The Ninth Circuit Court of Appeals ruled that the unique liability regime of CERCLA qualifies a request for information under the statutory scheme as a “suit” within the meaning of general liability insurance policies, thereby triggering an insurer’s duty to defend its insured. The court also held that this duty to defend continues until the EPA issues its final Record of Decision.
The insured cement company ran two of its cement plants on an Oregon Superfund Site. In 2008, the EPA sent a letter to company, pursuant to CERCLA, 42 U.S.C. § 9604(e) (Section 104 letter), requesting certain information relating to the EPA’s investigation of the site. The Section 104 letter contained a comprehensive questionnaire that sought information relating to the company’s ownership of and activities on the property. The insurers declined to cover the insured’s attorney’s fees and costs incurred in responding to the EPA’s inquiry, arguing the letter did not allege “property damage” and did not constitute a “suit” within the meaning of the general liability policies.
Without much analysis, the court affirmed the federal district court’s rejection of the insurers’ arguments. The court referred to its 2013 decision and reasoning in Anderson Bros., Inc. v. St. Paul Fire & Marine Insurance Company in which it previously established that a Section 104 inquiry triggers the duty to defend under Oregon law. In Anderson, the court explained that “[i]n light of CERCLA’s unique liability regime, which is designed to promote settlement with the EPA instead of litigation,” EPA requests for compliance with its provisions should qualify as “suits,” triggering an insurer’s duty to defend its insured throughout the administrative process. The court adopted the Oregon Court of Appeals’ broad definition of the word “suit,” which was defined as any “attempt to gain an end by any legal process.” The court also based its decision on an Oregon environmental statute that defines the term “suit” to specifically include all administrative actions taken by the EPA. The statute specifically directs courts to apply this definition of “suit” in interpreting general liability policies, unless a contrary intent is reflected in the policies.
As noted by the Anderson court, while this issue has been widely litigated across state and federal jurisdictions with varying results, only a minority has held that a CERCLA inquiry letter does not constitute a “suit” within the meaning of a general liability policy. It is worth noting that the court’s decision could equally apply to inquiries and administrative actions under state environmental cleanup statutes. Therefore, insurers may be called upon to defend policyholders facing state actions as well.
Complex environmental claims can be costly for insurers when they are covered under a policy. An insured could face significant liability. And because litigation could potentially last for years, defense costs can add up. The Ninth Circuit’s decision provides no relief. To the contrary, it obligates insurers to defend their insureds at the outset of an administrative investigation, which can be just as complex and lengthy as litigation that could follow.
Ash Grove Cement Co. v. Liberty Mut. Ins. Co., No. 13-35900, No. 13-35905, No. 14-35298, 2016 U.S. App. LEXIS 8663 (May 11, 2016).