Climate clause

Insurance: Disclosure and Mitigation of Pending Climate Change Litigation [New]

Cassie's Clause

A clause ‘extending’ insurance policies to cover pending climate change litigation, on the condition that the policyholder discloses its net zero targets and climate risk exposure.

This is a climate clause

This clause brings climate considerations to your drafting. It is not yet net zero aligned. To align this clause with net zero, use our toolkit or join one of our events.

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Why use this?

This clause: gives policyholders certainty over whether (and to what extent) climate change litigation related to past business activity will be covered/excluded from the scope of their policy(ies); reduces (re)insurers’ exposure to protracted involvement in litigation for which there may or may not be express policy cover; and strengthens the commercial relationship between (re)insurers and policyholders through collaborative working despite legal uncertainties impacting their contractual obligations (without necessarily relying on blanket exclusions of cover / risking early coverage denials).

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The clauses on this website (and published in our Climate Contract Playbook) have been prepared in good faith on a pro bono basis and are free to download and use. The clauses have been drafted and edited by a variety of lawyers and, as such, the approaches to drafting may not conform to any particular drafting norms. We acknowledge this as a consequence of the collaborative drafting process.

The clauses on this website (and published in our Climate Contract Playbook) are provided on an ‘as is’ basis and without any representation or warranty as to accuracy or that the clauses will achieve the relevant climate goal or any other outcome.

This website (and the Climate Contract Playbook) does not comprise, constitute or provide personal, specific or individual recommendations or advice of any kind, and does not contain legal or financial advice. The clauses are precedents for legal professionals to use, amend and negotiate using their professional skill and judgement and at their own risk.

While care has been taken in the drafting of these clauses, neither The Chancery Lane Project nor any of its contributors owe a duty of care to any party in relation to their preparation and do not accept any liability for any errors or omissions, nor for any loss incurred by any person relying on or using these clauses or any other person. Users should use their own professional judgement in the application of these clauses to any particular circumstance or jurisdiction or seek independent legal advice.

At present, all the clauses are based on the laws of England and Wales. We encourage the conversion of these precedent clauses for use in other jurisdictions.

The clause

Additional Clause

PENDING CLIMATE CHANGE LITIGATION EXTENSION

Subject to the payment of the Additional Premium as detailed below, this Policy is extended to indemnify the Insured [and/or any Additional Insureds as specified in this Policy] for Pending Climate Change Litigation, subject to the terms and conditions listed below (this “Extension”).

 

INDEMNIFICATION SUM

Under this Extension, the Insurer[s] will indemnify the Insured [and/or Additional Insureds] for any sums that the Insured may be legally liable to pay as a result of a Pending Climate Change Litigation, up to the maximum amount of GBP [X] per claim (the “Indemnification Sum”).

The Insurer[s] may at any time pay to the Insured the full Indemnification Sum in connection with any claim arising from a Pending Climate Change Litigation, at which point the Insurer shall have no further liability in connection with such claim.

The Indemnification Sum shall be:

(a) subject to the Insured [and/or Additional Insureds] providing the Insurer[s] with a full and final discharge and release, including from any continued or future involvement in the Pending Climate Change Litigation [or any claim or matter arising out of or in any way connected or related to the Pending Climate Change Litigation], upon payment;

(b) subject to a deductible of GBP [x] per claim;

(c) in addition to the overall [Limit of Indemnity] under the Policy; and

(d) inclusive of any defence costs and expenses, claimants’ costs and expenses and any other damages, costs, expenses or similar that become payable by the Insured [and/or Additional Insureds] to the Claimants and/or any Third Party in relation to the Pending Climate Change Litigation [or any claim or matter arising out of or in any way connected or related to the Pending Climate Change Litigation].

 

Solely in relation to this PENDING CLIMATE CHANGE LITIGATION EXTENSION the following definitions shall be applicable:

Additional Premium means [x].

Carbon Dioxide Equivalent (CO2e or CO2eq) means the standard metric measure used by [the UN’s Intergovernmental Panel on Climate Change (IPCC)] to compare the emissions from various GHGs on the basis of their global warming potential over a specified timescale.

Climate Change means a change in the state of the climate that can be identified and that persists for an extended period of time and where the change is caused directly or indirectly by (i) human activity that alters the composition of the global atmosphere or (ii) natural processes, including volcanic eruptions and changes of solar cycles. 

Climate Change Event means an event, series of events or circumstance arising from the physical impacts of Climate Change [that affects a large number of people within a community, population, region, country or continent] and includes but is not limited to:

(a) unavailability of water, clean air or other natural capital;

(b) damage to premises, including flooding due to sea level rise or an increased intensity of rain and storms;

(c) disruption of logistics and transport systems relied on for the supply and distribution of key inputs or outputs;

(d) unsafe working conditions due to heat stress, extreme weather or increased disease;

(e) damage or disruption to food supply chains, housing or transport affecting the availability of food, shelter or transport for workers;

(f) unavailability of insurance; and

(g) unavailability of workers.

Greenhouse Gases (GHGs) means the natural and anthropogenic gases which trap thermal radiation in the earth’s atmosphere and are specified in Annex A to the Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC), as may be amended from time to time, each expressed as a total in units of Carbon Dioxide Equivalent (CO2e).

GHG Emissions means the Insured’s emissions of GHGs from all sources, categorised as scope 1, 2 and 3 emissions by The Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard, Revised Edition 2015 as updated from time to time.

Net Negative means that the aggregate of the Insured’s actions to reduce its GHG Emissions and remove them from the atmosphere exceeds its unabated GHG Emissions.

[Drafting Note: On a global scale, removals of Greenhouse Gases should be consistent with the mitigation pathways that would limit global warming to 1.5°C, with little to no overshoot. See IPCC Special Report on Global Warming of 1.5 ºC, Summary for Policymakers, Part C Emission Pathways and System Transitions Consistent with 1.5°C Global Warming.]

Net Zero Target means both a reduction of GHG Emissions overall and a removal of GHG Emissions associated with the implementation of an Offsetting Strategy to address the Residual Emissions of the Insured by 2050 or sooner to achieve a balance between the Insured’s sources and sinks of GHG Emissions in a calendar year and for each subsequent year thereafter and to achieve Paris Agreement Goals.

Net Zero Target Plan means a plan to deliver the Net Zero Target and to remain Net Negative thereafter that:

(i) includes an Offsetting Strategy;

(ii) sets interim reduction targets for the Insured’s GHG Emissions that are aligned with Paris Agreement Goals;

(iii) links executive remuneration to the achievement of the interim targets; and

(iv) promotes a just transition to a low carbon economy.

Offsetting Strategy means a plan specifying:

(i) the carbon credits that [may/will] be purchased by the Insured from a project that has been verified in accordance with [insert name of voluntary standard] or under the United Nations Framework Convention on Climate Change (UNFCCC) clean development mechanism (CDM) [or [successor/ equivalent] UNFCCC mechanism] to offset its Residual Emissions;

(ii) [how/that] the emissions of GHGs avoided, reduced or removed by the project are additional;

(iii) how the Insured will transition from using credits resulting from offsetting projects that avoid or reduce third party emissions of GHGs to those from projects that remove emissions of GHG and involve long-term storage methods that have a low risk of reversal [over millennia];

(iii) how the Insured will [use best endeavours to] reduce its use of credits by reducing its Residual Emissions [to zero/ by [x] %] by 2050; and

(iv) the impact of the relevant offsetting projects on a just transition and wider social and ecological goals.

Paris Agreement Goals means the three goals set out in Articles 2.1 and 4.1 of the UNFCCC’s Paris Agreement, in particular pursuing efforts to limit global temperature increase to 1.5 degrees Celsius above pre-industrial levels.

Residual Emissions means the GHG Emissions that are emitted after all reasonable efforts have been made by the Insured to reduce GHG Emissions.

Pending Climate Change Litigation means any claim validly served against the Insured [and/or Additional Insureds] by a Third Party in the Courts [of England and Wales] which relates to Climate Change or a Climate Change Event that:

(a) was served against the Insured [and/or Additional Insureds] prior to the Policy Inception;

(b) pertains to an act or omission of the Insured [and/or Additional Insureds] that is alleged to have occurred between [, or on either of,] the Retroactive Date and Inception Date as stated in the Schedule;

(c) has not been concluded by any court order, arbitration award or settlement prior to Policy Inception; and

(d) is set out in Schedule [x] (Pending Climate Change Litigation) to this Extension.

Third Party means: any person, entity or organisation other than the Insured [or Additional Insured].

 

OTHER INSURANCE

In addition to the General Conditions listed in this Policy, if a Pending Climate Change Litigation is covered under another insurance policy, this Extension shall apply in excess of any other valid and applicable insurance policy held by the Insured [and/or Additional Insureds].

CONDITIONS APPLICABLE TO THIS EXTENSION

This Extension is subject to the following conditions:

1) The Additional Premium must be paid within [x] days of Policy Inception;

2) The Insured [and/or Additional Insureds] fully discloses its contemporaneous assessment of its exposure to litigation arising from Climate Change or a Climate Change Event, and the measures being taken to mitigate the risks of litigation arising from Climate Change or a Climate Change Event, within [x] days of Policy Inception;

3) The Insured [and/or Additional Insureds] fully discloses the Net Zero Target(s) and Net Zero Target Plan(s) applicable to all their businesses within [x] days of Policy Inception; [and]

[4) The Insured shall report [annually] on progress towards achieving its Net Zero Target within [x] days of [x].]

5) The Insured shall: [Insert net zero-related organisational requirements from Sebastian’s Clause and other TCLP’s published climate clauses as appropriate. Given that the insurer may have the right to avoid liability in the event that a condition to cover is not satisfied, each of these should be carefully considered and there should be a specified timeframe for compliance. Consider linking the value of the insured limit available / applicable deductible / premium payable or policy renewals to the obligations and targets.]

[6) The Insured [and/or Additional Insureds] shall provide the Insurer[s] with all requested documentation to verify the existence of Pending Climate Change Litigation within [x] days of Policy Inception. Such documentation shall include, but is not restricted to, the formal court pleadings and pre-action correspondence.] [Drafting note: Delete if this is already a separate requirement of underwriters before cover incepts.]

This cover overrides incompatible General Conditions of Policy. 

 

Schedule [x]: Pending Climate Change Litigation

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