Insuring a Future of Extreme Weather


Insuring a Future of Extreme Weather

The last few years have brought unprecedented headlines about extreme weather events across Canada. From atmospheric rivers, heat domes, and wildfires in B.C., to Hurricane Fiona and other catastrophic storms in Eastern and Atlantic Canada, it seems that no province has been spared the devastation of severe weather. As scientific evidence accumulates that anthropogenic climate change is to blame for the increasing severity and frequency of these events, the law will be forced to evolve alongside these novel developments.

Amidst all this change, evolution will occur not only in the insurance industry’s practices but also the legal and regulatory framework that governs it.

According to David Tupper, partner at Blakes, Cassels & Graydon in Calgary, the industry has adapted relatively quickly. “There have certainly been changes. Insurance as a business is pretty dynamic and responds to things in a reasonably quick time,” Tupper says. Insurers have modified the type, extent, and terms of coverage, and they have also anticipated future potential changes arising from climate impacts, in the form of greater third-party liability for example.

On the third-party liability front, insurers see a greater risk exposure as increasing suits are brought against entities such as companies, directors, and officers, and will typically assess and adjust coverage by increasing deductibles, decreasing limits, creating more exclusions, or increasing premiums.

The US has seen greater activity in climate lawsuits than Canada, as it has experienced successive waves of litigation. The first wave involved claims against directors and officers and either alleged misrepresentation or breach of duty to the company. There were also claims brought directly against energy companies that alleged those corporations had contributed toward climate damage. These suits were generally unsuccessful because of US courts’ reluctance to allow litigation designed to change political policies, based on the doctrine of justiciability, and difficulties establishing the causation link between a specific company’s emissions and specific damage.

The second wave had a bit more traction, says Tupper, “driven by emerging science that actually does suggest some methodology to attribute proportionate shares of damages to particular companies.” This could be measured by assessing the carbon output of certain companies within the past 50-70 years — when the bulk of greenhouse gas emissions responsible for climate change have occurred — and comparing this to the overall aggregate.

While climate litigation has been much more active in US, it might be on the rise in Canada as well. Municipalities across Canada have recently passed motions on recouping climate change-related costs from oil and gas companies, such as class action lawsuits.

For insurers, rising climate litigation might mean more battles over whether carbon falls within the definition of “pollution” and is therefore subject to limits or exclusions or coverage for climate lawsuits, says Tupper.

And severe climate impacts mean potential effects to diverse types of insurance policies, including first party coverage, third-party policies, and directors and officers’ liability policies. According to Tupper, extreme weather events have created ripple effects across provinces — for example, after extreme flooding in Calgary in 2013, insurers responded to disputes over damage caused by floodwater by preventing coverage for water travelling over land, which in turn effected the coverage provided to those who suffered losses because of the 2017 floods in Ottawa.

But can the industry not only react and control risk to protect itself, but also proactively be part of solutions to climate change? There is some reason for optimism on this front. Intact Insurance has started the Intact Centre on Climate Adaptation, intended to develop solutions to address climate change and extreme weather events. Insurers are not only responding in conventional ways, like increasing their deductibles, but “they are also thinking a bit outside the box,” says Tupper, “about what we can do to better understand climate change generally.”