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.