Climate change litigation presents a continued risk to casualty insurers
London Market casualty insurers are continuing to experience increased notifications for climate change related claims. It is likely that this increase will prevail in light of the Glasgow Climate Pact at COP26 which asks countries to “accelerate efforts towards phasing down unabated coal power”.
Whilst the agreement did not touch on oil and gas, a much smaller group of 25 countries, (including the UK, USA, New Zealand, Canada and several European countries), agreed a more specific set of objectives on phasing out dependence on other fossil fuels, including oil and gas.
Here, we highlight some recent developments and trends in the field of oil and gas and comment as to the issues which may arise for casualty insurers.
In this area, the continuing trend of increased climate related litigation is illustrated neatly by four claims involving Shell, all of which had decisions handed down this year:
- In Bodo Community & others v Shell Petroleum Development Company of Nigeria Ltd, Shell was ordered in January 2021 to pay damages to farmers after an appeals court in the Hague found its Nigerian subsidiary liable for oil spills in the Niger Delta more than a decade ago.
- The decision of the UK Supreme Court in February 2021, Okpabi v Royal Dutch Shell and another, mean Shell will be sued in the English courts for the actions of its Nigerian subsidiary.
- In Milieudefensie et al v Royal Dutch Shell plc, in May 2021 a district court, again in the Netherlands, ordered Royal Dutch Shell to decrease its global carbon emissions by 45% (against 2019 levels) by 2030. Shell is understood to be appealing the decision.
- In Harrison Jalla and Abel Chujor v (1) Shell International Trading and Shipping Co Ltd (2) Shell Nigeria Exploration and Production Company Ltd (Jalla), the Court of Appeal reiterated the ability of the English Courts to accept and case manage multi-party environmental pollution claims involving UK domiciled corporations and their global subsidiaries, but that claimants pursuing such claims have to carefully frame the way in which they bring such actions.
In October 2021, parent company Royal Dutch Shell announced its target to halve its carbon emissions by 2030, and, in recent days, it has also announced plans to move its headquarters from the Netherlands to the UK in an effort to create a simpler corporate structure.
Oil and gas related climate litigation continues to be pursued by a variety of actors. We expect the decisions summarised above will encourage further groups of litigants to try suing global corporations, including in the English courts, for the pollution and environmental damage in developing nations, giving rise to additional claims on global insurance programmes. As per the case of Jalla summarised above, claimants will need to have given thought to how they bring such claims – whether as a group litigation or representative action.
Insurers and reinsurers in the London Market could find themselves called on to provide defence costs coverage for matters being litigated much closer to home than perhaps they are used to.
That said, the Supreme Court has reaffirmed in Lloyd v Google that, in contrast to the US, the English courts are reluctant to entertain “opt out” claims brought on behalf of groups of unidentified claimants.
In terms of how these claims might pan out in the long term, we consider that the 1990s ‘Big Tobacco’ litigation could provide an indication. That litigation arose from lawsuits pursued in the USA for recovery of tobacco related health care costs, and was settled with tobacco companies agreeing to make annual payments to states, compensating them for the medical costs of caring for those with smoking related illnesses. Similarly, manufacturers and distributors of opioid drugs have sought to settle litigation brought by US states on behalf of populations.
We query whether, in the US if not in the UK, in future we may well see similar payments made by ‘Big Oil’ defendants.
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