AES V. Steadfast and the Concept of Foreseeability in Climate Change Litigation

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I.  INTRODUCTION  II. AES V. STEADFAST     A. Fact Summary     B. Factors Underlying the Decision        1. The Duty to Defend        2. Pollution Exclusion for CGL Policies        3. Massachusetts v. EPA     C. Reasoning  III. ARGUMENTS IN FAVOR OF A DUTY TO DEFEND     A. Reasonable Expectations of the Insured     B. Construe Ambiguities in Favor of the Insured     C. Insurance Companies Can Regulate Behavior  IV. ARGUMENTS IN FAVOR OF A DUTY TO DEFEND ARE INADEQUATE     A. Reasonable Expectations of the Insured     B. Construe Ambiguities in Favor of the Insured     C. Insurance Companies Can Regulate Behavior  V.  ARGUMENTS AGAINST A DUTY TO DEFEND     A. Consistent with Massachusetts v. EPA     B. The Insured is Facing a Known Risk     C. No Unanticipated or Unfair Burden on Insurance Companies     D. Does Not Deter Congress from Acting on Climate Change  VI. CONCLUSION 


In the absence of national legislation tackling climate change in the United States, a new generation of tort-based lawsuits has arisen against corporate defendants, alleging that greenhouse gases emitted by such defendants have contributed to climate change that has caused real property damage to plaintiffs. (2) Most cases concerning liability for carbon dioxide and other greenhouse gas emissions have been unsuccessful in that they have not proceeded past the pleadings due to a lack of justiciability. (3) However, the Supreme Court decision in Massachusetts v. Environmental Protection Agency (4) (Massachusetts v EPA) suggested that states, and potentially other landholders, have standing to sue emitters and hold them liable for property damage caused by the effects of global warming. (5) Therefore, Massachusetts v. EPA has the potential to permit United States courts to hear lawsuits arising from property damage caused by global warming and intentional greenhouse gas emissions. (6) Furthermore, plaintiffs are using innovative legal approaches in state courts that have the potential to succeed and open the doors of state courts to climate change related lawsuits as well. (7)

Emitters of greenhouse gases externalize the true social and environmental costs of their contribution to climate change onto the public. (8) Efforts to recover these costs, which manifest both through the costs of impacts and the costs of efforts to prevent impacts, can take the form of insurance claims as well as legal remedies. (9) Liability insurance providers have a general duty to defend those they insure, in addition to their responsibility to indemnify the insured for damages incurred by third parties. (10) The duty to defend and the duty to indemnify the insured are based upon the Commercial General Liability (CGL) policy held by the insured. (11) Unsurprisingly, parties insured by CGL policies argue that liabilities related to carbon dioxide emissions are covered under the policies. (12) However, insurers insist that this type of liability falls under the "pollution exclusion" of CGL policies. (13) As a result of the exclusion, the insurers argue they are not required to defend or indemnify the insured for third party damages associated with intentional carbon dioxide and greenhouse gas emissions. (14)

With the potential influx of climate change lawsuits inundating the United States court system, the question of whether CGL policies cover liabilities created by property damage resulting from global wanning needs resolution. In April 2012, the Virginia Supreme Court held in AES Corp. v. Steadfast Insurance Co. (AES v Steadfast) that liability insurance companies do not have a duty to defend the insured in climate change related damage claims resulting from the insured's intentional release of carbon dioxide and other greenhouse gases. (15) The court reasoned that potential liabilities arising from the insured's intentional emissions are not covered by CGL policies because intentional emissions do not fall within the policy's scope of coverage. …