Virginia High Court to Rehear Global Warming Coverage Case

The Virginia Supreme Court has granted rehearing of a closely followed legal case involving climate change coverage, The AES Corp. vs. Steadfast Insurance Company. The court said on Jan. 17 that its previous decision on the case has been “set aside” to rehear the case. Last September, the Virginia high court had affirmed a lower court’s decision that Steadfast Insurance, which provided commercial general liability (CGL) coverage for Virginia-based energy company AES Corp., has no duty to defend and indemnify the insured for claims arising from a global warming lawsuit.

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.

The underlying case involves AES and a lawsuit filed against the company by an Alaskan village. In 2008, the village of Kivalina sued AES for allegedly damaging the village by causing global warming through emission of greenhouse gases.

Steadfast Insurance, part of Zurich, argued it was not obligated to defend AES or cover any damages because the environmental problems alleged by Kivalina were not “occurrences” as defined in the CGL policy the insurer issued. The insurer had also argued that greenhouse gases were air pollutants that fell within the scope of the pollution exclusion under its policy.

The high court ruled last September that “When the insured knows or should have known of the consequences of his actions, there is no occurrence and therefore no coverage.” But in its petition, AES argued that the court failed to distinguish “between allegations that a defendant should have known that harm was reasonably foreseeable and allegations that a defendant should have known that there was a substantial probability that harm would occur.”