Climate Risk Liability

Climate Change Hits the Courts

In a first-of-its-kind development, an insurer is suing municipalities for breaching their duty to prepare their infrastructure for climate-related exposures.
By: | May 21, 2014

Municipalities have plenty of reasons to be receptive to the idea of public-private partnerships to further the cause of climate resiliency.

Add one more to the list: In a first-of-its-kind legal move, Farmers Insurance is suing Chicago and about 200 local municipalities for allegedly failing to adequately prepare for the impact of climate change.

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The impetus for the lawsuit is the losses related to a storm that hit the Chicago region on April 17, 2013. The storm shut down major expressways and flooded hundreds of basements and streets, leaving some areas accessible only by boat.

Farmers claims that the defendants failed to “implement reasonable pre-storm practices” and breached their duty to upgrade sewer and water systems — the source of much of the property damage suffered by Farmers policyholders during the storm.

“If Farmers is successful, that might lead other insurers to file subrogation class actions,” Wystan Ackerman, a partner at Robinson & Cole LLP, told Law360. “But Farmers will face significant challenges in this first-of-its-kind suit.”

Ackerman told the publication that he expects insurers to take a wait-and-see attitude before joining the lawsuit.

“Insurance companies might be comfortable joining the case and [taking] advantage of the work that Farmers is doing if it is able to successfully pursue the case,” Ackerman said to Law360.

The lawsuit cited the Chicago Climate Action Plan as evidence that the towns knew of the danger of increasingly heavier storms.

Cash-strapped municipalities are already wrestling with costs related to climate change. If this lawsuit signals a shift in insurer strategies for mitigating climate change losses, the costs of such lawsuits will likely be passed along from both ends to double-whammy property owners and businesses, in the form of higher insurance premiums and an increased tax burden.

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]

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The R&I Editorial Team can be reached at [email protected]