Still No Insurance Coverage for Climate Change Nuisance Litigation — At Least in Virginia

kivalina(1)Last week, the Virginia Supreme Court ruled (for the second time) that a CGL policy issued to AES Corporation did not require Steadfast Insurance to provide a defense to AES for claims brought again AES in Kivalina v. Exxon Mobil. The decision, in AES Corporation v. Steadfast Insurance, held simply that, based on the “eight corners” of the complaint and the insurance policy, the claims against AES did not allege an “occurrence” under the CGL policies at issue.

Obviously, if climate change is real, and at least unless and until courts of last resort dismiss all actions such as Kivalina, these kinds of cases are going to proliferate, and the question of who pays such potentially massive claims will continue to be of interest to power generators, oil companies, insurance companies, and their shareholders.

The complaint in the underlying action alleged that AES “intentionally” emits carbon dioxide and “knew or should have known of the impacts” of those emissions. In disposing of AES’s claim, the court noted that, under Virginia law, an “occurrence” basically means an “accident.” Moreover, an accident is

An event which creates an effect which is not the natural or probable consequence of the means employed… If a result is the natural or probable consequence of an insured’s intentional act, it is not an accident.

AES asserted that it was still entitled to coverage, because the complaint alleged that AES “intentionally or negligently” created the nuisance. If it was negligent, argued AES, then the claim was related to an “accident.” However, the court noted that AES’s underlying actions in emitting carbon dioxide were intentional, not negligent. It is only, at best, AES’s alleged failure to realize that carbon dioxide emissions would cause climate change that was negligent. To the court, that was not enough. If the underlying acts were intentional, it does not matter that AES may have been negligent in failing to foresee the consequences.

Under the CGL policies, Steadfast would not be liable because AES’s acts as alleged in the complaint were intentional and the consequences of those acts are alleged by Kivalina to be not merely foreseeable, but natural or probable. Where the harmful consequences of an act are alleged to have been not just possible, but the natural or probable consequences of an intentional act, choosing to perform the act deliberately, even if in ignorance of that fact, does not make the resulting injury an “accident” even when the complaint alleges that such action was negligent.

It will be interesting to see how this issue plays out in other states. The decision here seems reasonable, but I can see other courts, depending on the language in underlying complaints and insurance policies, reaching contrary results.

It will be similarly interesting to see whether, as in Superfund litigation, the decision in here affects pleading in underlying cases. In Superfund, plaintiffs learned how to draft complaints that would maximize the likelihood of coverage, in order to bring in deep-pocket insurers. Here, I don’t know whether the plaintiffs will want to bring in insurers so that there is another deep pocket at the table (power generators are often seen to have fairly deep pockets as well) or whether they will want to minimize the likelihood of coverage, because the their goal may not simply be to maximize their cash recovery, but may instead be to cause maximum financial distress to fossil fuel generators.

Leave a Reply

Your email address will not be published. Required fields are marked *


6 − three =

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>