AES Corp. v. Steadfast Insurance Co.,1 was a closely watched Virginia Supreme Court case that, as the New York Times put it, basically asked whether an insurance company has to “foot the bill for a company facing damages over climate change.”2 The case was significant for the insurance industry and others interested in climate change litigation, because it was the first of its kind to reach an appellate court. The court ultimately held that an insurer has no duty to defend or indemnify against climate change-related injuries under the terms of its general commercial liability (GCL) insurance policy.
In Native Village of Kivalina v. ExxonMobil Corp., the Native Village of Kivalina, an Inupiat Eskimo community and tribe located on a barrier island in northwest Alaska, sued The AES Corporation (AES) and other energy companies.3 The lawsuit alleged that carbon dioxide emitted by AES contributed to climate change, which in turn exposed Village land to erosion from sea waves when the water would have otherwise been frozen. Steadfast, AES’s GCL insurer, obtained a declaratory judgment from a Virginia trial court, holding that it had no duty to defend or indemnify AES in the Kivalina litigation because AES’s alleged contribution to global warming was beyond the scope of the indemnity provided by Steadfast’s GCL policy.4
The Virginia Supreme Court granted AES’s appeal on the issue of whether the injuries alleged in the complaint constituted an “occurrence” covered by its insurance policy. The court affirmed the trial court decision on September 16, 2011,5 though it later withdrew its opinion after AES petitioned for rehearing.6 Despite much speculation that the Virginia Supreme Court would revise its earlier decision,7 it issued a nearly identical opinion in the case’s final iteration.
Using the “eight corners” approach, comparing the “four corners” of the complaint with the “four corners” of the policy,8 the court looked first to the language of Steadfast’s GCL policy. The policy obligated Steadfast to defend AES for property damage caused by an “occurrence,” which the policy defined as “an accident, including continuous or repeated exposure to substantially the same general harmful condition.”9 Other Virginia cases defined an “accident” as “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.”10 In its complaint, however, Kivalina alleged that AES and others had emitted millions of tons of carbon dioxide “intentionally,” and that AES “knew or should have known of the impacts”11 of carbon dioxide emissions on coastal Alaskan villages like Kivalina because of the “clear scientific consensus that global warming is caused by emissions of greenhouse gases . . . .”12
AES argued that the Kivalina complaint described an “accident” because it also alleged negligent action by AES, which it knew or should have known would result in environmental damage.13 The court stated, however, that “negligence” and “accident” are not synonymous terms.14 Because the Kivalina plaintiffs did not allege that property damage was caused by a fortuitous act, “there is no ‘occurrence’ within the meaning of a GCL policy.”15
While Justice Mims agreed with the majority’s reasoning, he disagreed that the reasoning could be limited to the specific CGL policy and the specific facts alleged in the complaint. “Our jurisprudence,” he prophesied, “is leading inexorably to a day of reckoning that may surprise many policy holders.”16 This “surprise” is that negligence may never be covered by a GCL insurance policy because proximate causation, a necessary prerequisite to a finding of negligence, requires that an alleged injury be the “natural or probable consequence” of an action. According to Justice Mims, the implication of AES Corp. is that, because Virginia equates an “occurrence” with an “accident,” GCL “occurrence” provisions do not cover negligence.
The Limited Significance of AES Corp.
It is possible that the Virginia Supreme Court’s decision will be analyzed and consulted by judges and litigators in other jurisdictions. But, for the reasons set forth below, the author believes its significance is likely to be limited outside Virginia. First, the GCL policy at issue in AES Corp. defined an “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful condition.”17 Based on this provision, the Virginia Supreme Court decided that “occurrence” in the GCL policy simply means “accident.” It is not the only court to equate these two terms, and the history of the standard GCL policy suggests that the expansion of “accident” to include “occurrence” was intended simply to make clear that an accident could be a continuous rather than abrupt event. Hence, although some observers might say that it might seem to make the term “occurrence” mere surplusage—violating a canon of contract interpretation—the court’s equation of “accident” with “occurrence” is defensible on these grounds.
What is much more controversial is the Virginia Supreme Court’s interpretation of an “accident” as something that is not the “natural and probable consequence” of the insured’s action, but is instead something that happens “unexpectedly.”18 The court took this definition from two past cases interpreting the meaning of the term “accident.” The first of these cases does not involve an insurance contract, but rather a state workers’ compensation statute.19 As for the second case, a life insurance policy covering death by accident is a different kind of contract than is the comprehensive GCL at issue in AES Corp., and so on very basic principles of contract interpretation other courts would likely hold that the two contracts should be interpreted differently.20
A final reason that the Virginia Supreme Court’s opinion in AES Corp. will likely have little impact outside the Commonwealth is that judicial adoption of the alternative interpretation of “occurrence” and “accident” under the commercial GCL policy does not necessarily mean that insurers will have a duty to defend against global warming lawsuits such as Kivalina. The standard commercial GCL policy (including the one at issue in AES Corp.) also contains a “pollution exclusion” clause excluding from coverage “claims of property damage” arising out of the “discharge, release, or escape of pollutants,” where “pollutants” are defined to include any “gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes . . . .”21 Because every human being on the planet emits carbon dioxide when she exhales, there are arguments to be made that carbon dioxide emissions are not a “gaseous irritant” or “contaminant” falling within the GCL pollution exclusion, but others might argue that, given the structure and history of the GCL policy, it is this clause, if any, where the harm allegedly caused by such emissions should be excluded from coverage.
*Jason Scott Johnston is a Professor at the University of Virginia School of Law. Levi W. Swank is a third-year law student at the University of Virginia.
1 725 S.E.2d 532 (Va. 2012).
2 Lawrence Hurley, Va. Court Rules That Insurance Doesn’t Cover Global Warming Claims, N.Y. Times, Sept. 16, 2011, http://www.nytimes.com/gwire/2011/09/16/16greenwire-va-court-rules-that-insurance-doesnt-cover-glo-97999.html.
3 See Native Vill. of Kivalina v. ExxonMobil Corp., 663 F.Supp.2d 863 (N.D. Cal. 2009).
4 See Steadfast Ins. Co. v. AES Corp., 2010 Va. Cir. LEXIS 35 (Va. Cir. Ct. Feb. 5, 2010).
5 See AES Corp. v. Steadfast Ins. Co., 715 S.E.2d 28 (Va. 2011).
6 AES Corp. v. Steadfast Ins. Co., 2012 Va. LEXIS 103 (Va. Jan. 17, 2012).
7 J. Wylie Donald, Just When You Thought It Was Over, Rehearing Is Granted in Steadfast v. AES, Climate Lawyers Blog (January 31, 2012), http://climatelawyers.com/post/2012/01/31/Just-When-You-Thought-It-Was-Over-Rehearing-is-Granted-in-Steadfast-v-AES.aspx.
8 Id. at 535.
9 Id. at 534.
10 Id. at 536 (citing Lynchburg Foundry Co. v. Irvin, 16 S.E.2d 646, 648 (1941)).
11 Id. at 534.
12 Id. at 534.
13 Id. at 536–37.
14 Id. at 538.
17 Id. at 534 (majority opinion).
18 Id. at 536.
19 Lynchburg Foundry Co. et al v. Irvin, 16 S.E.2d 646 (Va. 9141).
20 Zurich General Accident & Liability Ins. Co., Ltd. v. Flickinger, 33 F.2d 853 (4th Cir. 1929).
21 See, e.g., Hirschhorn v. Auto-Owners Ins. Co., 809 N.W.2d 529, 531 (Wis. 2012).