Insurance Issues in Global Warming Debate Are Awaiting ResolutionLaura A. Foggan and Gregory Langlois
December 8, 2010 | Coverage Insights
The Supreme Court of Virginia now has before it the first appeal of a coverage suit involving the question whether targets of global warming suits can look to their insurers for defense and indemnity of claims seeking relief because of harms allegedly caused by climate change. The case began when Steadfast Insurance Company filed a declaratory judgment action in the Circuit Court of Arlington County. It sought a determination that it had no duty to defend or indemnify Appellant The AES Corporation (AES) with respect to a lawsuit filed against AES in a California federal court, Native Village of Kivalina v. ExxonMobil Corp., 663 F. Supp. 2d 863 (N.D. Cal. 2009) (Kivalina). The Circuit Court granted summary judgment in favor of Steadfast. It held that Steadfast had no duty to defend AES because the underlying Kivalina complaint, which asserted damages resulting from AES' and other named defendants' contributions to global warming by directly and intentionally emitting large quantities of greenhouse gases over many years, failed to allege an "occurrence" as defined in the insurance policies. The case is now pending before the Supreme Court of Virginia on AES' appeal of that ruling.
In the underlying Kivalina case for which coverage is sought, the governing bodies of an Inupiat village of approximately 400 people on the northwest coast of Alaska sought recovery from AES and other defendants alleged to be among the largest emitters of greenhouse gases in the United States. The Kivalina suit, filed in February 2008, alleged that the quantity and duration of AES' and the other defendants' emissions make them responsible for a substantial portion of greenhouse gases in the atmosphere. These gases, in turn, allegedly trap atmospheric heat and cause global warming. The Kivalina plaintiffs alleged that global warming is responsible for melting Arctic sea ice that formerly protected their village from winter storms. According to the Kivalina plaintiffs, the melting sea ice has destroyed their village and forced the community to relocate. The plaintiffs alleged that AES and the other defendants continued to intentionally emit greenhouse gases into the atmosphere-and thereby continued to contribute to a global warming problem-despite knowledge of the impacts of their emissions. The Kivalina plaintiffs expressly referred to these emissions of greenhouse gases as "pollution." 
AES sought coverage from its insurer, Steadfast, for the costs to defend and pay any judgment or settlement in the Kivalina suit from Steadfast. In June 2008, Steadfast filed the coverage suit, seeking a judicial determination that it owed no duty to defend or indemnify AES in Kivalina under the liability policies it issued to AES. Those policies provide coverage for "sums that the insured becomes legally obligated to pay as damages because of 'bodily injury' or 'property damage' to which this insurance applies," but they state that such insurance applies only if "[t]he 'bodily injury' or 'property damage' is caused by an occurrence that takes place in the 'coverage territory.'" The policies define "occurrence" as: "[A]n accident, including continuous or repeated exposure to substantially the same general harmful condition." The policies also contain a pollution exclusion barring coverage for: "Any injury or damage which would not have occurred in whole or part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants at any time." They define "pollutants" as: "[A]ny solid, liquid, gaseous, or thermal irritant or contaminant including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes material to be recycled, reconditioned or reclaimed." In February 2010, the trial court granted summary judgment in favor of Steadfast, holding that it had no duty to defend AES in Kivalina because the underlying complaint did not allege an "occurrence" as required by the policies. The trial court did not reach the question whether the pollution exclusion also bars coverage for the Kivalina suit. Before the Virginia Supreme Court, AES has asked for a ruling that coverage exists, notwithstanding the "occurrence" requirement and the policies' pollution exclusions.
To obtain coverage, AES must demonstrate that, under the plain terms of the policies, the damage alleged in the Kivalina complaint resulted from an "occurrence," defined principally as an "accident." Given the Kivalina plaintiffs' allegations of AES' long-term, planned, regular and direct emissions of greenhouse gases into the atmosphere, with AES' full knowledge and appreciation of the alleged deleterious climatic effects of these intentional emissions-and in light of the concept of fortuity inherent to insurance-the insurers believe that AES cannot demonstrate that an insured "occurrence" is at stake. In an amicus curiae brief in support of Steadfast the American Insurance Association and the Complex Insurance Claims Litigation Association explained that: "Inherent in the nature of insurance is the concept of fortuity, i.e., that insurance responds to losses from unexpected events or risks, not intentional acts." Consistent with that fundamental insurance principle, Virginia law provides that "[a]n intentional act is neither an 'occurrence' nor an 'accident' and therefore is not covered by the standard policy." See Utica Mut. Ins. Co. v. Travelers Indem. Co., 223 Va. 145, 147, 286 S.E.2d 225, 226 (1982); see also Nat'l Fruit Prod. Co., Inc. v. Fireman's Fund Ins. Co., No. 98-1471, 1999 WL 270033, at *4 (4th Cir. May 4, 1999) ("Intentional acts are neither occurrences nor accidents."). In other words, the liability policies' "occurrence" and "accident" requirements are satisfied under Virginia law only by underlying allegations of unintentional conduct that was a mistake or accident resulting in harm that was unexpected and unforeseeable. That is not the case with Kivalina, so there should be no coverage for the global warming claims at stake in this appeal.
The facts and circumstances alleged in the underlying Kivalina complaint (as opposed to the legal theory proffered by the plaintiffs) should not be found to be covered by the Steadfast policies because they fail to amount to an insurable "occurrence." Far from alleging unintentional, accidental or simply careless conduct resulting in unexpected or unforeseen damage, the Kivalina suit contends that AES and other defendants deliberately and routinely emitted massive quantities of greenhouse gases into the atmosphere for years, knowing about their effect on the climate and the resulting dangers to coastal communities such as Kivalina, Alaska.
The complaint alleges, inter alia, that:
"[E]ach of the defendants intentionally emits millions of tons of carbon dioxide and other greenhouse gases into the atmosphere annually, knowing that their emissions increase the global atmospheric concentration of greenhouse gases and thereby contribute to global warming." Complaint, ¶ 10.
AES acknowledged that it is "one of the largest emitters of CO2 in the world" and "must continue to strive to economically stabilize greenhouse gas concentrations." Complaint, ¶ 60.
"There has been for many years an overwhelming scientific consensus that human activity that releases greenhouse gases is causing a change in the Earth's climate" and that the "heating of the planet from emissions of carbon dioxide and other greenhouse gases has long been forecast." Complaint, ¶¶ 132, 134.
"[W]hile the scientific alarm bells began ringing louder and louder, most of the defendants not only did little or nothing to control their greenhouse gas emissions and other conduct contributing to such emissions, but rather greatly increased their emissions and other conduct contributing to such emissions." Complaint ¶ 162.
The electric power company defendants, including AES, "emit millions of tons of carbon dioxide each year from the combustion of fossil fuels and have been doing so for many years," making them "among the largest emitters of carbon dioxide in the United States," all the while resisting the use of renewable energy sources that have long been available and have rendered the notion that carbon dioxide emissions are an "inevitable product of electricity generation" a thing of the past. Complaint, ¶¶ 170, 174, 175.
"Defendants knew that their individual greenhouse gas emissions were, in combination with emissions and conduct of others, contributing to global warming and causing injuries to entities such as Plaintiffs." Complaint, ¶ 255.
"Defendants have engaged in and/or are engaging in concert with each other over the creation, contribution to and/or maintenance of a public nuisance, global warming." Complaint, ¶ 279.
Thus, injuries such as the kind alleged by the Kivalina plaintiffs were not the result of a mistake or carelessness or some other fortuitous happening, but allegedly resulted from AES routinely emitting massive quantities of greenhouse gases into the atmosphere in the normal course of its business operations. Indeed, the Kivalina complaint alleges that global warming-caused damages not only were foreseeable but actually were foreseen by the defendants. See Complaint ¶ 255 ("Defendants knew that their individual greenhouse gas emissions were … causing injuries to entities such as Plaintiffs."). There is no occurrence, and no insurance coverage, even if the specific injuries alleged by the Kivalina plaintiffs stemming from loss of sea ice were accidental because AES acted intentionally in emitting greenhouse gases and the general consequences of its actions were known and expected. "Under a liability policy[,] [t]he issue is whether the injury was caused by an accident, not whether the injury is an accident." See Insurance Claims and Disputes § 11:3 ("[I]t is simply untrue to take the position … that if the injury is an accident, then the cause of the injury must also be an accident.").
Allegations that, as part of its day-to-day business activities, AES continued to emit gases into the atmosphere at climate-changing levels despite available alternatives are indicative of a calculated economic business decision. The anticipated and foreseeable losses allegedly arising from that decision are non-insurable. See, e.g., Hotel Roanoke Conf. Ctr. Comm'n v. Cincinnati Ins. Co., 119 Fed. App'x 451, 454 (4th Cir. 2005) (no coverage for conference center commission's liability for hotel's revenue losses stemming from repairs to conference center, where the liability arose from the commission's "careful, studied decision to close the [c]onference [c]enter and proceed with repairs in a deliberately chosen manner" in breach of deed of easements with hotel).
For these reasons, insurers believe that the Virginia Supreme Court should affirm the ruling below and uphold the fundamental principle of fortuity-as reflected in Virginia law and the definition of "occurrence" in the Steadfast policies.
In addition to the absence of an insured "occurrence," insurers urge the Virginia Supreme Court to find that there is no coverage for the Kivalina suit under the policies' pollution exclusions, which bar coverage for any injury that would not have occurred "in whole or part but for … the discharge … of pollutants at any time." The greenhouse gas emissions that the Kivalina plaintiffs allege caused the climatic changes responsible for damaging their village plainly fall within the definition of "pollutant." The term "pollutant" is defined by the policies to include "any solid, liquid, gaseous, or thermal irritant or contaminant including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste."
The Virginia Supreme Court already has ruled that the plain language of the pollution exclusion applied to a lawsuit alleging injury caused by exposure to trihalomethanes (THMs) in drinking water. See City of Chesapeake, 271 Va. at 578, 628 S.E.2d at 541. In doing so, the Court cited plaintiffs' filings in the underlying suit, which alleged that THMs constituted a "poisonous byproduct of disinfection that [were] disposed of" and "discharge[d]" by the policyholder as part of its water treatment procedures. Id. at 578-79, 628 S.E.2d at 541. Such allegations, this Court held, brought the underlying suit "into the ambit of the exclusion provision." Id. at 579, 628 S.E.2d at 541. This analysis compels the same result with respect to the Kivalina suit. Carbon dioxide, methane, and other such greenhouse gases are unquestionably "gaseous" under the "pollutants" definition and, as alleged by the Kivalina plaintiffs, act as "contaminants" in the atmosphere when discharged in such large quantities, causing calamitous climatic change. See Mass. v. Envtl. Prot. Agency, 549 U.S. 497 (2007) (holding that greenhouse gases such as carbon dioxide, methane, nitrous oxide, and hydrofluorocarbons constitute "air pollutants" as defined in Clean Air Act); 74 Fed. Reg. 66496 (Dec. 15, 2009) (stating that EPA had found that "six greenhouse gases taken in combination endanger both the public health and the public welfare of current and future generations" and motor vehicle emissions of such gases "contribute to the greenhouse gas air pollution that endangers public health and welfare under [Clean Air Act] section 202(a)"). In addition, as in City of Chesapeake, the underlying plaintiffs in Kivalina specifically complain of damage arising from greenhouse gases acting as pollutants, bringing the Kivalina suit within the ambit of the exclusion. See, e.g., Kivalina, Pls.' Consolidated Mem. of Points and Authorities in Opp'n to Defs' Mots. to Dismiss at, e.g., 17-29, 31, 45-48, 61, 66, 81, 99, 105 & 120 (filed Sept. 18, 2008), available via PACER at https://ecf.cand.uscourts.gov (characterizing carbon dioxide emissions as "interstate pollution," making references to "carbon dioxide pollution," characterizing suit as a whole as a "pollution case," and stating that "greenhouse gases are common pollutants").
Other courts have applied pollution exclusions to claims involving the same greenhouse gases at issue here, when they are alleged to be acting as contaminants.  Here, the Kivalina plaintiffs allege harm from greenhouse gas pollution, i.e., that the emission of such gases into the atmosphere caused harm by contributing to global warming and endangering their village. For all of these reasons, insurers believe that the pollution exclusion plainly bars coverage for the Kivalina suit.
With the briefing now complete, insurers eagerly await a ruling by the Supreme Court of Virginia on whether Steadfast owes any coverage obligations to AES for the underlying Kivalina suit. The Virginia high court's ruling will be the first appellate decision on insurance coverage for suits alleging climate change and therefore is being closely followed by insurers and policyholders nationwide.
 The court in Kivalina granted the defendants' motions to dismiss based on the political question doctrine and lack of standing. See Kivalina, 663 F. Supp. 2d at 883. That case is on appeal before the United States Court of Appeals for the Ninth Circuit, where it has been fully briefed but not yet argued.
 See, e.g., Bituminous Casualty Corp. v. R.J. Taylor Corp., No. 96-008544-CK, 1998 WL 1992911, at *1-2 (Mich. Ct. App. May 8, 1998) (upholding trial court's determination that pollution exclusion barred coverage for underlying suit alleging improperly installed ventilation system allowed sewer gas and carbon dioxide to collect inside building); O'Brien Energy Sys., Inc. v. Am. Employers Ins. Co., 629 A.2d 957, 963 (Pa. Super. Ct. 1993) (upholding trial court's determination that pollution exclusion unambiguously applied to bar coverage for damage to utility conduit following explosion caused by methane gas migrating from landfill); Air Prods. & Chems, Inc. v. Indiana Ins. Co., Nos. C-980947 & C-990009, 2000 WL 955600 (Ohio Ct. App. Dec. 23, 1999) (upholding trial court's conclusion that methane was a "gaseous contaminant" and, therefore, a "pollutant within the meaning of the policy terms," such that coverage was barred for injuries sustained in explosion due to buildup of escaped methane into building).
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