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.