By William K. Enger, Esq., Carl J. Pernicone, Esq., Thomas L. Appler, Esq., Robert E. Rider Jr., Esq.
The Virginia Supreme Court’s ruling in The AES Corp. v. Steadfast Ins. Co., No. 100764, 2011 Va. LexisNexis 185 (Va. September 16, 2011) made it the first state supreme court to find that the emission of greenhouse gases alleged to cause global warming is not an “occurrence” as that term is defined in a typical commercial general liability policy.
Hearing the case on appeal from the Circuit Court of Arlington County, the Virginia high court affirmed the decision that Steadfast had no obligation to defend or indemnify. Applying the “eight corners rule,” wherein the allegations of the complaint are compared with the coverage under the terms of the policy, the Court determined that the allegations did not fall within the definition of occurrence – “an accident, including continuous or repeated exposure to substantially the same general harmful condition.”
Noting the extensive attention to explaining global warming (16 pages and 66 paragraphs in the complaint), the Court focused on the allegations of “intentionally” and “knew or should have known,” drawing specific emphasis to this language in the opinion. The Court zeroed in on the fact that the complaint alleged that AES intentionally emits millions of tons of greenhouse gases and further that AES knew or should have known of the impacts to the environment. The complaint alleged that there is a “clear scientific consensus that global warming is caused by emissions of greenhouse gases, primarily carbon dioxide from fossil fuel combustion and methane releases from fossil fuel harvesting.” The complaint set forth three claims of relief: (1) public nuisance – federal law, (2) private and public nuisance – state law and (3) tortious acts in concert with each other or pursuant to a common design. The Court held that because the most favorable allegation toward finding coverage still asserted that AES should have anticipated the damage, there was no alleged “occurrence” and, therefore, no potential of resulting property damage.
Impact of AES Decision
The decision is significant for a number of reasons. From a national standpoint, this is the first decision on whether greenhouse gases are “occurrences” under general liability policies. The Court discussed the alleged scientific basis for global warming in some detail in its analysis. Nevertheless, the focus of its opinion was on what constitutes an accident and what are the “natural and probable consequences” of actions. In a nutshell, the Court ruled that a result cannot be considered to be caused by an accident if the insured should have known of or anticipated such a result. The Court may have chosen such a high-profile litigation theme as global warming to clearly articulate that, at least in Virginia, fortuity is the overarching concept in the insurance arena; that is to say, liability insurance is designed to cover only losses caused by “true accidents.”
The AES opinion will likely be cited as support for the limiting proposition that an AES-like scenario does not equate to an occurrence. Nevertheless, the rationale adopted by the Court, including the analysis of the “eight corners rule” and the significance of the “natural and probable consequences” test – as well as the primacy of fortuity under Virginia law – is not generally followed by many other jurisdictions. Thus, from a practical standpoint, as AES relates to global warming and the release of greenhouse gases, it remains unclear what persuasive weight the decision will ultimately carry.
For additional information, please contact: William K. Enger - 213.330.8919 -firstname.lastname@example.org, Carl J. Pernicone -212.915.5656 - email@example.com, Thomas L. Appler -703.852.7789- firstname.lastname@example.org, Robert E. Rider Jr. -703.852.7797 - email@example.com.