Insurer files, withdraws warning suits on climate change and infrastructure

By Eric Sundquist

Farmers Insurance Group filed class action suits against hundreds of Chicago-area governments in May, claiming that they knew of risks caused by climate change yet did not prepare well enough for 2013 flooding that resulted in customer damages and claims.

“During the past 40 years, climate change in Cook County has caused rains to be of greater volume, greater intensity and greater duration than pre-1970 rainfall history evidenced,” a fact that local governments were well aware of, one of the suits claimed, according to The Washington Post. Despite this knowledge, local government did not make infrastructure more resilient, the suit claimed.

On June 4, 2014, the company withdrew the suit, saying it had made its point.

“Farmers initiated this litigation in an effort to recover money on behalf of our policyholders for certain losses they sustained that could have been avoided by the cities and counties named in this lawsuit.  We hoped that by filing this lawsuit we would encourage cities and counties to take preventative steps to reduce the risk of harm in the future. We had hoped to give a voice to customers,” a company spokesman said, according to Insurance Journal.

“We believe our lawsuit brought important issues to the attention of the respective cities and counties, and that our policyholders’ interests will be protected by the local governments going forward,” the Farmer’s statement continued. “Therefore, we have withdrawn the suit and hope to continue the constructive conversations with the cities and counties in Chicagoland to build stronger, safer communities.”

Farmers Insurance is a subsidiary of Zurich Insurance Group, which has been warning about climate change risks for years. At SSTI’s 2013 meeting for DOT CEOs, Zurich’s Linden Patton concluded that:

  • The frequency and severity of climate-driven natural disasters is increasing.
  • The percentage of natural disaster damage that is insured is decreasing.
  • It is mainly the uninsured losses that drive the subsequent macroeconomic cost; whereas sufficiently insured events are inconsequential in terms of foregone output.
  • High potential risks are becoming uninsurable.
  • The “current state” of resilience response is not sustainable.
  • A significant investment in resilient infrastructure and development is required.
  • We are in a period where an upgrade of infrastructure is critical—adaptation should be implemented as a component of this investment.
  • Other adaptation tools are available and should be considered.

Eric Sundquist is Managing Director of SSTI.