Climate Change Litigation: Changes on the Horizon?

New and significant rulings have been issued in two of several lawsuits at the forefront of global warming/climate change litigation that are likely to set the future direction of such litigation. These cases are:

Massachusetts v. Environmental Protection Agency. The U.S. Supreme Court held that the U.S. Environmental Protection Agency is authorized, and required, under the Clean Air Act to regulate those emissions it determines cause or contribute to global warming or climate change. It also held that carbon dioxide constitutes a “pollutant” within the meaning of the Clean Air Act.

State of Connecticut v. American Electric Power Inc. and Comer v. Murphy Oil USA. The Second and Fifth Circuit Courts of Appeal, respectively, held that states and private claimants have standing to assert that the activities of certain defendants, primarily in the energy industry, contributed to global warming and global warming had caused or would cause damages to the claimants.

More specifically, the state of Connecticut Second Circuit case affirmed the standing of claimants to assert a federal common law nuisance claim against six electric power companies on the basis that those companies, through their emissions of carbon dioxide, were large contributors to global warming, which allegedly caused or would cause harmful effects to human health.

In Comer, the Fifth Circuit affirmed the standing of private claimants to assert a private nuisance claim under Mississippi law against a number of companies on the basis that their emissions allegedly contributed to global warming, which increased the ferocity of Hurricane Katrina and, as a consequence, increased the damage they suffered from Hurricane Katrina.

Steadfast Insurance Co. v. The AES Corp. This is the first case in which an insurance company asked for a declaratory judgment that under its commercial general liability (CGL) policy it had no duty to defend against or provide coverage of global warming claims asserted against its insured.

In Comer, the Fifth Circuit granted rehearing en banc, meaning that the entire Court, rather than a three judge panel, would rehear and decide the case. The petition for rehearing asks that the Fifth Circuit reverse its original opinion and find that the private claimants do not have standing to assert their global warming claim. But it also seeks reversal on the alternative ground that the private claimants failed to allege facts establishing causation between their claimed damages and the defendants’ alleged contribution to global warming.

More significant to the insurance industry, in the Steadfast Insurance case, the Virginia state court entered an order on Feb. 5, 2010, granting summary judgment in favor of Steadfast Insurance, in which the Court found no coverage and no duty to defend “because no ‘occurrence’ as defined in the policies has been alleged in the underlying Complaint.”

The Court did not issue any reasons explaining the basis for its ruling, so a review of the background of the case is necessary for a more complete understanding of the scope and limits of the decision.

Steadfast argued that it had no duty to defend or cover its insured, AES, under a CGL policy against claims asserted in the Village of Kivalina v. ExxonMobil lawsuit that the emission of carbon dioxide by AES contributed to global warming that caused erosion of the Alaskan coastline, harming the inhabitants of the Village of Kivalina, Alaska.

Steadfast argued that the Village of Kivalina claims were not covered because: (1) the damages alleged were not caused by an “occurrence” within the meaning of the CGL policy; (2) because the damages allegedly began prior to the policy’s issuance date, the “loss in progress” endorsement excluded coverage; and (3) coverage was excluded under the policy’s pollution exclusion.

Procedurally, Steadfast filed a motion for summary judgment, which the Court initially denied, at least in part on the basis that questions of fact existed that needed to be resolved at trial. AES then filed its own motion for summary judgment.

In response, Steadfast renewed its motion for summary judgment based upon “AES concessions” in the AES motion for summary judgment. The “AES concessions” relied on by Steadfast were statements by AES in its motion for summary judgment that the Court should decide the coverage issue solely by comparing the terms of the CGL policy to the allegations in the Village of Kivalina complaint.

Steadfast argued that this “concession” mooted the fact issues that the Court had relied on to deny its original summary judgment motion. Steadfast’s “renewed” summary judgment motion was based on two grounds: (1) the policy’s pollution exclusion and (2) the lack of an “occurrence” under the terms of the policy.

The Court’s order considers the allegation that there was no “occurrence” within the meaning of the CGL policy but makes no mention of the pollution exclusion.

The exclusion appeared to be the primary ground relied on by Steadfast for denial of coverage, and it would seem to be a logical basis for finding no insurance coverage for global warming/climate change claims, as such claims are based on global warming/climate change being caused by the release of “pollutants” in the atmosphere. It appears, however, that the Court did not grant Steadfast’s motion for summary judgment based on the pollution exclusion because it did not consider carbon dioxide to be a “pollutant” or was perhaps unable to conclude that it was a pollutant. The Court’s refusal to make such a finding is interesting in light of the Supreme Court’s conclusion in Massachusetts v. Environmental Protection Agency that carbon dioxide is a “pollutant” within the meaning of the Clean Air Act.

With regard to the Court’s finding of no “occurrence,” the term “occurrence” was defined in the policy as “an accident, including continuous or repeated exposure to substantially the same general harmful condition.” The parties agreed that under Virginia law, an “accident” is something other than “the natural and probable consequences of the insured’s intended action.”

Steadfast argued no “accident” was alleged in the Village of Kivalina complaint because it alleged that AES “intentionally” emitted carbon dioxide into the atmosphere and that AES “knew or should have known” that the emissions would have an impact on global warming/climate change and would cause damages to communities such as the Village of Kivalina. AES responded that the Village of Kivalina complaint alleged that it was “negligent” and argued that negligence claims are generally considered to fit within the meaning of an “occurrence.” AES also argued that the Village of Kivalina claimants alleged highly attenuated damages supposedly caused by its actions, which, even if factually correct, were not intended or planned.

While the Steadfast Insurance ruling is a victory for insurers, insurers should be cautious in reading the decision too broadly. The Court’s decision was almost assuredly based strictly on its interpretation of the allegations in the Village of Kivalina complaint as asserting intentional conduct by AES and the application of Virginia law to that interpretation. Thus, rather than providing protection to insurers, the decision may instead provide guidance to claimants on how to best plead such claims so as to not exclude the possibility of insurance coverage.

The Steadfast opinion will certainly be appealed. Between it and the Fifth Circuit’s decision to re-hear Comer en banc, the future of global warming/climate change litigation promises to be interesting.