We blogged last May and again in December about the tidal wave of litigation set loose by Our Children's Trust (OCT), an Oregon environmental group that had orchestrated the filing of  a dozen suits asserting the defendant States and the United States had an obligation under the public trust doctrine to restrain carbon dioxide emissions, as well as regulatory petitions in about 40 jurisdictions.  One can find OCT on Facebook, Flickr, YouTube and Vimeo. It prepares "backgrounders" for the press (attached). It has even coined its own acronym, ATL (atmospheric trust litigation) for its legal assault.  OCT is media savvy. It has still not established that it is litigation savvy. 

The petitions have not fared well.  OCT's website is not up-to-date but petitions have been denied in at least 27 jurisdictions (Arkansas, Connecticut, Florida, Georgia. Hawaii, Idaho, Illinois, Iowa, Louisiana, Maine, Maryland, Michigan, Missouri, Nevada, New Hampshire, North Dakota, Ohio, Oklahoma, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, Virginia, and Wyoming and Washington, DC).   The denials have  prompted two more lawsuits (appeals) in Iowa and Texas. 

On the litigation side, motions to dismiss have been the defendants' responses of choice.  The lawsuit against Montana filed in the Montana Supreme Court was dismissed almost immediately.  Montana has a rule permitting an original action before the Montana Supreme Court where there are no factual issues and the matter is urgent. The court rejected that position:  "This Court is ill equipped to resolve the factual assertions presented by Petitioners. We further conclude that Petitioners have not established urgency or emergency factors that would preclude litigation in a trial court followed by the normal appeal process."  Accordingly, the petition for original jurisdiction was denied.

Fast forward to today, the tidal wave is starting to break.  New Mexico and Oregon had oral argument on their motions in January. Decisions have not been issued.  In the Oregon suit it was reported that, after argument, the judge remained undecided about whether to dismiss the case.  This month there are hearings in Alaska, Arizona and Washington.   

And last Monday the first merits decision was handed down.  In Aronow v. Minnesota the Minnesota District Court dismissed the case with prejudice.

Plaintiff's complaint (attached) lays out the threats posed by climate change in great detail.  It then explains the public trust doctrine, including legal authority for extending it to the atmosphere.  "The Public Trust Doctrine is a foundational aspect of sovereignty; it holds government responsible, as perpetual trustee, for the protection and preservation of resources necessary for the common welfare of all citizens, those living and those yet to be born. ... The atmosphere, because of the climate stability it makes possible, is a necessary resource protected by the public trust."  The doctrine is, according to the complaint, partially codified in the Minnesota Environmental Rights Act (MERA) (Minn. Stat. §§ 116B.01 - 13). 

Plaintiff coffered two theories as the basis for relief:  one under the public trust doctrine and the other under MERA.  He sought a declaration that the atmosphere was protected by the public trust doctrine and that the defendants were in violation of the doctrine.  He also sought a declaration that defendants had violated MERA (without identifying what part of MERA was violated).  Last, plaintiff asked the court to "Compel Defendants to take the necessary steps to reduce the State's carbon dioxide output by at least 6% per year, from 2013 to 2050, in order to help stabilize and eventually reduce the amount of carbon dioxide in the atmosphere."

The defendants, Minnesota, the governor and the Minnesota Pollution Control Agency, filed a motion to dismiss.  They succeeded.   In dismissing the claims, the court set down its opinion (attached) in three parts:  1. can the governor be sued (no); 2. does the public trust doctrine apply to the atmosphere (no); and 3) are there viable causes of action under MERA (no).

As to the governor, he had no legislative authority or funding "to  implement the policies sought by plaintiff." Accordingly, he was not a proper party to the suit.

As to the public trust doctrine, this ruling is arguably the most important part of the decision.  A ruling in OCT's favor would provide it ammunition in the imminent battles in other jurisdictions.  A ruling against it would supplement the arsenals of the defendants in those other cases.  Further, the court's decision was the first merits decision on the central tenet of OCT's raft of cases:  the public trust doctrine applies to the atmosphere.  The court's analysis is brief so we provide it in full: 

Minnesota Courts have recognized the Public Trust Doctrine only as it applies to navigable waters. "Navigability and nonnavigability [sic] mark the distinction between public and private waters. The state, in its sovereign capacity, as trustee for the people, holds all navigable waters and the lands under them for public use." Nelson v DeLong, 7 N.W.2d 342, 346 (Minn. 1942) (emphasis added). The Nelson court ultimately held that a private citizen's riparian rights are subordinate to the State's needs as it manages the navigable waters that are held in the public trust. See also Pratt v. State, Dep't of Natural Resources, 309 N.W.2d 767, 771 (Minn. 1981).  In Larson v Sando, 508 N.W.2d 782 (Minn. Ct. App. 1993), rev. denied (Jan. 21, 1994), the court declined to extend the public trust doctrine beyond the state's management of waterways, partly because the cases cited by the parties applied only to waterways. Id. at 787 (declining to extend the doctrine to land). Similarly, this Court cannot locate, nor did counsel for either party supply, a Minnesota case supporting broadening the Public Trust Doctrine to include the atmosphere. This Court has no authority to recognize an entirely new common law cause of action through plaintiff's proposed extension of the Public Trust Doctrine. 

That is it.  There is no analysis of whether the public trust doctrine should or should not apply to the atmosphere.  Instead, the court simply ruled it has not been done before in Minnesota and it will not be done by this district court here.

Last, are the MERA claims.  The court went out of its way to consider a variety of ways that a MERA suit might be justified. We want to focus on the simplest: the statutory requirements. Under § 116B.03 a resident of Minnesota could bring suit in the name of the State "for the protection of the air ... from pollution impairment or destruction." A problem was that plaintiffs had not complied with the statutory requirements of giving notice, which was "fatal." Another problem was that plaintiff was required to sue on behalf of the State, which he did not.  A final problem was that the required "pollution, impairment or destruction" was defined by statute, and the statutory requirement, according to the court, was not met.  We have trouble with this conclusion, however.  To be sure the statutory definition required "conduct by any person which violates, or is likely to violate, any environmental quality standard, limitation, rule, order, license, stipulation agreement, or permit," but it also alternatively permitted a claimant to challenge "conduct which materially adversely affects or is likely to materially adversely affect the environment."  Minn. Stat. §  116B.02(5).  Plaintiff expansively alleged how carbon dioxide emissions lead to climate change which is causing numerous deleterious effects on humans and the environment.  And he alleged how Minnesota's state government's conduct (inaction) was materially adversely affecting the environment.  These allegations just don't seem to square with the court's conclusion that "the Complaint does not allege anything falling within the definition of 'pollution, impairment or destruction.'"  We wonder why the court ventured into this area when it had established the procedural bars.

Alternatively, under Minn. Stat. § 116B.10 a Minnesota resident could "maintain a civil action .... for declaratory or equitable relief against the state ...where the nature of the action is a challenge to an environmental quality standard, limitation, rule, order, license, stipulation, agreement or permit promulgated or issued by the state ... for which the applicable statutory appeal period has lapsed."  Plaintiff's fundamental problem was that his complaint failed to "refer to or challenge a single environmental quality standard, limitation, [etc.]"  In other words, by its terms plaintiff's claim did not meet the statutory requirements.

OCT is 0-27 in the regulatory arena.  It is now 0-2 in litigation.  Notwithstanding, we cannot see the future here.  Regulatory agencies cannot move into new areas without legislative authority.  We will not be surprised if OCT is 0-40 in the not too distant future.  But in the courts it may be a different story.   Montana's dismissal simply set the stage for re-filing in the trial court.  In Minnesota the court did not reject the concept of applying the public trust doctrine to the atmosphere; it simply was unwilling to plow new ground.   And the Oregon trial court is reportedly on the fence.  We still await thoughtful jurisprudence on whether the public trust doctrine applies to the atmosphere.  We note, however, that we expect a long wait for this to settle down; whatever happens in the immediate future, there are certain to be appeals.

20120130 Order of Dismissal, Aronow v. Minnesota (Our Children's Trust).pdf (960.57 kb)

Aronow v. Minnesota Complaint (Our Children's Trust).pdf (247.79 kb)

Our Children's Trust, National Backgrounder (ATL) 12-1-191.pdf (316.65 kb)

Notwithstanding that millions tune in to the long-running reality TV show America's Next Top Model, the real modeling action is not in Hollywood.  Instead, it is on computer mainframes churning out annual simulations of 100,000 years or more of catastrophes such as hurricanes, earthquakes and terrorist attacks. Such analysis drew the attention of the Maryland Court of Appeals in its seminal opinion last Wednesday in People's Insurance Counsel Division v. Allstate Insurance Co. (attached), which affirmed the appropriateness of modeling in an insurer's decision to issue, or not, homeowners' insurance policies.

The facts in Allstate were relatively simple. In 2006 Allstate determined that it would no longer write homeowners' policies on Maryland properties within one mile of the Atlantic Ocean. It subsequently extended that decision to completely exclude from new policies five Maryland counties, and portions of an additional six counties (all identified by zip code). It relied on a model developed by Applied Insurance Research, Inc. (AIR), which showed that the hurricane losses Allstate would suffer in the identified zip code areas were too high. Dutifully Allstate filed the appropriate papers with the Maryland Insurance Administration. The Administration found nothing exceptional about the application. The People's Insurance Counsel Division (PICD) (a part of the Office of the Attorney General) did, however, and requested a hearing.  It lost before the Commissioner of Insurance, then before the Circuit Court and again before the Court of Special Appeals (see our post).  

PICD then appealed to Maryland's highest court and argued before the Court of Appeals that Allstate had failed to meet its burden of showing that its decision was not "arbitrary, capricious or unfairly discriminatory."  See Md. Ins. Code § 27-501(a)(1).   Following from that, PICD further argued that the designation of areas by zip code did not have an objective basis and therefore was arbitrary and unreasonable. See Md. Ins. Code § 19-107(a).  Allstate's proofs consisted primarily of computer modeling evidence, which the Commissioner found sufficient.

Much of the opinion is directed to the parsing of Maryland's Insurance Code and its legislative history to determine whether § 27-501 even applied (the Court of Special Appeals had found it did not, and the Court of Appeals reversed that portion of the decision). We leave it to the insurance blogosphere to address that further.

What is of interest to this readership is how modeling came into the decision and where modeling stands as a result.

In the proceeding Allstate offered a model that simulates hurricanes from genesis to decay and the damages that would be suffered.  Basically, AIR modelers "developed mathematical functions that describe the interaction between buildings and their contents and the local intensity to which they are exposed." PICD at 7.  Allstate established with expert evidence that catastrophe risk is not diversified ("adding additional catastrophe risk does not reduce overall risk because of pooling but actually increases the overall risk") and that historical loss data is incomplete and outdated "making it difficult to estimate losses."  PICD at 7.  Accordingly, "it has become standard practice for insurance companies to use catastrophe models to anticipate the likelihood and severity of potential future catastrophes before they occur." PICD at 5-6.

The advantages of modeling are substantial; 

(1) It was able to capture the effects on catastrophic loss distribution of changes over time in population patterns, building codes, amounts insured, and construction costs;
(2) It provides a complete picture of the probable distribution of losses rather than just estimates of probable maximum losses;
(3) Because simulation models can be tested more easily than other approaches, it leads to greater stability in estimating expected annual losses;
(4) It provides a means to determine the impact of new scientific information; and
(5) It provides a framework for performing sensitivity analyses and “what if” studies. PICD at 6

As the Court noted, "By using computer models, they can get 100,000 years of simulated loss experience, which is good not just for State-wide pricing but also for loss characteristics related to hurricanes down to the ZIP Code level." PICD at 7. 

PICD retained an actuary to rebut Allstate's proofs; he testified with respect to "actuarial science." He was hampered, perhaps fatally, when the Commissioner refused to allow him "to express any opinion with respect to the model that formed the basis of Allstate's amended filing." PICD at 11. We were not there but the Court of Appeals paints a picture of a non-committal expert. He offered that the decision to not write new policies was unreasonable "'because there is no showing that it is reasonable.'" And he "declined to choose" the method Allstate should have chosen to reduce its risk.  PICD at 11.

In a post-hearing submission PICD argued that "Allstate was required to produce valid statistical data demonstrating the probability of a hurricane sufficiently strong to cause catastrophic damage actually making landfall in Maryland and that it failed to do so."  PICD at 23.  The statistical standard was based on dicta in an earlier Court of Special Appeals decision, Crumlish v Ins. Comm'r, 520 A.2d 738 (1987), which the Commisioner and the Court distinguished.  First, Crumlish's requirement for statistical evidence was not a universal requirement. PICD at 25. More significant was the "catchall" exception added to § 27-501 which established a "standard approved by the Commissioner that is based on factors that adversely affect the losses or expenses of the insurer under its approved rating plan and for which statistical validation is unavailable or is unduly burdensome." PICD at 25.

"That is what the Commissioner did in this case."  PICD at 25.  In other words, the Commissioner found Allstate's evidence met its burden of demonstrating that its use of modeling as the basis to stop writing policies in certain areas was reasonably related to its business and economic purposes and was not discriminatory. 

The dissent would have adopted the Crumlish dicta and required Allstate to offer statistical evidence concerning the landfall of destructive hurricanes in Maryland. PICD, dissent at 5.  Such an assessment was either to be based on the historical record (an impossibility as no hurricane had ever made landfall in Maryland) or "climate science" (which one would think would include modeling).  PICD, dissent at 9, 10.  According to the dissent, all Allstate provided was a computation of the "relative risk" of a hurricane landfall in Maryland as once in 25,000 years based on the worst 5% of hurricanes that made landfall in North Carolina, Virginia, and Delaware.  Allstate justified its decision based on hypothetical hurricanes, i.e., a model.  PICD, dissent at 7.

The Court properly rejected this distinction.  The use of probabilistic catastrophe risk modeling came of age following the destruction caused by Hurricane Andrew in South Florida in 1992. As stated by modeler RMS in its 2008 A Guide to Catastrophe Modeling (p6):  "It became clear that a probabilistic approach to loss analysis was the most appropriate way to manage catastrophe risk. Hurricane Andrew illustrated that the actuarial approach to managing catastrophe risk was insufficient; a more sophisticated modeling approach was needed."  Another modeling firm, EQECat, put it this way:  "The main concern for all users is the uncertainties in the models. Some time ago, the only way to estimate a probable loss was to trust few statistical studies of past losses from some historical events and or on the experience of the underwriter. The uncertainty in these models was quite large as confirmed once a new event [such as Hurricane Andrew] took place. The main problem is that there is not enough historical data, and the standard actuarial techniques of loss estimation are inappropriate for catastrophe losses." 

One of the purposes of catastrophe modeling is to assist the user (often an insurer) in avoiding the alliteratively named "risk of ruin."  If all the industry is using a tool that can minimize the risk of run, it would ill-behoove a court to take away that tool.  In Allstate the Maryland Court of Appeals agreed. 

Nevertheless, if one is looking for guidance on how modeling will be received in the courts, there is one significant question left unresolved by this decision:  how will competing models be treated?  PCID's expert seems to have been completely out of his league. Whatever his actuarial credentials, if the issue is modeling then a modeling expert is needed. And at the very least the AIR model was subject to challenge. In a review published just this month, Assessing US Hurricane Risk: Do the Models Make Sense?, AIR takes on its competition, RMS, and states:  "with this latest round of updates, we [modelers] find ourselves more divergent in our views of risk than ever." (p5)  As one example of this divergence, "Catastrophe modeling companies have vastly different views on what influence sea surface temperatures (SSTs) in the Atlantic Ocean have on U.S. hurricane landfall risk." (p12).  If AIR is correct, perhaps application of the RMS model would have altered the list of excluded zip codes. More fundamentally, does the uncertainty established by competing models (and that is inherent in modeling) impose an unavoidable and unacceptable arbitrariness in application?  That is for another day.  For the moment, modeling companies and those who use them likely will proceed full speed ahead.

Post scriptum - Climate change seems to have been a subject not to be discussed.  As noted by the dissent, if Allstate was worried about the science of climate change, it didn't bring it up.  Nevertheless, the dissent did bring it up and asserted that meteorological change occasioned by climate change could be a legitimate basis for Allstate's decision.  The modeling firms think otherwise. Eqecat's CEO Bill Keogh has stated because of the uncertainty associated with climate change's effect on hurricanes, " it has no role in catastrophe risk modeling."

Peoples Insurance Counsel Division v Allstate Insurance Company.pdf (78.07 kb)

2000 years ago all roads led to Rome.  Nowadays, as Our Children’s Trust recently found out, the road of a climate change lawsuit leads to Washington.  All are familiar with the path to Washington taken by Massachusetts v. EPA and American Electric Power v. Connecticut.  Last week a different path surfaced:  the trial court.  The District of the District of Columbia became the Washington venue of Alec L. v. Jackson when  the Northern District of California transferred the federal climate change suit instigated by Our Children’s Trust. 
 

Our Children’s Trust (OCT) is an Oregon public interest group that is quarterbacking a set of lawsuits and regulatory petitions seeking to reinvigorate federal and state regulation to combat climate change.  OCT burst on the climate change litigation scene last May with suits or petitions in all 50 states, invoking the public trust doctrine as available to protect the atmosphere – a new twist on an old doctrine. 

Besides a dozen lawsuits in state court, one was also brought in federal court in the Northern District of California (where another climate change lawsuit – Native Village of Kivalina v. ExxonMobil - was also filed).  Alec Loorz, a teen-aged environmental activist, and other youths, in company with Kids vs Global Warming and Wildearth Guardians, sued Lisa Jackson, Kenneth Salazar, Thomas Vilsack, Gary Locke, Steven Chu and Leon Panetta. You may recognize the defendants as the EPA Administrator and the Secretaries of Interior, Agriculture, Commerce, Energy and Defense, respectively.

In the amended complaint, after explaining the plaintiffs’ circumstances (youths¹ and an environmental group that will be harmed by the effects of climate change), the defendants’ alleged misfeasance (failure to act to restrain and reduce carbon dioxide emissions), the effects of climate change and the need to take action (among other reasons: “A failure to act soon will ensure the collapse of Earth’s natural systems resulting in a planet that is largely unfit for human life.”  Complaint ¶ 9.), a single cause of action is set forth. Plaintiffs allege, among other things:  

143. The United States government is a co-tenant sovereign trustee of the atmosphere and shares a duty with other co-tenant sovereigns, including Tribal Nations, to protect the atmosphere as the trust asset and prevent its waste or harm for the benefit of the people, including Plaintiffs and future generations of citizens

146. Defendants, and each of them, have wasted and failed to preserve and protect the atmosphere Public Trust asset, and have caused and will continue to cause imminent injuries as described above, from increased greenhouse gas emissions, global heating, and adverse impacts to natural and other resources.

147. Defendants, and each of them, have injured Plaintiffs by failing to protect the atmosphere as a Public Trust asset.

Needless to say, the government defendants don’t agree.  But instead of contesting the merits or challenging standing or asserting the political question defense in California, defendants sought something simple:  just a change of venue to Washington, D.C. Plaintiffs opposed.    

The district court sided with the defendants in a nine-page opinion that addressed the relevant considerations point by point.  As set out by the Supreme Court, transfer is appropriate based upon an ‘individualized, case-by-case consideration of convenience and fairness.’  Opinion at 2 (citing Stewart Org., Inc. v. Ricoh Corp., 487 U.S. 22, 29 (1988)).  The relevant factors to be considered included:  (1) plaintiffs’ choice of forum, (2) convenience of the parties and witnesses, (3) ease of access to sources of proof; (4) local interest in the controversy; (5) familiarity of each forum with the  applicable law; and (6) relative congestion in each forum.  Opinion at 3 (citing Ctr. for Food Safety v. Vilsack, No. 11-00831 JSW, 2011 U.S. Dist. LEXIS 31688, at *18 (N.D. Cal. Mar. 17, 2011)).

Without delving into each of the factors, a fair summary of the court’s view might be:  because the effects of global warming are felt equally by every citizen and the decisions directing the government’s response were made in Washington, there was no compelling reason to keep this case in California and there were good reasons to transfer the case to the District of Columbia.  It is not a very satisfactory analysis.

While it is likely that climate change on the whole is bad, some will be advantaged by it (for example, farmers in Canada with longer growing seasons, or shippers that can use the Northwest Passage to the detriment of the Panama Canal); others will be disadvantaged (such as homeowners facing increased insurance premiums in hurricane-prone states, or asthmatics troubled by the particulate arising from more frequent wildfires caused by lack of rain).  To say that all will be affected equally seems plainly wrong. Nevertheless, the court made that point on several occasions to support its conclusion that the plaintiffs did not have an interest localized to the Northern District of California.  See Opinion at 4, 7, 8-9. 
 
Conversely, to find out why the District of the District of Columbia was the proper forum, one needed to look at who the defendants were:  heads of regulatory bodies who resided in or near Washington and whose allegedly improper decisions were likely made there as well.  Opinion at 4, 5, 6, 7, 8.  This reasoning suggests that a plaintiff seeking to avoid transfer should assert his or her claim against the local representative of the federal agency or department.  Of course that would likely be met with a motion to dismiss for failure to join an indispensable party because an agency's local representative would not be the one making the decisions about responding to climate change.  Which further suggests that under this factor, a suit about federal government policies against the federal government is always most appropriate in Washington.  Such a rule sounds like a bad idea.

But bad idea or not, the OCT plaintiffs are now in Washington.  Transfer has eliminated the possibility of an appeal to the relatively more liberal Ninth Circuit. Presumably, this was what inspired the motion to transfer. But it has also put the case into a more favorable news market offering better hours for prime time access to a decision.   

A hearing date is not set but the case will be taken seriously. Already the National Association of Manufacturers has weighed in on the side of the government.  On the plaintiffs' side, they have drummed up support from nearly two dozen law professors and scholars to explain the application of the public trust doctrine.

¹It may only be us but the youth plaintiffs do not appear terribly sympathetic. By the tender age of 16 they have the suffered the misfortunes of going hiking on Icelandic glaciers, visiting Patagonia in the company of Robert Kennedy, Jr. and traveling to Africa.  Complaint ¶¶ 30, 37, 45.

It's not Gone with the Wind or Harry Potter, but an article just published in the public health journal, Health Affairs, is worth picking up, if only to start you thinking.  In Six Climate Change–Related Events In The United States Accounted For About $14 Billion In Lost Lives And Health Costs, the authors (two senior scientists at the NRDC, two professors and a law student) grapple with the health costs of climate-change related events.   In the authors' words:  "The objective of this study was to provide a cost calculation of health effects associated with events related to climate change over the past decade. Similar events can reasonably be expected to occur more frequently in the future." 

The report looked at six events (ozone pollution, heat waves, hurricanes, infectious disease outbreaks, river flooding, and wildfires) between 2000 and 2009 and estimated that the total health costs exceed $14 billion. It acknowledges that the individual events cannot be linked definitively to climate change and that the relationship between climate change and health is complex and variable.  The report's value, it is asserted, is that it provides information on "the types of health impacts that are projected to worsen under climate change."  Interestingly, it reports health linkages that are generally overlooked.  Increases in carbon monoxide poisoning are associated with hurricanes as a result of power outages and the use of generators.  Wildfires result in increases in asthma.

While the report is a good start, in our view it attempts too much.  We have no doubt that everyone will agree that hurricanes and wildfires cost money and threaten health.  But just providing a sample of one hurricane season in one locale and one state's experience with heat waves hardly advances the ball (particularly when it is acknowledged that the studied event was a "high-end, but not extreme, event").  Much more useful would be to explain the variables that affect those health expenditures in each of the subject areas.  Still, one has to start somewhere and other researchers can pick up where this leaves off.

The report acknowledges that it did not consider the health benefits of climate change.  We would like to point out one that may soon be more well-known:  the health benefits of the electric car.  And we are not talking about the benefits to your inner ear and auditory canal from the quiet.  Rather, the electric car may be the vehicle for making the nation smarter.  

Many years ago engineers figured out that bonding a few organic molecules to a lead atom and adding it to gasoline could eliminate "knocking" in a car's engine. A billion dollar industry was born. Unfortunately, after the anti-knocking job was done, the lead continued on out the exhaust pipe and ended up on the side of the road. That was the end of it until public health specialists drew the connection between retarded cognitive development and other maladies and the use of leaded gas. It took the USEPA only 15 years (including an appeal to the D.C. Circuit) to achieve a total ban on lead in motor vehicle fuel in 1986.

Now we are twenty-five years later. Lead is long gone from automobile fuel but health researchers are again focusing on the connections between retarded cognitive development and a host of other maladies and automobile exhaust.  This story is set forth this past Monday in a Wall Street Journal article, The Hidden Toll of Traffic Jams, by Robert Lee Hotz.  Mr. Hotz surveys the scientific literature from across the country and around the globe and points out the correlations scientists are finding between high levels of exhaust and lower IQs, anxiety, memory loss, attention deficits, and premature births.  This time the culprit cannot be lead. In fact, no one knows the identity of the specific etiologic agents.  But even without that information, one solution would be to knock down exhaust levels across the board. Enter climate change. Or more specifically, enter a response to climate change:  the electric car.   It is touted (somewhat misleadingly) as a zero emission vehicle. It has no tail pipe. Even when its emissions are acknowledged (those that go up the power plant stack), however, power plants are far more efficient and much cleaner than internal combustion engines. Hence there are far fewer emissions per mile traveled and the maladies correlated to exhaust invariably will decrease.

Will this health benefit drive the adoption of electric cars? Certainly not by itself. Will it be a factor?  Only time will tell, but if leaded gas is any indicator, we will soon see health advocates pushing for charging stations and plug-n vehicles, and some of us will be smarter for it.

Ceres released last week the first analysis of the insurer climate change disclosures submitted to state regulators pursuant to the National Association of Insurance Commissioners rule.  The report is eye-opening.  The authors have combed through the disclosures of 88 insurance companies and offer thoughtful insights on, for example, investment practices, management structure and modeling.  Those seeking to advance their bottom line will find nuggets of information directly related to competitive advantage.  In this post, we outline the report and discuss its first recommendation regarding mandatory and public disclosures.  In subsequent posts we will address Ceres’ second and third recommendations.

The report’s title is dry and daunting:  Climate Risk Disclosures by Insurers:  Evaluating Insurer Responses to the NAIC Climate Disclosure Survey.   Fortunately, it does not live up to the ominous desiccation foretold by the title.  We know from the get-go where this is going:  "This report documents this powerful industry's sluggish and uneven response to the ever-increasing ripples from global climate change, which could undermine both its own financial viability and the stability of the larger global economy."  Id. at 3.

For those to whom Ceres and NAIC are unfamiliar, the former is a non-governmental organization composed of a coalition of investors, environmental organizations and other public interest groups, whose mission is to “integrat[e] sustainability into day-to-day business practices for the health of the planet and its people.”  The latter is the National Association of Insurance Commissioners, which in 2009 approved mandatory requirements for climate change disclosures for insurance companies, because "[a]s regulators, we are concerned about how climate change will impact the financial health of the insurance sector and the availability and affordability of insurance for consumers.  This disclosure standard will give regulators the information we need to better understand these risks."    NAIC later revised its requirements to make disclosure voluntary.

Ceres's work is based on the 2010 disclosures of 88 US insurers filed in six states (mandatory:  New York, California, Pennsylvania; voluntary:  New Jersey, Oregon, Washington).  The report is set up in three parts.  Part 1 describes climate change risk and the need for disclosure.  "The changing climate will profoundly alter insurers' business landscape, affecting the industry's ability to price physical perils, creating potentially vast new liabilities and threatening the performance of insurers' vast investment portfolios." Climate Risk Disclosures at 9. 

Part 2 is the meaty analysis of the report and addresses the following topics:

Risk Perception and Management Structure
Risk Exposure and Management
Financial Effects
Loss Modeling
Investments
Emissions Management
External Engagement

Its goal is to set out “risk perceptions and management practices for handling climate change across the American insurance industry.”  Id. at 17.  While often couched in possibilities, the analysis raises numerous interesting issues.

Part 3 is the Recommendations to Regulators.  There are three and we focus there.  First, Ceres recommends “implement[ing] mandatory disclosure annually, and mak[ing] survey responses publicly available."  Id. at 50.  We take no position on whether NAIC should require climate change disclosures and would be interested to read NAIC’s own evaluation of the disclosures and how they advance the goals of insurance regulators.  As for public disclosure, while we are perhaps more interested than most in these types of things, we are acutely sensitive to the issue of competitive advantage.  There will be winners and losers in the insurance industry as a result of climate change.  The winners will be those who, among other things, recognize correlated risks first, have more accurate models, and innovate better.  Requiring companies to give away their proprietary information may lead them not to generate it in the first place.

And items leading to competitive advantage are all over the NAIC submissions.

Harleysville Insurance Company reports that “over time the Company has witnessed the traditional tornado alley expand causing increased losses further east and toward the southeastern states." Id. at 24.

"[A] handful of insurers discuss the ways their approach to establishing reserves, reinsurance coverage or capital market transfers have been adapted to reflect changing risk statistics or future scenarios where historic statistics do not illuminate future risk."  Id. at 32.

Allianz is “developing products and services geared to address climate change, ... leveraging climate change research, and contributing to related public policy development."  Id. at 19.

There are a lot of things that make a business succeed.  Intellectual capital is one of them.  Just as we would not expect businesses to give out greenbacks to passersby, why should their green ideas be treated differently? 

Tomorrow we will look at Ceres’ second recommendation concerning shared resources.

My train this morning usually continues to New York. Today it terminated in Philadelphia, a victim of the deluge delivered by Hurricane Irene. Amtrak explained:

Most Northeast Regional service will operate south of Philadelphia, but no Acela Express, Northeast Regional or other Amtrak trains can operate north of Philadelphia to New York.

As of early this Monday evening, about a half-mile of Amtrak right-of-way remained submerged near Trenton, N.J. As the water levels recede, Amtrak engineering forces will make repairs to the track and signal control infrastructure. Updates will continue to be provided and an estimate for restoration of full service south of New York is not yet available.

Many attribute the recent spate of natural disasters (heat waves, droughts and wildfires in Texas, tornadoes in Missouri and Alabama, Hurricane Irene) to the effects of climate change. We reserve judgment. Climate change is about trends, not individual events.

One trend we are watching closely is the status of flood plains. We dug up the Flood Insurance Rate Map for the Trenton train station. The Amtrak right of way mentioned above is in the 100 year flood plain. We weren't able to determine how many times it had flooded recently, but the mayor of nearby Lambertville noted that they have been flooded out 5 times in the last ten years.   The flood at the train station was a record, nearly seven feet above flood stage.  Id. And  a study out of the University of New Hampshire  reports New Hampshire has experienced 4 100-year floods in the last four years.  Some may discern a trend.

Fortunately, we are not the only ones watching. FEMA is in the process of preparing a report on climate change impacts on the National Flood Insurance Program. Preliminary information indicates that some Special Flood Hazard Areas (the 100-year flood plain) will double in size and that by the next century the nation's flood plain will be 40%-45% larger.  Look for The Impact of Climate Change on the National Flood Insurance Program to be out this fall.

FEMA currently does not directly address climate change in the NFIP, because its practice is to make its assessment based on the historical record.  But that does not mean communities and businesses cannot.  For example, a community may request that the applicable Flood Insurance Rate Map address future conditions.  44 CFR 64.3(a)(1).  Where business continuity planning is standard practice (and we hope that is everywhere) vulnerability assessments need to ask not only where is the flood plain, but where is it likely to be.  Many have been off to a slow start on climate change planning.  But, as with trains, late is better than never.

View of Trenton Amtrak right of way (c) Times of Trenton

Half a degree doesn't sound like much. And it isn't, if you are talking about a baccalaureate. But in a world of climate change, a half a degree increase in Baltimore's average temperature combined with average temperature increases in all the lower 48 states is confirmation of what the scientists are telling us:  the planet is warming.  Thus, the National Weather Service's release on Monday of revised 30-year average temperatures gives some satisfaction, or at least Schadenfreude, to those trying to lead (or push) their organizations into proactively managing climate change.

Or does it?  Here is how this news was reported in Tampa, Florida 

"Some of the changes emerge from tossing out statistical peaks and valleys from the 1970s, the weather service says. A shift in instrument locations could explain more change.

And the continued development around Tampa International Airport and Tampa in general could account for some of the warmer nights that helped push average temperatures higher for April through August.

A slight shift in equipment location at Tampa International Airport could also influence the low morning readings, the weather service says.

Or, the overall reason also could be changes in global climate, but that’s impossible to determine from readings at one location, the weather service says."

So if this is all statistics, what is one to do?  You could instead get your weather news from Montgomery, Alabama, which reported on the same news:

Updated theories of global warming and climate change predict a pattern of increasing temperatures. The theories are based on an increased amount of carbon dioxide in the atmos­phere leading to high tempera­tures.

The shift in temperatures is more likely associated with the Pacific Decadal Oscillation, said Dr. Roy Spencer, a princi­pal research scientist at the University of Alabama in Huntsville. Spencer also has served as a senior scientist for climate studies at NASA's Mar­shall Space Flight Center in Huntsville.

So which is it?  Statistics, decadal oscillation or climate change?  The statistics answer is easy to discern.  For Tampa, scientists cannot say that its temperature specifically is driven by climate change.  But when the whole country is changing, that is a different story.  Montgomery is a little more difficult.  I tracked down Dr. Spencer's webpage  and learned that he believes, "Climate change — it happens, with or without our help."  His research is into whether the climate change we are observing is natural or man-made.  He agrees that the climate is changing.

This seemingly disparate information contains a valuable lesson.  Where there is no controversy or skepticism, it is easy to make choices of what to do.  Where controversy surfaces, however, to move forward, one needs to understand precisely what is controverted.  And often, of course, that will have to be done by degrees as understanding matures.

Last Thursday Secretary of State Hilary Clinton and other prominent diplomats signed the first ever treaty under the auspices of the Arctic Council; specifically, the member nations addressed Arctic search and rescue, made necessary by the increasing traffic in the formerly ice-locked realm caused by the reality of Arctic warming. Less noticed, perhaps, was the release of a report by the Council's Arctic Monitoring and Assessment Program (AMAP).  Among other things, the report, Snow, Water, Ice and Permafrost in the Arctic, forecasts up to a 5-foot rise in sea level by the turn of the century. This is real news because the earlier report in 2007 by the Intergovernmental Panel on Climate Change forecast an increase only one-third as large. We hesitated to report the AMAP conclusions because the last thing a law firm wants to be called is an alarmist, always sounding the air raid siren when a blip appears on the radar.   But, by the same token, counsel's fundamental role is to assist clients in addressing risks. That there are extreme views on almost any subject does not mean that the subject should be ignored. And the views here are not extreme.  Climate change is occurring. Prudence dictates that the effects be considered and addressed.

The AMAP report is a product of the environmental assessment arm of the Arctic Council, an 8-nation group that considers how to promote sustainable development and environmental protection in the Arctic. The report picks up where the IPCC left off, when it forecast a sea level rise of between 7 and 23 inches by 2100. Left out of the IPCC analysis was the effect of the melting Antarctic and Greenland ice sheets because the science was undeveloped.

Four years later, the Arctic Council has filled in that void and reached a startling result. According to the report's executive summary, the warming of the Arctic is having a dramatic effect. "A nearly ice-free summer is now considered likely for the Arctic Ocean by mid-century."  A "Key Finding" was that "global sea level is projected to rise by 0.9–1.6 m by 2100."  Translating, that is a sea level rise of between 3 and 5 feet by the end of the century.

Shipping companies are salivating at the prospect of a straight shot over the roof of the world from Europe to Asia. Investors in the Panama Canal are less enthusiastic.

What does all this mean for those considering their waterfront risks far south of the Arctic Circle?  Quite a bit actually.  The EPA offers some sobering data on its website.

• A two foot rise in sea level would eliminate almost 10,000 square miles of land (that is, an area exceeding all of Massachusetts).
• Damage from storms in a world with a 3-foot higher sea level would be 2 or 3 times as large.
• The salinization of coastal aquifers from salt water intrusion from rising sea levels threatens water supplies in Florida and south Jersey.

It may seem like there is little that can be done if one is unwilling to abandon the shore.  But that would be a very shortsighted view.  Investors, lenders, developers and businesses involved with real estate near the shoreline should be considering the following

1. What interest in land should one acquire - a fee simple or a conventional 30-year lease?  The lessee, without a single additional word in its lease, may be protected from rising sea levels by the covenant of quiet enjoyment. The fee owner, on the other hand, bears all of the risk of a rising mean high water mark.

2. How effective are one's contracts' force majeure clauses?  Will performance be excused if one's facility is submerged?  What about if the local infrastructure goes underwater?  Does a condemnation action by governmental authorities trigger the provision?

3. Where exactly is mean high water?  Where will it be if the predicted rise occurs even in part?  What is the significance of that for the investment expectations of all involved?

4. What is the effect of a state statute that establishes the seaward property line at something other than the sea?  If this sounds nonsensical, it is the law in Florida, as confirmed by the U.S. Supreme Court in Stop the Beach Renourishment, Inc. v Florida DEP.  Florida's statutory "erosion control line" converted many beachfront properties, into beachview properties. And no, there was no compensable "taking."

There are certainly others. The point is not to run about shouting "The sky is falling!". The point is to consider thoughtfully the possibility that the sky may fall and whether there is anything that can be done about it.

Supreme Court argument is delicious - for lawyers anyway. Following months of preparation, thousands of pages of research, and draft after draft, finally the parties are called to the fore and bluntly told: "Make your best arguments, counsel." In that context, I ventured to Richmond, Virginia this morning to hear the able presentations on behalf of The AES Corporation (appellant - insured) and Steadfast Insurance Company (appellee - insurer). The parties were locked in a contest over who should pay for the defense of Native Village of Kivalina v. ExxonMobil Corp., the climate change liability suit emanating from the northern shores of Alaska, where native Inupiat residents assert that various utilities, oil companies and a coal company are liable for the emission of carbon dioxide, which resulted in global warming, which melted winter sea ice, which loss permitted fierce winter storms to erode the peninsula on which the residents made their home. The case is the first climate change coverage case with all the implications primacy may have.

In the proceedings below, the trial court had initially denied the insurer's motion for summary judgment based on (as argued by the insured) the existence of factual issues. The court specifically held that it could not decide whether the pollution exclusion could be applied. The insured then turned around and filed its own summary judgment motion on the duty to defend. The insurer cross-moved and argued that there was no "occurrence" as the allegations in Kivalina were all intentional acts leading to reasonably foreseeable injury. It also argued that the policies' pollution exclusions applied. The court issued a terse order: "no 'occurrence' as defined in the policies has been alleged in the underlying Complaint."

With this prelude, the parties crossed lances before seven justices of the Virginia Supreme Court. In our view, the insured carried the day (and, as explained below, this is not just because AES cited our law review article in their reply brief). Counsel kept it simple. First he opened with a nod to the pollution exclusion and emphasized what was clearly set out in the briefs: the pollution exclusion issue was decided in the insured's favor (the court ruled a fact issue existed) and the insurer did not assign cross-error in its response to the insured's appeal. Accordingly, there was no issue before the Court.

Next he turned to the issue that was appealed: whether an allegation of negligence, even if mixed in with numerous allegations of intentionality, constituted an "occurrence." More specifically, did the allegations of Kivalina contain an "accident"? Accident was undefined in the policies, but well-defined under Virginia law. Even if the act was intentional (such as the emission of CO2 by a utility), if the harm was unplanned, the carrier was required to defend. An allegation that the alleged tortfeasor "should have known" (as was asserted in the Kivalina complaint) was sufficient to establish the duty to defend. In keeping with his theme, counsel provided a simple example: if he intentionally changed lanes, but failed to look in his rear-view mirror and clobbered someone, surely that was covered. And it would be covered even if it was reasonably foreseeable that someone would be injured if he failed to look. It was a good example (as we will discuss).

Counsel for Steadfast likewise appeared to be starting her discussion with the pollution exclusion. Labeling it a "toxin" (a poisonous substance that is a specific product of metabolic activities ???), she then proceeded to make the point that the insured was sued for its routine business decisions, which insurance does not cover. Further, if the four corners of the policy are compared with the four corners of the complaint (the so-called 8-corners rule which is adopted in Virginia) then it is beyond cavil that the Kivalina plaintiffs alleged that AES knew it was emitting carbon dioxide and knew that that would cause harm. At which point Justice Mims interrupted and attempted to pin down the parties' positions. As he heard it, the insurer argued that there was no coverage for intentional acts with known consequences, and AES argued coverage was lost only for intentional acts with intentional consequences. Insurer counsel refined that slightly: coverage was lost for intentional acts with reasonably anticipated consequences. And then that automobile example resurfaced - embraced by the chief justice. Frankly, I did not follow insurer counsel's rejoinder but I will attempt to recreate it. First, the policy's terms address "accidents" not negligence. Negligence is not necessarily the same as an accident. For example, while speeding and hitting someone would be both an accident and negligent, drag racing and hitting someone might be negligent but it would not be an accident. Furthermore, mere words in a complaint (like the "negligence" used in the Kivalina complaint) were not sufficient. The court must look, counsel argued, to the "facts and circumstances," which showed that there was no error, no mistake, no mishap. It was volitional and deliberate conduct.

Counsel then turned to the pollution exclusion and pointed out that the Kivalina complaint talked about pollution everywhere. "But," pointed out Chief Justice Kinser, "isn't the only ruling below that there was a fact issue precluding summary judgment?" Justice Mims chimed in and emphasized the failure to assign cross-error. Although insurer counsel asserted that it was argued on the second motion, Chief Justice Kinser spoke again and affirmed that there needed to be cross-error assigned.

Rebuttal was quick. Counsel stated: "We won the pollution exclusion issue and the trial court never ruled differently." And he effectively brought up again his lane-changing example. "If the Court adopts the insurer's position there will be no coverage in lots of areas because foreseeable harm is common. The issue is whether the harm was intended."

Prognostication is the devil's own but one can't help oneself. The pollution exclusion issue seems that it will be decided entirely on procedural grounds: as it was not raised below, it was not preserved for appellate review. The occurrence issue is a little more difficult but, as was effectively pointed out in the moving brief and in argument, the Kivalina plaintiffs chose their words and they chose negligence. How could the Court possibly ignore that?

We wrote yesterday concerning the Twentieth Century Reanalysis Project and of the controversy engendered by, and the threat to credibility surrounding, misquotes in the climate change sphere. We should have added "and misquotes also take away from the main story line."  The point of the posting was the potential lack of correlation between extreme weather and climate change.  We obscured that by focusing on the misquote.

So let's return to extremes. A view proffered by Dr. Roger Pielke Jr. is that "there's no data-driven answer yet to the question of how human activity has affected extreme weather disasters."   Dr. Pielke has offered research showing that a disaster's increase in loss is more due to the increase in population and infrastructure in areas than due to climate change.  See, e.g., Ryan P. Crompton et al., Influence of Location, Population, and Climate on Building Damage and Fatalities due to Australian Bushfire: 1925–2009, 2 Weather, Climate, and Society 300 (2010).

Others differ. In a story in the New York Times this past weekend, Elizabeth Rosenthal offers up how insurers and civil engineers are viewing the weather. Peter Hoeppe, a meteorologist and head of Munich Re’s Corporate Climate Center, has this to say: “Your own perception that there are more storms and more flooding causing damage — that is extremely well documented.”  “There is definitely a plausible link to climate change.”  And D. Wayne Klotz, president of the American Society of Civil Engineers, comments: “As we get more extreme events, that absolutely changes how we design.”  Mr. Klotz pointed to the specifics of his trade, where drainage systems today are designed to carry more water than 20 years ago.  Mr. Klotz concluded:  “We could stick our heads in the ground and say nothing is changing. But it is.”

In other words, people with a lot of skin in the game are applying their resources and skills and concluding that they or their clients are at increased risk from extreme weather. This suggests that the Reanalysis Project's data need to be further analyzed, which is consistent with Dr. Pielke's statement and with that of the Reanalysis Project authors, who noted aspirationally in their summary that "the 138-year span of the ... dataset should make it even more useful for ... assessments of ... extreme event variations."   All of which is consistent with climatelawyers.com's fundamental position:  climate change is occurring and businesses need to act to understand the risks and opportunities that such change is bringing.  If the 100-year flood plain is expanding due to changes in weather patterns, lenders and insurers need to know that. If a half-meter sea level rise by 2050 means a hurricane storm surge will overwhelm the sea wall, emergency response planners and local businesses need to know that. And if hotter weather means more air conditioning needs, then utility regulators need to know that. The extreme view would be that these risks can be ignored, and that there are no opportunities to prosper as climate change unfolds.