Insurance company sues municipality for climate damage

Insurance company sues municipality for climate damage | Insurance Business

Insurance company sues municipality for climate damage
Illinois Farmers Insurance Co. is suing Chicago for failing to prevent flooding related to climate change in what experts say could be a landmark case that accelerates efforts to grapple with the impacts of climbing temperatures.

The insurance company filed nine class-action lawsuits last month alleging that dozens of Chicago-area municipalities are responsible for the damage caused by a two-day downpour last year in April. The company claims that local officials are aware that climate change is causing heavier rainfalls but failed to prevent sewage backups in more than 600 homes by draining water from the region's system of tunnels and retention basins before the storm, ClimateWire reports.

Farmers is asking to be reimbursed for the claims it paid to homeowners who sometimes saw geysers of sewage ruin basement walls, floors and furniture. The company says it also paid policyholders for lost income, the cost of evacuations and other damages related to declining property values. But some analysts say that Farmers likely has a bigger prize in mind.

The company, which is a subsidiary of global giant Zurich Insurance Group, could be positioning itself to avoid future losses nationwide from claims linked to floods, sea-level rise and even lawsuits against its corporate policyholders that emit greenhouse gases, said Andrew Logan, an insurance expert with Ceres.

In 2012, a different Zurich subsidiary, Steadfast Insurance Co., won another high-profile climate fight: Steadfast fought a claim submitted by its policyholder AES Corp, an electric utility, stemming from a lawsuit by Kivalina, Alaska, that accused AES of contributing to climate change by emitting carbon dioxide. The Virginia Supreme Court ruled that Steadfast wasn't liable for AES's pollution.

When viewed together, Zurich's two climate cases might represent a broader strategy to insulate itself from climate losses, Logan said. The company protected itself from corporate claims related to emissions with the Steadfast case; now it seems to be separating itself from municipal losses in Illinois.

"I guess if you're an insurer that's really worried about the scale of liability that you might face from climate change, this would be a pretty smart way to begin to put up some walls around yourself," Logan said. "The dollars at stake [in the Illinois case] are much smaller than the precedent that's being set."

Legal experts say the suit is the first of its kind, and if it's successful it could have far-reaching implications in the way that municipalities approach climate change.

On one hand, the case could spur faster action to invest in stronger infrastructure and adopt more rigorous procedures before heavy rainfall. Farmers says temporary barriers, like sandbags, could have been deployed in the hours leading up to the storm.

The lawsuit could land squarely on the engineering firms that designed the stormwater system, legal experts say. That would happen after the municipalities turn to them and claim that the firms were negligent.

On the other hand municipalities might think it makes better sense to not adopt any climate action plan.

But that decision could hold its own risks, says Joanne Zimolzak, a partner with the law firm McKenna Long & Aldridge.

"If you had the knowledge and you failed to adopt a climate plan, then maybe that opens you up to a different kind of liability," she added.