(Article from Insurance Law Alert, May 2023)
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Last month, the United States Supreme Court declined to hear several cases in which government entities sued oil, gas and coal companies seeking compensation for alleged greenhouse gas related environmental damage. Suncor Energy, Inc. (U.S.A.) v. Bd. of Cnty. Comm’rs of Boulder Cnty. (No. 21-1550); BP P.L.C. v. Mayor & City Council Balt. (No. 22-361); Chevron Corp. v. San Mateo Cnty., (No. 22-495); Sunoco LP v. City & Cnty. Of Honolulu, (No. 22-523); Shell Oil Prods. Co. v. Rhode Island (No. 22-524).
The ruling means that the lawsuits will proceed in state, rather than federal courts. There are more than twenty such lawsuits pending in state courts across the country and substantially increased litigation activity is expected in the near term.
Plaintiffs in these suits claim to have compelling evidence of environmental damage legally caused by defendants. Some observers predict that the litigation will have “potentially enormous consequences for an entire sector of the global economy.” U.S. climate change lawsuits are tracked by Columbia Law School here.
Given the anticipated expense of defending such actions, oil, gas, and coal companies are expected to renew efforts at the behest of the policyholder bar to seek coverage. Policyholders can be expected to revisit historical environmental coverage that some may have thought was finally settled. In addition to considering potential defense obligations, it is not too early for insurers to begin evaluating the available evidence which suggests that there will be strong policy defenses in response to any request for indemnification.
The landmark decision in this context is AES Corp. v. Steadfast Ins. Co., 283 Va. 609, 725 S.E.2d 532 (Va. 2012). There, the Virginia Supreme Court ruled that an insurer did not owe a defense or indemnity under comprehensive general liability policies for global warming-related claims because the underlying complaint did not allege an “occurrence.” The underlying complaint alleged that AES contributed to the excessive emission of carbon dioxide and other greenhouse gases. Steadfast argued that it owed no defense or indemnity because, among other things, the property damage at issue was a known and foreseeable consequence of the operation of fossil fuel-fired electricity plants rather than an “accident.” In a summary ruling, a Virginia circuit court held that “Steadfast has no duty to defend AES in connection with the underlying [ ] litigation because no ‘occurrence’ as defined in the policies has been alleged in the underlying Complaint.” Steadfast Ins. Co. v. AES Corp., No. 2008-858 (Va. Cir. Ct. Arlington County Feb. 5, 2010). The Virginia Supreme Court affirmed, AES Corp. v. Steadfast Ins. Co., 282 Va. 252, 715 S.E.2d 28 (2011), but subsequently withdrew its decision upon granting a motion to rehear the matter. On rehearing, the court again held that the claims did not allege an “occurrence.” The court held that even if AES 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 consequence of AES’s intentional emissions.”
Another climate change coverage suit is currently pending in Hawaii district court. In Aloha Petroleum Ltd. v. Nat’l Union Fire Ins. Co. of Pittsburgh, No. 1:22-cv-00372 (D. Hawaii filed Aug. 10, 2022), a fossil fuel company alleges breach of contract and seeks declaratory relief against its insurer for failing to provide coverage in underlying climate change suits. In particular, the policyholder disputed the insurer’s contention that a qualified pollution exclusion preclude coverage in the underlying actions.