Climate change court actions are increasingly being brought in jurisdictions across the world for the alleged causation of, or contribution to, climate change. As climate obligations and emissions targets are increasingly enshrined in law, it is possible that insurers may face claims relating to Scope 1, Scope 2 or Scope 3 emissions.

In parallel, the insurance industry is coming under pressure to contribute towards reaching Net Zero to a greater extent.  This pressure has culminated in many insurers making public statements regarding the steps they are taking to combat climate change, including Lloyds of London’s recent announcement that it will end investment in thermal coal-fired power plants, thermal coal mines, oil sands and new Arctic energy exploration activities by 2030.

Insurers can influence climate action both through their underwriting and investment portfolios. In relation to underwriting, insurers can drive positive change through their customer bases via a variety of climate risk signals. For example, in their response when invited to underwrite a new risk or through their appetite for climate risk, which can be reflected in; increasing premiums, reducing limits of liability, restricting coverage terms or turning down risk altogether.

The Climate Harm Exclusion clause allows insurers to deny cover in the event of liability arising from negative impact on climate change or instances where the insured has failed to meet GHG emissions targets.

This clause should serve as a risk signal to policyholders that they are to be primarily responsible for the costs and expenses of their GHG emissions and their failure to meet emissions targets. This should incentivise them to actively manage climate risks and limit the impact of potentially harmful operations.  Excluding cover for climate liability may also serve to decrease external investment in heavy emitting industries. Equally, this measure will allow insurers to evidence the active steps they are taking to adhere to their own pledges.

Clyde & Co will be pleased to assist clients interested in adopting this clause into their insurance policies. Please reach out to me or one of our climate change experts if this clause is of interest.  

This post is part of a series of short updates summarising the precedent clauses drafted in the course of collaborative hackathons organised by The Chancery Lane Project.  Clyde & Co held its own hackathon in partnership with The Chancery Lane Project in July 2020, and has taken a leading role in the Big Hack, another hackathon organised centrally by The Chancery Lane Project throughout autumn 2020.