HONOLULU (Legal Newsline) - Recklessly emitting greenhouse gases into the atmosphere qualifies as an “accident” but CO2 is also a “pollutant” excluded from insurance coverage, the Hawaii Supreme Court ruled, answering questions central to a closely watched climate lawsuit.
Aloha Petroleum sued AIG to establish coverage for the costs of a lawsuit Honolulu filed against oil companies, claiming they exacerbated global warming by misleading consumers into consuming too much fossil fuels. The lawsuit was filed in federal court in Hawaii, but that court sought guidance from the Hawaii Supreme Court on whether state law mandates coverage.
The answer is no, the high court ruled in an opinion written by Justice Todd Eddins. While insurance generally covers “accidents,” including reckless behavior, a broadly written exclusion for “pollution” also applies.
AIG issued policies to Aloha from 1978 to 2010, covering “an accident” that results in damage “neither expected nor intended from the standpoint of the insured.” After 1988, the clause included “continuous or repeated exposure to substantially the same general harmful conditions.”
The policies also had clauses excluding coverage for “pollution,” which it defined as “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste.” The policies also excluded government claims to clean up “or in any way responding to” pollutants.
Aloha, a unit of Sunoco, sued AIG to cover the costs of Honolulu’s suit and AIG refused, saying the company’s conduct was intentional and thus not an “accident.” The Supreme Court disagreed.
“Insurance coverage does not require that the insured be blameless,” the court ruled. “Accidents that were preventable with better foresight still deserve coverage.”
The court cited a case in which the driver of a car from which the passenger fatally shot someone could claim it was an “accident,” while the shooter could not. A truck driver who did nothing while a passenger raped a woman in the back of the vehicle also couldn’t claim it was an “accident,” since he knew the woman would be injured.
The court said it would invite excess litigation if it ruled reckless behavior wasn’t an “accident,” as insurers and policyholders wrangled over the “fine-grained distinction” between recklessness and negligence.
The Virginia Supreme Court ruled the opposite way in 2012, holding an insurer had no duty to cover AES Corp.’s costs associated with the Kivalina lawsuit. That case, on behalf of villagers in Alaska, ultimately failed. But Virginia and Hawaii law differ, the Hawaii Supreme Court said.
Aloha wasn’t so lucky on the pollution exclusion. Since any substance can be an irritant in large enough concentrations, the court said, the pollution exclusion “requires some limiting principle to avoid absurdity.” Aloha argued CO2 is a natural byproduct of burning fossil fuels in a “legal, ordinary and intended way.” But Hawaii regulates greenhouse gases as pollutants, the Supreme Court said, and just because using a product is legal doesn’t mean the resulting emissions aren’t pollution.
“What makes a product a pollutant is that it causes damage due to its presence in the environment,” the court ruled. “If a business sells a product that is inherently polluting, that fact must be part of its reasonable expectation. To hold otherwise would write the pollution exclusion out of the policy.”
Honolulu claims Aloha’s former parent, Phillips 66, and current parent, Sunoco, were on notice their products could cause global warming but misled consumers about the risk, causing them to burn more fuel than they otherwise would have. The U.S. Supreme Court recently sought the opinion of the U.S. Solicitor General on whether it should take up an appeal of the Honolulu case, which could spell the end of climate litigation in state courts, most of which is being pursued on a contingency-fee basis by private lawyers.