RICHMOND, Va. (Legal Newsline) - The Virginia Supreme Court last week upheld a circuit court's ruling that an insurer did not owe an energy company a defense or liability coverage in a lawsuit brought against it for causing global warming in a small Alaska town.
On Friday, the Court ruled that the Arlington County Circuit Court was correct in ruling that a civil complaint filed against The AES Corporation did not allege an "occurrence" as that term is defined in AES's contracts of insurance with Steadfast Insurance Company.
AES is a Virginia-based 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, or CGL, policies from 1996 to 2000 and 2003 to 2008.
In February 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 its emission of greenhouse gases.
At that time, AES requested 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 -- the subject of the state Supreme Court appeal -- in Arlington Circuit Court.
In its declaratory judgment action, Steadfast claimed it did not owe AES a defense or indemnity coverage for damage allegedly caused by AES's contribution to global warming because 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 stated in AES's policies.
Both parties subsequently filed cross-motions for summary judgment, claiming that whether Steadfast had a duty to defend AES in the lawsuit 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.
Justice S. Bernard Goodwyn, who wrote the Court's 16-page ruling, said the 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 reasonably anticipated or probable consequence of the insured's intentional act.
AES argued that the damage to the village resulting from global warming caused by its electricity-generating activities was "accidental" because such damage may have been unintentional.
The state's high court disagreed.
"Applying the 'eight corners' rule, we must consider the terms of the relevant insurance policies and the allegations in the complaint. 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," Goodwyn wrote.
"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."
He continued, "Whether or not AES's intentional act constitutes negligence, the natural or probable consequence of that intentional act is not an accident under Virginia law."
However, the Court noted, allegations of negligence are not the same as allegations of an accident.
In this instance, the allegations of negligence do not support a claim of an accident, it said.
"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," Goodwyn wrote.
"If an insured knew or should have known that certain results were the natural or probable consequences of intentional acts or omissions, there is no 'occurrence' within the meaning of a CGL policy."
The policies, in this case, define "occurrence" as an "accident, including continuous or repeated exposure to substantially the same general harmful condition."
"Even 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," Goodwyn concluded.
From Legal Newsline: Reach Jessica Karmasek by email at firstname.lastname@example.org.