Insurance Coverage For Climate Change Suits: Virginia Supreme Court Reconsidering 2011 Steadfast v. AES Decision

On February 27, 2012, the Virginia Supreme Court will hear oral argument on the petition for rehearing in Steadfast Insurance Co. v. AES Corporation (Steadfast). The Court's original decision in Steadfast ruled in favor of the insurer and declined coverage to AES Corporation (AES) under a comprehensive general liability (CGL) policy for certain alleged liabilities concerning greenhouse gas (GHG) emissions. The Steadfast opinion was the first state supreme court decision in the country to analyze insurance coverage in connection with climate change. The Virginia Supreme Court grants petitions for rehearing infrequently, and thus, its recent decision to rehear the Steadfast case may be significant for companies targeted in climate change litigation.

Climate Change Litigation Underlying Steadfast

Policyholder AES is a Virginiabased power company that allegedly emitted GHGs in the course of its historical operations. In 2008, the City of Kivalina, Alaska, and the Native Village of Kivalina, Alaska (Kivalina plaintiffs) sued AES and other energy companies. According to the Kivalina plaintiffs, the company's GHG emissions caused global warming which, in turn, melted Arctic sea ice protecting the plaintiffs' coast from storms and thereby purportedly caused massive land erosion. Native Vill. of Kivalina v. ExxonMobil Corp. (Kivalina), 663 F. Supp. 2d 863, 868–69 (N.D. Cal. 2009). The plaintiffs seek damages accruing from the forced relocation of their village as a result of this erosion, including $400 million in relocation costs. See id. at 869.

The district court dismissed the case for lack of subject-matter jurisdiction. Id. at 882–83. The Kivalina plaintiffs appealed, and that case is currently pending before the US Court of Appeals for the Ninth Circuit.

Virginia Supreme Court's Initial Ruling

AES tendered its defense of the Kivalina lawsuit to Steadfast, one of its CGL insurers. AES's CGL policies obligated Steadfast to pay "those sums that [AES] becomes legally obligated to pay as damages because of 'bodily injury' or 'property damage'" "caused by an occurrence." The policies defined an "occurrence" as an "accident, including continuous or repeated exposure to substantially the same general harmful condition." See Steadfast, 715 S.E.2d 28 (Va. Sept. 16, 2011). Steadfast initially agreed to provide a defense under a reservation of rights, but then sued its insured in state court, seeking a declaration that it had no duty to defend or...