December 2019


Costly climate change confronts planet

by Resolve Editor, Kate Tilley

Climate change will result in more financial losses globally than anything else, short of a major war.

That’s the dire warning from Davey Salmon, an Auckland-based barrister and former founding partner of Lee Salmon Long.

He told an environmental liability breakout session at the NZILA conference that data from the Intergovernmental Panel on Climate Change (IPCC) was “overwhelmingly clear once you read it. It’s not hyperbole, there’s consensus”.

IPCC, a United Nations unit, prepares comprehensive assessment reports on the state of scientific, technical and socio-economic knowledge on climate change, its impacts and future risks, and options for reducing the rate at which climate change is taking place.

Mr Salmon said people were slow to react because of uncertainty and parliaments could delay action into the next election cycle, but the data was real and courts could look at the actual science and act on it.

“The harm is already happening. Human-induced warming reached 1degC above pre-industrial levels in 2017. At the present rate, we’ll reach 1.5degC by 2040,” he said.

The chances of remaining under the 1.5degC level were “not good”.

The latest IPCC report on global warming has identified that the planet is already seeing the consequences of 1degC of global warming through more extreme weather, rising sea levels, and diminishing Arctic sea ice.

“Intelligent people are alarmed once they read the IPCC reports. Concerned people are looking at who to sue because they know governments are failing to take steps.”

Mr Salmon said New Zealand had to stay within the limits to avoid 20cm-30cm sea level rises. Other issues were biosecurity risks from potential pathogens that would come to NZ once the temperatures were warm enough and crop losses.

“The IPCC produces some of the most important documents on earth, calmly written in neutral terms,” he said.

For example, as Himalayan glacial terrain melted, 30 million Bangladeshi people’s homes would be underwater. “Where will they go? The risks are enormous, with refugee levels we can’t imagine.”

Mr Salmon suggested insurers may stop underwriting areas like Florida, following 20-ft storm surges during Hurricane Dorian, the most powerful tropical cyclone on record to strike the Bahamas.

“We are not good at analysing that level of risk. Assumptions about insurance availability are in doubt.

“People are getting more engaged. What if it becomes untenable to insure oil prospecting companies?”

Mr Salmon said the world could not delay getting to zero emission levels. The NZ Government was using forecasts that assumed technology would be available to avoid “terrible perils”. “It’s madness, we’re not getting there.”

Mr Salmon said three NZ Supreme Court judges, Justices Helen Winkelmann, Susan Glazebrook and Ellen France, delivered a significant paper on climate change and climate change litigation at the Asia Pacific Judicial Colloquium. Click here to read the paper.

Lee Salmon Long solicitor Harriet Bush told NZILA delegates the paper was important research that identified where the judges considered courses of action lay and stressed denial was unlikely to be a successful defence.

The paper reviewed significant global climate litigation, including landmark cases such as Thomson v Minister for Climate Change Issues [2017] NZHC 733, [2018] 2 NZLR 160 and West Coast ENT Inc v Buller Coal Ltd [2013] NZSC 87, [2014] 1 NZLR 32.

Ms Bush said the judges warned that, from a corporate governance perspective, directors could be liable because addressing climate change was not just an ethical but a financial issue.

However the judges identified two competing themes. “If the courts don’t deal with climate change, it challenges their legitimacy, but judges can’t overstep their judicial role,” she said.

Mr Salmon agreed directors would increasingly be held to account. Other “easy areas” for action were professional negligence cases against engineers, planners and architects who approved buildings in inappropriate areas or with insufficient foundations.

The threat of climate change had moved beyond a debate about foreseeability of loss or harm. On proximity, he said: “In one view it’s remote but, on another, the connection is obvious to climate scientists.

“We’re now in a different world to the snail in the ginger beer bottle. The harm is monstrous and knowingly caused ... for profit.”

While judges had focused on damages, there was a need to examine injunctive relief in apportioning loss for knowingly causing harm.

Mr Salmon said local authorities would bear “a lot of the brunt” and the exposure. He warned they should “think twice about letting anyone build on low-lying land”.

“The science is clear, the law is not, yet.”

In the same breakout session, Delta Insurance’s Wellington branch manager and environmental product head James Halfacree said environmental liability policies had emerged in the US in the late 1970s, with cover broadening in the 1990s to now offer more than $US200 million capacity per risk.

Policies now covered previously excluded exposures, like asbestos and lead paint.

Cover included bodily injury, property damage and clean-up costs from pollution incidents.

Cover was no longer restricted to sudden and accidental damage, but responded to statutory triggers, and could cover legacy pollution, which was particularly important in mergers & acquisitions.

Mr Halfacree said common policy types were:

• Fixed site, which could include historical and legacy pollution
• Contractors’ pollution liability, the most common policy sold in NZ to cover third-party sites
• PI, a blended cover for environmental consultants because most PI policies excluded pollution.

Common extensions were emergency response costs, crisis management responses, enforceable undertakings from regulators forcing remedial works; and illicit abandonment, which was useful for rental property owners if tenants left chemicals or other pollutants behind and insureds were required to remove them.

Driving forces behind environmental policies were:

• Internal: for brand management, balance sheet protection and comprehensive risk management
• External: contractual requirements and greater D&O accountability.

Mr Halfacree estimated the NZ market’s premium at $15 million, compared with $US2 billion globally. “It’s small, but has grown from zero a few years ago.”

Environmental losses were low frequency but high severity for SMEs. Common NZ risks were asbestos; tenants’ activities; collecting and transporting waste; and service stations.

High-hazard classes were mining; waste management, including legacy landfill sites which could pollute ground water (newer landfills were lined); service stations’ underground storage tanks and oil and tyre disposal; pipelines, which traversed many properties, adding to the risk complexity; and dry cleaners (problematic because the chemicals are heavier than water and sink, so are time consuming and expensive to remediate).

Emerging risks included:

• Updated asbestos regulations
• Methamphetamine contamination in residential properties
• PFAS chemicals, which had cause large losses in the Australian and NZ markets and were excluded from some environmental liability policies
• Contractual requirements
• Cross-border waste transport
• Climate change.

Mr Halfacree said broker education was increasing the uptake of environmental policies because they were identifying gaps in traditional cover.

He said the link was not yet established between climate change and environmental damage but “some insurers won’t touch coal risks”.

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the New Zealand Insurance Law Association.