Virginia Court: Insurer Not Liable For Global Warming Claims

The Virginia Supreme Court has ruled in favor of an insurance company in a closely watched legal case involving global warming. The high court ruled that Steadfast Insurance Co., which provided commercial general liability (CGL) coverage for energy company AES Corp., has no duty to defend and indemnify the insured for claims arising from a global warming lawsuit. The ruling, issued on Sept. 16, affirms a lower court decision.

The Virginia Supreme Court justices ruled that environmental damages allegedly caused due to power-producer AES Corp.’s emission of greenhouse gases were not “occurrences” covered by a CGL policy issued by Steadfast Insurance.

This case has been closely followed by the insurance industry because it’s the first case of its kind in the country to reach an appellate court. The case asks whether an insurer offering a CGL policy is liable for claims when the insured is accused of contributing to the climate change and causing environmental damage.

L. Steven Emmert, the attorney who represented energy company AES, said his client may petition the Virginia Supreme Court to rehear the case. Other states’ courts are under no obligation to follow this decision, but it could influence future cases.

“I was surprised,” Emmert told Insurance Journal. “I think it would have an implication. I think there are a lot of insurance companies who are smiling as they read this opinion.”

Steadfast Insurance is an Illinois-based insurer and an indirect subsidiary of Zurich Financial Services. Its insured, Virginia-based AES Corp., holds controlling interests in companies that generate and distribute electricity in numerous states.

The case centers around a lawsuit filed against AES by a village in Alaska — and AES’s assertion that Steadfast is liable for its defense and indemnity. In 2008, the native village of Kivalina and City of Kivalina, a native community located on an Alaskan barrier island, filed a lawsuit in the U.S. District Court for the Northern District of California against AES and other defendants for allegedly damaging the village by causing global warming through emission of greenhouse gases. The village argued that emissions of carbon dioxide and other greenhouse gases by AES contributed to global warming, causing ice protecting the shoreline to melt and exposing the village to storm surges and erosion.

AES requested that Steadfast provide a defense and insurance coverage, pursuant to the terms of the CGL policies, for the claims alleged. Steadfast provided AES a defense under a reservation of rights and filed a declaratory judgment action in the Circuit Court of Arlington County in Virginia.

Steadfast has argued that it was under no obligation to defend AES or cover any damages because the environmental problems alleged by Kivalina were not “occurrences” as that term is defined in its CGL policy. A circuit court judge agreed with the insurer’s argument and Virginia Supreme Court affirmed.

The court stated: “The terms ‘occurrence’ and ‘accident’ are synonymous and…refer to an incident that was unexpected from the viewpoint of the insured.”

The court said that “the dispositive issue in determining whether an accidental injury occurred 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 Alaskan village alleged that AES “knew or should have known” the damage that its activities would cause and that AES was negligent.

But the court disagreed. “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,” and thus not an “occurrence” covered by a CGL issued by Steadfast Insurance, the court stated.

“Inherent in [Kivalina’s) allegation is the assertion that the results were a consequence of AES’s intentional actions that a reasonable person would anticipate,” the ruling stated. “When the insured knows or should have known of the consequences of his actions, there is no occurrence and therefore no coverage.”

The case is The AES Corp. v Steadfast Insurance Co., Record No. 100764, Supreme Court of Virginia.