For years, commentators have speculated whether climate change disclosures may result in significant numbers of claims under directors and officers (D&O) liability policies. Such claims, however, have been slow to materialize. Increasing interest in this area by investors, regulators and the plaintiffs' bar, and the recent decision in the putative securities class action pending in the Northern District of Texas, Ramirez v. ExxonMobil Corp., suggest that such an increase in these types of claims could now be on the horizon.
Activists, investors and governmental entities have made it clear that they will continue to utilize litigation and other means to address climate change, despite the limited success such lawsuits have historically had in the U.S. Plaintiff firms will continue to test various claims and theories of liability, as they did with tobacco, asbestos and other mass tort claims. The adequacy of corporate disclosures relating to climate change exposures and opportunities is a significant issue for activists, investors and regulators. They have taken a particular interest in climate change disclosures by companies in the energy sector, but they are also looking closely at other areas such as mining, transportation and insurance.
In 2010, the U.S. Securities and Exchange Commission (SEC) issued interpretive guidance to public companies regarding its existing disclosure requirements as applied to climate change, and the current chairman has said companies should be mindful of that guidance when drafting disclosures. A number of jurisdictions have mandatory reporting requirements relating to climate change. The SEC and state attorneys general have taken action regarding climate change disclosures.
Although climate change disclosure is a growing concern for companies and their directors and officers, it has not resulted in significant numbers of claims under D&O policies. Recent regulatory investigations and shareholder lawsuits, including actions against ExxonMobil and its officers, however, demonstrate that D&O insurers may still be impacted by climate change disclosure claims. Indeed, the regulatory investigations on shareholder litigation against ExxonMobil and its officers have followed a pattern familiar to D&O insurers.
Since 2015, the New York Attorney General and other state attorneys general have been investigating ExxonMobil's climate change disclosures. In March a court rejected Exxon's arguments seeking to quash the investigation as "implausible" and noted that ExxonMobil was "running roughshod over the adage that the best defense is a good offense." As a result of the investigation, on October 24, 2018, the New York Attorney General, Barbara Underwood, filed a 91- page complaint against Exxon Mobil Corporation alleging that it “essentially kept two sets of books when accounting for the effects of climate change.”
Although the federal government seems to be reducing its efforts on climate change, the pursuit of parallel investigations and actions by state attorneys general, such as the complaint filed last week by the NYAG, suggests that other governmental entities and groups will continue the cause in the current political environment.