Supreme Court of Virginia Reaffirms No Coverage for Global Warming Lawsuit

In its recent decision in AES Corporation v. Steadfast Ins. Co., 2012 Va. LEXIS 81 (Va. Apr. 20, 2012), the Supreme Court of Virginia revisited its 2011 ruling concerning whether a general liability carrier had a duty to defend an underlying lawsuit pertaining to its insured’s alleged responsibilities for climate change.

The insured, AES, was named as one of several defendants in the suit brought by the Native Village of Kivalina, alleging that defendants’ direct and indirect emissions of greenhouse gases contributed to climate change.  Plaintiffs allege that climate change will result in the melting of polar ice caps, which will cause sea levels to rise and ultimately cause their lands to be permanently flooded.  While the underlying suit was dismissed by the United States District Court for the Northern District of California (and while the viability of climate change was called into serious doubt as a result of the United States Supreme Court’s decision in AEP v. Connecticut, 131 S. Ct. 2527 (2011)), a coverage question nevertheless was raised as to whether AES was entitled to a defense in the Kivalina lawsuit.  The Supreme Court of Virginia initially ruled in the insurer’s favor in a September 2011 decision.  See, AES Corporation v. Steadfast Ins. Co., 715 S.E.2d 28 (Va. 2011).  In January 2012, however, the Supreme Court of Virginia, in a surprising move, withdrew its 2011 decision and agreed to have further argument on the issue.

In its decision on rehearing, the Virginia Court essentially adopted its earlier ruling, holding that the underlying complaint, alleging causes of action for nuisance and concert of action, did not trigger a duty to defend.  The court’s reasoning hinged on the fact that the complaint alleged that AES intentionally released tons of greenhouse gases into the atmosphere.  Intentional conduct, explained the court, cannot be an occurrence and “[i]f a result is the natural or probable consequence of an insured’s intentional act, it is not an accident.”  The court nevertheless acknowledged that in some situations, when intentional acts give rise to a harm so far outside the ordinary expectations of a reasonable person, coverage may be triggered.  As such, the question for the court was “whether the Complaint can be construed as alleging that Kivalina’s injuries, at least in the alternative, resulted from unforeseen consequences that were not natural or probable consequences of AES’s deliberate act of emitting carbon dioxide and greenhouse gases.”

AES argued that this “alternative” was satisfied in light of the allegation in Kivalina’s complaint that defendants “intentionally or negligently” created the conditions for global warming.   AES further relied on the allegation that defendants “knew or should have known” of the consequences of greenhouse gas emissions, thus raising the possibility that defendants did not intend these consequences.  The court rejected these arguments, reasoning:

In the Complaint, Kivalina plainly alleges that AES intentionally released carbon dioxide into the atmosphere as a regular part of its energy-producing activities.  Kivalina also alleges that there is a clear scientific consensus that the natural and probable consequences of such emissions is global warming and damages such as Kivalina suffered.  Whether or not AES’s intentional act constitutes negligence, the natural or probable consequence of that intentional act is not an accident under Virginia law.

Thus, it was not enough that Kivalina alleged negligence in the alternative, since under Virginia law, an allegation of negligence is not synonymous with an allegation of an accident.  Because the Kivalina suit alleged that plaintiffs’ damages were the “natural and probable consequences” of AES’ “intentional emissions,” it necessarily followed that the Kivalina suit did not allege an accident.  In addressing this point, the court was careful to explain that its holding was limited to the unique facts pled:

The dissimilarity between the allegations in the Kivalina complaint and those in most other tort actions for bodily injury or property damage is the relevant intentional or negligent act alleged in the complaint.  Kivalina does not allege that AES’s intentional acts were done negligently.  The complaint alleges 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 concluded, regardless of AES’ ignorance, because the harms of its intentional emissions were the natural or probable consequences of such conduct, no occurrence was alleged and Steadfast owed no defense.

Virginia Supreme Court Holds Coverage Unavailable for Climate Change Suit

In AES Corp. v. Steadfast Ins. Co., 2011 Va. LEXIS 185 (Va. Sept. 16, 2011), the Supreme Court for Virginia addressed the issue of whether an insured was entitled to coverage for an underlying climate change lawsuit. 

The Steadfast litigation arose out of the climate change suit Native Village of Kivalina v. ExxonMobil Corp., et al., filed in the United States District Court for the Northern District of California.  The Kivalina lawsuit was brought by the Native Village of Kivalina against various energy-industry defendants, and alleged that defendants’ various operations resulted in the emissions of carbon dioxide and other greenhouse gases into the atmosphere, which in turn contributed to global warming. Plaintiffs further claimed that climate change would result in rising ocean levels, which in the near future would cause their native village in Alaska to be completely submerged and rendered uninhabitable.  Notably, the Village’s complaint alleged that the defendants intentionally emitted such greenhouse gases, and that defendants knew or should have known of the impacts that would result from such emissions.  In fact, the complaint alleged that the defendants engaged in a conspiracy to mislead the public about the science and dangers of global warming.

The lower court had held that the AES Corporation (“AES”), one of the defendants in Kivalina’s lawsuit, was not entitled to a defense in connection with the Kivalina lawsuit as the complaint did not allege an occurrence, which under Virginia law is a term synonymous with accident.  On appeal, the Virginia Supreme Court noted that while intentional acts generally are not considered occurrences under Virginia law, coverage can be available for intentional acts when the injury or damage resulting form such acts is not intentional.  Under such circumstances, noted the court, the inquiry “is not whether the action undertaken by the insured was intended, but rather whether the resulting harm is alleged to have been a reasonably anticipated consequence of the insured’s intentional act.”  The Village of Kivalina’s lawsuit alleged that all defendants, including AES, intentionally emitted greenhouse gases into the atmosphere.  As such, explained the court, AES’ right to coverage hinged on whether the alleged harms resulting from the emissions was reasonably expected.

AES argued that for the purpose of determining a duty to defend, the underlying suit at least potentially stated an occurrence, since the complaint alleged both intentional and negligent conduct and since the complaint alleged that AES knew or should have known of the harms that would result from its emissions, thus implying that AES was not aware of the harms.  The court disagreed and in doing so, relied on the allegation in Kivalina’s complaint that “there is a clear scientific consensus that the natural and probable consequence of such emissions is global warming and damages such as Kivalina suffered.”  This allegation, explained the court, in tandem with the allegation that AES intentionally emitted greenhouse gases, established that the underlying suit did not allege accidental conduct but rather intentional conduct.  As such, the court disagreed that the allegations of negligence could be construed as alleging an occurrence, explaining:

Kivalina asserts that the deleterious results of emitting carbon dioxide and greenhouse gases is something that AES knew or should have known about.  Inherent in such an allegation is the assertion that the results were a consequence of AES’s intentional actions that a reasonable person would anticipate.  … Even if AES were actually ignorant of the effect of its actions and/or did not intend for such damages to occur, Kivalina alleges its damages were the natural and probable consequence of AES’s intentional actions.  Therefore, Kivalina does not allege that its property damage was the result of a fortuitous event or accident, and such loss is not covered under the relevant CGL policies.

The court’s decision, and in particular its reliance on plaintiff’s assertion that there is a clear scientific consensus on global warming is likely to be considered controversial in some quarters.  It is unlikely that there will be further coverage litigation on this point, however, at least in the near future, in light of the United State Supreme Court’s April 2011 decision in American Electric Power Co. v. State of Connecticut, 131 S. Ct. 2527, (2011) holding that climate change suits such as Kivalina’s do not state a cause of action under federal law.