The First Salvo: Steadfast Insurance Company Moves for Summary Judgment in the First Climate Change Coverage Lawsuit

The First Salvo: Steadfast Insurance Company Moves for Summary Judgment in the First Climate Change Coverage Lawsuit

March 29, 2009 18:04
by J. Wylie Donald

We wrote in an earlier blog (Nov. 4, 2008) that the climate change coverage wars had begun when Steadfast Insurance Company sued The AES Corporation concerning coverage for the Native Village of Kivalina v. ExxonMobil Corporation climate change liability lawsuit.  Steadfast has charged into the fray; it filed its motion for summary judgment on March 5.  The insurer seeks judgment that there is no coverage because 1) the emission of carbon dioxide is not an "accident", as required by the policy, 2) the damage at Kivalina is a Loss in Progress excluded by the policy, and 3) the policy's pollution exclusion bars coverage.

There are lots of topics on which to comment but since I don't have AES's opposition yet, it makes sense to wait on many subjects.  There is one, however, that jumps to the forefront now.  Steadfast asserts that under Virginia law, where the case was filed and AES is located, the “law of the place where an insurance contract is written and delivered controls issues as to its coverage.”

Choice of law is often critical in coverage cases as many times the courts have come out diametrically opposed depending on the jurisdiction.  Many will be familiar with the “sudden and accidental” pollution exclusion, which in some jurisdictions permits coverage for unexpected but gradual releases, but in other places bars claims unless the release is abrupt.  Here, notwithstanding that AES has carbon dioxide-emitting plants in numerous states, Steadfast may have stolen the game by filing in Virginia - if it succeeds in getting Virginia law to apply.

What Virginia law does Steadfast like?  Well, it particularly likes Virginia’s environmental regulations which have broad definitions of contaminant and pollutant.  For example, under the air pollution regulations, pollutant “means any substance the presence of which in the outdoor atmosphere is or may be harmful or injurious to human health, welfare or safety … or which unreasonably interferes with the enjoyment by the people of life or property.”  Steadfast goes even further and cites to the Virginia Department of Environmental Quality’s web page – which is not even law – for a definition of pollution including substances that “produce[] undesirable environmental … effects.”

We will learn shortly AES’s response to the choice of law argument.  As to the expansive Virginia regulations, one argument will surely be that if Steadfast wanted such expansive terminology, all it had to do was write it into its policy – which it did not.

The lesson learned from this, even before there is a ruling of any sort in the Steadfast case, is that potential climate change defendants need to identify the potential jurisdictions where a coverage dispute might be brought, determine which law is good and which bad for their coverage claim, and be prepared to bring suit in the more favorable jurisdiction if the coverage discussions are not going well.

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