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On April 20, 2012, the Virginia Supreme Court
issued its opinion on rehearing in AES Corporation v.
Steadfast Insurance Company, No. 100764 (Va. Apr. 20, 2012).
The court stood firm on its original decision that the allegations
in Native Village of Kivalina v. ExxonMobil Corp. did not
constitute an "occurrence" as defined in the general
liability policy. Justice Mims revised his concurrence, however,
emphasizing the potential results of the ruling on future insurance
coverage suits involving negligence claims.
The insurance coverage dispute arose out of claims filed by the
Inupiat Eskimo Village of Kivalina, Alaska. Kivalina brought suit
against numerous coal-burning utilities, a coal producer and energy
companies (including AES Corporation) for damages allegedly related
to climate change. The Village of Kivalina alleges in its complaint
that global warming is destroying — slowly washing away
— the village through the melting of Arctic sea ice that
formerly protected it from winter storms, and thus the village must
relocate or be abandoned and cease to exist.
AES sought a defense in the Kivalina action under multiple
general liability policies issued by Steadfast. Steadfast
ultimately denied coverage and filed a declaratory judgment action
in Virginia state court. The case made its way to the Virginia
Supreme Court on the issue of whether the Kivalina complaint
contained allegations that would qualify as an
"occurrence" as defined in the policies. The court held
that the allegations did not constitute an "occurrence"
because the damages allegedly caused by AES's emissions were
"reasonably foreseeable" to AES and could not, therefore,
qualify as an "accident" or "occurrence" under
the policy terms. AES petitioned the court for rehearing.
On rehearing, the court reaffirmed that there was no coverage
under the Steadfast policies for Kivalina's claims and that
Steadfast had no duty to defend AES in the suit. The court
explained: "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" (emphasis added). Although the complaint
alleged that AES was negligent and that it "knew or should
have known" that its actions would cause injury, the court
found no "occurrence." The court reasoned that,
"[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." Thus, under
Virginia law, if a policyholder knew or should have known that
certain results were the "natural or probable consequences of
intentional acts or omissions," there is no
"occurrence" or accident under a general liability
policy.
In his concurrence, Justice Mims pointed out that the
court's opinion, although following years of precedent,
continues on a path "leading inexorably to a day of reckoning
that may surprise many policy holders." Justice Mims explained
that under Virginia jurisprudence, allegations of negligence and
allegations of accident must be mutually exclusive. To prevail on
an action for negligence under Virginia law, a plaintiff must prove
that the injury was the natural or probable consequence of the
action. But if the policyholder knew or should have known that
certain injury or damages were the natural or probable consequences
of intentional acts or omissions, there is no
"occurrence" and thus no coverage. The concurrence
concluded that Virginia precedent "may have painted us into a
jurisprudential corner."
The unanswered question: Is coverage now effectively unavailable
for negligence under a general liability policy in Virginia?
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