Virginia High Court Affirms No Coverage for Climate Change Suit
The Supreme Court of Virginia has affirmed that global warming claims made by the village of Kivalina did not allege a covered "occurrence" within the meaning of general liability policies. The justices of the Supreme Court of Virginia considered how to draw a line between covered and non-covered negligence claims in rehearing The AES Corporation v. Steadfast Insurance Company (AES).1 The court issued its initial opinion in AES—the first case to address coverage for suits alleging harm caused by global climate change—on September 16, 2011. The court granted rehearing, however, to consider AES's argument that the approach it took in its September 16 opinion might bar CGL policy coverage for all negligence claims. On Friday, April 20, 2012, the Virginia high court reaffirmed that the Kivalina suit did not allege a covered "occurrence," defined in the policies at issue as an "accident." Wiley Rein LLP represented the American Insurance Association, Complex Insurance Claims Litigation Association and Property Casualty Insurers Association of America as amici in this matter.
Background of the Case
The policyholder, a Virginia-based energy company, was named a defendant in an underlying lawsuit filed by the village of Kivalina, an Inupiat community located on an Alaskan barrier island. According to the underlying complaint, the policyholder and other defendant energy companies were responsible for emitting substantial amounts of carbon dioxide and greenhouse gases into the atmosphere. The underlying complaint further alleges that these emissions trap atmospheric heat and cause global warming, which in turn has caused Arctic sea ice surrounding the village of Kivalina to freeze later or melt earlier each year, causing extensive damage to the village and forcing the community to relocate. The underlying complaint also asserts that the defendants, including the policyholder, intentionally emitted these greenhouse gases, and that they knew or should have known that their emissions would contribute to global warming and injure communities such as Kivalina.
The policyholder sought coverage for the underlying lawsuit under general liability policies issued by the insurer. The insurer agreed to provide a defense under a reservation of rights, and sought a declaration in Virginia state court that the policies did not provide coverage. The trial court granted summary judgment in favor of the insurer, holding that the underlying complaint did not allege a covered "occurrence," which was defined in the policies as an "accident." The Virginia Supreme Court affirmed the trial court in a September 2011 decision. See The AES Corp. v. Steadfast Insurance Co., 715 S.E.2d 28 (Va. 2011). In January 2012, however, the Virginia Supreme Court granted rehearing in response to the policyholder's contention that the court had undermined insurance coverage for all suits alleging negligence, which the policyholder argued was meant to be covered.
Initial Appeal to the Supreme Court of Virginia
On appeal to the Supreme Court of Virginia, the parties disputed whether the Kivalina complaint alleged a covered "occurrence," defined in the CGL policies as an "accident."2 The parties generally agreed that, under Virginia law, an accident is "an event which creates an effect which is not the natural or probable consequence of the means employed and is not intended, designed or reasonably anticipated." AES Br. at 8 (quoting Lynchburg Foundry Co. v. Irvin, 16 S.E.2d 646, 648 (Va. 1941)). But they contested whether the Kivalina complaint alleged such an event. The Supreme Court of Virginia concluded in its initial opinion that the Kivalina complaint did not allege an "occurrence" covered under the CGL policies. 715 S.E.2d 28 (Va. 2011). That AES's act of emitting greenhouse gases was alleged to have been intentional did not, of course, automatically foreclose coverage, the court noted. Rather, the availability of coverage turned on whether the harms alleged to have resulted from the company's acts were "the natural and probable consequence" of its conduct. Id. at 32. This demanded an objective inquiry: only "when the alleged injury results from an unforeseen cause that is out of the ordinary expectations of a reasonable person would an injury be considered a covered accident," the court held. Id.
The Virginia Supreme Court then examined the Kivalina complaint, which alleged that AES knew or should have known that its greenhouse-gas emissions would cause global warming. "Inherent in such an allegation is the assertion that the results were a consequence of AES's intentional actions that a reasonable person would anticipate," the court noted. Id.at 33. Thus, it concluded that "[i]f an insured knew or should have known that certain results would follow from his acts or omissions," those results would have been expected by a reasonable person and thus "there is no 'occurrence' within the meaning of a comprehensive general liability policy." Id. at 34.
Rehearing Before the Supreme Court of Virginia
AES petitioned for rehearing, arguing that the court's reasoning in its initial opinion could be interpreted to foreclose liability coverage for all negligence claims—a result AES called "radical" since liability policies exist largely to insure against suits for negligence. Contrary to the court's analysis, AES argued, allegations that a defendant "should have known" that his acts might cause a harmful result are not necessarily equivalent to allegations that the harmful result is the reasonably expected or "natural and probable consequence" of the defendant's acts. The Virginia Trial Lawyers Association filed an amicus brief urging rehearing and advancing similar arguments to those developed by AES.
The Supreme Court of Virginia granted rehearing and withdrew the September 16 opinion, directing Steadfast to file a responsive brief "address[ing] only the issue raised in the petition for rehearing." In response, Steadfast argued that the September 16 opinion was not as radical as AES urged. Steadfast Reh'g Br. at 7. First, Steadfast noted, AES's attempt to distinguish between "reasonably foreseeable" and "substantially probable" harms finds no support in Virginia precedent. Id. at 11. And, second, even if such a distinction were adopted in Virginia, the Kivalina complaint still would not allege a covered "occurrence" because the "harm [alleged] was not only probable but inevitable." Id.at 14. The Complex Insurance Claims Litigation Association, the American Insurance Association, and the Property Casualty Insurers Association of America, represented by Wiley Rein LLP, filed an amici curiae brief, urging that the court should affirm its initial opinion finding no coverage for the climate change suit.
On April 20, 2012, reaffirming its earlier ruling, the Virginia Supreme Court explained that the dispositive issue in determining whether an accidental injury occurred is not whether the policyholder's actions were intended, but rather whether the resulting harm is alleged to have been reasonably anticipated or the natural or probable consequence of the insured's intentional act. Because the underlying complaint alleged that the policyholder intentionally released greenhouse gases into the atmosphere and that there was a clear scientific consensus that the natural and probable consequence of such emissions was global warming and the type of damages suffered by the village of Kivalina, the Virginia Supreme Court held that there was no "occurrence" and thus no coverage under the policies. In so holding, the court rejected the policyholder's argument that coverage should be available based on the underlying complaint's allegation that the policyholder negligently contributed to global warming. Reasoning that allegations of negligence are not synonymous with allegations of an accident, the Virginia Supreme Court explained that, regardless of whether the policyholder's intentional acts constituted negligence, the natural or probable consequence of those intentional acts was not an accident under Virginia law.
Justice Mims concurred with the majority, finding the result compelled by prior precedent. However, Justice Mims' concurrence raised the question whether Virginia law threatens to bar coverage for all negligence claims. Thus, the concurring opinion asks whether "our precedents may have painted us into a jurisprudential corner." It recognized that allegations of negligence are not synonymous with allegations of an accident, but asked whether, under prior Virginia jurisprudence, general liability policies covering an "accident" would encompass harm resulting from negligence or misconduct at all.
Some Thoughts About the Ruling on Rehearing
Many courts have held that where harm arises from the regular course of a policyholder's business operations, it is necessary to conclude that the resulting injury and damage should have been expected from the standpoint of the insured within the meaning of occurrence-based policies. As the court found, AES should not be allowed to shift responsibility to its insurer for its ordinary practice of releasing greenhouse gases by seeking coverage for the consequence of those intentional acts as an "occurrence," here defined as an "accident."
AES protested that the court's standard would render its insurance protection illusory because coverage for negligence would be eliminated. This argument misapprehends the character of liability insurance. Negligence generally is ascertained by a common law standard of reasonably prudent behavior. Liability insurance coverage, in contrast, is governed by the policy's terms and conditions. According to the complaint, AES did not merely engage in practices that risked global warming; rather, AES reasonably should have known that the discharge of greenhouse gases and resulting global warming were inevitable, everyday consequences of its actions. These allegations do not describe an "accident" or "occurrence" within the meaning of general liability policies.
With respect to Justice Mims' comments in the concurring opinion, it is important to recognize that, where the insured knew or should have known of a substantial probability of harm, his conduct may still be legally characterized as "negligent" (i.e., not rising to the level of an intentional tort), but the loss is neither an "accident" nor an "occurrence" because it is "expected." See R. Keeton & A. Widiss, Insurance Law, § 5.4(g) at 545 ("[C]overage which is based on an 'occurrence' seems to establish or describe a boundary between covered and non-covered losses that would preclude coverage for some `expected' losses for which liability is imposed under the law of gross negligence, or even the law of negligence."); see also Rynearson, Exclusion of Expected or Intended Personal Injury or Property Damage Under the Occurrence Definition of the Standard Comprehensive General Liability Policy, 19 Forum 513, 521 (1983) ("[W]hether or not negligent conduct is covered depends on the degree of certainty present that such conduct will result in damage"). Although there is some surface appeal to the policyholders' contentions that general liability insurance is designed to cover negligence, that argument misstates the question. Coverage is not dictated by whether negligence is at issue, but by whether the loss is expected and whether there is an accident or occurrence within the meaning of the insurance contract terms.
The rehearing opinion of the Virginia high court, reaffirming that there is no general liability insurance coverage for the village of Kivalina suit, should provide solace to insurers. Although the future of climate change litigation may be unclear, it should be apparent that suits alleging a defendant's routine business activity contributed to global warming are not, and should not be, covered by general liability policies.
1Record No. 100764 (Va.).
2The parties also disputed whether the CGL policies' pollution exclusion barred the claim. The Supreme Court of Virginia did not address this alternative argument in its opinion, and the question on rehearing is confined to the "occurrence" issue.