Oral Argument in Steadfast v AES Seemed to Favor AES

Oral Argument in Steadfast v AES Seemed to Favor AES

April 20, 2011 07:25
by J. Wylie Donald

Supreme Court argument is delicious - for lawyers anyway. Following months of preparation, thousands of pages of research, and draft after draft, finally the parties are called to the fore and bluntly told: "Make your best arguments, counsel." In that context, I ventured to Richmond, Virginia this morning to hear the able presentations on behalf of The AES Corporation (appellant - insured) and Steadfast Insurance Company (appellee - insurer). The parties were locked in a contest over who should pay for the defense of Native Village of Kivalina v. ExxonMobil Corp., the climate change liability suit emanating from the northern shores of Alaska, where native Inupiat residents assert that various utilities, oil companies and a coal company are liable for the emission of carbon dioxide, which resulted in global warming, which melted winter sea ice, which loss permitted fierce winter storms to erode the peninsula on which the residents made their home. The case is the first climate change coverage case with all the implications primacy may have.

In the proceedings below, the trial court had initially denied the insurer's motion for summary judgment based on (as argued by the insured) the existence of factual issues. The court specifically held that it could not decide whether the pollution exclusion could be applied. The insured then turned around and filed its own summary judgment motion on the duty to defend. The insurer cross-moved and argued that there was no "occurrence" as the allegations in Kivalina were all intentional acts leading to reasonably foreseeable injury. It also argued that the policies' pollution exclusions applied. The court issued a terse order: "no 'occurrence' as defined in the policies has been alleged in the underlying Complaint."

With this prelude, the parties crossed lances before seven justices of the Virginia Supreme Court. In our view, the insured carried the day (and, as explained below, this is not just because AES cited our law review article in their reply brief). Counsel kept it simple. First he opened with a nod to the pollution exclusion and emphasized what was clearly set out in the briefs: the pollution exclusion issue was decided in the insured's favor (the court ruled a fact issue existed) and the insurer did not assign cross-error in its response to the insured's appeal. Accordingly, there was no issue before the Court.

Next he turned to the issue that was appealed: whether an allegation of negligence, even if mixed in with numerous allegations of intentionality, constituted an "occurrence." More specifically, did the allegations of Kivalina contain an "accident"? Accident was undefined in the policies, but well-defined under Virginia law. Even if the act was intentional (such as the emission of CO2 by a utility), if the harm was unplanned, the carrier was required to defend. An allegation that the alleged tortfeasor "should have known" (as was asserted in the Kivalina complaint) was sufficient to establish the duty to defend. In keeping with his theme, counsel provided a simple example: if he intentionally changed lanes, but failed to look in his rear-view mirror and clobbered someone, surely that was covered. And it would be covered even if it was reasonably foreseeable that someone would be injured if he failed to look. It was a good example (as we will discuss).

Counsel for Steadfast likewise appeared to be starting her discussion with the pollution exclusion. Labeling it a "toxin" (a poisonous substance that is a specific product of metabolic activities ???), she then proceeded to make the point that the insured was sued for its routine business decisions, which insurance does not cover. Further, if the four corners of the policy are compared with the four corners of the complaint (the so-called 8-corners rule which is adopted in Virginia) then it is beyond cavil that the Kivalina plaintiffs alleged that AES knew it was emitting carbon dioxide and knew that that would cause harm. At which point Justice Mims interrupted and attempted to pin down the parties' positions. As he heard it, the insurer argued that there was no coverage for intentional acts with known consequences, and AES argued coverage was lost only for intentional acts with intentional consequences. Insurer counsel refined that slightly: coverage was lost for intentional acts with reasonably anticipated consequences. And then that automobile example resurfaced - embraced by the chief justice. Frankly, I did not follow insurer counsel's rejoinder but I will attempt to recreate it. First, the policy's terms address "accidents" not negligence. Negligence is not necessarily the same as an accident. For example, while speeding and hitting someone would be both an accident and negligent, drag racing and hitting someone might be negligent but it would not be an accident. Furthermore, mere words in a complaint (like the "negligence" used in the Kivalina complaint) were not sufficient. The court must look, counsel argued, to the "facts and circumstances," which showed that there was no error, no mistake, no mishap. It was volitional and deliberate conduct.

Counsel then turned to the pollution exclusion and pointed out that the Kivalina complaint talked about pollution everywhere. "But," pointed out Chief Justice Kinser, "isn't the only ruling below that there was a fact issue precluding summary judgment?" Justice Mims chimed in and emphasized the failure to assign cross-error. Although insurer counsel asserted that it was argued on the second motion, Chief Justice Kinser spoke again and affirmed that there needed to be cross-error assigned.

Rebuttal was quick. Counsel stated: "We won the pollution exclusion issue and the trial court never ruled differently." And he effectively brought up again his lane-changing example. "If the Court adopts the insurer's position there will be no coverage in lots of areas because foreseeable harm is common. The issue is whether the harm was intended."

Prognostication is the devil's own but one can't help oneself. The pollution exclusion issue seems that it will be decided entirely on procedural grounds: as it was not raised below, it was not preserved for appellate review. The occurrence issue is a little more difficult but, as was effectively pointed out in the moving brief and in argument, the Kivalina plaintiffs chose their words and they chose negligence. How could the Court possibly ignore that?

Carbon Dioxide | Climate Change | Climate Change Effects | Climate Change Litigation

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