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April 2009 | Volume 1, Issue 2

Financial Crisis, Global Warming May Heat Up Insurance Litigation

Attorney Speculates on Potential for Disputes

An interview with Joyce Wang
by Teresa Zink

When asked to speculate on current issues that may spark future conflicts for insurers, litigator Joyce Wang points to the financial crisis and global warming as potential areas of dispute.  What is unclear is exactly what the claims might look like, Wang says.

Litigation that may arise out of the financial crisis could involve insurance claims and insurance related issues, according to Wang.  “Companies may be making claims for losses arising out of the current situation and claim activity increases generally whenever there is a depression in the economy.”

As to global warming, she explains, “now that global warming is an accepted and known phenomenon, it will be difficult to make claims going forward, but I can see claims arising in the last five years, say, potentially having some teeth.”

However, she cautions, uncertainty in a particular area does not always lead to new coverage litigation.  “Sometimes it happens and sometimes it doesn’t,” says Wang.  For example, she notes, “before Y2K there was a whole flurry in the industry of people getting prepared and putting on seminars and learning what the defenses might be and then, and maybe it was because of that effort, those claims never really materialized in the volume that was anticipated.  So it’s hard to say.”

Potential Claims?

What kinds of claims might arise as a result of global warming?  “I don’t know whether anyone will get very far with property claims for global warming, because it is not really the kind of thing that is supposed to be covered under a property policy,” says Wang.  Property policies, which cover losses that are unforeseen and accidental “are typically event-related as opposed to covering the inevitable.”

Looking at the potential for claims under D&O and E&O policies, she muses, “I could conceive of potential liability claims against companies for not taking measures to anticipate global warming, for example.”  She imagines the potential for claims surrounding a ski resort or other weather dependent business that has a bad season and could have prevented the losses with better planning.  “That is an area to keep an eye on.  I am not a plaintiffs’ lawyer but plaintiffs’ lawyers are very creative and they come up with a lot of different theories and I think that is a potential one.”

She also anticipates possible E&O claims arising out of the financial crisis.  “I can see some people suing their brokers for not predicting the downturn, or for moving funds into something too risky that was subject to the downturn,” Wang speculates.  “I don’t know what theory that would be based on, because I don’t think anybody was smarter than anybody else and could have seen this coming, but nevertheless I think the claims will probably be made,” she says.  “Claims don’t actually have to be winning to be made.”

How Will Insurers Respond?

While these coverage questions are not in play yet, “if those types of claims are made I suspect that we would be a little bit in no man’s land like we were in Y2K because policies do not specifically address these issues,” says Wang.  She notes that, “Shortly after 1999 many carriers wrote endorsements to their policies specifically addressing Y2K losses.”  Looking back she explains that in the 1990s there were a whole series of cases addressing whether computer crashes and loss of data was considered property damage, with mixed results.  “As a result of that litigation many carriers devised forms that deal with computer-related losses and many commercial policies now have those.”

Similarly, she says, “with global warming or economic downturn, if claims are made now policies are silent on those things.  If litigation gets going, I would expect in a year or two’s time the industry would come up with some forms to address that, but for now we would be in an area where the policy probably is silent about, for example, global warming per se.”

Policy Language

In the case of events arising out of global warming, she says, it will be necessary to look at the basic policy language to see if the event fits into any existing categories.  “The first thing I would say is it is not really the kind of thing insurance is intended to address because it is not really an accidental event, it is at this point inevitable,” says Wang, so there may be a non-fortuity argument.  In addition, there are exclusions in many property policies that might address the claim.  “For example, many commercial policies have an exclusion for changes in temperature.  So we would have to research that and decide if the plain meaning of ‘changes in temperature’ would include something arising out of global warming.”  She predicts that “plaintiffs’ lawyers would argue that it is something catastrophic and on a worldwide scale and its not really just a change in temperature, so there would be argument about whether that was ambiguous and so on, but we would be looking at whether the policy would respond to claims for global warming.”

It may all come down to timing, according to Wang.  “Down the road, I do think there is going to be a cutoff in the sense that today, in 2009, global warming is no longer a surprise.  Query whether in 2007, if something happened, would it have been a surprise?  I don’t know.  Are people going to be arguing that the movie ‘An Inconvenient Truth’ is the time at which it was no longer a surprise? I don’t know.”

The question is where the line will be drawn, says Wang.  “If someone filed a suit today or made a claim today for something that happened in 2009 is that going to be treated one way because it wasn’t expected or intended or fortuitous, whereas the same event, if it happened in 2007, 2006 or 2004 might be treated differently?”

What should insurers watch out for?  “Since I do mostly property insurance litigation, I would probably alert them to importance of the date of the occurrence and to try to frame the investigation to get as much about the timing as possible,” says Wang.  “Because I do think that is going to play an important role in determining whether or not something is fortuitous.  After that it would depend on the language of the policy.”

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wang_bio_picJoyce C. Wang is a founding partner of Carlson, Calladine & Peterson LLP in San Francisco and a nationally recognized litigator in the area of property insurance coverage and bad faith. For more than 20 years, she has represented national and international property and casualty insurers and reinsurers, as well as policyholders in large commercial property insurance disputes. Ms. Wang’s experience includes cases arising from catastrophes such as September 11 and Hurricane Katrina.  She spoke at HB Litigation Conferences Bad Faith Litigation Conference in November 2008.