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The Virginia Supreme Court has ruled in favor of an insurance company in a closely watched legal case involving global warming. The high court ruled that Steadfast Å˽ðÁ«´«Ã½Ó³»­ Co., which provided commercial general liability (CGL) coverage for energy company AES Corp., has no duty to defend and indemnify the insured for claims arising from a global warming lawsuit. The ruling, issued on Sept. 16, affirms a lower court decision.

The Virginia Supreme Court justices ruled that environmental damages allegedly caused due to power-producer AES Corp.’s emission of greenhouse gases were not “occurrences” covered by a CGL policy issued by Steadfast Å˽ðÁ«´«Ã½Ó³»­.

This case has been closely followed by the insurance industry because it’s the first case of its kind in the country to reach an appellate court. The case asks whether an insurer offering a CGL policy is liable for claims when the insured is accused of contributing to the climate change and causing environmental damage.

L. Steven Emmert, the attorney who represented energy company AES, said his client may petition the Virginia Supreme Court to rehear the case. Other states’ courts are under no obligation to follow this decision, but it could nonetheless influence similar future cases.

“I was surprised,” attorney Emmert told Å˽ðÁ«´«Ã½Ó³»­ Journal. “I think it would have an implication. I think there are a lot of insurance companies who are smiling as they read this opinion.”

Steadfast Å˽ðÁ«´«Ã½Ó³»­ is an Illinois-based insurer and an indirect subsidiary of Zurich Financial Services. Its insured, Virginia-based AES Corp., holds controlling interests in companies that specialize in generating and distributing electricity in numerous states, according to court documents.

AES Accused of Contributing to Global Warming

The case centers around AES and a lawsuit filed against the company by a village in Alaska. (And AES’s assertion that Steadfast Å˽ðÁ«´«Ã½Ó³»­ is liable for its defense and indemnity.) In 2008, the native village of Kivalina and City of Kivalina, a native community located on an Alaskan barrier island, filed a lawsuit in the U.S. District Court for the Northern District of California against AES and other defendants for allegedly damaging the village by causing global warming through emission of greenhouse gases, the court documents stated.

The native village of Kivalina argued in its lawsuit that emissions of carbon dioxide and other greenhouse gases by AES contributed to global warming, causing ice protecting the shoreline to melt and exposing the village to storm surges and erosion.

AES requested that Steadfast provide a defense and insurance coverage, pursuant to the terms of the CGL policies, for the claims alleged in the complaint. Steadfast provided AES a defense under a reservation of rights and filed a declaratory judgment action in the Circuit Court of Arlington County in Virginia.

Steadfast has argued that it was under no obligation to defend AES or cover any damages because the environmental problems alleged by Kivalina were not “occurrences” as that term is defined in the commercial general liability policy the insurer issued. A circuit court judge had agreed with the insurer’s argument and Virginia Supreme Court affirmed it on Sept. 16.

Not An ‘Occurrence’

The court stated: “The relevant policies provide coverage for damage resulting from an ‘occurrence,’ and define an occurrence as ‘an accident, including continuous or repeated exposure to substantially the same general harmful condition.’ The terms ‘occurrence’ and ‘accident’ are synonymous and…refer to an incident that was unexpected from the viewpoint of the insured.”

The court said that “the dispositive issue in determining whether an accidental injury occurred is not whether the action undertaken by the insured was intended, but rather whether the resulting harm is alleged to have been a reasonably anticipated consequence of the insured’s intentional act.”

The Alaskan village of Kivalina alleged that AES “knew or should have known” the damage that its activities would cause and that AES was negligent. “Whether or not AES’s intentional act constitutes negligence, the natural and probable consequence of that intentional act is not an accident under Virginia law,” and thus not an “occurrence” covered by a CGL issued by Steadfast Å˽ðÁ«´«Ã½Ó³»­, the court stated.

‘Insured Knows or Should Have Known’

“Kivalina asserts that the deleterious results of emitting carbon dioxide and greenhouse gases is something that AES knew or should have known about. 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 ruling stated. “When the insured knows or should have known of the consequences of his actions, there is no occurrence and therefore no coverage.”

The case is THE AES CORPORATION v. STEADFAST INSURANCE COMPANY, Record No. 100764, Supreme Court of Virginia.

Topics Carriers Claims Virginia Pollution Climate Change