Climate Change and Insurance Cover
AES Corporation v Steadfast Insurance Company
Insurers breathed a collective sigh in 2011 when the Supreme Court of Virginia ruled that Steadfast Insurance Company (Steadfast) had no liability under a commercial general liability (CGL) policy to cover its insured, AES Corporation (AES) which was defending a claim to do with its carbon emissions. The relief was short lived. AES has now appealed the decision and the matter is back before the courts.
By way of background, in February 2008 the Village of Kivalina, a native community in Alaska, brought a claim against various oil and energy companies, including AES, alleging that the companies had rendered the village uninhabitable through the emission of greenhouse gases. The Village’s main argument was that these emissions caused the Kivalina coastline to be exposed to storm surges, resulting in erosion. Kivalina alleges that when AES intentionally emitted millions of tons of carbon dioxide and other greenhouse gases into the atmosphere, it knew or should have known of the likely impact of its emissions.
AES sought indemnity from Steadfast under its CGL policy (it’s broadform liability policy) and for its insurer to take over the defence of the claim. Steadfast denied liability. It argued that AES’s alleged actions were intentional, and therefore the damage was not property damage caused by “an occurrence” (an accident) which was necessary to trigger the insurance cover.
On 16 September 2011, the Supreme Court of Virginia found for Steadfast. The Court focused on the fact that Kivalina alleged that AES’s actions were intentional. Under the CGL policy, “occurrence” was defined to mean an “. . . accident, including continuous or repeated exposure to substantially the same general harmful conditions”.
AES petitioned for a rehearing on the basis that the alleged outcome or consequence of its actions, if proven, was not intentional. It argued that the scientific evidence Kivalina is relying on does not say that the destruction to the coastline was ‘inevitable or eminently foreseeable’. AES said that the court failed to distinguish between ‘allegations that a defendant should have known that harm was reasonably foreseeable, and allegations that a defendant should have known that there was a substantial probability that harm would occur’. The first situation was negligence, which a CGL policy is there to cover. AES argued that if the judgment was allowed to stand, it would eliminate CGL insurance coverage in most cases.
On 17 January 2012, the Supreme Court of Virginia set aside its earlier decision and granted a rehearing of the case. Oral argument will be heard by the court during the court’s February session (from 27 February 2012 to 2 March 2012).
The case is the first of its kind to reach an appellate court in the United States and will be closely watched by insurers, not just in the United States but around the world.
While all of this is happening the case brought by Kivalina continues.