Insurance Coverage for Climate Change Suits: The Battle Has Begun

When it comes to climate change litigation, the stakes are almost as high for insurance companies as they are for the defendants they insure. Insurers therefore have strong incentives to closely parse their policies and pursue every possible basis for denying coverage, while policyholders, of course, have the opposite incentives. Given the novelty of the underlying claims, complex coverage issues involved, and high stakes, it is expected that the resulting insurance coverage disputes will be lengthy and hard-fought.

Climate change litigation has been slowly heating up, but the expected coverage battles have not materialized, until now that is. In July 2008 Steadfast Insurance Company filed the first coverage suit challenging an insurer's obligations to provide coverage for climate change-related suits against its insured: Steadfast Insurance Co. v. The AES Corporation, No. 2008-858 (Va. Cir. Ct.).

This article provides background on the Steadfast dispute, as well as the underlying climate change suit. It then examines each of the three coverage issues raised in the Steadfast suit: (1) whether the claims arise out of an “occurrence,” (2) whether the claims are barred by the “loss in progress” doctrine, and (3) whether the pollution exclusion applies. The article predicts that the outcome of Steadfast will likely turn on the pollution exclusion defense, but that even with respect to that issue, the insurer faces an uphill battle.