All posts tagged 'Kivalina'

Top 6 at 12: Highlights of the Top Climate Change Stories in the Second Half of 2012

December 31, 2012 11:59
by J. Wylie Donald

2012 has drawn to a close.  We chronicle here six of the most significant stories on the climate change front in the last six months.  For those looking for hope that government is taking action to rein in greenhouse gas emissions, the focus is on California, where cap-and-trade stepped into reality with California's first emissions auction.  Nationally and internationally regulation is at a standstill or going backward.  In the courts, the climate change liability plaintiffs were pounded again as the Ninth Circuit confirmed the dismissal of Native Village of Kivalina v. ExxonMobil Corp.  Responding to climate change, however, is a different story.  Superstorm Sandy was a wakeup call on adaptation and the impacts of extreme weather; the National Flood Insurance Program managed to obtain statutory authority to include climate change in its considerations.

1.  Superstorm Sandy –  Climatologists are confident that the changing climate will lead to more frequent and more severe storms.  Sandy, following Hurricane Irene the previous year, delivered on both predictions.   A nine-foot storm surge at Battery Park.  Transformers exploding and putting Manhattan into darkness.  The Hoboken PATH station  submerged.  $50 billion in damage.  Superstorm Sandy set records and was completely consistent with the concerns of proponents of climate change mitigation and adaptation.  Did it have anything to do with climate change or was it simply a chance confluence of events?  The weather pattern was unusual.  There was a hurricane (albeit fading), coupled with a nor’easter, intersecting with an arctic high pressure front, under a full moon.  Individually, those are independent of climate change.  But there was also a record lack of sea ice, which has a measured and observed effect on global atmospheric circulation, which could result in severe weather coming together more severely.  So quite possibly Sandy is a result of climate change.  More important than the academic debate, however, is the impact on adaptation.  Regardless of one’s views on climate change, Sandy demonstrated that a major metropolitan area is vulnerable to extreme weather.  Steps will be taken to flood-proof subways, bury electric lines, raise seawalls, improve evacuation plans  and emergency response,  etc.  All of these are part of the steps needed to adapt to climate change.   Whether it is acknowledged as linked to climate change or not (but see Bloomberg Business Week cover following Sandy:   “It’s Global Warming, Stupid!”), adaptation is going to happen. 

2.  Presidential Election - Climate change was an important part of the campaign:  "The Obama-Biden cap-and-trade policy will require all pollution credits to be auctioned, and proceeds will go to investments in a clean energy future, habitat protections, and rebates and other transition relief for families."  The 2008 election campaign that is. It was a completely different position in 2012. Or maybe not different at all.  No one could tell because nobody was talking about it.  Even Sandy wasn't enough to propel climate change into the debate in the last week of campaigning.

3.  Native Village of Kivalina v. ExxonMobil - The last filed of the original quartet (American Electric Power, General Motors, Comer, and Kivalina) of climate change nuisance cases, Kivalina finally made it to a federal appellate court, where in September it met the same fate as its brethren:  dismissal affirmed.  Plaintiffs asked for rehearing.  The Ninth Circuit wasn't interested.  As of this writing, the only case left is Comer v. Murphy Oil USA, which is on appeal following its dismissal last March (for the second time) by the Southern District of Mississippi.  According to that court, plaintiffs lose for a wide variety of reasons:  standing, political question doctrine, res judicata, collateral estoppel, displacement, statute of limitations and proximate cause.   

4.  Cap-and-trade - California, alone among the fifty states, instituted its multi-industry full-fledged cap-and-trade program auctions in November.  All of its allowances for 2013 were sold at a price slightly above the mandated floor price of $10/ton.  Regulators and environmental groups hailed the auction as a success; some business groups were less enthusiastic.  The California Chamber of Commerce sued the California Air Resources Board to invalidate the auctions.  Meanwhile, the Regional Greenhouse Gas Initiative in the northeast continues with its allowances trading at the floor price, and with less than 2/3 of its allowances selling in its August and December auctions.  Some commentary concludes that it is time for RGGI to shut down as its CO2 emission goals have been met.    From where we sit, RGGI's success or failure can't be judged until its carbon trading is done in connection with  a robust economy.  The world economic malaise suppresses business, and with it, carbon dioxide emissions.  California may face the same issue.  

5.  National Flood Insurance Program Reform - Could a poisonously partisan Congress vote for this: 

(1) IN GENERAL- The Council shall consult with scientists and technical experts, other Federal agencies, States, and local communities to--(A) develop recommendations on how to--(i) ensure that flood insurance rate maps incorporate the best available climate science to assess flood risks; and (ii) ensure that the Federal Emergency Management Agency uses the best available methodology to consider the impact of--
(I) the rise in the sea level; ..."?  

Not the Congress we know.  Or so we thought.  Somehow, somewhere, someone put this into a draft, which made it into and out of a committee, ended up on the floor of both houses, survived two votes and came out as an enrolled bill for the president's signature.  The president signed it into law in July.  This was part of the miscellaneous section of the Moving Ahead for Progress in the 21st Century Act  (aka the Transportation and Student Loan Bill), which may explain how this occurred.  In any event, climate change considerations are statutorily mandated as part of the NFIP.  42 USC § 4101a(d)(1).  We can expect a report by July 6, 2013.  Id. § 4101a(d)(1)(B).  Who'd have thunk? 

6.  Global GHG Regulation - COP-18, the Conference of the Parties to the United Nations Framework Convention on Climate Change, wrapped up in Doha, Qatar in the middle of December widely panned as ineffective.   While it extended to 2020 the Kyoto Protocol addressing global greenhouse gas emissions, major nations (Canada, Russia, Japan and New Zealand) dropped out, and the United States continued to refuse to participate.  Thus, only about fifteen percent of global emissions are now covered by the protocol (the EU and other European nations, as well as Australia, continue to support the protocol).   Developing nations (whose emissions are not restricted by Kyoto) had hoped to obtain commitments for funding "climate finance" of $100 billion, but that did not occur either.  One can see parallels between the Kyoto Protocol and the Western Climate Initiative and RGGI.  In all three members have dropped out and the commitment to address greenhouse gas emissions waivers. 
 
The fiscal cliff was the focus at the end of 2012; climate change got short shrift.  2013 may establish that that was short-sighted.

No En Banc Appeal in Kivalina; So What's Next for Climate Change LItigation?

December 8, 2012 22:18
by J. Wylie Donald

When we discuss climate change litigation with colleagues or acquaintances unfamiliar with it, they are always a little incredulous.  “The plaintiffs allege what?  How could you prove that?  There's no way they can win.”  Courts, however, cannot rule from their impressions; instead, they must parse arguments and facts and explicate the legal reasoning that supports shutting climate change cases out of the courtroom.  We have addressed in this blog many of those decisions as the climate change cases have wound their way up the appellate ladder.  That statement-of-reasons rule, however, does not apply when a court is being asked to grant rehearing en banc.  Then a judge can just say, “I’m not interested.”  And the case is done.

That happened at the end of November in Native Village of Kivalina v. ExxonMobil Corp. when the Ninth Circuit issued its denial (see attached) of plaintiffs' petition for rehearing:  “The full court has been advised of the petition for rehearing en banc, and no judge of the court has requested a vote on the petition for rehearing en banc.  Appellants’ petition for rehearing en banc is DENIED.”  Unless the plaintiffs file a petition for certiorari with the Supreme Court, and the Court accepts it (which we think unlikely with no circuit court split and the dismissal being a fairly simple extension of the Court's decision in American Electric Power), Kivalina is done.  That means that there is no federal common law of nuisance relevant to greenhouse gas emissions whether a plaintiff seeks injunctive relief or damages.  The federal Clean Air Act displaces the claim in both instances. 

Two slim reeds remain for plaintiffs in the first wave of climate change litigation.  First, they need to prevail on an appeal before the Fifth Circuit in Comer v. Murphy Oil USA, Inc., which will require overcoming over half a dozen independent bases for dismissal found by the trial court.  Or second, they must succeed on a state-law-based theory of nuisance.  As we have noted recently, the Clean Air Act is likely to be found to preempt such claims. 

In light of the string of defeats in American Electric Power, Comer and Kivalina for plaintiffs, we went looking to see where the climate change plaintiffs' lawyers were going next.  The websites of the lead Comer and Kivalina lawyers, Gerald Maples and Matt Pawa, were not helpful.  However, journalist Andrew Longstreth didn’t rest on the websites; he reached out directly to Messrs. Pawa and Maples. Here is the future he found: 

"Pawa said that he and his co-counsel in the Kivalina case are discussing their options, which include asking the Supreme Court to hear an appeal or filing a new case in state court that asserts state common law claims. Pawa likened the current state of climate change litigation to the early stages of suits against cigarette makers and companies with asbestos liability. Before plaintiffs' lawyers in those cases were able to win judgments and settlements, they were stymied by defense arguments. "We haven't exhausted our theories or our efforts," he said.

As stated above, the Supreme Court and state law nuisance paths do not seem likely to succeed.  Mr. Maples suggested a different path:

"Future success in climate change litigation, he said, may depend on whether state attorneys general get involved, as they did in the tobacco litigation of the 1990s. With home insurance premiums rising as a result of climate change, Maples said, the litigation could become attractive to state AGs, who like consumer protection cases.  'If you can't afford insurance, that's almost like not affording food,'"

So, is climate change litigation going to take a new turn and become an issue about consumer protection and insurance rates?  After reviewiing the Fourth Amended Complaint in Comer, we suggested in 2011 that this theory was something that bore watching.  Here is the theory in action as alleged in Comer:  “[Defendants' greenhouse gas emissions] put Plaintiffs' property at greater risk of flood and storm damage, and dramatically increase Plaintiffs' insurance costs." (Fourth Amended Complaint ¶ 37.)   Thus, with the demise of federal common law claims, consumer protection law claims may be the next wave. 

20121127 Order (denying rehearing en banc), Kivalina v. ExxonMobil.pdf (34.55 kb)

Carbon Emissions | Climate Change Litigation | Insurance

The Top 6 at 6: A Review of the Most Important Climate Change Legal Stories in the First Half of 2012

July 1, 2012 00:01
by J. Wylie Donald

Arbitrary and capricious.  Familiar words to anyone involved in regulatory activity.  But also applicable to calendars, which willy-nilly cut off a series of events and ascribe them to one solar cycle, as if the sun gave two hoots.  As we perused the various "Climate Change: Year in Review" reviews that crossed our desk last January, we concluded 365 days are arbitrary and one year capricious in assessing what is important to resurrect and re-discuss.  We further concluded that a 12-month look-back is too long.  So, for what it is worth, here is one of six months.

1.  Cap-and-Trade in the U.S. - On January 1 the Western Climate Initiative (WCI) (or what remains of it) initiated its long-anticipated cap-and-trade program for greenhouse gas emissions.  Notwithstanding the lack of support from other WCI members, California and Quebec are moving forward with a cap-and-trade program.  California's and Quebec's mandated reporting rules applied to stationary sources emitting at or above 25,000 metric tons of CO2e per year.  On May 9 coordination between the two programs was announced  initiating the 45-day public comment period.  The first auction will be held in November and then, on January 1, 2013, enforcement begins when covered entities must participate. It is obviously too soon to tell how successful the California program will be, but when the world's eighth largest economy takes an initiative, it is likely to have impact elsewhere, particularly when it is the only program in the nation.

2.  Greenhouse Gas Liabilities and Insurance Coverage - We didn't think there would be anything to say this year about coverage for GHG liabilities.  After all, in the only case in litigation the Virginia Supreme Court issued its opinion in AES Corp. v. Steadfast Insurance Co. in September 2011 and concluded that there was no "occurrence" triggering coverage made in the allegations pleaded by the Native Village of Kivalina against AES Corporation.  But then the Court granted a motion for reconsideration in January and many puzzled as to what was going on.  Apparently nothing as the Court reiterated its previous conclusions in an April 20, 2012 opinion.  The decision will be significant in Virginia because it may have upset coverage in more conventional cases, as the concurring opinion of Justice Mims suggests.  As for the rest of the nation, it is one decision, on one issue, on one set of facts.  The case is important because it is the first, but we will be surprised if it provides guidance anywhere else.
 
As for greenhouse gas liability that is a story unto itself.  Like something out of a Steven King novel, the Comer v. Murphy Oil case refuses to pass quietly into the night.  This is the case that was dismissed by the Southern District of Mississippi, reversed by the 5th Circuit, vacated by the 5th Circuit en banc when it accepted rehearing and then reinstated as dismissed when the 5th Circuit's quorum dissolved.  Following a denial of a request for a writ of mandamus from the U.S. Supreme Court, the Comer plaintiffs re-filed their complaint against over 100 electric utilities, oil companies, chemical companies and coal companies alleging their GHG emissions were responsible for the ferocity of Hurricane Katrina.  And the Southern District of Mississippi dismissed the plaintiffs again on March 20.  And plaintiffs appealed again.  We don't expect the case to be finally at rest until the Supreme Court denies certiorari, or accepts it (perhaps in order to address the Ninth Circuit's much-anticipated decision in Native Village of Kivalina v. ExxonMobil, which has been pending for over six months since oral argument).

3.  Natural Gas:  The Bridge Fuel - With the combining of two technologies, hydraulic fracturing and horizontal drilling, a resource of unprecedented volume is "changing the game" of energy.  "Annual shale gas production in the US increased almost fivefold, from 1.0 to 4.8 trillion cubic feet between 2006 and 2010. The percentage of contribution to the total natural gas supply grew to 23% in 2010; it is expected to increase to 46% by 2035."  Thus reported the Energy Institute at the University of Texas in February in a 400+ page tome entitled Fact-Based Regulation for Environmental Protection in Shale Gas Development.  Momentously, the UT researchers report "there is at present little or no evidence of groundwater contamination from hydraulic fracturing of shales at normal depths."  The reference to "normal depths" acknowledged that in December 2011 the EPA linked contamination in Pavilion, Wyoming to shallow fracking operations. In March 2012, however, EPA agreed to conduct further testing.  And then in May, a personal injury tort case, Strudley v. Antero Resources Corp. et al., No. 2011-CV-2218 (2d Jud. Dist. Ct. Col. May 9, 2012), brought against fracking operators in Colorado was thrown out because plaintiffs could not muster adequate proofs of specific causation. Despite some intense opposition, fracking is moving forward.  What does all of this have to do with climate change?  Natural gas when burned emits half the carbon dioxide of coal.  Accordingly, some argue that natural gas is the bridge to a low-carbon future.  If so, then fracking builds that bridge.

4.  Innovative Climate Change Legal Theories - Last spring the sound and the fury were intense as the environmental organization Our Children's Trust unleashed several dozen regulatory petitions and a dozen lawsuits across the nation.  The goal:  establish the public trust doctrine as applicable to the atmosphere and use it to implement greenhouse gas regulation.  It appears that all of that is signifying nothing. Over two dozen petitions were denied in 2011 and two lawsuits were dismissed (Montana and Colorado).  It did not get any better in 2012.  The first six months of this year delivered only bad news to OCT.  State courts dismissed lawsuits in Alaska, Arizona, Minnesota, Oregon, and Washington.  The federal court in the District of Columbia did the same.   Plaintiffs took a voluntary dismissal in California.  To be sure, OCT has filed appeals (the one in Minnesota is scheduled to be argued on July 18).  Having failed to convince a single court so far, we think we are safe in predicting an uphill battle.

5.  Power Plant Performance Standards - On April 13, 2012, a scant seven months before the presidential election, the EPA published in the Federal Register standards of performance for all new fossil fuel-fired electricity-generating units requiring them to meet an electricity-output-based emission rate of 1,000 lb of carbon dioxide for every megawatt-hour of electricity generated.  The only plants that can meet this standard without implementing costly carbon capture and storage technology are natural gas plants.  Thus, the administration took a strong stand against coal-based generation.  Or it is all smoke and mirrors.  As EPA notes in the proposed rule, because of the glut of natural gas made available by fracking, there is little likelihood of a new coal-powered plant before 2030.  Notwithstanding, industry groups have filed a half-dozen lawsuits seeking to derail the rule.

6.  EPA's Greenhouse Gas Regulatory Program - Less than a week ago USEPA and its GHG program got a firm "thumbs up" from the D.C. Circuit.  Inundated with over two dozen appeals of various USEPA GHG regulations, the Endangerment Finding, the Tailpipe Rule, the Tailoring Rule and the Timing Rule (for citations see The DC Circuit Locks in USEPAs GHG Regulations Sort Of). The court turned away every challenge, sometimes on the merits and sometimes on procedural grounds such as standing.  There is much that deserves comment not the least of which are the differences between the states with California, Connecticut, Delaware, Illinois, Iowa, Maine, Maryland, Massachusetts, New Hampshire, New Mexico, New York, North Carolina, Oregon, Rhode Island, Vermont, and Washington, lining up on one side, and Alabama, Florida, Indiana, Kansas, Kentucky, Louisiana, Nebraska, North Dakota, Oklahoma, South Carolina, South Dakota, Texas, Utah, and Virginia lining up on the other.  To focus more on legal matters, several challenges were turned away on standing.  For example, neither states nor industry groups could challenge the Tailoring Rule as they did not allege the requisite injury.  Because the Tailoring Rule benefits small businesses (who are not required to comply with certain GHG emission requirements), it would appear that the door may remain open for parties who allege competitive injury (i.e., non-regulated entities gain a competitive advantage). In the meantime, do not expect Congress this election year to touch the issue.  

 

Virginia Supreme Court Stands Firm on Rehearing Climate Change Insurance Case: AES v. Steadfast is (Re-) Affirmed

April 20, 2012 17:12
by J. Wylie Donald

The Virginia Supreme Court surprised us today.  It issued its opinion (attached) on rehearing in AES Corp. v. Steadfast Insurance Co., hardly changed from its original decision finding that the allegations in Native Village of Kivalina v. ExxonMobil Corp. did not constitute an occurrence.  The concurrence, however, is substantially altered, and it is there that one can get a taste of the mischief to which this decision may lead.

We have blogged this subject on several occasions.  In a nutshell, AES sought coverage for climate change liability claims asserted by claimant Inupiat Eskimos, who alleged that AES’s (and others’) carbon dioxide emissions were the cause of the excessive erosion of their community on a spit of land north of the Arctic Circle.  AES tendered the claim to Steadfast, who accepted the defense subject to a reservation of rights, and then filed a declaratory judgment action against AES in Virginia.  Following dueling motions for summary judgment, Steadfast prevailed before the trial court.  AES took an appeal to the Virginia Supreme Court.  Notwithstanding specific allegations of negligence by AES, the Court concluded:   “[e]ven if AES were negligent and did not intend to cause the damage that occurred, the gravamen of Kivalina’s nuisance claim is that the damages it sustained were the natural and probable consequences of AES’s intentional emissions.”    In sum, “If an insured knew or should have known that certain results would follow from his acts or omissions, there is no 'occurrence' within the meaning of a comprehensive general liability policy.”  Thus, the trial court was affirmed.

AES sought rehearing because three authorities on which the Court relied established that there was no occurrence where the insured knew to a “substantial certainty” or “substantial probability” that injury would occur.  As the Kivalina plaintiffs made no such “substantial certainty” allegation, AES asserted the Court’s holding was in error.

We learned today that the Court disagreed.  Well, actually, we don’t know if the Court disagreed.  There is no mention of “substantial certainty” or “substantial probability” although the Court continues to cite the exact same authorities.  One could just as reasonably conclude that the Court felt AES’s argument simply was not relevant.  Virginia law, according to the Court is as follows:  “For coverage to be precluded under a CGL policy because there was no occurrence, it must be alleged that the result of an insured’s intentional act was more than a possibility; it must be alleged that the insured subjectively intended or anticipated the result of its intentional act or that objectively, the result was a natural or probable consequence of the intentional act.“  The Kivalina plaintiffs did not allege that AES intended the erosion of the spit, so the allegations had to be read to demonstrate that the erosion in Alaska was a natural or probable consequence of the emissions of carbon dioxide from AES’s plants’ emissions somewhere in the lower 48.  From where we sit, there seems a great distance from the alleged damage in Alaska being a “substantial certainty” or being a “probable consequence.” 

We note a trial court's recent ruling (attached) in another climate change liability case, Comer v. Murphy Oil:, where the Southern District of Mississippi dismissed the climate change claims: 

The assertion that the defendants’ emissions combined over a period of decades or centuries with other natural and man-made gases to cause or strengthen a hurricane and damage personal property is precisely the type of remote, improbable, and extraordinary occurrence that is excluded from liability.

So one court rules that allegations of climate change effects are extraordinary, improbable and remote, while another rules they are to be taken as stated.  Regardless, the Court's decision should resolve AES’s quest for coverage from Steadfast.  Other Kivalina defendants will take note and ensure that Virginia is struck from possible litigation venues for their coverage claims.

Will this decision have major implications?  Yes, but probably not in the climate change space.  It is one decision, on one issue, on one set of facts.  We will be very surprised if future plaintiffs do not take note of the decision and ensure that their pleadings more adequately state negligence claims so as to bring insurance money to the table (assuming at some point they can get past motions to dismiss). 

Other jurisdictions have their own jurisprudence on “occurrence” and they are not likely to mirror Virginia’s.  We feel that we can say that with some authority based on the statements made by Justice Mims in his concurrence.  Justice Mims felt that Virginia law left the Court with no option but to find there was no occurrence:  “under the reasoning of our precedents, allegations of negligence and allegations of accident must be mutually exclusive.  … Because “accident” is synonymous with “occurrence,” which is what these CGL policies cover, I concur with the majority that our precedents require us to conclude that they do not provide coverage for AES’s allegedly negligent acts.”  But that leads to a real problem:  “I also must acknowledge the broader effect that this conclusion, and the underlying case law that compels it, may have on other CGL policies in which the insured risk is defined as an “occurrence.  Our precedents may have painted us into a jurisprudential corner.”   Can it be that commercial general liability policies in Virginia do not cover negligence?  Stand by.  This is sure to be the subject of future litigation.

20120420 AES v. Steadfast (Va. Apr. 20, 2012).pdf (42.88 kb)

20120320 Comer v. Murphy Oil USA Inc., Order of Dismissal (S.D Miss).pdf (172.02 kb)

Carbon Emissions | Climate Change Litigation | Insurance

Just When You Thought It Was Over, Rehearing is Granted in Steadfast v. AES

January 31, 2012 01:10
by J. Wylie Donald

The YogiBerraism "It ain't over till it's over" is overused. But just because it is overused does not mean it is wrong.  AES has stayed up late digesting the insights of one of baseball's greatest. Its homework has paid off. On January 17 the Virginia Supreme Court entered a terse order (attached) granting rehearing in Steadfast Insurance Co v AES Corp.

Jump to the next paragraph if you are familiar with the case. For those unfamiliar, AES is a defendant in Native Village of Kivalina v ExxonMobil Corp., a lawsuit alleging that certain carbon dioxide emitters are responsible for global warming, which has melted arctic sea ice resulting in disastrous erosion of the plaintiffs' community.  (For our most recent blog on Kivalina, click here)   AES tendered the claim to Steadfast, who accepted the defense and then filed a declaratory judgment action seeking to avoid coverage. AES lost on summary judgment on whether there was an occurrence and then lost its appeal before the Virginia Supreme Court last September

Or maybe not.  AES filed a petition for rehearing (attached) asserting that the Court "radically redefined 'accident' to exclude coverage in virtually all negligence cases." Petition at 1. Normally such hyperbole is a sign of weakness. Here, however, it is in large measure accurate.

The Court held that "When the insured knows or should have known [as the Kivalina plaintiffs alleged] of the consequences of his actions, there is no occurrence and therefore no coverage." See Petition at 4. It relied on two treatises and an Eighth Circuit decision.  Id. Yet, as AES shows in its petition, each of those authorities requires that the insured should have known to a substantial probability or a substantial certainty. Id. at 4-6. Since plaintiffs made no such allegation, and the chain of causation was attenuated (to say the least, see Petition at 7-8), AES asserts the Court's decision was in error.

And this was not something of little consequence. It potentially affected all general liability insurance. The quote from the Eighth Circuit's decision is worth repeating: 

To adopt [the policy] that an injury is not caused by accident because the injury is reasonably foreseeable would mean that only in a rare instance would the comprehensive general liability policy be of any benefit to [the insured] .... Under [this] construction of the policy language if the damage was foreseeable then the insured is liable, but there is no coverage, and if the damage is not foreseeable, there is coverage, but the insured is not liable. This is not the law. The function of an insurance company is more than that of premium receiver.

Petition at 10, quoting City of Carter Lake v. Aetna Cas. & Sur. Co., 604 F.3d 1052, 1058 (8th Cir. 1979).   

What does it all mean?  We conducted an unscientific review of reported cases where the Court granted rehearing in the last 10 years. In all of them, the Court revised its opinion. See Tanner v. State Corp. Comm’n, 266 Va. 170 (2003); Jaynes v. Commonwealth, 276 Va. 443 (2008); Uniwest Const. v. Amtech Elev. Serv., Inc., No. 091495 (Apr. 21, 2011).  All of them.  If we were AES, we would be somewhat optimistic.  Yogi Berra also said: "You can observe a lot by watching."  Oral argument in Richmond in February is likely to demonstrate the truth of that rule as well.

20111017 Petition for Rehearing (by AES), AES Corp. v. Steadfast Ins. Co..pdf (453.91 kb)

20120117 Order (granting petition for rehearing), AES Corp. v. Steadfast Ins. Co..pdf (33.13 kb)

Carbon Dioxide | Climate Change Litigation | Insurance

Ceres and a Series of Serious Thoughts About the NAIC Climate Disclosures - Part III

September 19, 2011 08:15
by J. Wylie Donald

This is the last of three parts concerning Ceres’ recently released Climate Risk Disclosures by Insurers:  Evaluating Insurer Responses to the NAIC Climate Disclosure Survey.   We already have looked at the first two Recommendations to Regulators.  Today we finish with number 3:  more clarity in disclosure expectations.  Id. at 51. 

It is always easier to make apples-to-apples comparisons when everyone is speaking the same language.  Uniform and detailed disclosure requirements would help achieve that goal.  However, the down side of specifying what will be disclosed is that it assumes the specifier knows all that needs to be identified.  The scariest part of climate change is that we probably do not yet know how all the changes will interact.  Correlated risk is a prime example. 

IRMI describes “correlated risk profiles” as those “that move in concert when affected by the same set of stimuli.”  Insurers run from correlated risk and the Ceres report rightly poses a troubling concern in that regard:  “If … climate change has the potential to introduce correlated risks across previously uncorrelated assets and to drive market values in ways that cannot be predicted from historical trends, the insurance industry may be poorly positioned to meet its investment objectives.”  Climate Risk Disclosures at 39.  According to the report, few companies recognize the potential for correlated losses across their business.  Id. at 43.  And the ones that do say no more than that climate change will increase insured losses and may negatively impact the businesses in which insurers invest.  Id.   We don‘t think that this is news to those who did not specifically mention correlated risks in their submissions. 

What we take from all this is that no one yet knows in a meaningful way where the climate change correlated risks lie.  Or they are keeping mum (see our first posting on the Ceres report concerning competitive advantage).  So the question for a regulator is the following:  Is one better off with answers that are less-constrained and potentially more revealing, or is more specificity in the guidance more helpful?  If one is a regulator who knows all the questions that should be asked, one should opt for more specificity.  But if one does not, then one might support providing unstructured disclosure opportunities.

The Ceres report, of course, is not all about recommendations, but we have gone on for too long to delve further.  Before we close, however, we did want to address the need for stronger research.

The Corporate Liability section attracted our particular focus, as climate change liability suits and their insurance have been a central feature of the blog.  Those of us following this subject drop the names of the three liability damages suits, Comer, General Motors and Kivalina, and the insurance suit, Steadfast, like they were business cards. 

The statement that got our dander up was this:  "Since the first suits were filed in 2003, their numbers have rapidly proliferated—more than 120 suits were filed in 2010 alone, nearly two-thirds of them in the U.S."  Id. at 11.  This is an accurate paraphrase of its source, a sentence in a short article published by the Geneva Association.   The problem is that the source, at best, is misleading.  While there may have been 120 climate change suits filed in 2010, as demonstrated by the comprehensive set of charts kept by the Climate Change group at Arnold & Porter LLP there were none filed that were seeking damages under common law theories.   Those suits continued to be the three:  Comer, GM and Kivalina.

We will be the first in line to agree that the insurance industry should be concerned about climate change liability suits.  But that concern has not yet had to focus on 120 climate change liability suits, because they have not been filed yet.

That being said, the Ceres report brings to the fore statements by representatives of a multi-trillion dollar industry that is in the eye of the climate change storm.  Those statements otherwise might languish in some regulator’s dark bottom drawer.  The report is a valuable resource; we look forward to next year’s reprise.

Climate Change Litigation | Insurance | Regulation

Virginia Supreme Court Decides First Climate Change Insurance Case

September 16, 2011 17:32
by J. Wylie Donald

This morning the Virginia Supreme Court decided the first climate change liability insurance coverage case:   The AES Corp. v. Steadfast Ins. Co., Record No. 100764 (attached). It held that there was no covered “occurrence” and that therefore the trial court properly dismissed the insured’s claim for coverage.

Followers of this blog are well familiar with Steadfast and the underlying Kivalina case.  For those new to this subject, this coverage case arose out of the climate change nuisance damages case, Native Village of Kivalina v. ExxonMobil Corp., CV 08-1138 SBA (N.D. Cal.), in which claimants asserted that defendants' greenhouse gas emissions resulted in warmer winters, which lead to melting of sea ice and erosion of the shoreline around their community to the point that their village was set to fall into the sea.  They brought suit against oil and gas companies, electric utilities and a coal company, seeking damages for an alleged nuisance.  In Steadfast one of the Kivalina defendants’ insurers (Steadfast), after first defending under a reservation of rights, brought a declaratory judgment action against its insured (electric utility AES), seeking to avoid coverage under its general liability policies.  Shortly thereafter Steadfast filed a motion for summary judgment asserting that there was no occurrence, and that coverage was barred by the loss-in-progress and pollution exclusions.

AES initially prevailed and defeated Steadfast’s motion.  AES then moved for summary judgment on the duty to defend and Steadfast cross-moved.  This time Steadfast gained victory.  The trial court issued a very brief opinion holding:  “Steadfast has no duty to defend AES in connection with the underlying Kivalina litigation because no 'occurrence' as defined in the policies has been alleged in the underlying Complaint.”  AES appealed.

In most jurisdictions, including Virginia, an “eight corners” rule is applied:  “only the allegations in the complaint and the provisions of the insurance policy are to be considered in deciding whether there is a duty on the part of the insurer to defend and indemnify the insured.”  Opinion at 7 (citations omitted).  Coverage under the Steadfast policies hinged on whether there was an occurrence, specifically defined to mean “an accident, including continuous or repeated exposure to substantially the same general harmful condition.”  In Virginia the terms “occurrence” and “accident” are synonymous and an “accident” is commonly understood to mean “an event which creates an effect which is not the natural or probable consequence of the means employed and is not intended, designed, or reasonably anticipated.”  Id. at 9.

There was no dispute that AES intentionally released carbon dioxide as part of the combustion process at its power plants.  But intentional acts do not preclude coverage:  “[W]hen the alleged injury results from an unforeseen cause that is out of the ordinary expectations of a reasonable person, the injury may be covered by an occurrence policy provision.”  Id. at 10 (citing 20 Eric M. Holmes, Appleman on Insurance 2d § 129.2(I)(5) (2002 & Supp. 2009)).  However, “If a result is the natural and probable consequence of an insured’s intentional act, it is not an accident” and coverage will be barred.  Id. at 9. 

The Court summarized the rule it would apply:

Thus, resolution of the issue of whether Kivalina’s Complaint alleges an occurrence covered by the policies turns on whether the Complaint can be construed as alleging that Kivalina’s injuries, at least in the alternative, resulted from unforeseen consequences that a reasonable person would not have expected to result from AES’s deliberate act of emitting carbon dioxide and greenhouse gases.  Id. at 10-11.

Notwithstanding that the Kivalina plaintiffs specifically alleged negligence, and that AES adduced evidence that the Kivalina plaintiffs were arguing on appeal before the Ninth Circuit that their claim sounded in negligence, the Court followed strict adherence to the eight-corners rule:

Kivalina plainly alleges that AES intentionally released carbon dioxide into the atmosphere as a regular part of its energy-producing activities. Kivalina also alleges that there is a clear scientific consensus that the natural and probable consequence of such emissions is global warming and damages such as Kivalina suffered. Whether or not AES’s intentional act constitutes negligence, the natural and probable consequence of that intentional act is not an accident under Virginia law.  Id. at 12.

Further, “[e]ven if AES were negligent and did not intend to cause the damage that occurred, the gravamen of Kivalina’s nuisance claim is that the damages it sustained were the natural and probable consequences of AES’s intentional emissions.”  Id. at 13.  In sum, “If an insured knew or should have known that certain results would follow from his acts or omissions, there is no 'occurrence' within the meaning of a comprehensive general liability policy.”  Thus, the trial court was affirmed.

As noted at the outset, this is the first skirmish of what is certain to be a protracted battle between insurers and insureds.  There are 50 other jurisdictions (including the District of Columbia) and this is only one issue based on one complaint and one insurer's policy language.  There is a long way to go before we will have clarity here.

Post scriptum:  Many will recall that Steadfast argued in its papers and before the Court that the pollution exclusion also barred coverage; AES responded that it had not been properly raised.  The Court did not even address the subject, apparently feeling that it was enough to cite to AES's grounds for appeal, which did not include the pollution exclusion.  So even in Virginia, there are still coverage battles to be fought.

AES Corp. v. Steadfast Ins. Co., No. 100764, slip op. (Va. Sept. 16, 2011).pdf (64.69 kb)

Carbon Dioxide | Climate Change Litigation | Insurance


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