Global Warming & Climate Change Claims: Case Summaries & Updates
Our Global Warming and Climate Change Liability Coverage Team (“GWCC Team”) continues to monitor closely all legal developments in this emerging area of law. This will update our prior reports on the relevant pending cases in the country.
Steadfast Ins. Co. v. AES Corp.
First Round of Climate Change Coverage Litigation Goes to Insurers
On February 5, 2010, the Circuit Court of Arlington County, Virginia, provided insurers with a victory in the inaugural coverage litigation arising out of an underlying climate change lawsuit. In Steadfast Ins. Co. v. The AES Corporation, which is the first coverage offspring of the underlying matter captioned Native Village of Kivalina v. ExxonMobil Corp., et al., CV 08-1138 (N.D. Cal. 2008) (the “Kivalina Action”), Judge Kendrick ruled that Steadfast Insurance Company (“Steadfast”) has no duty to defend The AES Corporation (“AES”) in connection with the Kivalina Action because no “occurrence” took place.
In order to understand what Judge Kendrick’s Order says, and at least as important - what it does not say, a brief overview of the operative pleadings and arguments made by the parties is necessary. On or about July 9, 2008, Steadfast instituted declaratory judgment proceedings regarding the extent of its coverage obligations, if any, for the Kivalina Action under five liability policies issued to AES from 2003 to 2008.1 Steadfast denied owing any duty to defend or indemnify AES in the Kivalina Action on the following three (3) grounds: (1) the Kivalina Action does not allege “property damage” caused by an “occurrence,” since in its 2002 Annual Report AES recognized that it was “one of the largest emitters of CO2 in the world” and that it therefore “must continue to strive to economically stabilize greenhouse gas concentrations;” (2) the five Steadfast policies identified in the complaint contain an endorsement stating that “[t]his insurance does not apply to [among other things] any injury or damage which incepts prior to the effective date of this policy…;” and (3) the five Steadfast policies identified in the complaint contain a pollution exclusion, and the Kivalina Action alleges that the various greenhouse gas emissions giving rise to the damages at issue constitute “air pollution.”
The parties filed motions for summary judgment and Judge Kendrick heard argument on the same. On October 30, 2009, Judge Kendrick denied Steadfast’s motion for summary judgment due to the existence of questions of material fact.2 Although Judge Kendrick denied Steadfast’s motion, his Order did not explicitly address Steadfast’s duty to defend. Consequently, on November 6, 2009, AES filed another motion for summary judgment seeking: (i) an order dismissing Steadfast’s claims for declaratory relief; and (ii) a declaration that Steadfast owes AES a duty to defend in the Kivalina Action. On December 9, 2009, Steadfast filed a renewed cross-motion for summary judgment based on: (a) AES’s alleged decision to withdraw its reliance on extrinsic evidence – evidence which purportedly gave rise to Judge Kendrick originally concluding summary judgment was improper because there was a question of material fact; and (b) a December 7, 2009 finding by the U.S. EPA that carbon dioxide is a harmful pollutant.
On February 5, 2010, Judge Kendrick entered an Order denying AES’s motion for summary judgment; granting Steadfast’s renewed cross-motion for summary judgment; and finding and declaring Steadfast has no duty to defend AES in the Kivalina Action because no “occurrence” took place.3 Given that Judge Kendrick found no duty to defend based on the policies’ insuring agreements, i.e., the absence of “occurrence,” he did not address the policies’ “loss in progress” exclusion or whether carbon dioxide and other greenhouse gas emissions resulting from the operation of fossil-fuel-fired electricity generating plants fall within the ambit of the policies’ pollution exclusions.
On February 22, 2010, AES filed a Notice of Appeal with the Supreme Court of Virginia. Therefore, the first coverage battle arising out of an underlying climate change lawsuit now heads to the Virginia Supreme Court. In light of the tremendous financial exposure policyholders like AES face in underlying climate change litigation like the Kivalina Action, policyholders and their insurers are closely monitoring developments in the Steadfast litigation.
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Comer v. Murphy Oil USA, et al.
Second Circuit Court of Appeals Grants Rehearing En Banc
On February 26, 2010, adding yet another twist to the Global Warming Litigation saga, and fueling the possibility of an inter-circuit split necessitating U.S. Supreme Court review, a majority of the nine Fifth Circuit judges in regular active service and not disqualified voted in favor of rehearing en banc the matter of Comer v. Murphy Oil USA, et al., which was decided by a three-judge panel in October 2009.
The panel had reversed a dismissal by the Southern District of Mississippi, finding that the Comer plaintiffs have standing to bring their public and private nuisance, trespass, and negligence claims based on damages resulting from global warming allegedly caused by the defendants and that none of these claims present non-justiciable political questions.
Rehearing en banc is an extraordinary procedure that is rarely granted and is intended to bring to the attention of the entire Fifth Circuit court an error of exceptional public importance or an opinion that directly conflicts with prior Supreme Court, Fifth Circuit or state law precedent.
Appellants had until March 31, 2010 to file an en banc brief and Appellees’ en banc brief is due April 30, 2010. The case is set for rehearing the week of May 24, 2010.
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Connecticut, et al. v. American Electric Power Company, Inc., et al.
Second Circuit Court of Appeals Denies Rehearing and Rehearing En Banc
On March 5, 2010, the Second Circuit Court of Appeals denied the petition for rehearing and rehearing en banc filed by American Electric Power Company (“American Electric”), American Electric Power Services Corporation (“American Electric Power Services”), and Cinergy Corporation (“Cinergy”), and set the stage for a petition for writ of certiorari to be filed before the United States Supreme Court.
In September 2009, the Second Circuit determined that a number of states and land trusts had the requisite standing to assert a federal common law nuisance claim against six electric power companies. The Court found that those companies, through their carbon dioxide emissions, have contributed and continue to contribute to global warming, which allegedly damages property and causes harm to humans. The Second Circuit reversed the United States District Court for the Southern District of New York’s decision and remanded the action for further proceedings.
In response to the Court’s Order denying the petition for rehearing, which remains an extraordinary measure, on March 11, 2010, American Electric, American Electric Power Services, and Cinergy, filed a Motion to Stay the Mandate pending the filing of a petition for writ of certiorari to the Supreme Court. Pursuant to the Federal Rules of Appellate Procedure, a Motion to Stay the Court’s Mandate pending the filing of a petition for writ of certiorari should be granted if (1) the certiorari petition presents a “substantial question” and (2) there is “good cause” for the stay.
On March 16, 2010, the states of Vermont, New Jersey, Connecticut, California, Rhode Island, New York, Wisconsin, and Iowa, and New York City filed an amended notice of appeal with the District Court. That same day, the District Court granted American Electric, American Electric Power Services, and Cinergy’s Motion to Stay the Mandate. At present, no petition for writ of certiorari has been filed.
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Massachusetts, et. al. v. Environmental Protection Agency, et al.
U.S. Supreme Court: The EPA has Authority to Regulate Greenhouse Gas Emissions Pursuant to the Clean Air Act
In 1999, nineteen private organizations petitioned the Environmental Protection Agency (the “EPA”) to regulate emissions of four greenhouse gases, including carbon dioxide, from new motor vehicles, under section 202(a)(1) of the Clean Air Act. The petition cited the EPA’s alleged duty to prescribe emission standards for “any air pollutant,” from any class of new motor vehicle, which in the EPA Administrator’s judgment caused or contributed to air pollution reasonably anticipated to endanger public heath or welfare.
On September 8, 2003, the EPA entered an order denying the rulemaking petition. The EPA opined that the Clean Air Act does not authorize it to issue mandatory regulations to address global climate change; and (2) that even if the agency had the authority to set greenhouse gas emission standards, it would be unwise to do so at the time.
The EPA’s denial of the rulemaking petition prompted intervener Massachusetts, and other states and governments, along with private organizations to seek review in the United States Court of Appeals for the District of Columbia. In response, the EPA, along with ten intervening states and six trade associations, opposed the challenge.
On review, two of the three Appellate Court justices agreed with the EPA and found that the EPA Administrator properly exercised his discretion in denying the petition. Each of the justices wrote separately. Avoiding the issue of standing, Judge Randolph found that the Clean Air Act directs the EPA Administrator to prescribe standards for motor vehicle emissions that “in his judgment” cause harmful air pollution. Judge Randolph concluded that the exercise of that judgment need not be based solely on scientific evidence, but may also be informed by the policy judgments that motivate congressional action. Judge Sentelle opined that petitioners failed to “demonstrate[e] the … injury necessary to establish standing under Article III.” Conversely, Judge Tatel dissented, concluding that at least Massachusetts satisfied each element of Article III standing - injury, causation, and redressability. On the merits, he found that the Clean Air Act provides the EPA with authority to regulate greenhouse gases, and that the EPA was unjustified in refusing to exercise its authority.
On June 16, 2006, the Supreme Court granted writ of certiorari to award an appeal. The questions presented were (1) whether the EPA Administrator may decline to issue emission standards for motor vehicles based on policy considerations not enumerated in section 202(a)(1) of the Clean Air Act; and (2) whether the EPA Administrator has authority to regulate carbon dioxide and other air pollutants associated with climate change under section 202(a)(1) of the Clean Air Act.
On April 2, 2007, the United States Supreme Court handed down its first ruling regarding a global warming and climate change action in the now-famous Massachusetts, et. al. v. Environmental Protection Agency, et. al. decision.
By a narrow five to four margin, the Supreme Court held that Massachusetts established standing due to its “stake in protecting its quasi-sovereign interests” as a state, and can sue the EPA over potential damage caused to it by global warming. The Court reasoned that Massachusetts possessed a procedural right to challenge the EPA’s refusal to regulate the greenhouse gases as the EPA’s decision presents a risk of harm to the state that is “actual” and “imminent.”
With regards to causation, the EPA did not dispute the existence of a casual relationship between man-made greenhouse gas emissions and global warming. It did argue, however, that any reduction in greenhouse gas emissions achieved through the instant litigation would be too small to make a cognizable difference in the overall climate change problem. Rejecting this argument, the Court held that for standing purposes, even an incremental step towards reducing greenhouse gas emissions is sufficient.
Evaluating the final prong of the standing requirement concerning redressability, the Court determined that the remedy sought by plaintiffs is likely to redress the injury. Plaintiffs were seeking EPA regulation of greenhouse gas emissions from new motor vehicles. The Court found that this remedy will slow the pace of global emissions increases.
Addressing the merits of the case, the Supreme Court held that the EPA had statutory authority to regulate emissions of greenhouse gases from new motor vehicles, because such gases fit well within the Clean Air Act’s “sweeping,” “capacious” definition of “air pollutant.” The Court rejected the EPA’s assertions that the Clean Air Act was not intended to regulate substances that contribute to climate change, and that carbon dioxide is not an "air pollutant" within the meaning of the Clean Air Act. Instead, the Court determined that the text of the Clean Air Act is “unambiguous” and covers greenhouse gas emissions from motor vehicles because they are chemicals emitted into ambient air.
Lastly, the Supreme Court ruled that the EPA’s denial of the rulemaking petition was unjustified. Therefore, its action was arbitrary, capricious, or otherwise not in accordance with law. The EPA failed to offer a reasoned explanation for its refusal to decide whether greenhouse gases cause or contribute to climate change. As such, the Supreme Court reversed the Appellate Court’s decision and remanded the case for further proceedings consistent with its opinion.
Opposing the majority’s position, Chief Justice Roberts and Justice Scalia both dissented arguing that the issues were nonjusticiable because Massachusetts lacked standing. According to Chief Justice Roberts, standing did not exist because the potential issues for global warming were not concrete or particularized. In addition, Justice Scalia argued that the Clean Air Act was not intended to attack global climate change, and that the Court should defer to the more experienced and reasoned judgment of the agency.
In response to the Supreme Court’s decision in Massachusetts v. EPA, on December 7, 2009 the EPA concluded that greenhouse gases from motor vehicles contribute to an endangerment to public health and welfare. The finding is a prerequisite to the regulation of greenhouse gas emissions under the Clean Air Act. Opposing the EPA’s endangerment finding, Alabama, Texas and Virginia, as well various other industry associations and private companies, sought judicial review in the United States Court of Appeals for the D.C. Circuit. The lawsuits ask the Appellate Court to review the EPA’s determination that greenhouse gases endanger human health and welfare. The Court has yet to act on the petitions.
We continue to monitor developments across the global warming spectrum and recommend checking back for further updates on all Global Warming and Climate Change Claims.
1 In its May 26, 2009 Amended Counterclaim, AES alleges that it maintained CGL coverage with Steadfast “intermittingly from September 5, 1996 and continuously since September 5, 2003 to September 5, 2008.”
2 Judge Kendrick entered an amended Order on or about December 3, 2009 because the October 30, 2009 Order contained “a mutual mistake regarding the language agreed upon by both parties.”
3 On January 22, 2010, AES filed an unsuccessful Motion for Reconsideration.