Pollution Exclusions and Greenhouse Gases

At a Glance

• The Hawaii Supreme Court concluded that greenhouse gas (GHG) emissions are pollutants and would fall under a pollution exclusion in an insurance policy such that it is unreasonable for the defendant fossil fuel company to expect coverage under the insurance policy.
• For fossil fuel companies, it shows that courts are adopting a reading of pollution exclusions that go beyond classic occurrences such as unintended spills of toxic chemicals.
• For insurance companies, this case supports the position that there is no duty to defend or provide coverage for GHG-related lawsuits.

On October 7, 2024, the Hawaii Supreme Court issued a ruling in a case dealing with whether an insurance company owes a defense in cases where the defendant, a fossil fuel company, is being sued by county governments for increasing greenhouse gas (GHG) emissions, such as carbon dioxide, when knowing such GHG emissions had and would cause significant damage to the counties. The supreme court concluded that GHGs emissions are pollutants and would fall under a pollution exclusion in an insurance policy such that it is unreasonable for the fossil fuel company to expect coverage under the insurance policy for such GHG emissions.

The defendant, a fossil fuel company covered by multiple insurance policies, argued that its insurer had a duty to defend because GHGs are not a “pollutant” as defined by its policies’ pollution exclusions. The pollution exclusion at issue states:

This insurance does not apply to:

6. Pollution (1) “Bodily injury” or “property damage” which would not have occurred in whole or part but for the actual, alleged, or threatened discharge, dispersal, seepage, migration, release or escape of “pollutants” at any time. . . . . (2) Any loss, cost or expense arising out of any:
   
   1. Request, demand, order or statutory or regulatory requirement that any insured or others test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way respond to, or assess the effects of “pollutants”; or
   2. Claim or suit by or on behalf of a governmental authority for damages because of testing for, monitoring, cleaning up, removing, containing, treating, detoxifying or neutralizing, or in any way responding to, or assessing the effects of, “pollutants.” . . . .
   “Pollutants” [mean] “any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed.

The defendant made four arguments as to why the exclusion did not bar coverage for its claim: (i) carbon dioxide, the main contaminant at issue, did not directly affect the counties’ property, but instead affected the ocean water and rain which in turn affected the property at issue; (ii) that the word “contaminant” in the context of the exclusion was only “meant to cover environmental clean-up costs resulting from the insured’s operations, not liability from its finished products;” (iii) the exclusion is ambiguous; and (iv) a narrower view of the exclusion aligns with the defendant’s reasonable expectations of coverage.

The Hawaii Supreme Court’s Reasoning

In addressing these arguments, the court’s holding broadly addressed all GHGs. The court found that, although there are two common divisions with respect to the pollution exclusion,¹ that does not render the exclusion ambiguous. The court reasoned that the pollution exclusion is limited to traditional environmental pollution, which has three key features: “(1) the release of a damaging substance, (2) into the environment, and (3) that causes harm because of its presence in the environment.” Based on this, the court found that the emission of GHGs qualifies as traditional environmental pollution and that GHGs meet the exclusion’s literal definition of a pollutant as “they are ‘gaseous’ ‘contaminants’ that are ‘released’ causing ‘property damage.’”² “[B]ecause GHGs are so clearly pollutants,” the court found that there was no legal uncertainty, the defendant could not expect coverage, and the insurer had no reasonable duty to defend.

What This Means for Fossil Fuel Companies and for Insurers

This decision has large impacts on fossil fuel and insurance companies.

For fossil fuel companies, it shows that courts are adopting a reading of pollution exclusions that go beyond classic occurrences such as unintended spills of toxic chemicals. Fossil fuel companies may need to consider additional insurance coverage or separate forms of coverage in the event of GHG-related lawsuits.

For insurance companies, this case supports the position that there is no duty to defend or provide coverage for GHG-related lawsuits.

However, as the Hawaii Supreme Court noted, there is still a split among courts in interpreting pollution exclusions, and the results may vary based on the venue of the case.