Insurers breathed a collective sigh in 2011 when the Supreme
Court of Virginia ruled that Steadfast Insurance Company
(Steadfast) had no liability under a commercial general liability
(CGL) policy to cover its insured, AES Corporation (AES) which was
defending a claim to do with its carbon emissions. The relief was
short lived. AES has now appealed the decision and the matter is
back before the courts.
By way of background, in February 2008 the Village of Kivalina,
a native community in Alaska, brought a claim against various oil
and energy companies, including AES, alleging that the companies
had rendered the village uninhabitable through the emission of
greenhouse gases. The Village's main argument was that these
emissions caused the Kivalina coastline to be exposed to storm
surges, resulting in erosion. Kivalina alleges that when AES
intentionally emitted millions of tons of carbon dioxide and other
greenhouse gases into the atmosphere, it knew or should have known
of the likely impact of its emissions.
AES sought indemnity from Steadfast under its CGL policy
(it's broadform liability policy) and for its insurer to take
over the defence of the claim. Steadfast denied liability. It
argued that AES's alleged actions were intentional, and
therefore the damage was not property damage caused by "an
occurrence" (an accident) which was necessary to trigger the
On 16 September 2011, the Supreme Court of Virginia found for
Steadfast. The Court focused on the fact that Kivalina alleged that
AES's actions were intentional. Under the CGL policy,
"occurrence" was defined to mean an ". . . accident,
including continuous or repeated exposure to substantially the same
general harmful conditions".
AES petitioned for a rehearing on the basis that the alleged
outcome or consequence of its actions, if proven, was not
intentional. It argued that the scientific evidence Kivalina is
relying on does not say that the destruction to the coastline was
'inevitable or eminently foreseeable'. AES said that the
court failed to distinguish between 'allegations that a
defendant should have known that harm was reasonably foreseeable,
and allegations that a defendant should have known that there was a
substantial probability that harm would occur'. The first
situation was negligence, which a CGL policy is there to cover. AES
argued that if the judgment was allowed to stand, it would
eliminate CGL insurance coverage in most cases.
On 17 January 2012, the Supreme Court of Virginia set aside its
earlier decision and granted a rehearing of the case. Oral argument
will be heard by the court during the court's February session
(from 27 February 2012 to 2 March 2012).
The case is the first of its kind to reach an appellate court in
the United States and will be closely watched by insurers, not just
in the United States but around the world.
While all of this is happening the case brought by Kivalina
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
In his recent blog post on disaster planning for businesses, Foley associate Nicholas E. Williams noted: "Business interruption insurance, which covers the loss of income suffered by a business after a disaster, plays an important part in disaster planning."