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Opinion: Avoiding the Carbon Dioxide Exclusion

After the conversations at Copenhagen, an insurance coverage attorney argues against liability insurers being able to exclude CO2 as a "pollutant" in climate-change claims.

It is a long way from Copenhagen to a courtroom in northern Virginia. Unsurprisingly, application of axioms of policy construction and the rules of civil procedure had little play in the Danish capital during the COP15 United Nations Climate Change Conference in Copenhagen. Yet the import of the recent international climate change meeting may be hugely significant in climate change coverage lawsuits, including Steadfast Insurance Co. v The AES Corp. (pending in Virginia).

This is because policyholders appear to have lost any hope of controlling the terms of the coverage debate. Specifically, speaker after speaker, the press, government agencies, private corporations and public-interest NGOs referred repeatedly to carbon dioxide as pollution.

Liability insurers, which know they have a problem on their hands unless they can wrap carbon dioxide into their pollution exclusions, must be rubbing their hands in glee.

Copenhagen was not the first time environmental groups railed about carbon dioxide "pollution," and the media has more than once used both terms in the same literary breath. Copenhagen was different, however, in its duration and the sheer volume of "carbon dioxide as pollution" utterances.

Anyone who cares about this issue and who was listening could not help but conclude that, regardless of the legal rule, participants in the courtroom (judge and jury) trying a climate-change coverage case are going to have the expectation that carbon dioxide is pollution, which the policyholder will have to refute. This of course stands on its head the usual rule of the insurer proving application of its exclusion.

Some may think this is not much of an issue. After all, the Supreme Court found that carbon dioxide is a "pollutant" within the meaning of the Clean Air Act, and the EPA issued its Endangerment Finding stating the same thing.

But it is an issue. An example may make this clear.

The National Oceanic and Atmospheric Administration (NOAA) had this to say about the world's most abundant greenhouse gas:

"The future monitoring of atmospheric processes involving (this greenhouse gas) will be critical to fully understand the feedbacks in the climate system leading to global climate change."

This gas NOAA speaks of is a natural and ubiquitous part of the atmosphere. Indeed, with every breath you and I take, we make our own tiny contribution to the billions of tons in the atmosphere. Lest you be misled. I am speaking of water, or more precisely, water vapor, not carbon dioxide.

Few, I suspect, would consider water vapor a pollutant. Even on the muggiest summer day, no one complains of the high humidity as pollution. While it may aggravate other pollution conditions, the humidity itself is not pollution. And it would not become pollution just because Congress passed a law calling it pollution, or an agency concluded it could be regulated as pollution, or an international accord reached a similar conclusion.

All of us would recognize that, while humidity might be categorized as pollution for the purposes of a particular statute or regulatory regime, that would not affect the common understanding of pollution as something that makes the atmosphere impure. Water vapor does not make the atmosphere impure.

Carbon dioxide is no different. The common understanding of pollution simply does not capture a naturally occurring atmospheric constituent that's essential to life.


Returning to the insurance policies at issue in northern Virginia: Those contracts should be construed according to the meanings of their terms as understood by the parties at the time of contracting.

Obviously, international discussions, or court or legislative pronouncements about the meanings of laws or regulations, may have little to do with the intent of contracting parties. Even more obviously, such pronouncements can have no bearing on contracts entered into years, even decades, before.

All of which brings us to the point of this article: Utilities, automobile manufacturers, petrochemical companies and coal producers have been sued by governmental and private parties for damages alleged to have arisen by virtue of the above defendants' responsibility for emissions of carbon dioxide. In just one lawsuit, Native Village of Kivalina v ExxonMobil Corp., the asserted damages are between $100 million and $400 million for the relocation of an Alaskan village. Although the case was just dismissed, it is certain to be appealed in light of the two federal appeals court decisions reversing the dismissal of two other climate-change liability suits: Connecticut v. American Electric Power Inc., and Comer v. Murphy Oil.

If such suits do gain traction, and who knows where the list of defendants will stop, the total amount of damages will be substantial.

Who will pay these damages, and for the defense of these claims? This is the crux of the controversy between Steadfast and AES: Will it be the insurer or the insured? The answer is the beginning of the response to a multibillion dollar question. While there are a variety of issues in the case, one of the most significant is whether carbon dioxide constitutes a pollutant within the meaning of the insurance policies at issue.

The answer may come down to whether the jury, the lawyers and the court are using words precisely, which will be informed in large part by how accurately those words are used in the press, by academia, by business and by government--in short, by all the entities that have regaled us over the past months with their positions on climate change.

If all are agreed that a nontoxic, ubiquitous, naturally occurring and life-essential atmospheric constituent such as water vapor fits within our common understanding of pollution, then we know how carbon dioxide will be classified. But if we are true to what we know, then carbon dioxide will not be forced into terminology that does not fit.

The debates at Copenhagen suggested that the precise use of language has been jettisoned by people who should know better. Water vapor has its own word for its presence in the atmosphere: humidity. Maybe it is time for carbon dioxide to have the same (a task I leave to lexicographers, newspaper editors or other wordsmiths). In the meantime, a good and useful word--pollution--has been stretched beyond its breaking point. In connection with carbon dioxide, it should be avoided.

January 1, 2010
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