Insurance Coverage and Bad Faith

Aloha Petroleum, Ltd. v. National Union Fire Insurance Company of Pittsburgh PA, et al. Classifies Greenhouse Gases as Pollutants

In a significant ruling, the Hawaii Supreme Court has determined that AIG is not required to provide coverage for a lawsuit against Sunoco subsidiary, Aloha Petroleum. The Hawaii court found a pollution exclusion in AIG’s policy applied to greenhouse gas emissions, which were deemed to fall within the definition of pollutants. This ruling arose from certified questions from a federal court. The Hawaii Supreme Court justices found that Aloha Petroleum could not reasonably expect coverage for two underlying climate change lawsuits, as greenhouse gases are clearly recognized as pollutants.

Additionally, the court clarified that an “occurrence,” which is partially defined as an “accident,” can include reckless conduct. This ruling stems from lawsuits filed by the city and county of Honolulu in March 2020 and the county of Maui in October 2020. These suits allege that Aloha and other major oil companies, including Exxon, Chevron, and BP, are responsible for global warming due to their failure to warn about the risks associated with fossil fuel use dating back to 1965.

Aloha Petroleum initiated a lawsuit against AIG’s subsidiaries National Union Fire Insurance Co. of Pittsburgh Pa. and American Home Assurance Co., seeking coverage under commercial general liability policies. In June 2023, both parties filed motions for partial summary judgment concerning the insurers' duty to defend against these claims. Subsequently, U.S. District Judge Jill A. Otake certified two questions to the Hawaii Supreme Court regarding the definition of an “accident” and the applicability of the pollution exclusion to greenhouse gas emissions.

The justices emphasized that previous rulings did not conflict, affirming that for an insurer to owe a duty to defend, the injury must not be a foreseeable result of the insured’s intentional actions. The court highlighted that recklessness does not equate to intent or expectation of injury, thus qualifying as a covered occurrence.

In addressing the pollution exclusion, the court confirmed that it encompasses traditional environmental pollution, including greenhouse gases. The justices dismissed Aloha’s argument that such pollution only pertains to hazardous waste, noting that the potential for harm matters more than the legality or intent behind a product’s use.

Justice Todd W. Eddins remarked, “Pollution doesn’t just refer to unintended spills of toxic substances. Many products – pesticides, aerosols, non-reef-safe sunscreen, and fossil fuels – are inherently polluting when used in their intended way. What makes a product a pollutant is that it causes damage due to its presence in the environment.” This ruling reinforces the idea that emissions from Aloha’s gasoline contribute to environmental harm due to the greenhouse gases released into the atmosphere. It remains to be seen whether other state supreme courts will follow Hawaii’s lead and issue similar rulings.

If you have any questions, please contact Tyler C. Park at 412-288-2211 or parktc@hh-law.com.