Supreme Court Ruling on Greenhouse Gas Regulation Could Have Direct Impact on D&O and Environmental Insurance

The U.S. Supreme Court's remarkable decision in Massachusetts v. EPA (see text of opinion) requiring the EPA to reconsider its decision not to regulate greenhouse gases has ramifications beyond environmental regulation.  By holding that carbon dioxide may be a "pollutant" and so may be regulated under the Clean Air Act, insurers are armed with a powerful argument that corporate losses and liabilities that arise from the effects of global warming are excluded under insurance policies that contain a pollution exclusion.  These might include general liability policies, property policies, directors and officers ("D&O")liability policies, and other types of liability insurance.  Each of these is likely to contain an exclusion for loss or damage arising from an actual or alleged discharge, dispersal, release, or escape of "pollutants."

The area of greatest concern to corporate policyholders is probably D&O insurance. Many companies are just now beginning to try to access risks to their businesses from the effects of global warming.  The Supreme Court discussed the scientific data predicting imminent rises of sea levels.  It is easy to foresee a slurry of shareholder class action lawsuits against companies adversely impacted by global warming alleging management's failure to adequately anticipate and prepare for these changes.  Because greenhouse gases are "pollutants" according to the Supreme Court, arguably, these shareholder actions could be excluded because the alleged losses arise, even if indirectly, from the release of greenhouse gases. 

For a thoughtful discussion of this Supreme Court decision, see law and environment.