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On September 16, 2011, the Virginia Supreme Court issued its long-awaited decision in The AES Corporation v. Steadfast Insurance Company. In that decision, the Virginia Supreme Court agreed with the insurance company's argument that it had no obligation to provide coverage for claims relating to alleged damages caused by greenhouse gas emissions.
In 2008, The AES Corporation ("AES") was sued by the Native Village of Kivalina and the City of Kivalina for damages related to global warming allegedly caused by AES' greenhouse gas emissions. AES in turn requested that its insurance company, Steadfast Insurance Company ("Steadfast") defend and indemnify it with respect to these claims. Steadfast filed a declaratory judgment action, contending that it owed no defense or indemnity on three grounds: (1) the Kivalina complaint did not allege "property damage" caused by an "occurrence"; (2) any alleged injury arose prior to the inception of coverage; and (3) the claims alleged fell within the pollution exclusion in the Steadfast policies.
In granting Steadfast's request for declaratory relief, the Virginia Supreme Court relied on the policy's definition of "occurrence". The court noted that the term "occurrence" was defined with reference to "an accident" which in turn has been held to refer to an incident that was unexpected from the viewpoint of the insured. Because the Kivalina complaint alleges that AES intentionally released greenhouse gases, the Virginia Supreme Court concluded that the alleged release of greenhouse gases could not constitute an "occurrence" as that term was defined in the policies. The court further noted that the Kivalina complaint alleged that AES "knew or should have known" that its activities in generating electricity would result in the environmental harms suffered by the plaintiffs. Per the court, "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." The court did not address the remaining two arguments raised by Steadfast.
The Kivalina case itself remains pending in the Ninth Circuit and briefing on the impact of the Supreme Court's decision in AEP on that case is ongoing.