RICHMOND, Va.—As the U.S. Supreme Court weighed the merits of using the tort system to regulate greenhouse gas emissions, the Virginia Supreme Court in Richmond heard oral arguments in what is believed to be the first insurance coverage suit stemming from climate change litigation.

In AES Corp. vs. Steadfast Insurance Co., attorneys for Steadfast, a subsidiary of Schaumburg, Ill.-based Zurich Holding Co. Of America Inc., argued that it has no duty to defend or indemnify Arlington, Va.-based AES because the global warming damage alleged in the underlying suit, Native Village of Kivalina et al. vs. ExxonMobil Corp. et al., was not caused by an accident, which is needed to trigger coverage under AES' commercial general liability policy.

“The implications of a decision are potentially colossal, especially if the U.S. Supreme Court permits (American Electric Power Co. Inc. et. al. vs. State of Connecticut et. al.) to move forward,” said J. Wylie Donald, a Wilmington, Del.-based partner at McCarter & English L.L.P. who attended the Virginia Supreme Court hearing as an observer because he represents insureds in coverage litigation.

“The court will determine whether liability insurance policies potentially cover unintentional harms caused by intentional releases of carbon dioxide, such as those emitted by fossil fuel-fired power plants. At stake are literally millions and millions of dollars,” Mr. Donald said.

At oral argument, AES' attorney, L. Steven Emmert of Sykes, Bourdon, Ahern & Levy P.C. in Virginia Beach, Va., used a driving analogy to address whether the intentional release of greenhouse gas emissions meets the definition of “accident” to trigger CGL coverage, citing a situation in which a driver intentionally changes lanes without carefully checking the rearview mirror and then collides with an unnoticed car.

While Steadfast's attorney, Leah W. Sears of Schiff Hardin L.L.P. in Atlanta, agreed that causing a crash after an intentional lane change might constitute negligence, she denied that it constitutes an “accident” as defined by CGL policies.

The Virginia Supreme Court is expected to issue a decision in June.