Virginia Supreme Court Holds that Climate Change Allegations Do Not Trigger Insurer’s Duty to DefendBy Steve Jones
In a case being closely watched by both insurers and insureds, the Virginia Supreme Court has held that an insurer’s duty to defend is not triggered by allegations of damages flowing from intentional actions that the plaintiffs claim resulted in climate change. The opinion holds that the insurance policies at issue “only require [the insurer] to defend … against claims for damages of bodily injury or property damage caused by an occurrence or accident” and that the allegations in the underlying complaint do not constitute such an occurrence or accident: “Whether or not [the insured’s] intentional act constitutes negligence, the natural and probable consequence of that intentional act is not an accident under Virginia law.” The case, AES Corp. v. Steadfast Insurance Co. (“AES”), is one of first impression and was previously covered in this newsletter when it was initially accepted for review. See S. Jones, Virginia Supreme Court to Decide Insurance Coverage for Climate Change Suits, Marten Law Environmental News (June 2, 2011). The court’s opinion may be reviewed by following this link.
AES Corporation, an energy company, is a defendant in a highly publicized climate change nuisance case: Native Vill. of Kivalina v. ExxonMobil Corp. (“Kivalina”). See S. Jones, A. Orford, Before the Deluge: Fifth Circuit Joins Second Circuit in Allowing Climate Change Tort Suits, while District Court Dismisses Similar Claims, Marten Law Environmental News (November 4, 2009). After being sued by Kivalina, AES tendered the claim to its insurer, Steadfast Insurance Company (“Steadfast”). Steadfast denied the claim, and subsequently filed an action for declaratory judgment in Virginia, where the company is headquartered.
The trial court ruled in favor of the insurer, holding that Steadfast had no duty to defend AES because the allegations in the Kivalina complaint did not constitute an “occurrence” within the meaning of the general liability policies that Steadfast had sold to AES. AES appealed to the Virginia Supreme Court.
The Kivalina case dates to February 2008, when AES and 23 other oil, energy and utility companies were sued for allegedly causing an Inupiat village in Kivalina, Alaska to literally sink into the Arctic Ocean. The village maintained that the defendants’ greenhouse gas (“GHG”) emissions generated climate change, the effect of which was to reduce the Arctic ice pack. Because the ice pack provided protection to the village’s coastline from storms, the plaintiffs claimed that the reduced ice pack accelerated the erosion of the coast, rendering the village uninhabitable.
The Kivalina case was dismissed by a federal district court in September 2009 on the grounds that it raised non-justiciable political questions and because the plaintiffs could not demonstrate causation for their injuries arising from the defendants’ actions. As of the date of this article, the case is still pending before the Ninth Circuit Court of Appeals. Native Village of Kivalina, et al v. ExxonMobil Corporation, et al., Ninth Circuit Case No. 09-17490 (appeal filed November 5, 2009).
Following AES’s tender, Steadfast sought a declaratory judgment sustaining its denial of coverage on three grounds: (1) the Kivalina complaint did not allege “property damage” caused by an “occurrence” under the policies; (2) any alleged injury arose prior to the inception of Steadfast’s coverage; and (3) the GHGs alleged in Kivalina were air pollutants that fell within the scope of the pollution exclusion under AES’s policies.
The trial court accepted the lack of occurrence argument, and consequently did not reach the other two arguments. AES appealed the trial court’s decision as to (1) whether the complaint in Kivalina constitutes an “occurrence” under Steadfast’s policy; and (2) whether GHGs fall within the ambit of the pollution exclusion, resulting in exclusion of coverage for such claims.
Do the Allegations in Kivalina Constitute an Occurrence?
The term “occurrence” is defined under the Steadfast policies as “an accident, including continuous or repeated exposure to substantially the same general harm condition.” In its briefing before the Virginia Supreme Court, Steadfast claimed that its policies “did not apply to the Kivalina Plaintiffs’ claims” because those plaintiffs “did not base their claims against AES on any … ‘accident’” but instead on “AES’s recognition in its 2002 Annual Report that it was ‘one of the largest emitters of CO2 in the world’ and that [AES] therefore must continue to strive to economically stabilize greenhouse gas concentrations.”
AES’s claim that the Kivalina allegations constitutes an “occurrence” triggering Steadfast’s duty to defend rested on two contentions: (1) that allegations of “negligent” conduct on the part of AES were sufficient to constitute an “accident” under the policies; and (2) that the harm arising from the alleged climate change caused by AES’ emission of GHGs was an unplanned harm constituting an “accident,” irrespective of whether the emissions were intentional or not. In its opinion, the Virginia Supreme Court framed the issue as whether “a civil complaint filed against the AES Corporation did not allege an ‘occurrence’ as that term is defined in AES’s contracts of insurance with Steadfast Insurance Company.”
“Occurrence” was defined in the Steadfast policies as follows:
“Occurrence” means an accident, including continuous or repeated exposure to substantially the same general harmful condition. The policies specify that Steadfast has no duty to defend or indemnify AES against damage suits to which the policies do not apply.
Intentional Conduct and its Consequences Do Not Constitute an Occurrence Triggering an Insurer’s Duty to Defend
The court held that the Kivalina complaint did not allege a covered “occurrence,” relying heavily on the fact that “the Complaint alleges that AES ‘intentionally emits millions of tons of carbon dioxide and other greenhouse gases into the atmosphere annually.’” The court also pointed to the fact that the complaint alleged that AES “knew or should have known of the impacts of [its] emissions” of GHGs, but that notwithstanding AES’s knowledge of the “impacts of [its] emissions on global warming and on particularly vulnerable communities such as coastal Alaskan villages,” AES “continued [its] substantial contributions to global warming.”
The court pointed to the long-standing principle of Virginia coverage law that the determination of whether a duty to defend and indemnify exists should be based on the allegations of the complaint and the provisions of the insurance policy. This rule is denominated the “eight corners” rule because it requires an assessment of an insurer’s duty by comparing the “four corners” of the complaint with the “four corners” of the policy to determine whether the allegations of the underlying complaint trigger coverage under the policy.
Pointing to the policies’ definition of occurance, the court stated that “[u]nder Virginia law, the terms ‘occurrence’ and ‘accident’ are ‘synonymous and refer to an incident that was unexpected from the viewpoint of the insured.’” In its complaint against AES, the Kivalina plaintiffs alleged that AES intentionally released tons of carbon dioxide and other GHGs. This was sufficient for the court to reject coverage, based on prior opinions that “[a]n intentional act is neither an ‘occurrence’ nor an ‘accident’ and therefore is not covered by the standard policy.”
The court also rejected AES’s argument that, even if an action was intentional, if the consequences of the act were unforeseen, there could be coverage: “If a result is the natural and probable consequence of an insured’s intentional act, it is not an accident.” In similar fashion, the court would not accept AES’s position that the damage to the village was accidental because it was unintentional:
Kivalina plainly alleges that AES intentionally released carbon dioxide into the atmosphere … [and] 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. Whether or not AES’s intentional act constitutes negligence, the natural and probable consequence of that intentional act is not an accident under Virginia law. … If an insured knew or should have known that certain results would follow from his acts or omissions, there is no “occurrence” within the meaning of a comprehensive general liability policy.
Concurrence Draws Distinction between Allegations in Complaint and Policy Language
Senior Justice Lawrence L. Koontz, joined by Senior Justice Harry L. Carrico, concurred in the result of the case, but emphasized that the decision should have been grounded more forcefully on the fact that the Kivalina complaint did not allege that AES acted negligently, but instead claimed that AES was “negligent” only in the sense that it “knew of should have known” that its actions would cause injury irrespective of how they were performed. Pointing to the court’s prior decision in Parker v. Hartford Ins. Co., the concurrence stated that the difference between the two cases was that the complaint in Parker alleged that the insured had acted intentionally, but that the consequences of that intentional act could have been viewed as unintentional or merely negligent. By contrast, the Kivalina complaint “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.”
The Virginia ruling comes three months after the U.S. Supreme Court’s ruling in American Electric Power v. Connecticut, in which the Court held that states cannot sue utilities over greenhouse gas emissions under federal common law. See S. Jones, U.S. Supreme Court Rejects Climate Change Nuisance Claims, Marten Law Environmental News (June 21, 2011). Notwithstanding that decision, the fact that the AEP plaintiffs’ standing claims survived makes it likely that state law claims under different legal theories may still proceed. The question is whether such claims will be covered by insurance. In Virginia, the answer to that question is no – at least for now. However, the fact that insurance is almost exclusively governed by state law means that a different result could arise in a different state. Meanwhile, the 9th Circuit still has yet to rule on the appeal in Kivalina.
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