AES v. Steadfast and the concept of foreseeability in climate change litigation.
|Vincent, David P.
INTRODUCTION II. AES V. STEADFAST A. Fact Summary B. Factors Underlying the Decision 1. The Duty to Defend 2. Pollution Exclusion for CGL Policies 3. Massachusetts v. EPA C. Reasoning III. ARGUMENTS IN FAVOR OF A DUTY TO DEFEND A. Reasonable Expectations of the Insured B. Construe Ambiguities in Favor of the Insured C. Insurance Companies Can Regulate Behavior IV. ARGUMENTS IN FAVOR OF A DUTY TO DEFEND ARE INADEQUATE A. Reasonable Expectations of the Insured B. Construe Ambiguities in Favor of the Insured C. Insurance Companies Can Regulate Behavior V. ARGUMENTS AGAINST A DUTY TO DEFEND A. Consistent with Massachusetts v. EPA B. The Insured is Facing a Known Risk C. No Unanticipated or Unfair Burden on Insurance Companies D. Does Not Deter Congress from Acting on Climate Change VI. CONCLUSION I. INTRODUCTION
In the absence of national legislation tackling climate change in the United States, a new generation of tort-based lawsuits has arisen against corporate defendants, alleging that greenhouse gases emitted by such defendants have contributed to climate change that has caused real property damage to plaintiffs. (2) Most cases concerning liability for carbon dioxide and other greenhouse gas emissions have been unsuccessful in that they have not proceeded past the pleadings due to a lack of justiciability. (3) However, the Supreme Court decision in Massachusetts v. Environmental Protection Agency (4) (Massachusetts v EPA) suggested that states, and potentially other landholders, have standing to sue emitters and hold them liable for property damage caused by the effects of global warming. (5) Therefore, Massachusetts v. EPA has the potential to permit United States courts to hear lawsuits arising from property damage caused by global warming and intentional greenhouse gas emissions. (6) Furthermore, plaintiffs are using innovative legal approaches in state courts that have the potential to succeed and open the doors of state courts to climate change related lawsuits as well. (7)
Emitters of greenhouse gases externalize the true social and environmental costs of their contribution to climate change onto the public. (8) Efforts to recover these costs, which manifest both through the costs of impacts and the costs of efforts to prevent impacts, can take the form of insurance claims as well as legal remedies. (9) Liability insurance providers have a general duty to defend those they insure, in addition to their responsibility to indemnify the insured for damages incurred by third parties. (10) The duty to defend and the duty to indemnify the insured are based upon the Commercial General Liability (CGL) policy held by the insured. (11) Unsurprisingly, parties insured by CGL policies argue that liabilities related to carbon dioxide emissions are covered under the policies. (12) However, insurers insist that this type of liability falls under the "pollution exclusion" of CGL policies. (13) As a result of the exclusion, the insurers argue they are not required to defend or indemnify the insured for third party damages associated with intentional carbon dioxide and greenhouse gas emissions. (14)
With the potential influx of climate change lawsuits inundating the United States court system, the question of whether CGL policies cover liabilities created by property damage resulting from global wanning needs resolution. In April 2012, the Virginia Supreme Court held in AES Corp. v. Steadfast Insurance Co. (AES v Steadfast) that liability insurance companies do not have a duty to defend the insured in climate change related damage claims resulting from the insured's intentional release of carbon dioxide and other greenhouse gases. (15) The court reasoned that potential liabilities arising from the insured's intentional emissions are not covered by CGL policies because intentional emissions do not fall within the policy's scope of coverage. (16)
This paper argues that the court's decision in AES v Steadfast is correct and that other jurisdictions should adhere to it when presented with similar fact patterns because the decision: 1) is consistent with the Supreme Court's holding in Massachusetts v EPA, 2) holds companies responsible for their intentional actions; 3) does not put an unfair burden on liability insurance companies; and 4) does not deter the United States Congress from adopting a comprehensive plan to mitigate and adapt to global climate change. Part II of this paper will expound upon the decision in AES v Steadfast and several factors underlying the decision. Part III will discuss the various arguments against the Virginia Supreme Court's decision in AES v Steadfast in support of a decision favoring AES, the insured. Part IV will attack the arguments proposed in the previous section that favor a duty to defend in lawsuits arising out of property damage from carbon dioxide and greenhouse gas emissions. Part V will defend the proposition that AES v. Steadfast was correctly decided.
AES V. STEADFAST
AES v. Steadfast arose from a lawsuit in which AES Corporation was a defendant. (17) The original lawsuit, Native Village of Kivalina v ExxonMobil Corp. (Kivalina), (18) was initiated by the native Alaskan village of Kivalina against ExxonMobil and several other defendants, including AES, in the United States District Court of the Northern District of California. (19) The village of Kivalina sought compensation from the defendants for climate change related destruction of its land through the federal common law of public nuisance. (20) In its complaint, Kivalina alleged the defendants' emission of millions of tons of carbon dioxide "intentionally or negligently" created a nuisance, in the form of global warming. (21) The complaint stated that AES's emissions "caus[ed] land-fast sea ice protecting the village's shoreline to form later or melt earlier in the annual cycle" and "exposed the shoreline to storm surges, resulting in erosion of the shoreline and rendering the village uninhabitable." (22) The complaint further asserted that AES "knew or should have known" that its activities would result in the alleged harm. (23) Kivalina alleged that the damage to the village was so extreme that the inhabitants of the village were required to relocate. (24)
In response to Kivalina's allegations, AES turned to its insurance policy and insisted that its provider, Steadfast Insurance Company (Steadfast), had a duty to defend the company from potential liability. (25) AES purchased liability insurance from Steadfast and held a CGL policy at the time of the suit. (26) In the CGL policies at issue, Steadfast had a duty to defend AES against lawsuits seeking damages resulting from bodily injury or property damage caused by an "occurrence." (27) Steadfast denied coverage and thereafter filed a declaratory judgment action in the Circuit Court of Arlington County in Virginia, the jurisdiction in which AES is headquartered. (28) Steadfast denied coverage based on three grounds: 1) the Kivalina complaint did not allege "property damage" caused by an "occurrence" as the policies defined "occurrence"; (29) 2) the alleged injuries arose before Steadfast's coverage incepted; and 3) the greenhouse gas emissions alleged in Kivalina were "pollutants," excluded from coverage by virtue of the policies' pollution exclusion. (30)
On cross-motions for summary judgment, Steadfast argued, among other things, that the Kivalina complaint did not allege property damage caused by an occurrence because the complaint asserted that AES "knew or should have known" that its intentional activities would lead to global warming that damaged the village. (31) An "occurrence" is defined in the policies as "an accident, including continuous or repeated exposure to substantially the same general harmful condition." (32) AES argued that any alleged harm resulting from climate change must be considered an "accident" because it was unintended or unexpected, as acknowledged by the "knew or should know" language in the Kivalina complaint, despite that the policies do not define "accident." (33) The circuit court granted summary judgment in favor of Steadfast, finding it had no duty to defend AES because the Kivalina complaint did not allege an "occurrence." (34)
On appeal, the central issue in AES v Steadfast was "whether the 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], and that Steadfast, therefore, did not owe AES a defense or liability coverage." (35) The Virginia Supreme Court affirmed the decision of the circuit court holding that Steadfast did not have a duty to defend AES in the Kivalina lawsuit. (36)
Factors Underlying the Decision
To fully understand the Virginia Supreme Court's decision in AES v. Steadfast, it is important to be familiar with insurance companies' duty to defend, the CGL "pollution exclusion" policy, and the Supreme Court's decision in Massachusetts v. EPA. This Part addresses these three topics before further discussing the AES v. Steadfast decision.
The Duty to Defend
In addition to their duty to indemnify the insured, insurance companies have a duty to defend the insured from third party liabilities that come within the scope of the CGL policy. (37) The duty to defend requires insurance companies to "indemnify until it becomes clear that there can be no recovery" under the CGL policy. (38) To fulfill its duty to defend, the insurer must enlist legal counsel to represent the insured and must also pay the legal fees and costs sustained in litigation on behalf of the insured. (39) Furthermore, if the insurer disputes its duty to defend and loses, the insurer may also be required to pay "the cost incurred by the insured ... in establishing the insurer's duty to defend." (40) Accordingly, if the court found Steadfast had a duty to defend AES in its lawsuit with Kivalina...
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