All posts tagged 'pollution exclusion'

Virginia Supreme Court Decides First Climate Change Insurance Case

September 16, 2011 14:32
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

Disclosure Pressure Ratchets Upward - Will D&O Policies Provide Cover?

February 16, 2010 02:42
by J. Wylie Donald
I concluded that I needed to pay more attention to climate change issues when I attended a seminar in 2005 and one of the speakers commented that inadequate climate change disclosures would not be covered under a D&O policy because of the pollution exclusion. Could it be so? The argument was deceptively simple. Carbon dioxide was a "pollutant." The inadequate disclosure "arose" out of the "release" of carbon dioxide. There is no coverage for same. Q.E.D. Thoughtful analysis, however, dispatches this canard. As we have written previously, carbon dioxide should not be classified as a pollutant. It does not irritate or contaminate: it is biologically benign except at impossibly high concentrations, and it is found in the atmosphere in billions of tons, a natural and essential constituent. And because it does not make the atmosphere impure, it is not a pollutant. But one does not even have to reach that conclusion. Any liability alleged against a director or officer for inadequate disclosure of risks from rising CO2 levels, arises from the inadequate disclosure not from the release of carbon dioxide. Cf. Owens Corning v. National Union Fire Insurance Co., No. 97-3367, 1998 WL 774109 (6th Cir. Oct. 13, 1998) (alleged inadequate disclosure of asbestos risk); Boliden Ltd. v. Liberty Mutual Insurance Co., Dkt. No. 05-CV-284493PD1, 2007 CanLII 11309 (Ont. Super. Ct. Apr. 3, 2007) (ore processing risks); Sealed Air v. Royal Indem. Co., 961 A.2d 1195, 404 N.J. Super. 363 (App. Div. 2008) (asbestos risk). But see National Union Fire Insurance Co. v. U.S. Liquids, Inc., 88 Fed. Appx. 725 (5th Cir. 2004) (per curiam) (pollution exclusion applies to allegations of improper disclosure of illegal toxic waste disposal). The requirements for disclosure are ratcheting upward. It started with activist shareholders requesting climate change disclosure at their companies' annual meetings. Next came the Carbon Disclosure Project, which over time has enlisted over 2000 companies in their annual reporting. See cdproject.net. In 2007, New York Attorney General Cuomo served subpoenas on certain publicly traded electric utilities and a coal company (based far from New York), seeking information on their climate change disclosures. New York has settled with three of the five companies, Xcel Energy, Dynegy and most recently with AES Corp. Dominion Resources and Peabody Energy remain in the dispute. The National Association of Insurance Commissioners weighed in with their disclosure requirements for insurance companies in 2009 (effective 2010). And now, with the publication of the SEC's recent interpretive guidance on climate change disclosures, it is only a matter of time before some investor's prescience is not rewarded and he or she or it concludes that the fault lies not in the stars, but in a corporate prospectus.   Should that come to pass, we anticipate the corporation will tender the claim to its D&O insurer for a defense. Undoubtedly the insurer will consider asserting the application of the policy's pollution exclusion. The ultimate result will depend on all the facts. One fact will be the extent and timing of disclosures. Another, however, could be that the policyholder had the pollution exclusion endorsed out its policy. That is a step the risk manager could be taking right now, regardless of what the corporate lawyers ultimately conclude about disclosure.

Carbon Dioxide | Climate Change | Insurance | Greenhouse Gases

McCARTER & ENGLISH CLIMATE CHANGE AND RENEWABLE ENERGY PRACTICE GROUP

The business case for the development of renewable energy projects, from biodiesel and ethanol to wind, solar, and distributed generation, is more compelling than ever as tax and regulatory incentives combine to attract investments. Emerging issues in environmental law and increasingly recognized principles of corporate social responsibility are encouraging public companies to voluntarily reduce greenhouse gas emissions, install clean energy alternatives, and invest overseas in projects under the Kyoto Protocol to respond to climate change concerns.

Click here for more information and a list of our group members.

MONTH LIST

© 2019 McCarter & English, LLP. All Rights Reserved. disclaimer
navbottom image