Farmers Insurance Sues Over Climate Change

“What the heck???!!!”

You’ve probably heard the news that Farmers Insurance filed a suit against about 200 Chicago-area municipalities. The suit contends that those municipal governments knew the risk posed by climate change and should have been better prepared.

Farmers Insurance Sues Over Climate Change

Farmers Insurance is seeking damages for losses caused to their insureds’ homes by the surge of storm water and sewage overflow due to a 2013 torrential storm. Farmers Insurance contends that because of climate change heavy downpours are happening more frequently and cities should know this and make the proper preparation.

They argue the cities should have increased their storm water capacity. They further argue that steps could have been taken days before the storm to mitigate damage.

Farmers Insurance is a subsidiary of Zurich Insurance Group. Another Zurich subsidiary won a climate related suit in 2012.

Some combine the logic of the two suits to indicate a Zurich strategy to insulate itself against climate change losses.

Some pundits have speculated that since cities enjoy governmental immunity, Farmers Insurance will probably amend the suit to bring in the oil and gas industry. And, would it be long before the agricultural industry would be brought in as a co-defendant?

What is really at stake here?

There is great fear in some quarters that the insurance industry will be left holding the bag for costs related to climate change much like it was for asbestos.

The lawsuit by Farmers states, “The defendant knew or should have known that climate change in Cook County has resulted in greater rainfall volume, greater rainfall intensity, and greater rainfall duration than the pre-1970 rainfall history evidenced, resulting in greater storm-water runoff.”

It would appear defense attorneys would claim that Farmers Insurance’s underwriters also had knowledge of the potential damage and elected to accept the risk. I would tend to agree with that position.

I believe the sustainability of the property and casualty market for homeowners into the future depends on increased deductibles, making the accountability for incurred loss more squarely the individual’s problem. At that point decisions will be made by homeowners that result in much less total catastrophic loss. Fewer homes without proper construction will be built in areas prone to tornados. Dwelling will be built less often on ocean front property with limit ability to withstand storms. Sprinklers will protect homes built in areas that are prone to fire.

Courts are a lousy place to seek change to protect your business.

James Holm

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