A letter-writing campaign carried out by eco-advocates and NGOs hopes to get corporations — and their insurers — thinking about their role in climate change.
WASHINGTON — Fossil fuel executives could be held personally liable for corporate strategies aimed at undermining government efforts to address climate change, environmental groups suggest.
Green advocates have written to board members and executives at some three-dozen of the largest oil and gas companies, as well as concrete manufacturers. Letters sent in late May asked these officials how certain they are that their corporate insurance policies cover their personal liability in case lawsuits are filed over the spreading or funding of climate-related misinformation, including risk to shareholders.
Similar letters, sent by Greenpeace, the World Wildlife Fund and the Center for International Environmental Law, have also been sent to the insurance underwriters covering these companies.
“One of the things we anticipate is that the insurers and the insured may have very different answers to these questions,” Carroll Muffett, the environmental law center’s president, told MintPress News. “Further, experience suggests that people will be a little less cavalier if they begin to consider the possibility that there may be personal responsibility for their actions and decisions.”
The focus of the new campaign is a type of insurance policy known as Directors and Officers, or D&O, coverage. Large companies typically take out such policies to free up their upper-level management’s decision-making, insulating key executives against potential lawsuits over, for instance, skirting regulations too closely during the course of their work. (U.S. companies are estimated to account for upwards of two-thirds of the $10 billion global D&O market.)
Such policies are typically drawn up with several exclusions, however, including for regularly offering misleading or fraudulent information. Activists say they’re particularly interested in testing the limits of these exclusions.
“Directors and officers are often protected against making ‘misstatements’ to shareholders through D&O insurance policies, and I suspect that oil and gas executive who deliberately mislead the public about the impacts of their company’s emissions believe they would be protected by a D&O policy,” Leanne Minshull, deputy head of the Climate and Energy team at Greenpeace International, told MintPress.
“If a broad interpretation of D&O coverage is used then, possibly, they are. The question is how broadly would this be interpreted. In the area of climate litigation, it simply hasn’t been tested.”
The letters were sent to 36 corporations, including Chevron Corp., ConocoPhillips, ExxonMobil and other major entities. Insurers, meanwhile, include Berkshire Hathaway, Prudential Financial, Swiss Re and some 42 others.
The groups involved in the new campaign are clear that these companies were not chosen due to any alleged involvement in offering misleading statements or funding climate “denialism.” Instead, an annex to each of the letters includes dozens of media reports making the case of the more general industry lobbying effort aimed at weakening or delaying climate change-related policies and questioning the related science, particularly by trade associations.
Yet the logic behind which fossil fuel companies were targeted, and indeed the entire campaign, does have its roots in recent research. In this way, the letters campaign is seen by some as comprising a significant new step in a long-standing, though unsuccessful, attempt to hold fossil fuel corporations liable for the impacts of climate change.
New research has suggested that some two-thirds of the carbon dioxide (and methane) emitted globally since the mid-19th century can be traced to just 90 fossil fuel producers and cement manufacturers. The findings, compiled by Richard Heede, a researcher at the Climate Accountability Institute in Colorado, were published last year in the journal Climatic Change, and galvanized activists searching for a new route to influence corporate decision-making.
Heede notes that these 90 “carbon majors” include companies, 50 owned by investors and 31 owned by states, as well as nine governments. Not only do most of these entities still exist, but half of total carbon emissions have been produced since 1986.
“The question of wealth generated through the production and use of fossil fuels suggests an alternative to the nation-state approach: to analyze emissions in terms of the fossil fuels produced by incorporated entities – such as investor-owned or state-owned companies – rather than states as consumers and emitters,” Heede writes.
“Shifting the perspective from nation-states to corporate entities – both investor-owned and state-owned companies – opens new opportunities for those entities to become part of the solution rather than passive (and profitable) bystanders to continued climate disruption.”
Investor-owned entities are also vulnerable to “social pressures,” Heede notes, in addition to legal and shareholder actions. Indeed, there is important precedent in this regard. Heede references the long-running legal and social fights with the tobacco industry, while others are taking note of similar skirmishes with the asbestos industry.
Both of these campaigns have experienced notable successes. And all three industries, activists suggest, based their business plans on selling a product that was ultimately detrimental to public health.
“In the fossil fuel industry, we’re talking about products that threaten the environment, the climate, and ultimately human health and safety when used as directed,” the Center for International Environmental Law’s Muffett said.
“It’s when companies actively engaged in misinformation or promoted misinformation about their product that the liability risk, including personal liability, grew particularly large. In the asbestos industry, remember, that led to criminal prosecution.”
So far, the companies’ responses to the letters have ranged from silence to vitriol. ExxonMobil, for instance, has stated that the letters are merely “recycling discredited conspiracy theories” while doing little to find solutions to the complexities of climate change.
Further, experts in the intricacies of insurance writing and risk assessment have cast some doubt on whether executives’ personal liability offers any potent vulnerability that can be exploited by climate activists. In a detailed analysis of the subject from June 2, an insurance executive named Kevin M. LaCroix not only questioned the “random” selection of insurance companies chosen by the letter-writers, but also suggested that they may have a fundamental misunderstanding of the exact mechanics of D&O coverage.
However, LaCroix also acknowledged that the campaign is touching on a key, and growing, issue: the likelihood of coming lawsuits over who will pay for the effects of climate change.
“The question of who bears the costs of climate change is going to become increasingly important,” LaCroix writes.
“While one might question the environmental groups’ tactics and methods, it probably is in fact a worthwhile exercise for the D&O industry to think about whether or not climate change related claims might be coming and to think about how the industry should be preparing to respond.”
Insurance companies, he says, will need to start a discussion on how such possibilities should impact pricing, risk selection and conditions.
Expanding that discussion, both in public and private, is just what organizers say is the point of the letter campaign. They suggest the questions in their letters will now build upon a nascent discussion within the D&O and broader insurance industry on climate-related liability.
Documentation accompanying the letters recounts an anecdote from 2006 about a man named Christopher Walker, then head of a unit on greenhouse gas “risk solutions” at insurance giant Swiss Re. Walker said his company “may be forced to approach Exxon Mobil and tell them that ‘since you don’t think climate change is a problem, and you’re betting your stockholders’ assets on that, we’re sure you won’t mind if we exclude climate-related lawsuits from your D&O insurance.’”
Certainly insurance companies are increasingly being forced to grapple with the broader effects of climate change. Just last month Illinois Farmers Insurance tried to launch a class-action lawsuit against a dozen cities and counties in the state, claiming government officials had ignored the potential impacts of climate change and failed to prepare for related impacts. In this case, those impacts included April 2013 flooding damage that the insurance company then had to cover.
Although the case was ultimately dropped last week, environmental advocates are seizing on the attempt as a concrete sign that insurers are starting to look at climate change as a foreseeable risk.
“It is almost inevitable that we will see an exponential increase in climate litigation as impacts continue to bite,” Minshull, of Greenpeace International, said.
“While possible causes for action are broad, the letter to insurers and carbon majors focused specifically on whether directors of fossil fuel companies should be allowed to engage in campaigns of misinformation with impunity … The question for the insurance industry and policymakers is, should this type of behavior be covered by insurance? Can you offer financial protection against deliberately behaving badly?”
The two sets of letters asked recipients to respond within a month. Organizers say they plan to post all responses to the Greenpeace International website.