Case Briefs

The trial court dismissed Kivalina's complaint in Native Village of Kivalina v. ExxonMobil Corp., 663 F. Supp. 2d 863 (N.D. Cal. 2009). Kivalina appealed. The Ninth Circuit stayed the appeal pending the Supreme Court's decision in American Electric Power v. Connecticut, 131 S. Ct. 2527 (2011) (“AEP”), another climate change nuisance lawsuit. In AEP, the Supreme Court barred the AEP plaintiffs from bringing a federal common law nuisance claim for injunctive relief against AEP and other utilities for their GHG emissions. Because Kivalina alleged state law nuisance and conspiracy-type claims and sought monetary damages rather than injunctive relief, the Ninth Circuit allowed the Kivalina appeal to proceed. On Nov. 28, the Ninth Circuit heard oral argument on the appeal.

Not surprisingly, AES turned to its insurer, Steadfast Insurance Company (“Steadfast”) for coverage against Kivalina. Steadfast agreed to defend AES against the lawsuits under a reservation of rights. Thereafter, Steadfast filed a lawsuit seeking a declaration that the applicable commercial general liability (“CGL”) policies did not afford coverage to AES against Kivalina's claims. In the declaratory judgment action, Steadfast alleged that the policies did not afford coverage for three reasons: 1) the complaint did not allege “property damage” caused by an “occurrence”; 2) any alleged injury occurred prior to the issuance of the Steadfast policies; and 3) the claims are excluded by the pollution exclusion.

With respect to the “occurrence” argument, Steadfast argued that because Kivalina alleged that AES intentionally emitted carbon dioxide and GHG, Kivalina had not alleged an “occurrence.” AES responded that because the Kivalina complaint alleged, in part, that AES “negligently” created the nuisance and that the consequences of its emissions were unintended, it was an “accident” and thus an “occurrence” under the CGL policies. The trial court allowed Steadfast's motion for summary judgment. AES appealed to the Virginia Supreme Court.

The Virginia Supreme Court found for Steadfast after applying Virginia's “eight corners” rule: whether there is a duty to defend is based on the “four corners” of the complaint and the “four corners” of the CGL policies. On appeal, the Virginia Supreme Court addressed only Steadfast's “occurrence” argument. The Steadfast policies defined the term “occurrence” to mean, in part, “an accident, including continuous or repeated exposure to substantially the same general harmful condition.” The court explained that under Virginia law, the terms “occurrence” and “accident” are synonymous and further that the term “accident” is commonly understood to mean “not intended, designed, or reasonably anticipated.” The court held that under Virginia law, the allegedly intentional act of emitting GHGs was not an “accident” and thus not an “occurrence” covered by the policies. Although some intentional acts that produce unforeseen consequences could be covered under the policy, here the court found that AES's intentional acts alleged in the Kivalina complaint were excluded because the harm to Kivalina was a natural or probable consequence, i.e., not an “accident” or a “fortuitous event.”

Two justices concurred in the decision, although they sought to limit the decision to the “unique” allegations in the complaint and the “particular” definitions in the applicable policies. In the opinion of these justices, the majority did not adequately distinguish between Kivalina's claims and claims for accidental tortious injury. In the majority of accidental tortious injury cases, in Virginia, the issue is whether the insured intended the relevant act giving rise to the resulting damage. In contrast, in Kivalina the plaintiffs alleged that the relevant act was the intentional emission of GHGs, despite the knowledge, or presumed knowledge, that it would cause injury to the village.

Although both Steadfast and AEP limited insureds' climate change liability exposure, neither decision eliminated it. The Supreme Court in AEP, for example, did not decide whether plaintiffs could bring state law climate change nuisance suits for damages, and the Steadfast decision was based on Virginia law and policy language. There will likely be state common law nuisance lawsuits brought in other states, and there may even be more coverage litigation in Virginia based on different allegations. Climate change law is still evolving, and future plaintiffs will likely think of new legal theories to hold GHG emitters responsible for the effects on climate change. In California, for example, advocacy groups are asking courts to declare that the public trust doctrine protects the atmosphere and requires states to reduce GHG emissions.

Steadfast also left open whether GHGs fall within the pollution exclusion. Thus, even if a plaintiff were to bring another nuisance suit or a new type of claim, and a court determines that the resulting property damage is the result of an “occurrence” under a CGL policy, the insurer may still assert, as Steadfast did, that the pollution exclusion bars coverage for such suits because GHG is a pollutant. Indeed, Steadfast asserted here that not only is GHG a pollutant, but the Kivalina complaint was “quintessentially a claim alleging environmental pollution.”

AES disagreed that the court should use the complaint to determine whether GHG is a pollutant; AES urged the court instead to focus on the intent of the parties at the time the policies were written in 1996, when neither party understood that GHG was a pollutant. Further, AES argued that the Clean Air Act definition of pollutant is broader than the definition in most CGL policies, and a naturally occurring substance that is not normally toxic cannot be a pollutant. Although the Virginia Supreme Court did not address the pollution exclusion issue, future courts deciding coverage disputes related to climate change litigation may have to.

In the future, we will likely see increased litigation arising from climate change and, in particular, insureds' GHG emissions. Both insurers and insureds alike should not only review their CGL policies to evaluate the probability of liability for such claims but also examine whether these claims should be covered under a CGL policy. In addition, both insurers and insureds should become familiar with and follow legal developments regarding the viability of climate-change-type claims.

Jennifer Sulla and Katy E. Ward, attorneys in the environmental section in Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.'s Boston office, contributed this month's Case Brief. The views expressed in the article are those of the authors and not necessarily those of Mintz Levin or its clients.

The Emission of Greenhouse Gases Was Not an Occurrence

The Virginia Supreme Court held in The AES Corp. v. Steadfast Insurance Co., 2011 WL 4139736 (Va. Sup. Ct. Sept. 16, 2011) (“Steadfast“) that an insurer was not obligated to defend or indemnify its insured against a lawsuit alleging that the insured's actions resulted in climate change. The decision was based, in large part, on the fact that the underlying plaintiff alleged that the insured knew or should have known that its emission of carbon dioxide and greenhouse gases would harm the plaintiff. Because the plaintiff alleged intentional conduct ' not a fortuitous event or accident ' the court held that the claim was not covered. There may be more to come, however, as the court has recently allowed a request for rehearing. No date has been set as of press time.

The underlying case began in 2008 when The AES Corporation (“AES”) along with a number of other companies were sued by Kivalina, a traditional Eskimo community built on an eight-mile barrier reef historically protected by sea ice. Native Village of Kivalina v. ExxonMobil Corp. (N.D. Cal.) (“Kivalina“). Kivalina alleged in the complaint that higher temperatures have reduced the protective ice and left the island vulnerable to fall and winter storms, eroding the shoreline and making the village uninhabitable. Kivalina further alleged that the higher temperatures were the direct result of AES's intentional emission of carbon dioxide and other greenhouse gases (“GHG”). According to Kivalina, AES “knew or should have known of the impacts of [its] emissions ' on global warming and on particularly vulnerable communities such as coastal Alaskan villages.” After 16 pages explaining global warming, Kivalina asserted three claims for relief: public nuisance (federal law); private and public nuisance (state law); and concert of action. The gist of the complaint was that the harm to Kivalina was the natural and probable consequence of AES's intentional emissions of GHG.

The trial court dismissed Kivalina's complaint in Native Village of Kivalina v. ExxonMobil Corp. , 663 F. Supp. 2d 863 (N.D. Cal. 2009). Kivalina appealed. The Ninth Circuit stayed the appeal pending the Supreme Court's decision in American Electric Power v. Connecticut , 131 S. Ct. 2527 (2011) (“AEP”), another climate change nuisance lawsuit. In AEP, the Supreme Court barred the AEP plaintiffs from bringing a federal common law nuisance claim for injunctive relief against AEP and other utilities for their GHG emissions. Because Kivalina alleged state law nuisance and conspiracy-type claims and sought monetary damages rather than injunctive relief, the Ninth Circuit allowed the Kivalina appeal to proceed. On Nov. 28, the Ninth Circuit heard oral argument on the appeal.

Not surprisingly, AES turned to its insurer, Steadfast Insurance Company (“Steadfast”) for coverage against Kivalina. Steadfast agreed to defend AES against the lawsuits under a reservation of rights. Thereafter, Steadfast filed a lawsuit seeking a declaration that the applicable commercial general liability (“CGL”) policies did not afford coverage to AES against Kivalina's claims. In the declaratory judgment action, Steadfast alleged that the policies did not afford coverage for three reasons: 1) the complaint did not allege “property damage” caused by an “occurrence”; 2) any alleged injury occurred prior to the issuance of the Steadfast policies; and 3) the claims are excluded by the pollution exclusion.

With respect to the “occurrence” argument, Steadfast argued that because Kivalina alleged that AES intentionally emitted carbon dioxide and GHG, Kivalina had not alleged an “occurrence.” AES responded that because the Kivalina complaint alleged, in part, that AES “negligently” created the nuisance and that the consequences of its emissions were unintended, it was an “accident” and thus an “occurrence” under the CGL policies. The trial court allowed Steadfast's motion for summary judgment. AES appealed to the Virginia Supreme Court.

The Virginia Supreme Court found for Steadfast after applying Virginia's “eight corners” rule: whether there is a duty to defend is based on the “four corners” of the complaint and the “four corners” of the CGL policies. On appeal, the Virginia Supreme Court addressed only Steadfast's “occurrence” argument. The Steadfast policies defined the term “occurrence” to mean, in part, “an accident, including continuous or repeated exposure to substantially the same general harmful condition.” The court explained that under Virginia law, the terms “occurrence” and “accident” are synonymous and further that the term “accident” is commonly understood to mean “not intended, designed, or reasonably anticipated.” The court held that under Virginia law, the allegedly intentional act of emitting GHGs was not an “accident” and thus not an “occurrence” covered by the policies. Although some intentional acts that produce unforeseen consequences could be covered under the policy, here the court found that AES's intentional acts alleged in the Kivalina complaint were excluded because the harm to Kivalina was a natural or probable consequence, i.e., not an “accident” or a “fortuitous event.”

Two justices concurred in the decision, although they sought to limit the decision to the “unique” allegations in the complaint and the “particular” definitions in the applicable policies. In the opinion of these justices, the majority did not adequately distinguish between Kivalina's claims and claims for accidental tortious injury. In the majority of accidental tortious injury cases, in Virginia, the issue is whether the insured intended the relevant act giving rise to the resulting damage. In contrast, in Kivalina the plaintiffs alleged that the relevant act was the intentional emission of GHGs, despite the knowledge, or presumed knowledge, that it would cause injury to the village.

Although both Steadfast and AEP limited insureds' climate change liability exposure, neither decision eliminated it. The Supreme Court in AEP, for example, did not decide whether plaintiffs could bring state law climate change nuisance suits for damages, and the Steadfast decision was based on Virginia law and policy language. There will likely be state common law nuisance lawsuits brought in other states, and there may even be more coverage litigation in Virginia based on different allegations. Climate change law is still evolving, and future plaintiffs will likely think of new legal theories to hold GHG emitters responsible for the effects on climate change. In California, for example, advocacy groups are asking courts to declare that the public trust doctrine protects the atmosphere and requires states to reduce GHG emissions.

Steadfast also left open whether GHGs fall within the pollution exclusion. Thus, even if a plaintiff were to bring another nuisance suit or a new type of claim, and a court determines that the resulting property damage is the result of an “occurrence” under a CGL policy, the insurer may still assert, as Steadfast did, that the pollution exclusion bars coverage for such suits because GHG is a pollutant. Indeed, Steadfast asserted here that not only is GHG a pollutant, but the Kivalina complaint was “quintessentially a claim alleging environmental pollution.”

AES disagreed that the court should use the complaint to determine whether GHG is a pollutant; AES urged the court instead to focus on the intent of the parties at the time the policies were written in 1996, when neither party understood that GHG was a pollutant. Further, AES argued that the Clean Air Act definition of pollutant is broader than the definition in most CGL policies, and a naturally occurring substance that is not normally toxic cannot be a pollutant. Although the Virginia Supreme Court did not address the pollution exclusion issue, future courts deciding coverage disputes related to climate change litigation may have to.

In the future, we will likely see increased litigation arising from climate change and, in particular, insureds' GHG emissions. Both insurers and insureds alike should not only review their CGL policies to evaluate the probability of liability for such claims but also examine whether these claims should be covered under a CGL policy. In addition, both insurers and insureds should become familiar with and follow legal developments regarding the viability of climate-change-type claims.

Jennifer Sulla and Katy E. Ward, attorneys in the environmental section in Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.'s Boston office, contributed this month's Case Brief. The views expressed in the article are those of the authors and not necessarily those of Mintz Levin or its clients.