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NU Online News Service, April 28, 12:48 p.m. EDT
Insurers can expect an impact from the hailstorm of rules and lawsuits related to changes in climate that have come on the scene, a legal expert advised during a Web conference.
“The legal and regulatory storm regarding climate change has arrived,” said Richard Faulk, partner and climate change practice leader at Gardere Wynne Sewell in Houston, according to a report of his remarks by the Property Casualty Insurers Association of America (PCI) in Des Plaines, Ill.
His comments came at a PCI webinar, where participants were informed about legislation pending in Congress and briefed on the liability consequences of climate change regulation, litigation risks insurers face from their insureds’ and their own activities, and advised of concepts for minimizing those risks.
Mr. Faulk told the participants, “Within the last month alone, three significant events occurred. First, the Environmental Protection agency issued a critical finding that ‘greenhouse gases’ posed a threat to ‘health and welfare’ and commenced the process toward wholesale regulation of the U.S. economy.
“Congress proposed comprehensive climate change legislation that includes provisions authorizing litigation against the government and private industry by all those who ‘suffer’ from climate change. And, the NAIC voted to require insurers to submit annual ‘climate risk’ reports regarding their own operations and, derivatively, the operations of their insureds,” he related.
Mr. Faulk warned that as a result of these events and many others that preceded them, it is “essential for insurers to understand the legal and regulatory issues that are present now, as well as the risks that lie ahead.”
PCI Director of Commercial Lines David Golden said, “Climate change liabilities of insurers and insureds are among the industry’s most important emerging issues.
“Now that the National Association of Insurance Commissioners (NAIC) has adopted its climate risk disclosure survey, the focus shifts to what this will mean as states begin to adopt it.”
He said the PCI webinar had informed insurers not only about the NAIC requirements “but the wide range of potential impacts as lawsuits alleging injuries and damage due to climate change take hold. Climate change is a complex issue and it can bring exposures in many lines of insurance.”
PCI said during the webinar Mr. Faulk had covered exposures in multiple lines of coverage, including regulatory liability, contractual liability, tort liability, and directors and officers liability and explored some of the actions insurers can take to minimize those risks, such as:
• Informing policyholders and regulators of compliance efforts and appropriate information.
• Investigating compliance by insureds with climate change requirements.
• Evaluating insureds’ carbon “footprints” and “cap and trade” opportunities.
• Planning for “correlated risks.”
• Assessing investment strategies as informed by climate change risks.
• Reporting and updating regulating agencies.
Mr. Faulk said, “It is important for insurers to think and act strategically. In preparing for the emerging legal and regulatory environment, insurers would do well to assess and evaluate financial exposures to climate change, evaluate corporate investment portfolios to determine sensitivity to climate change risks, and create programs that educate insureds about tools to manage risks and control costs.”
Mr. Faulk and his partner, John Gray, have written the paper “Stormy Weather Ahead: The Legal Environment of Global Climate Change” and recently published “A Lawyer’s Look at the Science of Global Climate Change.”