Indigenous Rights and Insurance Exposure: What you need to know

Indigenous rights are fundamental human rights that protect the cultural, social, and economic well-being of indigenous communities. These rights are crucial for preserving the heritage and traditions of indigenous peoples, ensuring their participation in decision-making processes, and safeguarding their lands and resources.

For insurers and other stakeholders, understanding indigenous rights is essential to mitigate legal, financial, and reputational risks. Failure to do so can lead to significant project delays, increased costs, and potential litigation.

Legal foundations of Indigenous Rights

Indigenous rights are recognised by various international instruments, including the Universal Declaration of Human Rights, the International Labour Organization's Convention 169, the United Nations Declaration on the Rights of Indigenous Peoples, the European Convention on Human Rights, and the American Convention on Human Rights. These rights are often incorporated into domestic legislation through constitutional provisions and human rights treaties.

Several case studies illustrate the impact of indigenous rights on legal and economic outcomes. For instance, in recent cases, Indigenous communities have sought compensation against state actors for environmental damages and damages to their cultural heritage.

Case studies: Legal and financial impacts

In the case of the Kichwa Indigenous People of Sarayaku v Ecuador (2012), Ecuador granted a permit to an Argentine oil company for exploration in the Kichwa territory without proper consultation. The company conducted seismic surveys, destroying cultural and environmental landmarks. The Kichwa people sought compensation for damages and protection of their ancestral lands. The court ordered Ecuador to remove explosives, ensure property reparations, and respect the right to prior consultation.

In the case of Daniel Billy (ClientEarth) v Australia (2022), Torres Strait Islanders claimed that Australia's failure to mitigate and adapt to climate change violated their rights. The claimants sought compensation and measures to ensure their safety. Climate change caused severe flooding, degraded land, and affected traditional food sources. Australia was asked to compensate the Islanders and consult with them on their needs. Additionally, Native American Tribes in the United States have specific rights to recover Natural Resources Damages (NRD), which otherwise can only be recovered by a government entity holding the natural resources in trust. Claims arising from NRD are regarded as of an immeasurable quantum of damages, as they cover restoration costs, compensation for interim loss, and damage assessment costs. In 2023, in a very disputed ruling (5-4 decision), the Supreme Court rejected a claim by the Navajo that sought to enforce an alleged obligation of the State to secure the tribe’s water needs and supplies to meet those needs.

States and public actors are not the only potential defendants in claims raised by indigenous people seeking to enforce and protect their human rights. Equally, private actors face significant economic risks when indigenous rights are not respected. These claims could trigger coverage disputes of different insurance policies, ranging from Property and Construction to D&O, General Liability, and Environmental Impairment Liability policies.

Insurance exposure: Property and Construction

Construction projects, in particular in energy and infrastructure sectors, are likely to be subject to indigenous people's claims, mostly due to lack of or disputed consultation proceedings. For example, Enel's Windpeshi Wind Farm project in the northeast region of Colombia was halted due to unresolved negotiations with the Wayuu community. In Ecuador, the Tagaeri and Taromenane Indigenous Peoples' case led to a referendum banning oil extraction in the Yasuní National Park, which the government argued could cost Ecuador USD 14 billion in two decades. Additionally, a carbon credit deal in Colombia was annulled due to lack of consent from Amazonian tribes.

Extraterritorial liability and global claims

Extraterritorial liability for human rights abuses and environmental damage is another significant concern. Notable cases include the Fundao Dam collapse in Brazil, which led to claims in England from over 200,000 claimants seeking compensation for the environmental disaster caused by the dam collapse against BHP Group Plc, and the environmental damage caused by Shell's operations in Nigeria. Chiquita Brands International was found liable for financing paramilitary groups in Colombia, highlighting the potential for significant legal and financial repercussions. In these cases, Property and Construction policies might be involved due to coverage of liability claims arising from third parties.

D&O policy implications

Directors and officers (D&O) exposures are also a critical aspect of indigenous rights. Directors owe duties to their companies, and breaches of these duties can lead to significant legal challenges. For example, in ClientEarth v Shell (2023), the claimant argued that Shell had not acted appropriately in managing climate-related risks, particularly CO2 emissions reduction and compliance with legal obligations. The court highlighted the importance of directors making judgments regarding climate risk and adopting strategies likely to meet the company's targets for mitigating climate risks.

Securities class actions are another area where indigenous rights and environmental issues intersect. In Ramirez v Exxon Mobil Corp (2016), the plaintiffs alleged that Exxon Mobil misrepresented climate change risks and failed to disclose internal reports recognising environmental risks. This misrepresentation led to artificially inflated stock prices, which dropped significantly once the market learned the truth about Exxon's reserves. Similarly, ClientEarth has announced further proceedings against fossil fuel corporations, emphasising the growing scrutiny of companies' environmental practices.

General liability and environmental impairment

The duties owed by directors to companies have been enhanced through new regulations such as the EU Directive on Corporate Sustainability and the French Duty of Vigilance Law, which require companies to conduct human rights and environmental due diligence, adopt climate change mitigation plans, and ensure compliance with legal obligations. The EU Directive on Corporate Sustainability Due Diligence, for instance, mandates companies to conduct risk-based human rights and environmental due diligence, even at a group level, and to adopt transition plans for climate change mitigation in accordance with the Paris Agreement. Penalties for breach of these rules include civil liability and the right to full compensation.

The above cases, together with the existing director’s duties owed to companies and the new regulations that enhance them, could turn into coverage claims under D&O policies.

Finally, indigenous rights are also closely linked to other emerging risks, such as climate liability, ESG (Environmental, Social, and Governance) due diligence, and social inflation. Companies must navigate these interconnected issues to ensure sustainable and respectful engagement with indigenous communities. For example, the French Duty of Vigilance Law requires companies to provide a vigilance plan that includes risk mapping, preventive actions for human rights and environmental risks, and monitoring systems to track the effectiveness of these actions. Courts can issue formal notices and compliance orders, impose penalties for non-compliance, and hold companies civilly liable for harm caused.

Strategic considerations for insurers

Thus, indigenous rights are a critical issue that demands attention from insurers and private actors. The implications for economic risks, legal liabilities, and compliance with regulations are significant. Comprehensive strategies are needed to address indigenous rights and ensure sustainable and respectful engagement with indigenous communities. By understanding and respecting these rights, stakeholders can mitigate risks, foster positive relationships with indigenous peoples and contribute to the preservation of their cultural heritage and traditions.