Help

BI’s Article search uses Boolean search capabilities. If you are not familiar with these principles, here are some quick tips.

To search specifically for more than one word, put the search term in quotation marks. For example, “workers compensation”. This will limit your search to that combination of words.

To search for a combination of terms, use quotations and the & symbol. For example, “hurricane” & “loss”.

Login Register Subscribe

Climate change case to be reheard by Virginia high court

Reprints
Climate change case to be reheard by Virginia high court

RICHMOND, Va.—The Virginia Supreme Court's decision to rehear a climate change suit has cast uncertainty on what little judicial guidance exists on the issue of insurance coverage in climate change cases.

The Virginia Supreme Court said last week that it will reconsider its earlier decision to uphold a lower court's ruling that Steadfast Insurance Co. has no obligation to indemnify Arlington, Va.-based energy company AES Corp. in a climate change suit.

The court decided last month to set aside its September judgment upholding the lower court verdict and said it would hear oral arguments on the rehearing when its next session begins Feb. 27.

The case is seen as significant, as it is the first involving insurance coverage for a climate change liability suit.

Attorneys representing AES and Steadfast declined to comment.

However, lawyers familiar with climate change litigation were somewhat surprised by the court's decision to revisit the case, having assumed it was concluded when the court decided in September that there was no coverage.

“If we were AES, we would be somewhat optimistic,” J. Wylie Donald, a Wilmington, Del.-based partner at McCarter & English L.L.P. who represents insurers, said in his blog, ClimateLawyers.com.

Since the case seeks defense cost coverage, “there's something good that's going to come out of this for policyholders,” Mr. Donald said in an interview.

Mr. Donald, who attended oral arguments when the Virginia high court heard the case last April, said it has been his experience that whenever a court grants a rehearing, it usually revises its original opinion.

“It means you either overlooked an authority or you got an authority wrong,” he said. “There are three possible outcomes: The court could uphold its decision that there was no occurrence, or it could conclude there was an occurrence, or it could say more discovery is needed.”

%%BREAK%%

Joanne L. Zimolzak, a partner in the Washington office of McKenna Long & Aldridge L.L.P. who has been following the case, noted that it's unusual for the Virginia Supreme Court to grant a rehearing.

The number of cases the Virginia high court has agreed to rehear is “generally between 3% and 6% in any given year,” Ms Zimolzak said. When it has done so in the past 10 years, “it does appear the court revised its decision some way when rehearing,” she said.

Ms. Zimolzak said it's possible the court will uphold last year's ruling but narrow its scope.

Policyholder lawyers are apprehensive about how the court might rule.

“While I'm cautiously optimistic...I worry that the Virginia Supreme Court won't get it right the second time either, and the insurance industry will be able to use this decision more broadly in the future,” said John Nevius, a policyholder attorney with Anderson Kill & Olick P.C. in New York. “It might have been a better call (by AES' attorneys) to leave it alone and live to fight another day in another jurisdiction.”

However, AES is fortunate that the case is continuing, Mr. Nevius said, because the underlying suit, Native Village of Kivalina et al. vs. ExxonMobil Corp. et al., also is ongoing, “so they're still incurring defense costs.”

In its September ruling, the Virginia high court upheld a summary judgment by an Arlington County, Va., circuit court judge, who held that a civil complaint filed against AES did not constitute an occurrence under the Steadfast commercial general liability policy the insurer had written for AES.

The underlying 2008 suit was brought by the native community of an Alaskan barrier island, alleging AES and other companies damaged the village by causing global warming. AES-Steadfast was considered by many to be the first insurance coverage case involving climate change litigation.

In the September opinion, Virginia Supreme Court Justice S. Bernard Goodwyn noted that the Steadfast CGL policy's definition of occurrence was “an accident, including continuous or repeated exposure to substantially the same general harmful condition.”

%%BREAK%%

The Kivalina community had alleged that AES intentionally released carbon dioxide and greenhouse gases into the atmosphere in the course of generating electricity.

“Kivalina alleges its damages were the natural and probable consequences of AES' intentional actions,” Justice Goodwyn wrote. “Therefore, Kivalina does not allege that its property damage was the result of a fortuitous event or accident, and such loss is not covered under the relevant CGL policies.”

In seeking a rehearing, AES argued that none of the authorities cited by the court in its September ruling supported that finding. Instead, they hold that the duty to defend is excused only when the complaint alleges a defendant “should have known to a substantial probability” that its conduct would cause the alleged harm, AES argued.

In omitting the words “substantial probability” from the duty-to-defend test, AES argued, the court “radically redefined "accident' to exclude coverage in virtually all negligence cases.”

Ms. Zimolzak noted that the September ruling essentially was the only judicial guidance involving insurance for climate change suits, but the Virginia court decision to rehear the case now means the “guidance is in flux.”

“It's a very significant decision that a lot of people are watching,” she said. “Obviously, it would be significant potentially if the decision comes out the other way.”