This environmental coverage action involved a dispute over whether the insurers had a duty to provide a defense to claims brought by the EPA in a CERCLA remediation action involving hazardous waste contained in three surface impoundments. The 5th Circuit interposed a certified question to the Supreme Court of Texas whether the EPA’s PRP letters and unilateral administrative orders issued pursuant to CERCLA constitute a “suit” within the meaning of the commercial general liability (CGL) policies triggering a duty to defend.
The plaintiff policyholder was in the waste disposal business. In the 1960s, the policyholder removed waste from a paper mill and released it into three ponds located adjacent to the San Jacinto River. Phoenix Insurance Company and the Travelers Indemnity Company (collectively, Travelers) issued CGL policies to McGinnes covering the years 1967-68, 1968-69, and 1970-71. The policies, however, do not define “suit.”
In 2005 the EPA began evaluating the potential contamination at the site and sought the policyholder’s cooperation in the investigation pursuant to CERCLA. In 2007 the EPA sent its first written communication to the policyholder and its parent company Waste Management via a “General Notice Letter.” A second communication consisting of Combination General Notice Letter Information Request Letter was sent in 2008. This letter contained a request for information and noted that failure to respond may result in fines. In 2009 the EPA sent a Special Notice Letter pursuant to CERCLA that explicitly provided for settlement agreements with PRP’s and a request for a good faith offer within 60 days to EPA’s incurred costs of $387,863.61. Lastly, EPA sent its fourth correspondence consisting of a Unilateral Administrative Order requiring the policyholder to conduct a Remedial Investigation/Feasibility Study.
The policyholder notified Travelers of the EPA’s actions and requested that it provide a defense pursuant to the CGL policies, but Travelers refused to defend, claiming that no suit had been filed. McGinnes then sued Travelers seeking over $2 million in attorney’s fees, as well as a declaratory judgment that Travelers was required to defend it. McGinnes and Travelers filed cross motions for partial summary judgment as to the duty to defend.
The district court granted Travelers’s motion, holding that the EPA’s actions were not a suit triggering the duty to defend. The court first noted that when the policies were issued in the late 1960s and early 1970s, CERCLA did not exist. The court reasoned that “[a]t the time [the policies] were written and priced, the policies understood suit to mean a lawsuit before a neutral magistrate who would decide causation, liability, and actual damages by reference to formal standards.” Thus, according to the district court, “[t]he policies covered the risks of lawsuits, but not those of a virulent administrative state.”
On appeal, the 5th Circuit Court of Appeals noted that the Supreme Court of Texas and Texas courts of appeals have not determined whether the EPA’s actions qualify as a “suit” under a CGL policy, thereby triggering the duty to defend. Rather, the only Texas court to address the issue was a Texas state district court, which held that “suit” in CGL policies was sufficiently broad to include PRP letters in CERCLA-type proceedings and reasoned that PRP letters “are as likely to be coercive as any lawsuit and as likely to carry grave legal consequences.” It held that the test for determining if an order or letter is a “suit” “is whether the insured is legally disadvantaged by the consequences of failing to take the action demanded in the order or letter.
The policyholder, citing dictionary definitions of “suit,” contended that the term was ambiguous: one meaning is narrow and requires legal action in court and the other is broader and means an effort to gain an end by legal process. McGinnes argued that the broader meaning would control and include the EPA’s PRP letters and unilateral administrative order. The policyholder also contended that the majority of other jurisdictions have interpreted “suit” broadly to cover EPA actions like the ones here.
In contrast, Travelers emphasized that Texas contract law requires interpreting contracts consistent with the circumstances and law existing when the contract was entered. In the time frame in which the CGL policies were issued, Travelers asserts, the Supreme Court of Texas and Texas courts of appeal defined “suit” as a proceeding in a court of justice. Travelers also contended that construing the word “suit” broadly would render the term “claim” in the policy meaningless and that a broad definition of “suit” violates the eight-corners rule. Travelers also criticizes cases from other jurisdictions that adopt a broad definition of “suit” for not adhering to the plain, ordinary meaning of the contract terms. Travelers argues that the better-reasoned decisions are from states interpreting “suit” narrowly.
In certifying the question to the Texas Supreme Court, the 5th Circuit noted that this action presents an unsettled question of Texas law, that the parties each make reasonable arguments in support of their position, and other courts considering the issue have not come to a consensus.
McGinnes Ind. Maintenace Corp. v. Phoenix Ins. Co. et. al.
(5th Cir., June 11, 2014)