Insurance Implications of California Home Builder Air Pollution Mitigation Law
The appeal of a lawsuit by the National Association of Home Builders (NAHB) challenging a California law requiring home developers to mitigate carbon emissions from building projects was recently declined by the United States Supreme Court. Many emission-related risks and mitigation-related risks may not be covered by the standard insurance policies typically used in the construction industry today.
Adopted by the San Joaquin Valley Unified Air Pollution Control District, the law at issue forces those involved in housing development projects to mitigate the carbon emissions generated by their efforts. Mitigation can be either by specific green initiatives, or through payments to the District to fund general pollution mitigation projects.
The NAHB originally filed suit to invalidate the law in 2006, asserting that the District did not have the jurisdiction to regulate the environmental requirements of home developers. Both the federal district court and the United States Court of Appeals for the Ninth Circuit disagreed, indicating that local and regional air pollution controls are permitted by the U.S. Clean Air Act.
A standard construction insurance program typically provides contractors liability insurance, builders risk insurance and workers compensation. Generally, this program would provide protection from third-party claims for damages, damages to the project during construction, and medical/disability payments for injured employees.
Pollution liability insurance is typically a specialized coverage that is not always included in standard construction insurance programs. Additionally, standard pollution liability insurance endorsements may not cover risks related to emission mitigation efforts, risks and/or litigation.
To the extent that local and regional governmental authorities continue to impose environmental mitigation requirements on home developers under the Clean Air Act, insurers serving the construction industry will likely be forced to adapt. New endorsements specifically designed to cover these mitigation risks could emerge. If the mitigation requirements become more pervasive, standard construction insurance programs could evolve to incorporate mitigation risk coverages as a standard feature.