Virginia Supreme Court Reaffirms Ruling that Insurer has No Duty to Defend or Indemnify Global Climate Change Suit

Today, the Virginia Supreme Court reaffirmed that Steadfast Insurance Co. does not have a duty to defend or indemnify AES Corporation in an underlying climate change liability suit. See AES Corporation v. Steadfast Insurance Company, No. 100764, 2012 Va. LEXIS 81 (Va. Sup. Ct. April 20, 2012). The Virginia high court is the first state Supreme Court in the nation to issue an opinion concerning insurance coverage for climate change liability suits, which may proliferate in the years ahead.

By way of background, AES is one of more than 20 energy companies being sued by the Native Village of Kivalina and the City of Kivalina, a native community located on an Alaskan barrier island. See Native Vill. of Kivalina v. ExxonMobil Corp., 633 F.Supp.2d 863 (N.D. Cal. 2009). The plaintiffs in the underlying action allege that the energy companies’ emissions contributed to global warming, causing sea ice protecting the village’s shoreline to form later or melt earlier. This has left the shoreline unprotected against storm surges, which have eroded the shoreline and rendered the village uninhabitable.

AES requested Steadfast to provide a defense and indemnity in connection with the underlying lawsuit under CGL policies. Steadfast provided AES a defense under a reservation of rights and filed a declaratory judgment action in Virginia state court, which ultimately came before the Virginia Supreme Court. In September 2011, the Virginia Supreme Court held that Steadfast did not have a duty to defend or indemnify AES. Following a request by AES, the Supreme Court agreed to rehear the matter, raising speculation that the Court may reconsider its decision. However, after a rehearing, the Court reaffirmed its prior ruling.

In reaffirming its prior ruling, the Virginia Supreme Court held that the Complaint in the underlying action did not allege damage resulting from an “occurrence,” which was defined in the policies at issue as “an accident, including continuous or repeated exposure to substantially the same general harmful conditions.” In reaching this result, the Court focused on the underlying plaintiffs’ allegations that AES intentionally released carbon dioxide into the atmosphere and that there is clear scientific consensus that the natural and probable consequences of such emissions is global warming and damages such as those suffered by the underlying plaintiffs. The Court observed that even if AES were actually ignorant of the effect of its actions and/or did not intend for the damages to occur, the plaintiffs in the underlying action allege their damages were the natural and probable consequences of AES’s intentional actions. Therefore, the plaintiffs’ do not allege that the property damage was the result of a fortuitous event or accident, and such loss is not covered under the CGL policies issue.