Watch your Greenhouse Gases

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[author: Smita Mokshagundam]

In AES Corp. v. Steadfast Ins. Co., Record No. 100764, 2012 WL 1377054 (Va. April 20, 2012), the Supreme Court of Virginia found that a lawsuit alleging damages caused by the insured’s emission of greenhouse gases was not an occurrence and, therefore, not covered by the insured’s comprehensive general liability policy.

In 2008, a community located on an Alaskan barrier island filed suit against a Virginia-based energy company, AES, alleging its emission of greenhouse gases in the generation of electricity made the village uninhabitable (the underlying lawsuit).  In particular, the underlying lawsuit alleged that AES intentionally emitted carbon dioxide and other greenhouse gases, and AES knew or should have known that such emissions would impact coastal Alaskan villages. 

AES tendered the underlying lawsuit under comprehensive general liability policies issued to it by Steadfast Insurance Company.  The policies issued by Steadfast provided coverage, in relevant part, for damages caused by an “occurrence,” defined as an accident.  Steadfast argued that the underlying lawsuit alleged AES intentionally (and not negligently or accidentally) released greenhouse gases, and therefore did not seek damages caused by an occurrence.

AES countered that, because the underlying plaintiffs alleged that AES both intentionally and negligently created the “global warming nuisance,” the allegations of negligence necessarily implied accidental conduct.  AES also argued that the allegation that AES “knew or should have known” that the emission of gases would damage the underlying plaintiffs suggested that the consequences of AES’ emissions were unintended and, therefore, accidental. 

The court, however, agreed with Steadfast and held that, “[w]here the harmful consequences of an act are alleged to have been not just possible, but the natural or probable consequences of an intentional act, choosing to perform the act deliberately, even if in ignorance of that fact, does not make the resulting injury an ‘accident’ even when the complaint alleges that such action was negligent.” Id. at *6.  Thus, the court was not persuaded that the underlying lawsuit sought damages caused by an occurrence, simply because AES was allegedly unaware of the consequences of its greenhouse gas emissions. 

Accordingly, the court found that Steadfast owed no duty to defend or indemnify AES in the underlying lawsuit on the basis that it did not seek damages caused by an occurrence.