Temperatures in Arizona this week reached over 110 degrees Fahrenheit. The water temperature in the Florida Keys was reported to reach sauna-like levels, threatening the life of habitat-sustaining coral. Atmospheric conditions are routinely blamed for violent storms and for wildfires that darken the skies.
As average global temperatures continue to rise, catastrophic weather events are occurring with greater frequency and intensity. According to Aon, there were 421 major natural disasters worldwide in 2022, resulting in $132 billion in insured losses (including approximately $99 billion in the United States). At the same time, historic risk models are proving unable to account for the increasingly volatile weather patterns, presenting challenges for insurers to accurately assess their exposure.
In response, insurers have begun to use extraordinary measures to reduce the impact of climate change-related losses by shifting the burden onto policyholders. For example, in the wake of Winter Storm Uri, a four-day severe winter weather event that impacted Texas in 2021, certain insurers attempted to rely on the following exclusion (or similar language) to dispute coverage for losses:
This Policy does not insure LOSS caused by any of the following, unless direct physical LOSS by an insured peril ensues and then this Policy insures only such ensuing direct physical LOSS:
4. Extremes or changes in temperature.
(the “Temperature Exclusion”)
However, not all insurance programs contain such exclusionary language, nor has such language been applied consistently. Ultimately, several insurers have decided not to insist upon enforcing a narrow interpretation of this exclusion this go-around, but are nevertheless pushing for the incorporation of this language in renewals going forward.
In the context of Winter Storm Uri, insurers’ reliance on the Temperature Exclusion was deeply flawed. First, some insurers simply ignored the exception stated in that exclusion, which specifically provides that coverage is still provided for “direct physical LOSS” ensuing from an extreme temperature event. Second, “extreme” and “change” are inherently ambiguous terms that are reasonably susceptible to multiple meanings. For example, so-called “extreme” winter weather in South Texas might not be considered “extreme” in the Texas Panhandle, even though both are in the same state and have relatively similar weather during much of the year. And, the words “extreme” and “change” are by definition relative. For example, is a temperature “extreme” if it is much higher or lower than the temperature the same day the previous year? Than the average of temperatures on that day over a certain number of years? Than the predicted temperature for that day? And how much higher or lower than average does must the temperature be to qualify as “extreme”? And what must the nature of a “change” in temperature be to trigger the exclusion?
Additionally, courts interpreting the term “temperature” in similar contexts have largely found it to be ambiguous because the term lacks inherent specificity (e.g., ambient temperature vs. temperature inside; daytime temperature vs. nighttime temperature; average temperature vs. high or low temperature; etc.). (See, e.g., Blaine Const. Corp. v. Ins. Co. of N. Am., 171 F.3d 343 (6th Cir. 1999); Worldwide Sorbent Prods., Inc. v. Invensys Sys., Inc., 2014 WL 12597394; and Old Town Canoe Co. v. Continental Cas. Co., 2005 WL 2674902.) Furthermore, insurers traditionally have not relied on this language when analyzing coverage for losses resulting from catastrophic weather events, but instead rely on “Named Storm”-type exclusions. Finally, there has been much fact-specific debate over whether “extremes or changes in temperatures” caused the losses sustained, as opposed to the power grid’s failure to meet demand during the storm. So, while this exclusion may apply to a narrow category of losses, it proved powerless to bar coverage for Uri-related claims.
While courts have found the Temperature Exclusion to be ambiguous as a matter of law, several appear to acknowledge that the Temperature Exclusion may apply to losses resulting from changes in ambient temperature, but not to changes inside a building. But courts have yet to analyze what constitutes “extremes” or “changes” in temperature, or potentially related causation issues. These lingering questions give fuel to coverage fights, especially considering recent changes in the global climate. Meanwhile, the extent to which policyholders successfully obtained coverage for Uri claims is cloaked in mystery, as insurers increasingly require the execution of confidential settlement agreements even for undisputedly covered claims—a seemingly unfortunate aftermath of COVID-19 insurance coverage litigation. As a result, insurers will likely rely on similar Temperature Exclusion language to avoid coverage for claims that take place during future weather events.
Accordingly, policyholders must remain vigilant against insurer’s attempts to reduce or eliminate coverage and ensure their policies protect against the risk of climate change-related property damage. In most jurisdictions, insurers are required to provide notice of any reductions in coverage, yet such mandates often are not followed. (See 28 Tex. Ins. Code § 551.1055; Cal. Ins. Code § 678(a); NY Ins. Law § 3426(e)(1).) Policyholders should engage coverage counsel before insurance renewals to conduct a policy audit, and identify new exclusions, potential ambiguities in coverage and potential policy improvements. Experienced coverage counsel can assist prior and during claim preparation so coverage can be maximized. By taking these proactive steps, policyholders will be able to weather the storm of increasing insurer opposition and protect their interests when the heat is on.