On Friday, April 20, 2012, ruling on the insured's motion for rehearing, the Virginia Supreme Court unanimously upheld its prior decision, holding that the insurer was not required to defend AES Corporation because the alleged emission of carbon dioxide was not an occurrence within the meaning of a general liability policy. AES Corp. v. Steadfast Insurance Co., No. 100764 (Va. April 20, 2012).
The insurance coverage dispute arose out of claims filed by the Native Village of Kivalina and the city of Kivalina (collectively, Kivalina) against numerous defendants, including The AES Corporation (AES), an energy company that generates and distributes electricity in numerous states. Kivalina sought damages for injuries resulting from global warming caused by the emission of carbon dioxide. AES sought defense and indemnification from its general liability insurer, Steadfast Insurance Company (Steadfast). Steadfast denied coverage, resulting in coverage litigation.
After the Virginia Supreme Court held that the allegations set forth in the Kivalina complaint did not allege an occurrence, AES submitted a petition for rehearing. AES argued that the court improperly based its finding that there was no occurrence on the plaintiffs' allegation that AES "should have known" that emitting carbon dioxide would result in the alleged damage. AES argued that the court erred in failing to distinguish between allegations that the insured should have known that harm was reasonably foreseeable from allegations that the insured should have known that there was a substantial probability that harm would occur. AES argued that allegations that the harm was reasonably foreseeable have traditionally resulted in a finding of an occurrence for purposes of the duty to defend.
The court disagreed. The court noted that in determining whether an insurer has a duty to defend under Virginia law, it could only consider the terms of the relevant insurance policies and the allegations in the complaint. The court found that while the complaint had some allegations of negligent conduct on the part of AES, the gravamen of Kivalina's nuisance claim was that the damages sustained were the natural and probable consequences of AES's intentional emissions. The complaint alleged that AES was negligent only in the sense that it "knew or should have known" that its actions would cause injury no matter how they were performed. Thus, the court affirmed the judgment of the circuit court and held that because AES allegedly "knew or should have known that certain results were the natural or probable consequences of intentional acts or omissions, there was no 'occurrence' within the meaning of the CGL policy."
In a concurring opinion, Justice Mims pointed out that Virginia law created a dichotomy between the allegations required to prove an occurrence and the allegations necessary to set forth a negligence claim. A cause of action for negligence requires the plaintiff to plead duty, breach and causation of injury that "could have reasonably been foreseen," while in order to find an occurrence, the complaint must set forth allegations of an accident, which requires injury that is not reasonably anticipated. While agreeing that Virginia precedent required the majority to conclude that there was no occurrence in this case, he warned that the state's rulings "may have painted us into a jurisprudential corner" that would lead to a "day of reckoning that may surprise many policy holders."
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