RICHMOND, Va. - (Mealey's) An underlying complaint alleges that damages were the "natural and probable consequence" of an insured's intentional actions, the Virginia Supreme Court said April 20, upholding its finding that a commercial general liability insurer has no duty to defend the insured against underlying claims that excessive carbon dioxide emissions caused global warming that led to the degradation of an Alaska town (The AES Corp. v. Steadfast Insurance Co., No. 100764, Va. Sup.; 2012 Va. LEXIS 81).
Steadfast Insurance Co. filed a complaint in the Arlington County Circuit Court, seeking a declaration that it has no obligation to defend its insured, AES Corp., a holding company maintaining ownership interests in electric utility subsidiaries and fossil-fuel electric-generating plants in the United States, under commercial general liability policies issued to AES.
In a suit filed in California titled Native Village of Kivalina v. ExxonMobil Corp., et al. (663 F. Supp. 2d 863 [N.D. Cal. 2009]), residents of Kivalina, Alaska, assert that AES, through its subsidiaries, is responsible for a substantial amount of past and present carbon dioxide emissions released into the Earth's atmosphere. The claimants assert that as a result of carbon dioxide emissions, global warming has caused significant melting of ice and erosion of the Kivalina coast over many years.
Because the Kivalina plaintiffs allege long-term corporate knowledge of AES's emissions of carbon dioxide, Steadfast asserted that the underlying lawsuit is not based on an "accident" or an "occurrence" to trigger coverage under the policies.
Steadfast claimed that the Kivalina plaintiffs allege damages as a result of emissions of carbon dioxide, which constitutes "air pollution" such that an exclusion for injury or damage "which would not have occurred in whole or in part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants" applies. AES counterclaimed, seeking a declaration that Steadfast was required to defend. Steadfast moved for summary judgment, arguing that it had no duty to defend based on the occurrence and pollution exclusion provisions of the CGL policies.
The trial court held that questions of fact existed and denied Steadfast's motion for summary judgment.
AES subsequently moved for summary judgment on its counterclaim. This time, the trial court granted summary judgment in favor of Steadfast, determining that Steadfast did not owe a duty to defend because the Kivalina complaint did not allege an occurrence within the meaning of the CGL policies.
AES appealed to the Virginia Supreme Court, which affirmed the trial court's decision on Sept. 16, 2011, determining that AES did not allege an occurrence as required by the policy.
AES filed a petition for rehearing, which the Supreme Court granted Jan. 17.
AES argued that the trial court erred in finding that the underlying complaint did not allege an "occurrence" under the policies. AES contended that the underlying complaint alleged both intentional and negligent tortious acts and, therefore, that under Parker v. Hartford Fire Ins. Co. (222 Va. 33, 278 S.E.2d 803 ), it is entitled to a defense.
AES further asserted that the alleged underlying damage was accidental because such damage may have been unintentional.
Justice S. Bernard Goodwyn wrote for the high court, which rejected AES's arguments.
"Unlike the policy at issue in Parker, the instant policies do not provide coverage or a defense for all suits against the insured alleging damages not caused intentionally. Likewise, the policies in this case do not provide coverage for all damage resulting from AES's negligent acts. The relevant policies only require Steadfast to defend AES against claims for damages for bodily injury or property damage caused by an occurrence or accident," the high court noted.
'Not An Accident'
The high court noted that "[w]hether or not AES's intentional act constitutes negligence, the natural or probable consequence of that intentional act is not an accident under Virginia law.""The dissimilarity between the allegations in the Kivalina complaint and those in most other tort actions for bodily injury or property damage is the relevant intentional or negligent act alleged in the complaint. Kivalina does not allege that AES's intentional acts were done negligently. The complaint alleges that AES was 'negligent' only in the sense that it 'knew or should have known' that its actions would cause injury no matter how they were performed," the high court said.
The high court added that "[e]ven if AES were actually ignorant of the effect of its actions and/or did not intend for such damages to occur, Kivalina alleges its damages were the natural and probable consequence of AES's intentional actions."
"Therefore, Kivalina does not allege that its property damage was the result of a fortuitous event or accident, and such loss is not covered under the relevant CGL policies," the high court said, again affirming the Circuit Court.
'A Day Of Reckoning'
Justice William C. Mims filed a separate concurrence.
"I write separately because I believe the result reached in this case is dictated by our precedents but I disagree with the majority opinion that the reasoning can be limited to the four corners of the commercial general liability insurance ('CGL') policies or the allegations of the complaint at issue here. Our jurisprudence, developed over more than a century, is leading inexorably to a day of reckoning that may surprise many policy holders," the justice said.
The justice found that "the majority opinion is only half right when it states that 'allegations of negligence are not synonymous with allegations of an accident.'"
"Accordingly, while I agree with my colleagues that Steadfast had no duty to defend AES in the underlying action based on the CGL policies in this case, I also must acknowledge the broader effect that this conclusion, and the underlying case law that compels it, may have on other CGL policies in which the insured risk is defined as an 'occurrence.' Our precedents may have painted us into a jurisprudential corner," the justice said.
AES is represented by L. Steven Emmert of Sykes, Bourdon, Ahern & Levy in Virginia Beach, Va., and Anthony T. Pierce, Richard K. Welsh and Rex Heinke of Akin Gump Strauss Hauer & Feld in Washington, D.C.
Steadfast is represented by Leah W. Sears and Tamera M. Woodard of Schiff Hardin in Atlanta and Marci A. Eisenstein and Catherine M. Masters of the firm's Chicago office, Thomas McKay III and William F. Stewart of Cozen O'Connor in Cherry Hill, N.J., and Robert E. Worst of Kalbaugh, Pfund & Messersmith in Fairfax, Va.
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