What is an "occurrence"?
When I started in this business at Anderson Kill back in the 1980s (when the firm was still Anderson Russell Kill & Olick, P.C.), junior lawyers (including me) would do anything, and I mean anything, to keep from sliding into the abyss known as the Insurance Coverage Group. Who wanted to while away his or her limited days on this mortal coil wrestling with the arcane nuances of insurance policies? Ugh. We all wanted to try the next great RICO case. But when the late Gene Anderson came into my (shared) office and told me that I was going to be doing coverage work, there was no right of appeal.
Thank goodness for that. Over the years, my insurance coverage practice has exposed me to situations that most lawyers will never see, from sinking flowline bundles in the North Sea to crusty old manufacturing plants in the Upper Peninsula of Michigan. The point is that insurance coverage practice can take you to a lot of strange and interesting places, and raise a lot of strange and interesting questions.
Like, for example, the village of Kivalina, Alaska, and one of the weirder coverage cases to come down the pike lately. (I guess I should have expected it, since I’ve read that some BigLaw firms are starting “global warming” practice groups.)
Kivalina is located on the tip of a small barrier reef on the northwest coast of Alaska, approximately 70 miles north of the Arctic Circle. In 2008, Kivalina sued AES, a Virginia-based company involved in generating and distributing electricity. Kivalina claimed that AES had engaged in energy-generating activities using fossil fuels that emit carbon dioxide and other greenhouse gases, and that the emissions contributed to global warming, causing ice on the village’s shoreline to melt. This allegedly exposed the shoreline to storm surges, resulting in erosion of the shoreline and making the village uninhabitable.
Steadfast (a Zurich Financial Services company) had sold CGL insurance to AES, and AES tendered the suit. Steadfast disclaimed coverage and refused to defend.
The main question in this case was: Do allegations of the causation of global warming equate to allegations of “property damage” caused by an “occurrence,” triggering coverage under the policies?
Before I give you the Virginia Supreme Court’s answer to that question, a word here about the history of the comprehensive general liability policy (prudently renamed by the industry the “commercial” general liability policy). Many years ago, if a company wanted to buy liability insurance, it had to go to the carrier and specify its exposures. If the exposures weren’t listed, there was no coverage.
Then, in the early part of the 20th century, the insurance industry marketers got a bright idea: “Let’s provide comprehensive coverage, so that everything’s covered unless excluded. That’ll be a lot easier to sell.” Hence the birth of the CGL policy.
Many courts don’t really grasp how this works. So, if an offbeat claim comes along, they figure there’s no coverage, and they try to back into a reason why. That’s the exact opposite of how the policy is supposed to operate.
You can see where I’m headed with this. In the AES case, the Court held that there was no covered “occurrence,” writing: “Kivalina plainly alleges that AES intentionally released carbon dioxide into the atmosphere as a regular part of its energy-producing activities. Kivalina also alleges that there is a clear scientific consensus that the natural and probable consequence of such emissions is global warming and damages such as Kivalina suffered. Whether or not AES’s intentional act constitutes negligence, the natural and probable consequence of that intentional act is not an accident.” (Emphasis added.)
Let’s break down the Court’s logic on that one, and you can see the fallacy:
Major premise: If the policyholder meant to cause the damage that resulted from its intentional acts, there is no coverage.
Minor premise: Scientists say that releases of carbon dioxide cause damage.
Conclusion: Therefore, the policyholder intended to cause the damage that resulted.
I regret to say that this reasoning is intellectually dishonest. The major and minor premises do not lead to the conclusion that AES intended to cause damage, because what unnamed “scientists” think is not relevant to determining the policyholder’s subjective intent, and the typical policy form speaks in terms of what is intended “from the standpoint of the insured.” Since the possibility exists that AES itself did not intend to cause the specific damage alleged here, a duty to defend should exist.
Lest the reader think that there had been an editing error in the opinion, the Court confirmed its misunderstanding of insurance by writing: “If an insured knew or should have known that certain results were the natural or probable consequences of intentional acts or omissions, there is no ‘occurrence’ within the meaning of a CGL policy.” (Emphasis added.) In support of this rather astonishing proposition, the Court cited a treatise written by two lawyers who have spent their professional careers defending insurance companies in coverage litigation.
Folks, “should have known” is a negligence standard. If negligence isn’t covered by liability insurance, we’re all in a lot of trouble.
You can read the full decision here.
Comments (1)
Read through and enter the discussion by using the form at the endMark J. McPherson - June 8, 2012 2:46 PM
Gene, through happenstance, when I was a law clerk while in law school, back in the late 1980's, my first real research assignment involved the attempted removal of a state coverage action to federal district court. The week I started as an attorney with my firm, while I was still awaiting my Bar results, one of my partners was in the midst of the trial of a major, multi-state insurance coverage action, and had just filed suit in an even larger coverage action which ultimately involved all of the major carriers and many of the most well known environmental clean-up actions throughout the country. Back in those days, outsourcing and ESI were not part of the practice, so my then fresh set of eyeballs were set upon the Augean task of dealing with the proliferating discovery responses and requests. I guess I didn't know enough to groan at the prospect.
As the cases ground on, one of the most rewarding and ultimately frustrating aspects of the work was my education about the nature and history of the insurance industry which, despite my frequent 'adversarial' role as counsel for an insured, I still consider as brilliant and useful an idea as any in the long run of civilized commerce. It still gets my professional ire up when coverage is wrongfully denied (IMHO, of course) not merely because a policyholder is wronged, but because fundamental and sound insurance principles are so often abused in the temporizing desire to avoid paying claims. That is, after all, a part of the business.
In all the years since, there has been an almost universal expectancy that the history of insurance has necessarily and inevitably been the narrowing of coverage, as if as relentless and unbroken as time's arrow. It can be dispiriting to note the amount of effort and argument required to simply turn on the light-bulb for some courts to reveal that there have been times when the insurance industry has worked diligently and in good faith to broaden coverage. Not out of some charitable or altruistic impulse, but in order that the industry would have more to sell, more premiums to generate and collect. What gets often lost is that this expanded coverage can be sustainable if properly understood and underwritten, as the economic benefits of risk-pooling and risk-transferring in exchange for premium dollars remain, despite all of the rhetoric and lobbying and litigation.