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. 

It’s only been six weeks since the U.S. House of Representatives narrowly passed broad-sweeping climate and energy legislation, but signs are emerging already that rougher sledding is ahead for the measure in the U.S. Senate. 

Just over a week ago, a consortium of 10 Democratic Senators from mostly Midwestern “rust belt” states wrote to President Barack Obama, expressing their strong support for adding measures to the bill, The American Clean Energy and Security Act (HR 2454), to ensure the strength and viability of American manufacturing.

“Any climate change legislation must prevent the export of jobs and related greenhouse gas emissions to countries that fail to take actions to combat the threat of global warming comparable to those taken by the United States,” the Senators wrote in the August 6^th missive to the President.  “It is important that such a bill include provisions to maintain a level playing field for American manufacturing.”

The Senators suggested short- and long-term measures to assist U.S. manufacturers and ensure they do not bear the brunt of climate change policy.

Meanwhile, while HR 2454 would provide incentives to the coal-fired electric generation sector of the energy industry, including billions to support development of carbon capture and sequestration technology and an allocation of 35% of the free emission allowances to keep coal-fired generators running years into the future, there are increasing signs that the natural gas sector, and certain Democratic Senators from natural gas producing states, are angling to petition for other changes to HR 2454 to protect natural gas interests.

In a report published August 17, 2009 by Inside FERC, a Platt’s publication, staffers for Senators from Louisiana and Arkansas are quoted as saying that they believe that natural gas will play an increasing role in promoting U.S. energy independence from foreign oil, and that they are seeking substantial changes to HR 2454 to promote natural gas industry interests.

Given the obvious Congressional focus in Washington on debating the Obama Administration’s health insurance reform initiatives, Senate Democrats seem to be lacking momentum in addressing HR 2454, especially given the recent regional interests being advocated by the coalition of Democratic Senators from the rust belt states and the Senate Democrats seeking to make major changes to climate legislation to favor the natural gas industry.

For readers of this blog, these developments should come as no surprise.  As reported here in June, 2008, FERC Commissioner Hon. Philip D. Moeller predicted then that it would be at least the year 2011 before any climate legislation clears the Congress and gets signed into law by the President.  See  http://www.climatelawyers.com/pt/blog/default.aspx?id=7&t=FERC-Commissioner-predicts-federal-clima

It will be interesting to see what really happens in Senate debates when the Senators return from the August recess, especially since President Obama has been pressing for timely action on climate change in advance of the December conference in Copenhagen on global climate change sponsored by the United Nations Environment Programme.  See the following web link for more on the Copenhagen climate conference.  http://www.unep.org/sealthedeal2009/

The August Wine Spectator reports on the grape harvest in the Southern Hemisphere.  I wondered whether the extremes of weather characteristic of climate change would evidence themselves in the grape.  The theory was vindicated in Australia where record-breaking heat challenged vintners.  And in Chile there was no rainfall from October through harvest.

But to stop there would not be telling the full story.  New Zealand had moderate conditions at harvest and in South Africa, “the Stellenbosch and Paarl growing districts enjoyed ideal conditions.”  All of which proves two points about climate change.  First, the effects of climate change will not be uniform - some will have record-breaking heat, while others will have ideal conditions.  Second and more significantly, a single glimpse in a wine journal, even if it canvases half the globe, tells us nothing about changes in the climate.  More helpful would be a compilation of harvest reports over five- or ten-year periods, which would start to inform us of how climate change is impacting the wine industry.

Many of you have undoubtedly noted that vineyards are not high on the list of carbon dioxide emitters.  Nor have other greenhouse gases been traced to the vine.  Thus, vineyards will not be addressing the causes of climate change; instead, they will be reacting to it.  Can the industry do anything about record-breaking heat or a lack of rain brought about by climate change?  

One tool in the arsenal is the purchase of weather insurance.  A rapidly growing offering is that of Weatherbill.com, which asserts on its website that  

WeatherBill offers new weather coverage to protect growers from losses due to rain, drought, excess cold or heat.  Weather coverage pays based on a weather event, not a loss, so there is no underwriting or claims and settlement takes place immediately. There are no limitations, exclusions or deductibles, and coverage can be designed to protect specific portions of the crop cycle such as planting or harvest.

Think of it!  No limitations.  No exclusions.  No deductibles.  All you have to do is know how much of a certain type of weather is bad for your business and how much protection you need.  I think the WeatherBill people are on to something.

We are out of space, but the Wine Spectator also piqued our insurance palate’s interest.  Wildfires produced a minor smoke taint in South African Cape wines.  We leave it to you to ponder “property damage” in a product that is sometimes described to its consumers as having “raspberry  notes with hints of smoke and vanilla in the finish.”