On May 5, 2022, the Department of Justice (DOJ) announced a comprehensive environmental justice enforcement strategy to drive environmental justice and prosecute violators.
The environmental justice enforcement strategy encompasses four principles:
- Prioritize cases that reduce public health and environmental harm to overburdened and underserved communities.
- Make strategic use of legal pursuit avenues (including the Supplemental Environmental Project settlement) such as investigative tools and civil/criminal enforcement actions under the environmental protection laws and other federal laws.
- Search for broad remedies for all civil and criminal damages for impacted communities and individual victims, including fines, penalties, treble damages, remedies to stop violations, clean-up, mitigation, rehabilitation, restoration, and restitution.
- Promote transparency with enforcement efforts and tracking progress to measure results.
Directors and officers (D&O) risk related to environmental concerns is not a new corporate or personal exposure. The recent concern is potential liability for a corporate officer, director, or the Board of Directors considering the high public interest and the broad strategy being followed by the DOJ and other, especially non-U.S., regulators.
Shareholder activists and creative plaintiff’s firms will be monitoring how this issue develops, hoping to identify trends to target corporate boards with litigation related to in any potentially misleading statements or omissions in environmental disclosures and strategies.
Depending on how an investigation or action is framed, it could be expensive to defend, even if ultimately found to be without merit. These exposures can impact a firm’s D&O policy as well as other policies, including coverages for environmental risks. While an environmental (pollution) exclusion on the D&O policy may be commonplace, the application of this exclusion varies depending on its breadth and scope. Further, exclusions and related definitions of Loss could include carve backs for specific claims, like securities cases. Policyholders should take care to examine the exclusions along with the policy provisions around “claim”, “notice”, and “loss” to obtain the broadest available coverage in the market.
D&O underwriters may ask additional questions and request information about the company’s environmental practices and policies. An environmental insurance policy covering remediation and third-party liability arising from pollution conditions may enhance a risk management portfolio and provide additional protection. It is important to start conversations with your insurance broker early.
The Securities and Exchange Commission (SEC) recently brought the issue of climate change to the forefront by proposing disclosure rules for public companies. Governance and ESG professionals at Aon present a detailed review of the SEC’s proposed climate change rules in March 2022’s What Companies Need to Know About the SEC’s Proposed Climate Rules in the U.S. , and the Financial Services Group at Aon discussed the rules’ potential impact on the D&O market and litigation in an April FSG Quick Insight - The SEC’s Proposed Climate Change Disclosure Rules and the Impact on the D&O Market and Litigation.
The Environmental Risk Solutions team, the Financial Services Group, and Governance and ESG professionals at Aon reviewed the harmonization of climate disclosure frameworks in the U.S. and the global climate litigation landscape in 2021’s “Directors’ and Officers’ Liability Update -- The “E” in ESG.”
Aon is not a law firm or accounting firm and does not provide legal, financial or tax advice. Any commentary provided is based solely on Aon’s experience as insurance practitioners. We recommend that you consult with your own legal, financial and/or tax advisors on any commentary provided by Aon. The information contained in this document and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity.
