studying this for a long time. They are going to start limiting what they provide for coverage and that will trickle down into the direct sales for primary insurance. That I think is going to happen sooner rather than later.”
Claims for damages specifically related to climate change have thus far been difficult for plaintiffs to win, Taylor noted.
But they are also costly for insurers to defend. In part, this is because claims related to the environment typically involve a vast array of stakeholders, both public and corporate, Taylor said.
Also, people are continuing to build in areas susceptible to damage linked to climate change.
Taylor said insured values in his home state of Florida have “skyrocketed,” increasing from US$566 billion in 1988 to US$2.4 trillion in 2007. Those values are estimated to be US$5 trillion by 2014.
Oil companies and car manufacturers are specifically exposed to claims related to climate change, said Taylor.
“Remember [climate change-related claims are] going to trigger policies that go back a long period of time, because the emissions are cumulative in the atmosphere,” he said. “So if you use the theories that have been used in other toxic torts for continuous trigger, you’re going to wind up triggering occurrence-type insurance policies that have been written over as long as somebody has records.
“So we expect there to be enormous litigation… I think that’s why the insurance industry is going to have to at least look at some form of limitation on future claims, by putting some form of exclusions in policies in the future.
“If they do that, they will not be able to avoid obligations that they have for past policies, which I believe are going to be exposed enormously.
“If it gets excluded from general and excess liability policies, I think climate change will be an uninsurable risk…I don’t know who’s going to sign on when insurance companies say, ‘We don’t think we can cover it.’
“I don’t believe there will be a standalone market for climate change insurance.”