WHAT IS AN “ACCIDENT”? Part II
On September 23, 2011, we sent a Legal Alert concerning the Virginia Supreme Court‟s decision in AES Corp. v. Steadfast Ins. Co., 282 Va. 252, 715 S.E.2d 28 (2011). The court in that case considered whether there had been an “occurrence,” which was defined as an “accident,” for purposes of coverage under a CGL policy. The plaintiff in the underlying action was an Alaskan fishing village. It had alleged that the insured (“AES”), an energy generating company, had intentionally released greenhouse gases when it knew or should have known that the consequences would include global warming. The village alleged that such warming had melted sea ice and rendered the village uninhabitable. The Virginia Supreme Court held that there was no “occurrence” and, hence, that there was no coverage.
The court‟s opinion generated some alarm among certain members of the legal community who feared that the proof required to establish negligence, i.e., that an injury or damage was the natural and probable result of an act, would, in a large number of cases, also establish that there was no “occurrence” and, therefore, no coverage for the wrongdoer‟s liability. Justices Koontz and Carrico, who concurred with the result, expressed concern that the majority opinion failed to adequately explain why the conclusion it reached would not apply in the vast majority of cases.
On January 17, 2012, the court withdrew its prior opinion and agreed to rehear the case. On April 20, 2012, the court issued its opinion on rehearing. The new opinion largely tracked the language and reasoning in the original opinion but made several significant changes. The court included, with some modification, two paragraphs from the prior concurrence that emphasized the nature of the act. The court held that “[i]f an insured knew or should have known that certain results were the natural and probable consequences of intentional acts or omissions, there is no „occurrence‟ within the meaning of a CGL policy.”
The court clarified that the distinction between the allegations in the underlying complaint and those in most tort actions for bodily injury or property damage was the relevant intentional or negligent act alleged in the complaint. The village did not allege that the insured‟s intentional acts were done negligently. Instead, the complaint alleged 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.” The insurer would not be liable because AES‟s alleged acts were intentional and the consequences of those acts were not merely foreseeable, but natural or probable. The court summarized the applicable rule as follows:
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.
Applying these principles to the facts of the case before it, the court concluded that, even if AES was ignorant of the effect of its action and/or did not intend for such damages to occur, the village alleged that its damages were the natural and probable consequence of AES‟s intentional acts. Therefore the village had failed to allege that its property damage was the result of a fortuitous event or accident and the loss was not covered by AES‟s CGL policy.
As we pointed out before, the opinion in AES is also significant in that the court reaffirmed a number of the principles to be applied in determining whether there is a duty to defend. For the first time, the court expressly characterized the duty to defend inquiry as the “eight corners” rule whereby the allegations within the four corners of the complaint are compared to the provisions within the four corners of the insurance policy to determine whether there is a duty to defend.
This has been the approach the Virginia courts have generally followed in determining whether there is a duty to defend. However, the “eight corners” rule had not previously been described or endorsed as such by the Virginia Supreme Court. It remains to be seen what exceptions to the rule the Supreme Court of Virginia will recognize. In 2010, the court permitted an insured to rely upon evidence outside the eight corners to establish that an insurer had a duty to defend because the self-defense exception to the “expected or intended” exclusion might apply. See Copp v. Nationwide Mut. Ins. Co., 279 Va. 675, 692S.E.2d 220 (2010) (discussed in our Legal Alert of June 14, 2010).