• Atlanta
• Boston
• Dallas
• Ft. Lauderdale
• London
• Minneapolis
• New York
• Oakland
• Philadelphia
• Washington, DC

By José M. Umbert and Jason Reeves
To read this article in PDF format, please click here.

In January, the US Supreme Court will hear arguments in one of the lawsuits filed against oil and gas companies for their alleged contribution to climate change.  The Court’s ruling will likely have a significant impact on how climate change litigation will proceed and, consequently, on the exposure faced by the “Carbon Majors” – and their liability insurers. 

The second wave of climate change lawsuits

In previous articles[1] addressing climate change litigation in the context of insurance and reinsurance, we have discussed the “second wave” of climate-related lawsuits being brought in the US since 2017-2018.  State and local governments across the nation are suing oil and gas companies, alleging, in essence, as the Fourth Circuit put it, that these defendants “substantially contributed to climate change by producing, promoting, and (misleadingly) marketing fossil fuel products long after learning the dangers associated with them.”[2]  Plaintiffs plead various causes of action under state law, such as public and private nuisance, failure to warn, and design defect.  They seek monetary damages and other relief.[3]  

State v. federal court

State and local governments filed these actions in state court, a venue that they feel is more advantageous.  The Carbon Majors, however, removed the lawsuits to federal court, their preferred venue.  Plaintiffs responded by moving to remand the cases back to state court. 

Proceeding in state or federal court can be critical to the outcome of these climate change lawsuits.  For example, a federal district court in California dismissed complaints filed by Oakland and San Francisco for failure to state a claim upon which relief can be granted.[4]  In contrast, state courts are more likely to allow these actions to move past the pleading stage and into discovery. 

It is therefore not surprising that climate change plaintiffs and energy companies are engaged in a fierce battle over the proper venue for the lawsuits.  The question of removal is being litigated in around 20 federal cases nationwide.  The issue has now reached the US Supreme Court. 

The Baltimore case

In a case brought by the Mayor and City of Baltimore in Maryland state court, and removed by defendants to federal court on eight separate grounds, the district court rejected each of those eight theories and remanded the case to state court.[5]  The Carbon Majors appealed, but in March 2020, the Fourth Circuit Court of Appeals affirmed the decision. 

The Fourth Circuit held that under the applicable statute, 28 U.S.C. § 1447(d), it only had authority to review one of the eight asserted bases for removal; the seven other grounds were outside of the appellate court’s jurisdiction.[6]  And, with respect to the single reviewable basis for removal, the so-called federal officer removal statute, the Fourth Circuit held that defendants failed to satisfy the requirements of that provision.[7] 

Following this decision, the First, Ninth and Tenth Circuit Courts of Appeal have also remanded climate change lawsuits to state court.[8] 

The Supreme Court steps in

In the Baltimore case, the energy companies petitioned the US Supreme Court for a writ of certiorari to address whether under section 1447(d) the Fourth Circuit should have reviewed all eight bases for removal rejected by the district court, instead of only considering the federal officer removal statute.  On October 2, 2020, the Court granted certiorari.  The case has now been briefed and is set for oral argument on January 19, 2021. 

Importantly, in their brief, the energy companies did not simply ask the Supreme Court to vacate the Fourth Circuit’s judgment and send the case back to that court so it can consider their seven other theories of removal.  Rather, petitioners asked that the Court take one further step, and address those additional bases for removal itself, in particular the companies’ argument that plaintiffs’ claims arise under federal law and therefore the cases belong in federal court under 28 U.S.C. § 1331.[9]  Baltimore objected to the Carbon Majors’ request for relief on the grounds that it was not part of the question presented to the Court and was not addressed by the Fourth Circuit. 

It is also significant that the United States filed an amicus brief supporting the energy companies.  It remains to be seen whether, following President-elect Biden’s inauguration the day after the Supreme Court argument, the Department of Justice will maintain this position. 

The stakes are high

The importance of the Court’s upcoming decision for the future of climate change litigation cannot be overstated. 

Even though certiorari was granted on the narrow technical point of which bases for removal can be reviewed by an appellate court, the Justices could accept the Carbon Majors’ invitation to rule on the question of federal jurisdiction themselves.  If they do so, it is likely that the Court’s conservative majority will decide that federal courts have jurisdiction to hear these climate change lawsuits.  All the cases would have to proceed in federal court and, as noted above, this is a less desirable venue for plaintiffs, where they will face additional obstacles to move the lawsuits forward. 

It is also conceivable that the Supreme Court would go even further and comment on the merits of the state and local governments’ claims under federal law.  If so, it is quite possible that the conservative Justices will hold that the complaints fail to state a claim upon which relief can be granted, as the district court did in the City of Oakland case.  Any such comments by the Court would deal a significant blow to the current wave of climate change lawsuits. 

Impact on insurers and reinsurers

As we have explained in our series of articles, climate-related litigation creates significant exposure for the Carbon Majors’ liability insurers and their reinsurers, even though there are serious questions as to coverage for those claims.  The energy companies are incurring large amounts in defense costs – and legal fees will increase exponentially once the cases move into the discovery process.  If they are ultimately found liable for the consequences of climate change, the Carbon Majors could face judgments in the billions of dollars.  Insurers should therefore monitor the outcome of the Baltimore case. 

But regardless of the Supreme Court’s decision, insurers should continue to develop a strategy for assessing climate change.  Even if the outcome of Baltimore is unfavorable to the plaintiffs, they will adapt their claims, and litigation will continue, not only in the US but also overseas, and will likely not be limited to the Carbon Majors but will reach other industries that contribute to greenhouse gas emissions.  And at some point, a climate change lawsuit will be successful. 

Insurers and reinsurers should address these issues proactively, for example with endorsements expressly excluding climate change claims, clear claims control clauses in their reinsurance contracts, and bespoke climate change liability products.  

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm or its clients. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] See, e.g., Climate Change and Insurance: Litigation Risks for Insurers. 

[2] Mayor and City Council of Baltimore v. BP P.L.C., 952 F.3d 452, 457 (4th Cir. 2020), cert. granted, --- S.Ct. ---- (Oct. 2, 2020). 

[3] Id. 

[4] City of Oakland v. BP PLC, 325 F.Supp.3d 1017 (N.D. Cal. 2018), vacated and remanded, 969 F.3d 895 (9th Cir. 2020). 

[5] Mayor and City Council of Baltimore, 952 F.3d at 458. 

[6] Id. at 459. 

[7] Id. at 463. 

[8] Rhode Island v. Shell Oil Products Co., L.L.C., 979 F.3d 50 (1st Cir. 2020); County of San Mateo v. Chevron Corp., 960 F.3d 586 (9th Cir. 2020); Board of County Commissioners of Boulder County v. Suncor Energy (U.S.A.) Inc., 965 F.3d 792 (10th Cir. 2020). 

[9] The Ninth Circuit rejected this argument in the City of Oakland case.  969 F.3d at 908.