Could climate lawsuits become the next tobacco litigation?
As this type of litigation continues to evolve, insurance companies are keeping close tabs on the situation.
Does a spike in climate change-related litigation mean it is on-track to impact oil and gas companies the way earlier lawsuits impacted the tobacco, asbestos and opioid industries?
A recent report from Standard & Poor’s Global Ratings (S&P) delved into that question.
Litigation over climate change has quadrupled over the past decade, rising to about 2,410 cases by 2023 versus 581 by 2013.
This could have a major financial impact on major corporations, but its influence is difficult to measure so far, according to S&P.
The good news for defendants is the volume of lawsuits over climate change has fallen off slightly after a worldwide peak in 2021, according to S&P’s report, “Climate Litigation: Assessing Potential Impacts Remains Complex.”
But plaintiffs are pursuing a broader range of targets, and the legal basis for those suits is widening, the report said.
One sector—the oil and gas industry—appears ready to bear the brunt of costs from these lawsuits, but publicly available data on costs incurred in such litigation is sparse.
“We believe that, generally, oil and gas companies subject to climate-related lawsuits are able to absorb the financial consequences of a ruling against them without a material negative impact on their credit profiles. However, if many companies in the sector were hit with financial litigation-related penalties, the implications could be more material for the sector overall,” the S&P report said.
Trends
Last year, litigants filed 200 climate change suits globally, down from 254 in 2022 and 263 in 2021.
The number of lawsuits began to take off in 2015, when 196 countries adopted the Paris Agreement mandating measures to fight climate change, S&P said.
And litigants filed climate lawsuits in 75 nations in 2023, up from 24 in 2017.
Gas and oil companies have been the defendants in most of these suits, and that’s likely to continue, S&P said.
California filed one such suit in 2023 against five major oil companies, claiming they misled the public by downplaying the risks posed by fossil fuels.
Delaware; Hoboken, New Jersey; and Multnomah County, Oregon, home to Portland, have also filed similar suits.
In August 2022, the U.S. Court of Appeals for the Third Circuit ruled that the Delaware and Hoboken cases were wrongly removed to federal court, in a setback to the oil company defendants.
But climate suits are targeting other sectors of the economy, including financial institutions.
In 2023, plaintiffs sued BNP Paribas, a French bank, in a Paris court for its financing of fossil fuels, and this January ING Group was hit with a similar suit, the study said.
Potential targets of future global warming suits could include the travel, food, tobacco, chemicals and utilities fields, the study said.
One reason for this diversification is an increase in cases focused on the alleged misrepresentation of environmental credentials by industry, or greenwashing, the report said.
Some company directors have also faced climate change suits, S&P said, citing an action filed against Shell’s board of directors in a London court, which has been dismissed, and a suit against the directors of California utility Pacific Gas and Electric Co. in connection with wildfires, which ended in a $117 million settlement in 2021.
S&P also noted that some climate change suits are bringing claims under the Racketeer Influenced and Corrupt Organizations Act, including the Hoboken case and one by 37 municipalities in Puerto Rico, which claimed that deception by oil companies played a role in hurricanes that claimed thousands of lives in 2017.
Ripples
Climate change suits can have both direct and indirect costs for the companies they target, the S&P report said.
Direct costs include payment of legal fees, settlements, penalties and other costs for defending against litigation, while indirect costs might include the opportunity cost of keeping cash on a company’s balance sheet to hedge against the impact of an unfavorable ruling, or the time that managers spend preparing for trials.
As this type of litigation continues to evolve, insurance companies are keeping close tabs on the situation, and are reviewing the wording of policies to include more specific language about whether climate-related cases are covered and in what circumstances, S&P said.
And as the number and severity of such suits increase, insurance coverage for climate litigation might become more difficult to obtain, S&P said.
One area of uncertainty is how courts will interpret whether a claim arising from the emission of greenhouse gasses constitutes an insurable claim. S&P cites one such case, before the Hawaii Supreme Court, Aloha Petroleum v. National Union Fire Insurance Co. of Pittsburgh, which concerns claims that the insurer breached its duty to defend against climate change suits brought by local governments in Honolulu and Maui.
“We believe insurers offering products that cover climate litigation are closely monitoring the establishment of legal practices in this area,” S&P said. “It remains to be seen how the insurance sector will respond if legal precedents are set in future climate-related lawsuits.”
Although climate change litigation is not a new phenomenon, no courts have held fossil fuel companies liable for their greenhouse gas emissions, said Michael Gerrard, director of the Sabin Center for Climate Change Law at Columbia University.
In the United States, there are about 25 suits brought by states and cities against fossil fuel companies for money damages, Gerrard said. The first suits were filed in 2017, and in recent years there was litigation over whether those suits should be in federal or state courts. Most have ended up in state courts, Gerrard said.
In the U.S., climate change litigation watchers are focused on a case called City and County of Honolulu v. Sunoco, which seeks damages from fossil fuel companies for conduct that contributed to climate change, said Gerrard. In that case, the defendants have asked the U.S. Supreme Court to review the Hawaii Supreme Court’s 2023 decision allowing the suit to proceed.
“We may not know for a few months whether they’re going to take it. If the Supreme Court does accept the case, we probably won’t have a decision until the middle of 2025,” Gerrard said. “And I think that if the Supreme Court does take the case, then most or all of the other cases will be put on hold until the Supreme Court decides. But if the Supreme Court refuses to take the case, then I think several of these cases will move forward with discovery and possibly trials. So that’s sort of the big thing.”
Overseas, Gerrard said a climate change case in Germany is being watched closely. In that case, a Peruvian farmer named Saul Luciano Lliuya is suing RWE, Germany’s largest producer of electricity. The suit claims that greenhouse gases caused the melting of glaciers in Peru. That case has been around since 2015 but was on hold during COVID-19 because the judges wanted to travel to Peru to see the glaciers themselves, Gerrard said. The judges finally made their site visit a few months ago and now the decision is expected soon, he said.
Financially, a lot is riding on the climate change suits, Gerrard said.
“About five or six companies are named [as defendants] in most of these 25 lawsuits,” he said. “And each of the lawsuits is ferociously litigated. So they’re spending a lot of money on lawyers, but that’s only a fraction of what it will cost if they if they lose the cases on the merits.”