As time goes by, there is often a disconnect between insurance coverage and reality. In a recent opinion by the Supreme Court of Virginia in The AES CORPORATION v. STEADFAST INSURANCE COMPANY, reported at 715 S.E.2d 28, the court decided whether the CGL policies AES purchased from Steadfast obligated Steadfast to defend AES on claims for damages allegedly stemming from global warming.

The Native-American Village of Kivalina, located on an Alaskan barrier island, filed a lawsuit in federal court for the Northern District of California against AES, teh insured, for allegedly damaging the village by causing global warming through emission of greenhouse gases. AES requested Steadfast provide a defense and insurance coverage, pursuant to the CGL policies. Steadfast provided AES a defense under a reservation of rights and filed a declaratory judgment action, which is the subject of this appeal.

The CGL policies covered bodily injury or property damage, if such damage “is caused by an ‘occurrence.’ ” The policies defined “occurrence” as follows: “ ‘Occurrence’ means an accident, including continuous or repeated exposure to substantially the same general harmful condition.” The policies specified that Steadfast had no duty to defend or indemnify AES against damage suits to which the policies did not apply.

The court reasoned that the CGL policies provided coverage for damage resulting from an “occurrence,” and defined an occurrence as “an accident, including continuous or repeated exposure to substantially the same general harmful condition.” According to the court, the terms “occurrence” and “accident” are “synonymous and … refer to an incident that was unexpected from the viewpoint of the insured.” In past cases, the court held that an “accident” is commonly understood to mean “an event which creates an effect which is not the natural or probable consequence of the means employed and is not intended, designed, or reasonably anticipated.” An accidental injury is one that “happen[s] by chance, or unexpectedly; taking place not according to the usual course of things; casual; fortuitous.”

The village alleged that AES intentionally released tons of carbon dioxide and greenhouse gases into the atmosphere as part of its electricity-generating operations, but the court noted that it has held that “[a]n intentional act is neither an ‘occurrence’ nor an ‘accident’ and therefore is not covered by the standard policy.”

However, the court also noted that even though the insured’s action starting the chain of events was intentionally performed, if the alleged injury results from an unforeseen cause that is out of the ordinary expectations of a reasonable person, the injury may be covered by an occurrence policy provision. And so the resolution of the case turns on whether the village’s complaint can be construed as alleging that its injuries in some sense resulted from unforeseen consequences that a reasonable person would not have expected to result from AES’s deliberate act of emitting carbon dioxide and greenhouse gases into the air.

The court determined that the village’s complaint not only alleged that AES intentionally released carbon dioxide into the atmosphere as a regular part of its energy-producing activities, but that the complaint also alleged that there was a clear scientific consensus that the natural and probable consequence of such emissions is global warming and thus the damages to the village. The natural and probable consequence of that intentional act is not an accident under Virginia law.

In affirming summary judgment for the insurer and against the insured, the court concluded: “When the insured knows or should have known of the consequences of his actions, there is no occurrence and therefore no coverage.”