Climate Contract Playbook Edition 3
146
[Connor’s clause] NEW
The Origin Story
Child’s name
Connor’s clause
Full name
Exclusions from insurance coverage for climate harms
Practice Area / Sector
Insurance
Insurance is a tool used by businesses to manage risk. Climate Risk is one such risk 72 . However, insuring Climate Risk could have an unintended consequence of encouraging reliance on insurance rather than an impetus to address the issues.
Issue
An explicit exclusion from cover for climate liability, costs and losses occasioned because of GHG emissions and where the Insured has failed to meet GHG emissions targets.
Solution
Climate cases are being brought in jurisdictions around the world for the alleged causation of, or contribution to, climate change by sectors with high Greenhouse Gas (GHG) emissions, particularly the Carbon Majors 73 74 . As climate obligations increase and GHG emissions reductions targets are enshrined in law, it is possible that cases will be brought in the future on the basis of a corporate’s Scope 1, Scope 2 or Scope 3 emissions or failure to keep within the targets set under the Paris Agreement and the ‘ratchet mechanism’. Climate cases have been brought against governments and oil majors 75 . However, climate change litigation may expand as it progresses to other sectors and as emissions targets increase and are strengthened. By insurers and reinsurers explicitly leaving the costs of liability for emissions with insureds, a risk signal is sent to corporations and industries that they need tackle their GHG emission as the resulting climate obligations rest with them (and not with the insurance market unless specifically provided for). With a clear exclusion for any climate liability and liability for GHG emissions, policyholders will understand that they are to be solely responsible for the costs and expenses of their GHG emissions and their failure to meet emissions targets. This will incentivise them to actively manage climate issues and limit their operational impact. By explicitly excluding cover for such claims insurers and reinsurers will ensure that the risk of liability for such claims remains with the entities that are responsible for the emissions, and encourages more climate-conscious behaviour on the part of those insureds and industries.
Context
Impact
72 https://www.allianz.com/content/dam/onemarketing/azcom/Allianz_com/migration/media/economic_research/publications/working_papers/en/ ClimateRisk.pdf 73 https://b8f65cb373b1b7b15feb-c70d8ead6ced550b4d987d7c03fcdd1d.ssl.cf3.rackcdn.com/cms/reports/documents/000/002/327/original/ Carbon-Majors-Report-2017.pdf?1499691240 74 See Practical Law: Climate change litigation note 75 See https://www.financial-dictionary.info/terms/big-oil-super-majors /
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