How does the rise of climate change litigation impact insurers?

Physical climate risks pose a growing challenge to insurers, including through the increase in payouts compensating for property damage from storms or flooding. In addition, insurers are facing novel challenges from the increased risk of climate change litigation against themselves and their clients.

The rise of climate litigation and the risk for insurers

Globally, there are over 3,000 court cases raising material issues of climate change law, policy or science. Since 2015, an increasing number of cases have been filed against companies and financial institutions. Some cases seek redress and monetary compensation for harm caused by a company’s past greenhouse gas emissions. Others are forward-looking and demand that companies decarbonise and align their operations with science-based emissions reduction pathways. ‘Climate-washing’ or ‘greenwashing’ litigation, which challenges misleading communications by companies about their climate and environmental impacts, has also increased greatly in recent years.

The possibility of litigation raises novel risks for some insurers, such as third-party or liability insurers, who provide coverage to greenhouse-gas-emitting companies and their directors and officers (D&O). Underwriters, the frontline decision-makers in insurance who assess risks against insurers’ risk appetite, find it challenging to price the risk of climate change litigation given its ‘long tail’ yet fast-evolving nature (the long tail refers to the fact that risks and claims may materialise straightaway or in the future due to conduct, like emitting greenhouse gases, that started many decades ago). Climate litigation is often characterised by uncertain legal outcomes – all of which makes historical modelling, used to inform future predictions, difficult. Claim handlers, on the other hand, have to assess whether traditional policy wording and risk management tools such as exclusions remain fit for purpose.

Can specific policy wording and exclusions limit climate-related claims?

Policy wording sets out the precise terms of insuring agreements, including the conditions under which certain perils will be covered or not, and any exclusions. Exclusions, which formpart of the policy wording, are specific provisions in the insurance policy that deny coverage for specific events, risks or losses. For example, in property insurance, damage caused by war or civil unrest is often excluded in high-risk regions. 

Between an insurer and the insured company, climate-related disputes may arise over whether the loss from a climate-induced or -driven disaster falls within the insurance policy, or whether losses from a climate case against the insured policyholder are excluded.

For example, in Steadfast Insurance Co. v. AES Corp (the first such recorded climate-related dispute, decided in 2011), the insurer declined to cover its policyholder AES, an energy company, for a climate claim. The native Alaskan community of Kivalina in the United States had sued AES, claiming that its greenhouse gas emissions contributed to climate change and imperilled their community. AES then turned to its insurer, Steadfast, to defend and cover the claim. Steadfast refused, arguing two things: the harm to Kivalina did not qualify as an ‘occurrence’ (i.e. an accident) covered under the policy; and a pollution exclusion applied. The Virginia Supreme Court sided with the insurer, reasoning that AES could have reasonably anticipated the climate-related harm as a natural or probable consequences of its intentional acts. Since AES intentionally emitted the greenhouse gases, the resulting harm was foreseeable and hence not covered. There was therefore no need for the court to address the question of pollution exclusion.

This contrasts with a more recent case, Aloha Petroleum v. National Union Fire Insurance et al., where Aloha sought coverage from its insurers for climate litigation brought against it in Hawaii. Here, the court held that greenhouse gases are pollutants, which are excluded from cover by the policies’ pollution exclusion. However, under two policies where no pollution exclusion applied, the insurers could be held liable, because the policies cover “reckless” conduct.

The contrast in these two cases draws attention to different interpretations under respective states’ laws. Under Virginian law in the AES case, climate change was a “natural or probable consequence” of the insured company’s actions – it was not unexpected and could not be seen as an “accident”, even if the company was reckless.

As these disputes show, coverage disputes can be highly context-specific, dependent on particular wording and the insured’s actions. Similar disputes might also arise between an insurer and its reinsurer concerning the wording and exclusions under reinsurance treaties. (Reinsurance is insurance for insurers, under which a primary insurer or ‘cedent’ pays a premium to a reinsurer to transfer part of its accepted risks to the latter, thus stabilising the cedent’s solvency against large losses.)

Who might an insurer pursue to recover its losses?

If an insurance policy does cover climate-induced or -driven disasters and losses, insurers may also manage their financial risk through subrogation. Subrogation disputes, sometimes referred to as recovery disputes, can arise after the payment of an insurance claim. The insurer ‘steps into the shoes’ of the insured to recover the amount that it paid to its policyholder from the third party responsible for the damage. For insurers, initiating subrogation is a choice and right – not an obligation. Litigation is being used to determine who is ultimately liable for losses that have already materialised.

To date, there are not many recorded subrogated lawsuits in relation to climate-related harm. What might be the first example of climate-related subrogation disputes arose from the Northern California wildfires in 2017–18, which resulted in insurance payouts to help affected individuals and businesses recover and rebuild in the aftermath. Pacific Gas & Electric (PG&E), a regulated utility provider responsible for electricity supply in the area, was found liable for its failure to inspect, maintain and clear vegetation around its electrical equipment and powerline infrastructure which allegedly failed in a way that ignited the wildfires.

Several insurers sought to recover their payouts in subrogation against PG&E, eventually settling their claims. In 2019, investors in bonds issued by PG&E filed a securities class action, alleging that investigations of the wildfires revealed that the company had failed to take proper fire mitigation measures and that this failure directly contradicted representations made in its bond-offering documents. The fires were not attributed to climate change during the litigation involving PG&E, but it was acknowledged that the exceptionally dry conditions (which would have been accentuated by global warming) likely worsened them.

More recently, insurer Tokio Marine reportedly initiated a subrogated claim arising from flood damage to the insured Toyota South Africa Motors’ plant during the April 2022 floods in South Africa. The floods forced the facility to shut for several months, causing extensive physical and business interruption losses. After paying out the insurance claim, Tokio Marine exercised its right of subrogation and initiated a recovery action against the municipality, the local Department of Transport, and the state-owned logistics company for their alleged failure to maintain stormwater canals and drainage infrastructure. The insurer argues that this failure turned a foreseeable extreme weather event into a much larger disaster. The case is ongoing at the time of writing.

As a commercial claimant motivated by recovery of its losses rather than the wider impact of its claim, Tokio Marine has chosen to pursue a public entity potentially linked to the harm suffered by the insured. However, in theory, insurers could bring subrogation claims against other third parties who may have contributed to worsening climate-related harm, for example oil and gas companies responsible for large quantities of emissions contributing to climate change. These claims will rely on developments in attribution science to establish causal links between specific emitting companies and the resulting climate-related harm.

Will climate impacts push insurers to pursue more subrogated claims?

In practice, subrogation disputes against oil and gas companies are likely to be challenging to pursue, due to the structure of the insurance market. If Insurer A (for instance, a first-party insurer providing property insurance) sues an oil and gas company for climate-related damages, that company will likely call on its own liability insurer, Insurer B, to defend it. The lawsuit then effectively sees Insurer A pitted against Insurer B: two insurance companies that may have ongoing commercial relationships and provide shared coverage for other risks (for instance, within an ‘insurance tower’). Insurer A and Insurer B could also, hypothetically, be part of the same business entity. The consideration of this commercial relationship may dissuade Insurer A from pursuing the subrogated claim against the oil and gas company.

Recently, insurer Chubb has refused a proposal by an activist shareholder (an NGO called As You Sow) to include subrogation as a topic for investigation in its proxy materials for Chubb’s annual shareholder meeting – a decision indicative of large insurers’ approach to this issue.

However, emerging innovative regulatory interventions, such as those taking place in several US states, may change this landscape by extending subrogation rights. For example, in California, Senate Bill 222 (SB 222), known as the Affordable Insurance and Climate Recovery Act, was introduced in January 2025 to allow victims of climate-related disasters, or their insurers, to sue oil and gas companies for damages of US$10,000 or more. It was rejected by the California State Judiciary Committee in April 2025 but reintroduced in February 2026 by Senator Scott Wiener. The ‘polluter pays principle’ on which SB 222 is based has inspired numerous similar legislative efforts, most notably in New York and Hawaii.

Have insurers been sued directly in climate change litigation?

Although there has not yet been a climate litigation case directly against an insurer (or reinsurer) challenging their specific contribution to climate change, insurers should be aware of their own litigation risk. An increasing number of cases are challenging banks and other investors for financing high-emitting companies (sometimes referred to as ‘turning-off-the-taps’ cases). Strategic litigation is often part of a broader advocacy strategy. Campaigns have already emerged specifically calling on insurance companies to stop insuring new fossil fuels (e.g. Insure Our Future). Most commercial activity requires insurance. It is possible that insurers may face challenges for their role in providing insurance to high-emitting activities, or for their own failure to adapt to physical and transition risks.

This Explainer was written by Tiffanie Chan, Zaneta Sedilekova and Lucia Williams, with review by Joana Setzer, Martina Menegat and Catherine Higham, and editing by Georgina Kyriacou.

Read our further Explainer on climate change and insurance: ‘How is insurance underwriting impacted by climate change?’