ICJ opinion raises questions on corporate liability exposures to climate litigation risk

By Rebecca Delaney

Aug 14 - (The Insurer) - The recent advisory opinion by the International Court of Justice (ICJ) that UN member states have an obligation to protect the environment from greenhouse gas (GHG) emissions has scope to be used to support legal arguments against corporates, although the impact on liability wordings remains to be seen.

The opinion was published on July 23 following lobbying led by the Pacific island state of Vanuatu to seek an advisory opinion on the obligations of states under international law to ensure the protection of the environment, and the legal consequences under these obligations when states do cause environmental harm.

It marked the largest case ever seen by the ICJ, with 91 written statements and 97 states participating in oral proceedings.

The opinion – which was justified by member states’ commitments to both environmental and human rights treaties – said states have an obligation to act with “due diligence and cooperation” to protect the environment from GHG emissions, including the obligation under the Paris Agreement to limit global warming to 1.5°C above pre-industrial levels.

The ICJ said a breach of these obligations will see states incur legal responsibility, and may be required to offer guarantees of non-repetition and make reparation.

Simon Konsta, professional and financial lines partner at DAC Beachcroft, told Sustainable Insurer that while the opinion is directed at states, the court’s comments on states’ responsibility for the actions of private companies carry potentially far-reaching consequences for corporates.

“The ICJ held that states may be held responsible for the conduct of private actors within their jurisdiction, including corporates and their GHG emissions,” he said.

“In addition, states’ obligations to protect the climate could be breached by permitting fossil fuel production and consumption in their territory or through domestic policy decisions such as the granting of fossil fuel exploration licences or subsidies.”

Konsta added that while the opinion is most likely to be used by activists to influence government policy through policy pressure and litigation, ongoing climate litigation will remain a “crucial avenue” to confront corporate behaviours, with the opinion expected to be used as part of their legal arguments.

Currently, climate litigation against corporates broadly falls into several categories: challenges by government bodies against corporate interests; challenges by activists/individuals against corporate responses to climate change; climate attribution actions; greenwashing; and failure to adapt cases.

Konsta noted that the recent ruling in Greenpeace v ENI in Italy demonstrated that courts will consider negligence claims against companies in respect of climate-related issues as part of their jurisdiction.

“The claim is based on ENI’s alleged failure to reduce climate-altering emissions in violation of international obligations (including the Paris Agreement), and we expect that when the claim proceeds to trial, the activist claimants will rely on the ICJ opinion,” he said.

While the ICJ did not offer a firm opinion on temporality in respect of possible liabilities relating to climate change, additional judicial commentary noted that “the obligation to prevent significant harm to the environment was first recognised in the 1940s, it could not have applied to GHG emissions until… the second half of the 1980s”.

Konsta suggested that this view could potentially limit the periods from which claims could be considered, although he added that this would be a “highly contested” proposition.

“At present, the nature of climate litigation risk is not attracting a general response from D&O underwriters in terms of policy wordings and exclusions, save for a number of specific extensions/writebacks. For now, we are not seeing material or widespread climate litigation related exclusions or sub-limits,” said Konsta.

He added that insurers will likely wait to see the policy implications resulting from the ICJ opinion, as this may inform domestic policy decisions in countries looking to meet emissions targets.

In the case that more stringent domestic regulatory frameworks are implemented, a number of lines may be impacted.

For example, professional liability may see heightened exposures if professionals fail to consider the impact of climate change as part of their work, particularly around the implementation of any new regulatory frameworks across emissions mitigation, reduction targets and greenwashing.

General commercial liability policies were brought into question in Aloha Petroleum v National Union Fire Insurance Co. of Pittsburgh, in which the AIG subsidiary successfully argued it was not obligated to cover Aloha’s legal defence costs in a damages suit because GHG emissions fell under the policies’ pollution exclusions

Similarly, Konsta said questions of exclusions and the definition of terms such as “pollution” will become relevant in environmental liability policies.

“Businesses must monitor legal developments, anticipate stricter requirements, and proactively engage in climate measures of their own. By not doing so, they risk legal, financial, and reputational consequences in an era of escalating climate accountability,” Konsta concluded.