Increased climate-related claims activity in UK and Europe expected

The UK and Europe are expected to see increased activity in certain new types of climate-related claims, according to Lydia Savill, partner, Hogan Lovells in a recent ESG webinar held by the law firm. She said these claims relate to insufficient or improper sustainability disclosures, climate-related derivative claims, activist litigation, greenwashing and claims for failure to prevent or to mitigate climate change. Looking ahead, Savill said: “I think that developments in attribution science are going to be critical. This is a developing science and so far no fossil fuel or power company has been held liable for climate-related damages relying on scientific attribution. But if successful legal formulations can be found for these types of claims relying on attribution then I think many more sectors besides just the big emitters are going to be facing the threat of claims.” She noted the recent English High Court decision in the Client Earth and Shell case, which she said may provide a template for a new style of climate litigation against directors of companies rather than companies themselves. However, the High Court has refused permission for Client Earth to continue its claim on the basis that it hadn’t established a prima facie case. “Now that would suggest this case isn't going to offer a template for the future, however Client Earth has applied for an oral hearing for its application so there may be further development here,” she explained. Savill said there are some structural factors at play that are combining to increase ESG litigation claims activity in the UK and Europe. “We are increasingly seeing more active claimant law firms in the ESG space. Then there’s the increasing availability of litigation funding, and an increased willingness by those funders to get involved with ESG style litigation and that is providing the fuel for those claims. And then in addition to that there are attractive procedures in the UK and Europe for resolution of group litigation. All of those things are contributing to a rise in the ESG litigation,” she said. There are a number of questions for the insurance market where there are new or increasing types of ESG litigation against corporate policyholders, she said: to what extent are those risks already covered under existing policies; how are insurer risk appetites changing as regards those risks; and to what extent might new exclusions or new pricing be appropriate? “I think in the first instance we are likely to see refinements to policy language to reflect that changing risk landscape, and adjustments to policy limits and repricing will inevitably play a role as well. Of course, in terms of exposure modelling particularly around physical risks, data is absolutely key,” said Savill. She added that another area of focus is likely to be around more stringent underwriting standards for ESG-related risks. As the ESG risk landscape develops, she thought it was inevitable that, at least for certain lines of business, new climate-related exclusions will be introduced into existing policy wordings. “But then, off the back of that, are we going to see the development of affirmative cover for climate or particular ESG-related risks? If you take the cyber market as an example and you go back a little bit in time, as new cyber risks emerged and crystallised, there was a period of assessment of what was called the ‘silent cyber’ risk within traditional business lines, and then that was followed by the growth of an affirmative market for cyber cover. I think at least in some areas we may see a similar pattern in the insurance market for certain types of ESG risk,” she concluded.

Increased climate-related claims activity in UK and Europe expected

Refinements to policy language and climate-related exclusions on the way

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