First Volley Over Public Nuisance Insurance Issues

authors: Donna Wilson and Marla Kanemitsu

We are seeing the first volley over the issue of insurance coverage for policyholders faced with climate change lawsuits predicated on public and private nuisance theories.  The AES Company is one of many energy companies sued by the Native Village of Kivalina in federal court in California.  The Village consists of approximately 400 people.  The suit seeks relief for damages allegedly cause by the defendants’ greenhouse gas emissions.  According to the Village, greenhouse gas emissions have caused temperatures to rise, which in turn caused the ice barrier protecting the Village to melt, thus jeopardizing the ability of the Village to withstand winter storms.

AES’s insurer, the Steadfast Insurance Company, had insured AES under Comprehensive General Liability policies.  According to AES, Steadfast initially agreed to defend AES under a reservation of rights, but it abruptly changed course.  Steadfast ceased covering AES’s defense costs, and filed a suit against AES in Virginia state court, seeking a declaration that it owes no coverage for the Kivalina suit under those policies it issued to AES between 2003 and 2008.  According to Steadfast,  (1) the alleged damages do not arise from an “occurrence” because the Kivalina claims are “grounded upon the contention that carbon dioxide emissions have long been considered an inevitable product of electricity generation” and AES’s “alleged longstanding corporate knowledge relating to the emission of carbon dioxide”; (2) the claim is barred by the “Loss in Progress” endorsement; and (3) greenhouse gases constitute “air pollution” which are barred by a pollution exclusion endorsement.  AES filed an answer and counter-claims coverage on August 18, 2008.