What you need to know

The Supreme Court of Virginia ruled that an insurer had no duty to defend an energy company against nuisance claims based on damage from global warming, ruling that there was no “occurrence” and thus no coverage under a commercial general liability policy.  The underlying complaint alleged that the damages were the natural and probable cause of the insured’s actions.

What you need to do

Companies should consider the impact of this ruling in assessing their duty to defend their policy holders against global warming nuisance claims.

Background

The Native Village of Kivalina, a community located in Northern Alaska, sued AES Corporation, an energy company, alleging that AES damaged the village by causing global warming through the emission of greenhouse gases.  Kivalina alleged that AES intentionally emitted carbon dioxide and greenhouse gases into the atmosphere, and that AES “knew or should have known” about the impact these emissions would have on global warming and on vulnerable communities like Kivalina.  Kivalina asserted claims under federal common law of nuisance, state common law of nuisance and concerted action.  It asserted that “[i]ntentionally or negligently, defendants have created, contributed to, and/or maintained the public nuisance.”

Steadfast Insurance Company provided CGL policies to AES.  Steadfast’s policies insured AES against suits claiming damages for bodily injury or property damage “caused by an ‘occurrence.’”  The policies defined an “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful condition.”  Steadfast defended under a reservation of rights, and brought a declaratory judgment action in Virginia state court.  The trial court granted Steadfast’s motion for summary judgment, finding that Kivalina’s complaint did not allege an “occurrence,” and therefore, that the allegations in the complaint were not covered by the policies.

The Supreme Court of Virginia affirmed.  See AES Corp. v. Steadfast Ins. Co., No. 100764, 2011 Va. LEXIS 185 (Va. 2011).

The Court’s Ruling

The Supreme Court of Virginia held that:

  • In determining whether an accidental injury occurred, the dispositive issue is “whether the resulting harm is alleged to have been a reasonably anticipated consequence of the insured’s intentional act.”  “When the insured knows or should have known of the consequences of his actions, there is no occurrence and therefore no coverage.” 
  • Kivalina alleged that the damages it sustained were “the natural and probable consequence of AES’s intentional actions” and therefore there was no “occurrence.”
  • “Kivalina . . . alleges that there is a clear scientific consensus that the natural and probable consequence of [greenhouse gas] emissions is global warming and damages such as Kivalina suffered. . . .  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 that assertion that the results were a consequence of AES’s intentional actions that a reasonable person would anticipate.  When the insured knows or should have known of the consequences of his actions, there is no occurrence and therefore no coverage.”
  • Two Justices concurred in the result, emphasizing that the Court’s holding was limited to the “unique language” of the allegations in the Kivalina complaint.  Those Justices concluded that “where the harmful consequences of an act are alleged to have been eminently foreseeable, choosing to perform the act deliberately, even in ignorance of that fact, does not make the resulting injury an ‘accident’ even when the complaint alleges that such action was negligent.”

Conclusion

The Supreme Court of Virginia ruled that where a complaint alleges that damages are the natural and probable cause of an insured’s actions, there has been no “occurrence” and thus no coverage under a commercial general liability policy that defines “occurrence” as synonymous with “accident.”