Companies that are emitting a lot of greenhouse gas emissions – including Canadian companies – should take notice of a recent court decision from the Virginia Supreme Court which suggests that their insurance coverage might not extend to lawsuits brought by the victims of climate change. The Court decision, which may be followed in other jurisdictions, including Canada, held that the insurance policy held by energy giant AES Corporation did not cover the costs of defending the energy company in a climate-related court case 
Kivalina v. ExxonMobil
The story of this lawsuit begins with another lawsuit - brought by the Alaskan village of Kivalina. As recently summarized by Grist Magazine (itself summarizing a new book on the subject):
Jammed into a narrow island on the northwest coast of Alaska, the town of Kivalina is home to 400 souls, with evidence of occupation extending back over a millennium. Due to the melting of sea ice, the island now gets a regular beating from ocean storms and is rapidly disappearing. The logical solution of relocating to the mainland is estimated to cost more than the town can afford, and despite warnings in 2004 and 2009 [PDFs] by the U.S. Government Accountability Office that Kivalina, like 30 other coastal communities in Alaska, faces serious danger, there's still no viable plan that residents can count on. …
[T]he residents of the island, … went to court in 2008 [PDF] not merely to secure justice but for the practical objective of funding their relocation.
Kivalina's audacious suit against 24 major oil, coal, and power companies would not have been conceivable without lawyer Luke Cole, cofounder of the Center on Race, Poverty & the Environment. Cole had previously spent six years working with Kivalina on a water pollution lawsuit against a nearby gold mine, ultimately winning a settlement. Looking for ways to help Kivalina solve its relocation dilemma, he noticed significant parallels to legal claims filed by victims of tobacco and asbestos. Joined by the Native American Rights Fund and citing key precedents, Cole filed suit in 2008 on behalf of Kivalina, charging the companies with a "coordinated conspiracy" to deceive the public. The suit was immediately attacked by pro-corporate legal foundations, one of which labeled it "the most dangerous litigation in America" [PDF].
AES Corporation, a major U.S. power company, was one of the 24 companies sued. The lawsuit foundered in October 2009, when the judge hearing the case dismissed it, holding that the village did not have standing, and that the lawsuit raised political questions which it was inappropriate for the court to answer. However, that ruling was appealed in January 2010 and the case is still active.
AES Corporation v. Steadfast Insurance
Once it was sued, AES turned to its insurance company, Steadfast Insurance, to pick up the costs of this court case. Steadfast paid for the initial stages of the defence, but also applied to court for a declaration that “did not owe AES a defense or indemnity coverage for damage allegedly caused by AES’s contribution to global warming…”
The Virginia courts examined the insurance policy held by AES, which did require the insurance company to defend AES against damages suits where the damage “is caused by an ‘occurrence.’ The policy defines “occurrence” as “an accident, including continuous or repeated exposure to substantially the same general harmful condition.”
After reviewing the policy, the Virginia Supreme Court sided with Steadfast Insurance, explaining:
If the result is the natural and probable consequence of an insured’s intentional act, it is not an accident… In the Complaint, Kivalina plainly alleges that AES intentionally released carbon dioxide into the atmosphere as a regular part of its energy-producing activities. Kivalina also alleges that there is a clear scientific consensus that the natural and probable consequence of such emissions is global warming and damages such as Kivalina suffered. Whether or not AES’s intentional act constitutes negligence, the natural and probable consequence of that intentional act is not an accident under Virginia law.
It is important to note that the court is not ruling that climate change has caused the damage to Kivalina or that AES contributed to causing that damage. Rather, the court is merely ruling that if the village of Kivalina successfully proves that AES did what the village’s Statement of Claim says that AES did, those actions would not amount to an accident under the policy.
So Steadfast Insurance is able to walk away from expensive litigation (regardless of the outcome), and AES needs to pay for its own defence.
A couple of comments
Insurance companies must be celebrating this win. Quite aside from the cost-savings, I would think that there is something galling about an insurance company having to pay to defend the greenhouse gas emissions of a company when those same emissions are driving up your own expenses – by contributing to extreme weather events and other damage to insurable properties.
Although the decision may or may not be followed in Canada, the case offers a first look at who might bear the costs and risks in fighting climate-related litigation. The law in this area is not settled, and future cases will reflect the laws in different jurisdictions and the particulars of lawsuits and policies involved. In the meantime, expect a lot of uncertainty as to who will need to pay.
It’s also interesting to wonder whether there may be situations in which insurance companies might be persuaded to finance litigation on behalf of alleged victims of climate change, such as insured land owners or others suffering climate change impacts.
