Insurers Win First Round of Climate Change Coverage Litigation

By | November 29, 2011

In light of the economic turmoil currently engulfing the United States and Europe, the Republican sweep in the 2010 midterm congressional elections, the various protests going on around the country and the upcoming fractious 2012 presidential election, insurers can be forgiven if they have forgotten or put aside their concerns about liability arising out of claims related to or regarding climate change/global warming.

However, while it may not be at the forefront of the news these days, climate change remains a topic of discussion at the state, national and international level.

For these reasons, insurers were undoubtedly gladdened when the Virginia Supreme Court recently issued its much anticipated opinion in Steadfast Insurance Company v. The AES Corporation, the first climate change coverage case to be decided, and affirmed the lower court’s judgment declaring that Steadfast had no duty under the CGL policy issued by it to defend its insured, AES Corporation, against climate change related claims.

But, while a win is better than a loss, the Virginia Supreme Court rested its decision on narrow grounds specific to the case before it and did not address those defenses of Steadfast which would have had a much broader application. As a result, it is unclear how helpful the decision will be to insurers facing coverage issues in future climate change litigation.


From 2007 to 2009, several cases were decided that appeared to be setting the table for an explosion of climate change litigation.

  • In Massachusetts v. Environmental Protection Agency, the U.S. Supreme Court held that the EPA is authorized, and required, under the Clean Air Act to regulate those emissions which it determines cause or contribute to climate change, and, also held that carbon dioxide is a “pollutant” within the meaning of the Clean Air Act.
  • In State of Connecticut v. American Electric Power, Inc., the Second Circuit Court of Appeal affirmed the standing of claimants to assert a federal common law nuisance claim against six electric power companies on the basis that those companies, through their emissions of carbon dioxide, were large contributors to global warming, which allegedly caused or would cause harmful effects to human health.
  • In Comer v. Murphy Oil USA, a panel of the Fifth Circuit Court of Appeal found that private claimants had standing to assert a private nuisance claim under Mississippi law against a number of companies on the basis that their emissions allegedly contributed to global warming, which increased the ferocity of Hurricane Katrina and, as a consequence, increased the damage they suffered from by Hurricane Katrina. The Fifth Circuit subsequently granted rehearing en banc, suggesting that the panel opinion would be reversed, but, in 2010, issued an opinion that it did not have a quorum for an en banc hearing and dismissed the appeal.

The Steadfast Litigation

Consistent with these lawsuits, in Village of Kivalina v. ExxonMobil, the residents of the Alaskan city of Kivalina sued numerous oil and energy companies, including AES Corporation, asserting that the defendants’ excessive emissions of carbon dioxide and other greenhouse gases were and are causing global warming, resulting in the loss of Arctic sea ice that protects the Kivalina coast from winter storms. AES sought defense of this claim under a CGL “occurrence” policy issued to it by Steadfast Insurance Company. Steadfast agreed to defend under a reservation of rights, but filed suit in Virginia seeking a declaratory judgment that it had no duty to defend AES in the Village of Kivalina lawsuit.

In its declaratory judgment suit, Steadfast filed a motion for summary judgment arguing that the Village of Kivalina claims against AES were not covered by its CGL policy because:

  1. The damages alleged were not caused by an “occurrence” within the meaning of the CGL policy;
  2. Since the damages allegedly began prior to the policy’s issuance date, the “loss in progress” endorsement excluded coverage; and
  3. Coverage was excluded under the policy’s pollution exclusion.

On February 5, 2010, the district court, without providing reasons, granted Steadfast’s motion “because no ‘occurrence’ as defined in the policies has been alleged in the underlying Complaint.” AES appealed the ruling.

The Virginia Supreme Court Decision

The Virginia Supreme Court began by stating that under Virginia law Steadfast’s duty to defend was to be determined based solely on the allegations in the Village of Kivalina complaint and the terms of the Steadfast insurance policy. This approach is not unusual and is followed by most jurisdictions.

The Steadfast policy defined “occurrence” as an “accident.” The Virginia Supreme Court observed that for the purpose of determining a duty to defend, Virginia law 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.”

The Village of Kivalina complaint alleged that AES “intentionally” released “tons” of greenhouse gases into the atmosphere. The Court noted that intentional acts are not “accidents,” but that an injury resulting that was out of the ordinary expectation of a reasonable person could nonetheless be covered under an “occurrence” insurance policy even though the insured’s action starting the chain of events was intentional.

Pointing out that the Village of Kivalina complaint alleged that its generation and distribution of electricity caused global warming leading to the erosion of the coastline near the Village of Kivalina in Alaska, AES argued that this alleged injury was unforeseen and unintended, and thus “accidental,” from its viewpoint. The Virginia Supreme Court rejected this argument because the Village of Kivalina complaint also alleged there was “a clear scientific consensus” that global warming and the type of damages alleged in the complaint were the natural and probable consequence of the emission of greenhouse gases.

As the Court stated: “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. Because the Village of Kivalina complaint alleged an intentional act by AES resulting in reasonably foreseeable damages, the Court agreed with and affirm the lower court’s judgment that the Steadfast “occurrence” insurance policy did not provide coverage of the claims alleged. The Court did not address the other defenses raised by Steadfast.”

How Far Reaching Is the Steadfast Decision?

Despite writing a relatively lengthy opinion, the determining factor leading to the Court’s decision to affirm the judgment in favor of Steadfast was the allegation of “a clear scientific consensus” regarding global warming. Indeed, two of the justices wrote a concurring opinion to “make clear and emphasize that the holding in this case is limited to the unique language of the allegations of [Village of Kivalina] lawsuit.”

Therefore, the result, at least on this defense, would presumably have been completely different had this one simple allegation not been included in the Village of Kivalina complaint. Thus, rather than a win for insurers, the Steadfast decision may simply have provided a roadmap to plaintiffs on how to best plead global warming/climate change claims so as to not exclude the possibility of insurance coverage.

The Steadfast decision would have had much broader and far reaching applicability if the Virginia Supreme Court had addressed Steadfast’s defense that coverage was excluded under its policy’s pollution exclusion, one of the key defenses likely to be available to most insurers facing potential coverage of climate change related claims, particularly in light of the Supreme Court’s conclusion in Massachusetts v. Environmental Protection Agency that carbon dioxide is a “pollutant” within the meaning of the Clean Air Act.

So, while the news that the Virginia Supreme Court had affirmed the judgment finding no duty on the part of Steadfast to defend against the climate change allegations against its insured, AES, undoubtedly raised expectations of the heralding of great news for insurers, the reality is that the Steadfast decision has limited applicability which does very little to lessen insurers’ potential exposure to climate change claims

Robert Redfearn, Jr. ( is a partner in Simon, Peragine, Smith & Redfearn, a regional law firm with offices in New Orleans, La., and Mississippi.

Topics Lawsuits Carriers Pollution Climate Change Virginia

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