AES loses Va. Supreme Court decision on global warming liability

The Virginia Supreme Court ruled April 20 that an insurance carrier for Virginia-based power producer AES Corp. is not responsible for covering ostensible global warming damage sustained by the Native Village of Kivalina and City of Kivalina, a native community located on an Alaskan barrier island.

In an appeal from a judgment in a declaratory judgment action, the Virginia high court considered whether a circuit court erred in ruling that a civil complaint filed against AES did not allege an “occurrence” as that term is defined in AES’s contracts of insurance with Steadfast Insurance, and that Steadfast, therefore, did not owe AES a defense or liability coverage.

AES is a Virginia-based energy company that holds controlling interests in companies specializing in the generation and distribution of electricity in numerous states, including California. Steadfast is an Illinois-based company and indirect subsidiary of Zurich Financial Services, a global insurance provider. AES paid premiums to Steadfast for commercial general liability (CGL) policies from 1996 to 2000 and 2003 to 2008.

In February 2008, the Native Village of Kivalina and City of Kivalina (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 numerous other defendants for allegedly damaging the village by causing global warming through emission of greenhouse gases. 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, which is the subject of this appeal, in the Circuit Court of Arlington County, Va. In the declaratory judgment action, Steadfast claimed that it did not owe AES a defense or indemnity coverage for damage allegedly caused by AES’s contribution to global warming based on three grounds: the complaint did not allege “property damage” caused by an “occurrence,” which was necessary for there to be coverage under the policies; any alleged injury arose prior to the inception of Steadfast’s coverage; and the claims alleged in the complaint fell within the scope of the pollution exclusion in AES’s policies.

The parties subsequently filed cross-motions for summary judgment, both claiming that whether Steadfast had a duty to defend AES against the complaint could be decided by examining the “eight corners” of the complaint and the CGL policies. The circuit court denied AES’s motion for summary judgment and granted Steadfast’s motion for summary judgment, holding that the complaint does not allege an “occurrence” as that term is defined in the CGL policies, and thus, the allegations in the complaint are not covered under those policies.

In the complaint, Kivalina alleged that AES intentionally released CO2 into the atmosphere as a regular part of its energy-producing activities. Kivalina also alleged that there is a clear scientific consensus that the natural and probable consequence of such emissions is global warming and damages such as Kivalina suffered. Kivalina alleged that AES knew or should have known the damage that its activities would cause, that AES was negligent if it did not know, and that AES was negligent in acting in concert with other defendants in creating a nuisance.

“Under the CGL policies, Steadfast would not be liable because AES’s acts as alleged in the complaint were intentional and the consequences of those acts are alleged by Kivalina to be not merely foreseeable, but natural or probable,” the Virginia high court noted in affirming the lower court decision. “Where the harmful consequences of an act are alleged to have been not just possible, but the natural or probable consequences of an intentional act, choosing to perform the act deliberately, even if in ignorance of that fact, does not make the resulting injury an ‘accident’ even when the complaint alleges that such action was negligent.”

Said AES about this case in its Feb. 27 annual Form 10-K report: “In February 2008, the Native Village of Kivalina and the City of Kivalina, Alaska, filed a complaint in the U.S. District Court for the Northern District of California against the company and numerous unrelated companies, claiming that the defendants’ alleged GHG emissions have contributed to alleged global warming which, in turn, allegedly has led to the erosion of the plaintiffs’ alleged land. The plaintiffs assert nuisance and concert of action claims against the company and the other defendants, and a conspiracy claim against a subset of the other defendants. The plaintiffs seek to recover relocation costs, indicated in the complaint to be from $95 million to $400 million, and other unspecified damages from the defendants. The company filed a motion to dismiss the case, which the District Court granted in October 2009. The plaintiffs have appealed to the U.S. Court of Appeals for the Ninth Circuit. The Ninth Circuit heard oral arguments on November 28, 2011, and thereafter took the appeal under consideration. The company believes it has meritorious defenses to the claims asserted against it and will defend itself vigorously in these proceedings; however, there can be no assurances that it will be successful in its efforts.”

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.