The Broadside in Response: AES Opposes Steadfast Insurance Company's Motion for Summary Judgment in the First Climate Change Coverage Lawsuit

The Broadside in Response: AES Opposes Steadfast Insurance Company's Motion for Summary Judgment in the First Climate Change Coverage Lawsuit

August 19, 2009 07:26
by J. Wylie Donald

As we discussed back in our March 29 blog, the battle is joined in the first climate change liability coverage suit:  Steadfast Insurance Co. v The AES Corp.  Steadfast reserved its rights and offered a defense of the Native Village of Kivalina v. ExxonMobil suit, and then reversed course and filed a declaratory judgment action in Virginia. Shortly thereafter it filed a motion for summary judgment asserting that there is no occurrence, and that coverage is barred by the loss in progress and pollution exclusions.

AES's opposition was a long time in coming as it sought depositions (which were ultimately ordered by the court) from Steadfast's claims handlers and corporate representatives as well as additional documents (also court ordered). It was worth the wait. AES has marshaled the facts and law in a vigorous rebuttal.

AES makes four arguments. First, summary judgment is disfavored under Virginia law, particularly in an insurance case where the dispute concerns the threshold duty to defend a novel claim. Second, Kivalina alleges covered claims - it specifically asserts AES's negligence - and AES did not expect or intend the injury at issue. Third, carbon dioxide was not understood by the parties at the time of the inception of the contracts to be a pollutant. Fourth, the loss-in-progress exclusion is only contained in some of the Steadfast policies, and, in any event, it does not apply when read in context. (If you would like to know more, click here to read the opposition.)

While the legal arguments are crucial (and we will discuss them further once the court renders its decision), more interesting are some perspectives on litigation that the opposition offers.  First, AES emphatically demonstrates the importance of the jurisdiction. It cites to only Virginia state and federal cases. In so doing, it permits the Virginia court simply to apply the law that already exists, rather than import it from, say, New Hampshire, as Steadfast suggests.  As AES trenchantly observed, New Hampshire's law is not Virginia's and, in fact, is "unsupported by Virginia law." 
 
Second, an issue conflict has sandbagged Steadfast. Its counsel represents one of the Kivalina defendants and has argued the injuries alleged in Kivalina were not foreseeable. But guess what?  In Steadfast counsel argues that AES did or should have foreseen the loss.  Although I believe AES has the better argument on foreseeability (it develops the 9-point chain of causation and by the end one can't help but think Mrs. Palsgraf had it easy), Steadfast may have lost any chance to argue on the merits.

Third, AES did its homework. While combing through the underwriting record, it learned that Steadfast actually recognized carbon dioxide as an AES commercial product in the 1990s and did not recognize it as a pollutant.  Since it is fundamental that a contract comes into existence when there is a meeting of the minds, it appears that it will be hard for Steadfast to show that the parties intended carbon dioxide as a pollutant when Steadfast's own documents show that it did not consider it so.

Fourth, depositions can be difficult.  It is obvious that both sides have put substantial effort into the case.  Steadfast prepared its witnesses for questioning over the specific allegations of negligence in the Kivalina complaint. Still, even preparation cannot solve every testimonial conundrum.  Steadfast's claims handler testified that negligence "means what it means."  AES juxtaposes this uncontroversial statement with the claims handler's testimony that "just because" the Kivalina plaintiffs "use the word negligence doesn't necessarily mean that it's -- the basis of the allegations are negligence."  When the subject is a motion for summary judgment on the duty to defend, one suspects that there is at least a fact issue here; i.e., that the Kivalina plaintiffs mean negligence when they say negligence. 

Steadfast fired first and AES has returned a broadside. Stay tuned -- this battle, and certainly the larger war, are not likely to be decided quickly. 

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