Present: All the Justices
THE AES CORPORATION
OPINION BY
v. Record No. 100764 JUSTICE S. BERNARD GOODWYN
April 20, 2012 1
STEADFAST INSURANCE COMPANY
FROM THE CIRCUIT COURT OF ARLINGTON COUNTY
Benjamin N.A. Kendrick, Judge
In this appeal from a judgment in a declaratory judgment
action, we consider whether the circuit court erred in ruling
that a civil complaint filed against The AES Corporation (AES)
did not allege an “occurrence” as that term is defined in AES’s
contracts of insurance with Steadfast Insurance Company
(Steadfast), and that Steadfast, therefore, did not owe AES a
defense or liability coverage.
Background
AES is a Virginia-based energy company that holds
controlling interests in companies specializing in the
generation and distribution of electricity in numerous states,
including California. Steadfast is an Illinois-based company
and indirect subsidiary of Zurich Financial Services, a global
insurance provider. AES paid premiums to Steadfast for
1
The prior opinion rendered September 16, 2011, reported
at 282 Va. 252, 715 S.E.2d 28 (2011), was set aside and thus
withdrawn by the Court after a petition for rehearing was
granted by Order of the Court dated January 17, 2012.
commercial general liability (CGL) policies from 1996 to 2000
and 2003 to 2008.
In February 2008, the Native Village of Kivalina and City
of Kivalina (Kivalina), a native community located on an
Alaskan barrier island, filed a lawsuit (the Complaint) in the
United States District Court for the Northern District of
California against AES and numerous other defendants for
allegedly damaging the village by causing global warming
through emission of greenhouse gases. See Native Vill. of
Kivalina v. ExxonMobil Corp., 663 F.Supp.2d 863 (N.D. Cal.
2009). AES requested Steadfast provide a defense and insurance
coverage, pursuant to the terms of the CGL policies, for the
claims alleged in the Complaint. Steadfast provided AES a
defense under a reservation of rights and filed a declaratory
judgment action, which is the subject of this appeal, in the
Circuit Court of Arlington County.
In the declaratory judgment action, Steadfast claimed that
it did not owe AES a defense or indemnity coverage for damage
allegedly caused by AES’s contribution to global warming based
on three grounds: (1) the Complaint did not allege “property
damage” caused by an “occurrence,” which was necessary for
there to be coverage under the policies; (2) any alleged injury
arose prior to the inception of Steadfast’s coverage; and (3)
2
the claims alleged in the Complaint fell within the scope of
the pollution exclusion stated in AES’s policies.
The parties subsequently filed cross-motions for summary
judgment, both claiming that whether Steadfast had a duty to
defend AES against the Complaint could be decided by examining
the “eight corners” of the Complaint and the CGL policies. The
circuit court denied AES’s motion for summary judgment and
granted Steadfast’s motion for summary judgment, holding that
the Complaint does not allege an “occurrence” as that term is
defined in the CGL policies, and thus, the allegations in the
Complaint are not covered under those policies.
The Insurance Policies
In each of the CGL policies AES purchased from Steadfast,
Steadfast agreed to defend AES against suits claiming damages
for bodily injury or property damage, if such damage “is caused
by an ‘occurrence.’ ” The policies define “occurrence” as
follows: “ ‘Occurrence’ means an accident, including
continuous or repeated exposure to substantially the same
general harmful condition.” The policies specify that
Steadfast has no duty to defend or indemnify AES against damage
suits to which the policies do not apply.
The Complaint
Kivalina is located on the tip of a small barrier reef on
the northwest coast of Alaska, approximately seventy miles
3
north of the Arctic Circle. As pertinent to this appeal, in
the Complaint, Kivalina alleges that AES 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 land-fast sea ice
protecting the village’s shoreline to form later or melt
earlier in the annual cycle. This allegedly exposed the
shoreline to storm surges, resulting in erosion of the
shoreline and rendering the village uninhabitable.
The Complaint alleges that AES “intentionally emits
millions of tons of carbon dioxide and other greenhouse gases
into the atmosphere annually.” (Emphasis added.) The
Complaint further alleges that AES “knew or should have known
of the impacts of [its] emissions” of carbon dioxide, but that
“[d]espite this knowledge” of the “impacts of [its] emissions
on global warming and on particularly vulnerable communities
such as coastal Alaskan villages,” AES “continued [its]
substantial contributions to global warming.” (Emphasis
added.) Kivalina then dedicates sixteen pages and sixty-six
paragraphs of its sixty-nine page Complaint to explaining
global warming.
The Complaint alleges a civil conspiracy by power, coal
and oil companies to mislead the public about the science of
global warming. It states that “[d]espite the attempts by
4
certain defendants to make the cause of climate change
controversial in the popular media, there has been for many
years an overwhelming scientific consensus that human activity
that releases greenhouse gases is causing a change in the
Earth’s climate.” The Complaint alleges that there is “a clear
scientific consensus that global warming is caused by emissions
of greenhouse gases, primarily carbon dioxide from fossil fuel
combustion and methane releases from fossil fuel harvesting.”
The Complaint recounts published articles, books and
testimony in which scientists have confirmed the existence of
global warming, and discusses current and projected global
warming impacts, stating that “[e]mpirical evidence underlies
the scientific consensus that global warming has arrived.” It
then discusses the special injuries to Kivalina’s property
interests allegedly resulting from global warming.
The Complaint then states three claims for relief against
AES. Two causes of action are for nuisance and the other is
for concert of action. The first claim for relief is entitled
“Federal Common Law: Public Nuisance.” In support of its
claims for federal common law public nuisance, Kivalina asserts
the following:
251. Defendants’ greenhouse gas emissions are a
direct and proximate contributing cause of global
warming and of the injuries and threatened injuries
Plaintiffs suffer.
5
252. Defendants know or should know that their
emissions of greenhouse gases contribute to global
warming, to the general public injuries such heating
will cause, and to Plaintiffs’ special injuries.
Intentionally or negligently, defendants have
created, contributed to, and/or maintained the public
nuisance.
253. Defendants, both individually and
collectively, are substantial contributors to global
warming and to the injuries and threatened injuries
Plaintiffs suffer.
. . . .
255. Defendants knew that their individual
greenhouse gas emissions were, in combination with
emissions and conduct of others, contributing to
global warming and causing injuries to entities such
as the Plaintiffs.
. . . .
261. Defendants are jointly and severally
liable to Kivalina under the federal common law of
public nuisance.
The second claim for relief asserted against AES is
entitled “State Law: Private and Public Nuisance.” Kivalina
asserts as follows:
264. Defendants’ emissions of carbon dioxide, by
contributing to global warming, constitute a
substantial and unreasonable interference with public
rights, including, inter alia, the rights to use and
enjoy public and private property in Kivalina. . . .
265. Defendants have engaged and continue to
engage in intentional or negligent acts or omissions
that unreasonably interfere with the use and
enjoyment of Plaintiffs’ properties, and/or work a
substantial annoyance, inconvenience, or injury to
the public, and are therefore liable under the
applicable state statutory and/or common law of
private and public nuisance.
6
266. Defendants, individually and collectively,
are substantial contributors to global warming and to
the injuries and threatened injuries suffered by
Plaintiffs. . . .
267. Defendants are jointly and severally
liable to Plaintiffs under the applicable state
statutory and/or common law of private and public
nuisance.
The other claim for relief against AES is entitled
“Concert of Action.” Kivalina alleges that the “[d]efendants
have engaged in and/or are engaging in tortious acts in concert
with each other or pursuant to a common design” in creating,
contributing to and/or maintaining a public nuisance,
specifically, global warming.
Analysis
We awarded AES an appeal on the following assignment of
error:
The trial court erred in summarily ruling that the
underlying complaint did not allege an “occurrence”
covered by the insurance policies.
Both AES and Steadfast agree that it is a well-established
principle, consistently applied in this Commonwealth, that only
the allegations in the complaint and the provisions of the
insurance policy are to be considered in deciding whether there
is a duty on the part of the insurer to defend and indemnify
the insured. See Brenner v. Lawyers Title Ins. Corp., 240 Va.
185, 189, 192, 397 S.E.2d 100, 102, 104 (1990); Reisen v. Aetna
7
Life & Cas. Co., 225 Va. 327, 331, 302 S.E.2d 529, 531 (1983);
Travelers Indem. Co. v. Obenshain, 219 Va. 44, 46, 245 S.E.2d
247, 249 (1978); Norman v. Ins. Co. of N. Am., 218 Va. 718,
724, 239 S.E.2d 902, 905-06 (1978); London Guar. & Accident Co.
v. C. B. White & Bros., Inc., 188 Va. 195, 199-200, 49 S.E.2d
254, 256 (1948); see also Town Crier, Inc. v. Hume, 721 F.Supp.
99, 102 n.12 (E.D. Va. 1989) (“an insurer’s duty to defend is
determined solely by the allegations in the pleadings”);
American & Foreign Ins. Co. v. Church Schs. in the Diocese of
Virginia, 645 F.Supp. 628, 631 n.1 (E.D. Va. 1986). This
principle is commonly known as the “eight corners rule” because
the determination is made by comparing the “four corners” of
the underlying complaint with the “four corners” of the policy,
to determine whether the allegations in the underlying
complaint come within the coverage provided by the policy. See
Copp v. Nationwide Mut. Ins. Co., 279 Va. 675, 682-83, 692
S.E.2d 220, 224 (2010); America Online, Inc. v. St. Paul
Mercury Ins. Co., 207 F.Supp.2d 459, 465-66 (E.D. Va. 2002).
“[A]n insurer’s duty to defend . . . is broader than [the]
obligation to pay, and arises whenever the complaint alleges
facts and circumstances, some of which would, if proved, fall
within the risk covered by the policy.” Virginia Elec. & Power
Co. v. Northbrook Prop. & Cas. Ins. Co., 252 Va. 265, 268-69,
475 S.E.2d 264, 265-66 (1996) (internal quotation marks and
8
citation omitted); see also Copp, 279 Va. at 682, 692 S.E.2d at
224. On the other hand, if it appears clearly that the insurer
would not be liable under its contract for any judgment based
upon the allegations, it has no duty even to defend. Travelers
Indem. Co., 219 Va. at 46, 245 S.E.2d at 249.
The relevant policies provide coverage for damage
resulting from an “occurrence,” and define an occurrence as “an
accident, including continuous or repeated exposure to
substantially the same general harmful condition.” The terms
“occurrence” and “accident” are “synonymous and . . . refer to
an incident that was unexpected from the viewpoint of the
insured.” Utica Mut. Ins. Co. v. Travelers Indem. Co., 223 Va.
145, 147, 286 S.E.2d 225, 226 (1982). We have 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.” Lynchburg Foundry Co. v.
Irvin, 178 Va. 265, 271, 16 S.E.2d 646, 648 (1941). An
accidental injury is one that “happen[s] by chance, or
unexpectedly; taking place not according to the usual course of
things; casual; fortuitous.” Fidelity & Guar. Ins.
Underwriters, Inc. v. Allied Realty Co., 238 Va. 458, 462, 384
S.E.2d 613, 615 (1989) (internal quotation marks omitted).
9
Kivalina alleges that AES intentionally released tons of
carbon dioxide and greenhouse gases into the atmosphere as part
of its electricity-generating operations. We have held that
“[a]n intentional act is neither an ‘occurrence’ nor an
‘accident’ and therefore is not covered by the standard
policy.” Utica Mut., 223 Va. at 147, 286 S.E.2d at 226; see
Reisen, 225 Va. at 331-32, 302 S.E.2d at 531 (duty to defend
excused when insured’s act of intentionally striking plaintiff
fell within exclusion in policy); Travelers Indem. Co., 219 Va.
at 47, 245 S.E.2d at 249 (insurer had no duty to defend where a
complaint alleged only intentional torts). If a result is the
natural or probable consequence of an insured’s intentional
act, it is not an accident. See Resource Bankshares Corp. v.
St. Paul Mercury Ins. Co., 407 F.3d 631, 637 (4th Cir. 2005).
However, even though the insured’s action starting the
chain of events was intentionally performed, when 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. 20 Eric M. Holmes,
Appleman on Insurance 2d § 129.2(I)(5) (2002 & Supp. 2009). In
such a context, the dispositive issue in determining whether an
accidental injury occurred is not whether the action undertaken
by the insured was intended, but rather whether the resulting
harm is alleged to have been reasonably anticipated or the
10
natural or probable consequence of the insured’s intentional
act. See id.; see also Fidelity & Guar. Ins., 238 Va. at 462,
384 S.E.2d at 615. For coverage to be precluded under a CGL
policy because there was no occurrence, it must be alleged that
the result of an insured’s intentional act was more than a
possibility; it must be alleged that the insured subjectively
intended or anticipated the result of its intentional act or
that objectively, the result was a natural or probable
consequence of the intentional act. Thus, resolution of the
issue of whether Kivalina’s Complaint alleges an occurrence
covered by the policies turns on whether the Complaint can be
construed as alleging that Kivalina’s injuries, at least in the
alternative, resulted from unforeseen consequences that were
not natural or probable consequences of AES’s deliberate act of
emitting carbon dioxide and greenhouse gases.
AES notes that the Complaint alleges that AES
“[i]ntentionally or negligently” created the nuisance, global
warming, and that the defendants’ concerted action in causing
the nuisance “constitutes a breach of duty.” (Emphasis added.)
AES maintains that this language shows that Kivalina alleged in
the Complaint both intentional and negligent tortious acts.
Citing Parker v. Hartford Fire Ins. Co., 222 Va. 33, 278 S.E.2d
803 (1981), AES asserts that an insured is entitled to a
defense when negligence is alleged.
11
AES further asserts that because the Complaint alleges
that AES “knew or should know” that its activities in
generating electricity would result in the environmental harm
suffered by Kivalina, Kivalina alleges, at least in the
alternative, that the consequences of AES’s intentional carbon
dioxide and greenhouse gas emissions were unintended. AES
reasons that the damage alleged by Kivalina is therefore
accidental from the viewpoint of AES and within the definition
of an “occurrence” under the CGL policies. In essence, AES
argues that the damage to the village resulting from global
warming caused by AES’s electricity-generating activities was
accidental because such damage may have been unintentional.
We disagree with AES. Applying the “eight corners” rule,
we must consider the terms of the relevant insurance policies
and the allegations in the Complaint. Unlike the policy at
issue in Parker, 2 the instant policies do not provide coverage
or a defense for all suits against the insured alleging damages
not caused intentionally. Likewise, the policies in this case
do not provide coverage for all damage resulting from AES’s
negligent acts. The relevant policies only require Steadfast
2
In Parker, the relevant policy, while excluding coverage
for bodily injury or property damage caused intentionally,
otherwise required the insurer to defend any suit against the
insured alleging bodily injury or property damage. 222 Va. at
34, 278 S.E.2d at 803.
12
to defend AES against claims for damages for bodily injury or
property damage caused by an occurrence or accident.
In the Complaint, 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 or
probable consequence of that intentional act is not an accident
under Virginia law.
Kivalina alleges that AES knew or should have known the
damage that its activities would cause, that AES was negligent
if it did not know, and that AES was negligent in acting in
concert with other defendants in creating a nuisance.
However, allegations of negligence are not synonymous with
allegations of an accident. See Nationwide Mut. Fire Ins. Co.
v. Overstreet, 568 F.Supp.2d 638, 651-52 (E.D. Va. 2008) (mere
use of the word negligence does not compel a court to find that
a claim was based on an “occurrence” under Virginia law); 16
Holmes, Appleman on Insurance 2d § 116.4 (accident and
negligence are not synonymous and not all negligent acts
support a claim of accident). In this instance, the
allegations of negligence do not support a claim of an
13
accident. Even if AES were negligent and did not intend to
cause the damage that occurred, the gravamen of Kivalina’s
nuisance claim is that the damages it sustained were the
natural and probable consequences of AES’s intentional
emissions.
The dissimilarity between the allegations in the Kivalina
complaint and those in most other tort actions for bodily
injury or property damage is the relevant intentional or
negligent act alleged in the complaint. Kivalina does not
allege that AES’s intentional acts were done negligently. 3 The
complaint alleges that AES was “negligent” only in the sense
that it “knew or should have known” that its actions would
cause injury no matter how they were performed.
3
Accident and negligence are not mutually exclusive in
most instances. See Fidelity & Guar. Ins., 238 Va. at 461, 384
S.E.2d at 615 ("A loss resulting in part from an insured's
negligence, however, may still come within the definition of a
fortuitous loss."). To prevail in an action for negligence, a
plaintiff must prove the existence of a legal duty, a breach of
the duty, and that the breach of the duty proximately caused
his injury. E.g., Atrium Unit Owners Ass'n v. King, 266 Va.
288, 293, 585 S.E.2d 545, 548 (2003). For a breach of a legal
duty to proximately cause the plaintiff's injury, the injury
must be the "natural and probable consequence" of the breach.
Scott v. Simms, 188 Va. 808, 817, 51 S.E.2d 250, 253 (1949).
In many instances the breach is the manner in which the act was
done rather than the doing of the act. What one alleges
constituted the breach is key in discerning whether there is
negligence that led to an accident in a particular instance.
Hypothetical examples unfettered by the eight corners rule are
not instructive concerning whether insurance coverage should or
would be provided in a given situation.
14
Under the CGL policies, Steadfast would not be liable
because AES’s acts as alleged in the complaint were intentional
and the consequences of those acts are alleged by Kivalina to
be not merely foreseeable, but natural or probable. Where the
harmful consequences of an act are alleged to have been not
just possible, but the natural or probable consequences of an
intentional act, choosing to perform the act deliberately, even
if in ignorance of that fact, does not make the resulting
injury an “accident” even when the complaint alleges that such
action was negligent.
Kivalina asserts that the deleterious results of emitting
carbon dioxide and greenhouse gases are something that AES knew
or should have known about. 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. See 1 Barry
R. Ostrager & Thomas R. Newman, Handbook on Insurance Coverage
Disputes § 8.03[c] (15th ed. 2011) (citing City of Carter Lake
v. Aetna Cas. & Sur. Co., 604 F.2d 1052, 1058-59 (8th Cir.
1979)); 20 Holmes, Appleman on Insurance 2d § 129(I)(5). Even
if AES were actually ignorant of the effect of its actions
and/or did not intend for such damages to occur, Kivalina
alleges its damages were the natural and probable consequence
of AES’s intentional actions. Therefore, Kivalina does not
15
allege that its property damage was the result of a fortuitous
event or accident, and such loss is not covered under the
relevant CGL policies.
Conclusion
For these reasons, we will affirm the judgment of the
circuit court.
Affirmed.
JUSTICE MIMS, concurring.
I write separately because I believe the result reached in
this case is dictated by our precedents but I disagree with the
majority opinion that the reasoning can be limited to the four
corners of the commercial general liability insurance (“CGL”)
policies or the allegations of the complaint at issue here.
Our jurisprudence, developed over more than a century, is
leading inexorably to a day of reckoning that may surprise many
policy holders.
The majority opinion observes both that the CGL policies
cover damage resulting from an “occurrence,” which is
synonymous with “accident,” and that we have defined accident
in various ways. For example, an accident means “an incident
that was unexpected from the viewpoint of the insured,” Utica
Mutual Insurance Co. v. Travelers Indemnity Co., 223 Va. 145,
147, 286 S.E.2d 225, 226 (1982), and “an event which creates an
effect which is not the natural or probable consequence of the
16
means employed and is not intended, designed, or reasonably
anticipated.” Lynchburg Foundry Co. v. Irvin, 178 Va. 265,
271, 16 S.E.2d 646, 648 (1941).
But this creates a dichotomy. If the injurious
consequence of an action is not the natural or probable
consequence of the action, there can be no actionable
negligence. To prevail in an action for negligence, a
plaintiff must prove the existence of a legal duty, a breach of
the duty, and that the breach of the duty proximately caused
his injury. Atrium Unit Owners Ass’n v. King, 266 Va. 288,
293, 585 S.E.2d 545, 548 (2003). For a breach of legal duty to
proximately cause the plaintiff’s injury, the injury must be
“the natural and probable consequence” of the breach. Scott v.
Simms, 188 Va. 808, 817, 51 S.E.2d 250, 253 (1949); see also
Jordan v. Jordan, 220 Va. 160, 162, 257 S.E.2d 761, 762 (1979)
(“To constitute actionable negligence, there must be a legal
duty, a breach thereof, and a consequent injury which could
have been reasonably foreseen by the exercise of reasonable
care and prudence.” (Emphasis added)).
Thus the majority opinion is only half right when it
states that “allegations of negligence are not synonymous with
allegations of an accident.” In fact, under the reasoning of
our precedents, allegations of negligence and allegations of
accident must be mutually exclusive. The dichotomy is
17
longstanding, appearing in a venerable 140-year-old definition
of accident in which we said, “By the term accident is included
not merely inevitable casualty or the act of Providence, or
what is technically called vis major or irresistible force, but
such unforeseen events, misfortunes, losses, acts or omissions
as are not the result of any negligence or misconduct in the
party.” Byrne v. Edmonds, 64 Va. (23 Gratt.) 200, 210 (1873)
(final emphasis added).
Because “accident” is synonymous with “occurrence,” which
is what these CGL policies cover, I concur with the majority
that our precedents require us to conclude that they do not
provide coverage for AES’s allegedly negligent acts. However,
there is no rationale to distinguish these policies from other
CGL policies in which the insured risk is defined as an
“occurrence.” 1 An “occurrence,” is “[t]he fundamental event
covered by the vast majority [of CGL] policies.” Paul E.B.
1
This case is distinguishable from Parker v. Hartford Fire
Insurance Co., 222 Va. 33, 278 S.E.2d 803 (1981), not because
of a dissimilarity between the insurance policies but because
of the dissimilarity between the causes of action. The
tortious act in that case was a trespass. Id. at 35, 278
S.E.2d at 804. One may commit actionable trespass without
intention or negligence because “[n]either wilfulness nor
negligence is necessary to make a trespass on real estate a
tort.” Chesapeake & O. Ry. Co. v. Greaver, 110 Va. 350, 355,
66 S.E. 59, 60 (1909). Trespass therefore is essentially a
strict liability offense, unlike the actions at issue in this
case, and a complaint for trespass need not allege any
foreseeability, expectation, or anticipation of injury by the
defendant.
18
Glad, William T. Barker & Michael Barnes, Nature of General
Liability Coverage, in 3 New Appleman on Insurance Law Library
Edition § 16.07[3][a] (Jeffrey E. Thomas ed., 2011).
Accordingly, while I agree with my colleagues that
Steadfast had no duty to defend AES in the underlying action
based on the CGL policies in this case, I also must acknowledge
the broader effect that this conclusion, and the underlying
case law that compels it, may have on other CGL policies in
which the insured risk is defined as an “occurrence.” 2 Our
precedents may have painted us into a jurisprudential corner.
2
Because this case involves only a commercial general
liability insurance policy, the question of whether the words
“occurrence” and “accident” exclude liability for negligent
acts in other contexts, such as automobile or homeowners’
insurance policies, is not before the Court today. However,
the words “accident” and “occurrence” may have different
meanings in those contexts. See Paul E.B. Glad, William T.
Barker & Michael Barnes, Types of Liability Coverage, in 3 New
Appleman on Insurance Law Library Edition § 16.02[3][f]
(Jeffrey E. Thomas ed., 2011); Peter M. Lencsis, Scope:
Homeowners Liability Insurance, in 2 New Appleman Law of
Liability Insurance § 13.01 (2011).
19