Is Negligence Still Insurable in Virginia? AES Corp. v. Steadfast Insurance Co.

AES Corp. v. Steadfast Insurance Co.

April 30, 2012

On April 20, 2012, the Virginia Supreme Court issued its opinion on rehearing in AES Corporation v. Steadfast Insurance Company, No. 100764 (Va. Apr. 20, 2012). The court stood firm on its original decision that the allegations in Native Village of Kivalina v. ExxonMobil Corp. did not constitute an “occurrence” as defined in the general liability policy. Justice Mims revised his concurrence, however, emphasizing the potential results of the ruling on future insurance coverage suits involving negligence claims.

The insurance coverage dispute arose out of claims filed by the Inupiat Eskimo Village of Kivalina, Alaska. Kivalina brought suit against numerous coal-burning utilities, a coal producer and energy companies (including AES Corporation) for damages allegedly related to climate change. The Village of Kivalina alleges in its complaint that global warming is destroying — slowly washing away — the village through the melting of Arctic sea ice that formerly protected it from winter storms, and thus the village must relocate or be abandoned and cease to exist.

AES sought a defense in the Kivalina action under multiple general liability policies issued by Steadfast. Steadfast ultimately denied coverage and filed a declaratory judgment action in Virginia state court. The case made its way to the Virginia Supreme Court on the issue of whether the Kivalina complaint contained allegations that would qualify as an “occurrence” as defined in the policies. The court held that the allegations did not constitute an “occurrence” because the damages allegedly caused by AES’s emissions were “reasonably foreseeable” to AES and could not, therefore, qualify as an “accident” or “occurrence” under the policy terms. AES petitioned the court for rehearing.

On rehearing, the court reaffirmed that there was no coverage under the Steadfast policies for Kivalina’s claims and that Steadfast had no duty to defend AES in the suit. The court explained: “For coverage to be precluded under a CGL policy because there was no occurrence, it must be alleged that the result of an insured’s intentional act was more than a possibility; it must be alleged that the insured subjectively intended or anticipated the result of its intentional act or that objectively, the result was a natural or probable consequence of the intentional act” (emphasis added). Although the complaint alleged that AES was negligent and that it “knew or should have known” that its actions would cause injury, the court found no “occurrence.” The court reasoned that, “[e]ven if AES were negligent and did not intend to cause the damage that occurred, the gravamen of Kivalina’s nuisance claim is that the damages it sustained were the natural and probable consequences of AES’s intentional emissions.” Thus, under Virginia law, if a policyholder knew or should have known that certain results were the “natural or probable consequences of intentional acts or omissions,” there is no “occurrence” or accident under a general liability policy.

In his concurrence, Justice Mims pointed out that the court’s opinion, although following years of precedent, continues on a path “leading inexorably to a day of reckoning that may surprise many policy holders.” Justice Mims explained that under Virginia jurisprudence, allegations of negligence and allegations of accident must be mutually exclusive. To prevail on an action for negligence under Virginia law, a plaintiff must prove that the injury was the natural or probable consequence of the action. But if the policyholder knew or should have known that certain injury or damages were the natural or probable consequences of intentional acts or omissions, there is no “occurrence” and thus no coverage. The concurrence concluded that Virginia precedent “may have painted us into a jurisprudential corner.”

The unanswered question: Is coverage now effectively unavailable for negligence under a general liability policy in Virginia?

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