Hawaii Supreme Court Reaffirms an "Accident" Includes Reckless Conduct, Finds Green House Gases are Pollutants

    Answering certified questions from the federal district court, the Hawaii Supreme Court reaffirmed its prior holding that reckless conduct is an "occurrence' or accident. The court further held that green house gas (GHG) emissions were pollutants under liability policies. Aloha Petroleum, Ltd. v. National Union Fire Ins. Co. of Pittsburg, PA., et al., No. SCCQ-23-0000515 (Oct. 7, 2024). [Disclosure – our office was co-counsel on an amicus brief in this case filed on behalf of the United Policyholders]. 

    The City and County of Honolulu and the County of Maui sued several fossil fuel companies, including Aloha Petroleum, Ltd., for climate change-related harms. The suits alleged that the fossil fuel industry knew beginning in the 1960s that its products would cause catastrophic climate change. Rather than mitigate their emissions, defendants concealed their knowledge of climate change, promoted climate science denial, and increased their production of fossil fuels. Defendants' actions, the complaints alleged, increased carbon emissions, which caused significant damage to the counties.

    Aloha demanded a defense from its two insurers, National Union Fire Insurance Company of Pittsburgh, PA and American Home Assurance Company, both subsidiaries of American Insurance Group (AIG). Aloha sued the AIG entities in federal district court for breaching their duties to defend, indemnify and act in good faith. The federal district court sent two certified questions to the Hawaii Supreme Court. The first asked whether an "accident" included an insured's reckless conduct. The second asked whether GHGs were "pollutants" as defined in the policies' pollution exclusions. 

    The policies' pollution exclusion barred coverage for "the actual, alleged, or threatened discharge, dispersal, seepage, migration, release or escape of 'pollutants' . . . "  Pollutants were defined as "any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste." 

    Regarding whether reckless conduct constituted an "occurrence," the district court wondered, if an insured was aware of the risk of harm and acted anyway, was this an "accident?" The Hawaii Supreme Court answered "Yes." Awareness of risk differed from awareness of certain harm. Insurance covered risk. Per the court's decision in Tri-S Corp. v. Western World Ins. Co., 110 Haw. 473 (2006), covered "accidents" differed from non-covered expected or intended injuries when the harm was intended or practically certain.

    The federal district court envisioned a conflict between Tri-S and AIG Haw. Ins. Co., Inc. v. Estate of Caraang, 74 Haw. 620 (1993). In Caraang, the court held that an "occurrence" required an injury that was not "the expected or reasonably foreseeable result of the insured's own intentional acts or omissions." The federal district court asked whether recklessness could be an "accident" and thus a covered "occurrence.'" The Hawaii Supreme Court answered "Yes," noting that awareness of risk differed from awareness of certain harm. Insurance covered risks. Per Tri-S, the court held that covered "accidents" differed from non-covered expected or intended injuries when the harm was intended or practically certain. 

    Caraang's "reasonably foreseeable" language referred to intent, not expectation. Caraang and Tri-S both ruled that an "expected" injury was not an "accident.' Caraang did not define an "expected" result, but Tri-S did. Therefore, Tri-S' definition controlled. 

    Tri-S defined an "expected" injury as one "practically certain" to occur. When an insured did not act with harmful intent, an "accident" hinged on the certainty of the risk. A policyholder's awareness of a possible or probable risk could be an "accident." When the risk crossed the line into "practical certainty," it was no longer an "accident."

    When Caraang said that the injury could not be "reasonably foreseeable," it referred to cases where the insured acted with an intent to harm others. Thus, from an insured's perspective, the resulting harm was "reasonably foreseeable." Caraang essentially ruled that an "accident" was not an expected result or the result of an insured's intentionally harmful conduct. Tri-S defined when a result was intended or expected. There was no conflict or inconsistency between Tri-S and Caraang, because Caraang's "reasonably forseeable" language referred to an insured's intent, not an insured's expectation. 

    Tri-S held that "expected" injury was "practically certain" to occur from the insured's subjective view. Reckless conduct – awareness of risk of harm – fell short of practical certainty. If the insured intended to cause the harm, a different harm, or acted so dangerously that the law must infer intent to harm, then the insured alone bore responsibility for its conduct. Likewise, if the insured acted with "practical certainty" of harm, it was solely responsible. Tri-S' definition of an "expected" injury as "practically certain" was not in tension with Caraang. 

    Turning to the policies' pollution exclusion, whether Aloha was ultimately entitled to a defense under the 1986 and 1987 policies was a question for the district court. To award coverage under those policies, the district court had to find that the counties' complaint alleged property damage during the policies' coverage period. The district court's certified question noted that "the underlying lawsuits sparsely alleged damages occurring before 2000."  The district court could decide whether the "sparse" damage allegations created a possibility of coverage, though so far said it was "apparently" not possible. 

    The Hawaii Supreme Court adopted the "traditional environment pollution" reading of the exclusion and held that what made a substance a "contaminant" – and thus a "pollutant" – was whether it caused damage due to its presence in the environment. Under a traditional pollution or plain language reading of the exclusion, emitting the greenhouse gases that caused climate change was pollution. By plain language, GHGs were "gaseous" "contaminants" that were "released" causing "property damage."

    Greenhouse gases, including carbon dioxide, produced "traditional" environmental pollution. Aloha's gasoline produced GHGs. These gases accumulated in the atmosphere and trapped heat. Because they were released into the atmosphere and caused harm due to their presence in the atmosphere, GHGs were pollutants.