As reported in The Climate Report, Fall 2011, the Virginia Supreme Court unanimously held in September 2011 that an insurer did not have a duty to defend a commercial general liability policyholder accused of contributing to the effects of climate change. The AES Corporation v. Steadfast Insurance Co., 715 S.E.2d 28 (Va. 2011). The dispute at issue stemmed from AES Corporation being named as a defendant in Native Village of Kivalina v. Exxon Mobil Corp., in which Kivalina, a coastal Alaskan village, sued AES and 23 other oil, gas, and utility companies for allegedly damaging the village by causing global warming through emission of greenhouse gases.
AES requested that Steadfast Insurance Company provide a defense and insurance coverage for the Kivalina claim under AES's commercial general liability ("CGL") policies. Steadfast provided AES a defense under a reservation of rights and later filed a separate action seeking a declaratory judgment that AES was not entitled to coverage or defense.
The Virginia Supreme Court's September 16, 2011 decision
agreed with Steadfast that the allegations in the Kivalina
complaint were insufficient to trigger coverage under the relevant
CGL policies. The court noted that, under the policies, the duty to
defend applied only to suits claiming "property damages"
caused by an "occurrence." Under Virginia law,
"occurrence" is synonymous with "accident."
Because the Kivalina complaint alleged that the "damages it
sustained were the natural and probable consequences of AES's
intentional emissions," the court held that there was no
allegation of an "accident." Therefore, Steadfast had no
duty to defend or indemnify AES.
Following that ruling, AES filed a petition for rehearing. The
petition was granted, and the court set aside and withdrew its
September 16 opinion.
On April 20, 2012, the Virginia Supreme Court again decided that
Steadfast owed AES no coverage with respect to the Kivalina
complaint. In an opinion that substantially mirrored its prior
opinion, the court held that "[i]f an insured knew or should
have known that certain results were the natural or probable
consequences of intentional acts or omissions, there is no
'occurrence' within the meaning of [the] policy." The
court again found that the Kivalina complaint did not allege an
"accident," even if AES were actually ignorant of the
effect of its actions and/or did not intend for damages to
occur.
In a concurring opinion, Justice Mims cautioned that the
opinion's reasoning could not be limited to the four corners of
the policies at issue or the specific allegations of the complaint.
He noted that under Virginia case law, a dichotomy exists between
allegations of an "accident" and of
"negligence"; to prevail on an action for negligence, a
plaintiff must prove that the injury that occurred was reasonably
foreseeable, or the "natural and probable consequence" of
the tortious breach. But, under the court's reasoning, if the
alleged damage was the "natural and probable consequence"
of an injurious action, there can be no insurance coverage. Justice
Mims found no rationale to distinguish the policies at issue from
other CGL policies. Thus, he noted that the decision was correct
under Virginia precedents but warned that the Supreme Court's
jurisprudence is "leading inexorably to a day of reckoning
that may surprise many policy holders."
The consequences of this decision may be far-reaching. Although
the court made some effort to confine its discussion to the
particular nature of the claims in the Kivalina complaint, Justice
Mims may be correct in finding little basis for limiting the
underlying reasoning to this case. Thus, the availability of
insurance coverage under CGL policies for negligence-based claims
is now an open question in Virginia. In the climate change arena,
the decision will undoubtedly be cited as precedent in insurance
cases, although other jurisdictions could adopt different
interpretations based on their own state laws.
Further, another of Steadfast's arguments may have recently
received additional support. As an alternative to its contention
regarding the interpretation of "occurrence," Steadfast
had also argued that the claims in the Kivalina complaint fell
within the scope of the pollution exclusion in AES's CGL
policies. The Virginia Supreme Court did not reach the pollution
exclusion argument. However, as discussed
elsewhere in this edition of The Climate Report, the U.S.
Court of Appeals for the District of Columbia Circuit
upheld a set of greenhouse gas regulations promulgated by the
U.S. Environmental Protection Agency under authority of the Clean
Air Act on June 26, 2012. Some practitioners anticipate that the
insurance industry will now point to that decision to bolster
arguments that greenhouse gases that contribute to global warming
are "pollutants" for purposes of applying pollution
exclusions in CGL policies.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
