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Climate Exposure

Collecting on GHG Damage Claims

While the policyholder was left adrift by Steadfast, the climate change insurance ship certainly hasn’t sailed.

On Sept. 16, 2011, the Supreme Court of Virginia became the highest state court in the country to rule on the issue of insurance coverage for climate-change claims under a general liability policy. In AES Corp. v. Steadfast Ins. Co., the court held that claims for damage resulting from climate change allegedly caused by a policyholder’s emissions of greenhouse gases was “reasonably foreseeable” to the policyholder and, therefore, couldn’t be considered an “accident” or “occurrence” that triggers coverage under the policyholder’s standard-form general liability policies. While the policyholder was left adrift by Steadfast, the climate change insurance ship certainly hasn’t sailed.

Climate in the Courts

Climate change litigation began a decade ago as part of a two-pronged strategy by states and others to force federal action to limit greenhouse gas (GHG) emissions. The first prong involved a petition to the U.S. Environmental Protection Agency (EPA) to regulate such emissions from motor vehicles under the Clean Air Act (CAA). EPA denied the petition, finding it didn’t have authority to regulate GHG emissions under the CAA. That denial was then challenged in the U.S. Court of Appeals for the D.C. Circuit in Massachusetts v. EPA (Massachusetts).

Meanwhile, a group of states sued four private utility companies and the Tennessee Valley Authority (TVA) in Connecticut v. American Electric Power Co., Inc. (AEP), alleging that the defendants’ emissions of carbon dioxide created a public nuisance by contributing to global warming. The states sought an injunction capping the defendants’ emissions and then reducing them 3 percent per year over 10 years. As the Massachusetts attorney general at the time, Michael Blumenthal, said: “[t]hink of this as the tobacco scenario, without the monetary penalties.”


The complaint alleged that AES conducted intentional business activities that resulted in the allegedly foreseeable consequences of global warming, i.e., damage to the village.


Other suits followed. In California v. General Motors Corp., for example, California sought monetary damages from six large automakers under federal and state public nuisance laws. In Comer v. Murphy Oil USA, Mississippi residents and property owners sought monetary damages from dozens of oil, coal, chemical, and utility companies for damage from Hurricane Katrina, alleging that defendants’ greenhouse gas emissions intensified the storm. In Native Village of Kivalina v. ExxonMobil (Kivalina), residents of an Alaskan village sought damages to support relocation due to erosion allegedly caused by climate change.

All of these suits were dismissed at the district court level as fundamentally unfit for judicial resolution. The first hurdle plaintiffs encountered was establishing standing to bring their claims in federal court. In the language of the Kivalina district court, plaintiffs merely alleged a “series of events far removed both in space and time from the defendants’ alleged discharge of greenhouse gases.” This, the court reasoned, was insufficient to establish a key prerequisite for standing – i.e., that the injury alleged was “fairly traceable” to defendants’ actions. The court also rejected the claim under the political question doctrine, explaining that “the allocation of fault and cost of global warming is a matter appropriately left for determination by the executive or legislative branch in the first instance.”

Steadfast Decision

In 2008, the AES Corp. was named as one of many defendants in Kivalina. When faced with the litigation, AES promptly tendered the complaint to its insurer, Steadfast Insurance Co., seeking a defense and indemnity under its general liability policies. The insurance policies required Steadfast to defend AES against suits seeking damages for bodily injury or property damage caused by an “occurrence,” defined as “an accident, including continuous or repeated exposure to substantially the same general harmful condition.” Steadfast denied coverage and filed a declaratory judgment action in the Circuit Court of Arlington County, Va., seeking a determination that it had no duty to defend or indemnify AES.

On cross-motions for summary judgment, the insurer argued that the Kivalina complaint alleged that AES conducted intentional business activities that resulted in the allegedly foreseeable consequences of global warming, i.e., damage to the village. Therefore, according to the insurer, the Kivalina complaint didn’t allege “accidental damage” as required to trigger coverage under Virginia law. Alternatively, the insurer argued that even if the damage was unintended, coverage was barred by the policy’s pollution exclusion. The circuit court granted summary judgment in favor of Steadfast, finding it had no duty to defend or indemnify AES because the Kivalina complaint didn’t allege an “accident” or “occurrence” under Virginia law.


The Supreme Court of Virginia’s decision clearly creates an unworkable standard.


AES appealed to the Supreme Court of Virginia on the issue of whether the harms alleged in the Kivalina complaint constituted an occurrence under the insurance contracts. AES argued that the alleged consequential harm to Kivalina from climate change was unintended and unexpected and, therefore, an “accident.” In support, AES cited specific allegations in the Kivalina complaint, which stated that the alleged harm to the village might have been unplanned or unexpected, i.e., the result of negligence. In response, Steadfast again argued that the Kivalina complaint, when read as a whole, didn’t allege “accidental” damage and that any negligence allegations were simply “naked legal conclusions.”


Unworkable Standard


The Supreme Court of Virginia affirmed the circuit court’s decision in favor of Steadfast, finding that the Kivalina complaint didn’t allege an occurrence or an accident under AES’s insurance contracts. In support of its finding, the court cited the Kivalina complaint allegation that AES “knew or should have known” that its emission of greenhouse gases would be the cause of the damage allegedly sustained by Kivalina. Accordingly, the Virginia court concluded that even if AES didn’t specifically intend for the resulting harm to occur, the allegations of the Kivalina complaint also claimed that such damage was the reasonably foreseeable consequence of AES’s intentional business activities, and thus a consequence to be expected.

The Supreme Court of Virginia’s decision clearly creates an unworkable standard. It fails to apply well-settled rules of insurance contract construction for both Virginia and elsewhere: an insurer must defend its policyholder if there’s even the slightest possibility of coverage. Using this standard, a defense is required by the Kivalina litigation because the complaint alleges a factual and legal basis upon which the insurer may be obligated to indemnify AES, i.e., negligent causation. The Steadfast decision is problematic also when viewed in light of other types of insurance claims, such as automobile or life insurance claims. The policyholder’s very purpose in buying these types of insurance is the knowledge that a collision is a reasonably foreseeable consequence of driving a car, or premature death is a reasonably foreseeable consequence of certain lifestyle choices. By the court’s logic, the knowledge of such potential consequences would preclude triggering coverage.

Implications of Steadfast

The Steadfast decision should have limited, if any, impact in jurisdictions outside of Virginia, particularly because insurance contract construction is jurisdictionally dependent. Indeed, had Steadfast been decided elsewhere, the outcome might have been entirely different. Even in Virginia, as the concurring justices observed, it remains to be seen what impact, if any, Steadfast will have on future insurance coverage lawsuits arising out of global warming claims.

Accordingly, policyholders facing liability based on alleged climate-change damages should explore thoroughly the potential for defense and indemnity coverage from their insurers under their own insurance policies, with particular focus and attention on the laws of the jurisdiction where the contract will be interpreted.

ABOUT THE AUTHORS: F. William Brownell is a partner in the Washington D.C. office of Hunton & Williams, LLP, where he leads a broad practice of environmental litigation, regulation and counseling. Curtis D. Porterfield is a partner in the Los Angeles office of Hunton & Williams, LLP, and has litigated and tried cases for coverage of environmental, director and officers, general liability, alien torts, fiduciary liability, and toxic torts claims, among others.
The authors acknowledge the contributions of Michael Levine, counsel in the McLean, Virginia office, as well as Jennifer Cummins and Erika Smith, associates in the New York City and McLean, Virginia offices, respectively, of Hunton & Williams, LLP.