A state appeals court ruled today in the first case of its type that an insurance company does not have to foot the bill for a company facing damages over climate change.

The Virginia Supreme Court ruled in the closely watched case that Steadfast Insurance does not have a duty to defend AES Corp., a utility which is a defendant in a major climate case, Kivalina v. Exxon Mobil Corp., et al., which is currently before the San Francisco-based 9th U.S. Circuit Court of Appeals.

Litigation over insurance coverage relating to climate change is likely to grow in coming years, lawyers predict, so the ruling could help shape the legal landscape.

When AES faced the Kivalina lawsuit in 2008, it asked its insurer, Steadfast, to defend it against the claims that emissions had contributed to rising sea levels that are endangering the village.

Steadfast refused and instead asked an Arlington County, Va., judge to decide the question of whether it had a duty to defend.

The judge ruled in favor of Steadfast, in part because there was no "occurrence" or "accident" that triggered a duty to defend.

AES had argued Steadfast did have a duty because the plaintiffs in Kivalina had accused the plaintiffs of negligence.

"Steadfast's policies broadly obligate it to indemnify AES for property damage claims involving 'accidents,'" the AES brief states.

The Virginia Supreme Court rejected that argument in its ruling in the case, AES v. Steadfast.

Justice Bernard Goodwyn wrote that under the terms of the various insurance policies in question, the acts relating to climate change that are the basis of Kivalina are not covered.

"The relevant policies only require Steadfast to defend AES against claims for damages of bodily injury or property damage caused by an occurrence or accident," he wrote.

The Kivalina lawsuit does not meet that definition because the plaintiffs allege that the utility was intentionally emitting carbon dioxide and knew that it contributed to global warming, Goodwyn noted.

"Whether or not AES' intentional act constitutes negligence, the natural and probably consequence of that intentional act is not an accident under Virginia law," he wrote.

Climate change legal expert J. Wylie Donald, a partner at the McCarter & English law firm in Wilmington, Del., warned of the danger of reading too much into one decision because it only applies to Virginia and to one particular policy.

Similar cases will be decided on a state-by-state basis.

"Insurers will be heartened," he said. "But that should only be for a nanosecond."

Attorney Christina Carroll, a partner at McKenna, Long & Aldridge in Washington, described the ruling as an "initial victory for insurers in the field of unfolding climate change liability."

It remains to be seen, she added whether other courts take a similar approach.

The Virginia ruling comes three months after the U.S. Supreme Court ruling in American Electric Power v. Connecticut, in which the court held that states cannot sue utilities over greenhouse gas emissions under federal common law (Greenwire, June 20).

Despite that outcome, lawyers expect cases against utilities over climate change featuring different legal theories to continue.

Meanwhile, the 9th Circuit still has to rule on Kivalina, which focuses on a lawsuit filed by the Alaskan village of Kivalina against various major polluters.

Its lawyers claim that emissions have contributed to rising sea levels that endanger the village, which sits at the end of an 8-mile barrier island that separates the Chukchi Sea and Kivalina River.

Click here (pdf) to read the ruling.

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