Mark S. Hersh on Coverage for Global Warming Risks Under D&O Policies

Mark S. Hersh on Coverage for Global Warming Risks Under D&O Policies


Global warming, or climate change, now figures prominently on the national and international agenda. For many companies, global warming also represents a new risk management issue. Not only are there financial and other business risks associated with global warming, the risk of legal claims undoubtedly will continue to rise with the earth’s temperature. According to D&O insurance practitioner Mark Hersh of Reed Smith LLP, “With increased attention on global warming issues, the actions of directors and officers in managing and disclosing global warming risks likely will face increased scrutiny.” 
 
The main purpose of D&O insurance is to protect directors and officers from personal loss resulting from their service to a company. In his commentary on D&O insurance for global warming claims, Hersh addresses the role that D&O insurance could play in protecting directors and officers, as well as companies, from global warming claims. The commentary examines three questions: (1) whose risks and what kind of risks does D&O insurance typically cover; (2) what sort of claims pertaining to or arising from global warming might potentially fall within the coverage of a D&O policy; and (3) how is a D&O policy likely to respond to such claims, i.e., what coverage issues are likely to be raised. 
 
Hersh concludes that depending on the language of the policy, D&O insurance “may provide important protection for officers and directors (and in some cases companies themselves) in the event of global warming claims against them.” In particular, securities class actions and derivative suits are the most likely kinds of global warming claims to be made against officers and directors, and also the most likely to be covered by D&O insurance. However, there are potentially serious coverage issues applicable to global warming claims, in particular a “pollution exclusion” clause that is common in D&O policies.  
 
The key to protection is getting the right policy language. According to Hersh, “many D&O policy terms are negotiable, and companies should try to negotiate for D&O policy language that will maximize the chances of coverage should a global warming claim be made.” Perhaps the single most important thing that companies can do is carve out securities class actions and derivative claims from the pollution exclusion, which insurers are increasingly willing to do. Purchasing a stand-alone “Side A” D&O policy without a pollution exclusion clause would provide an additional layer of protection.
 
Subscribers can access the complete commentary on lexis.com. Additional fees may be incurred.