Under a typical comprehensive general liability policy sold during the 1970s, the insurance
company agrees that it “will pay on behalf of the
insured all sums which the insured shall become
legally obligated to pay as damages because of: . . .
property damage to which this insurance applies,
caused by an occurrence, and the company shall
have the right and duty to defend any suit against
the Insured seeking damages on account of such
property damage.” (Emphasis added). Insurance
companies often take the position that its obligation to defend a “suit” is triggered only by a traditional lawsuit or arbitration. And some courts
have accepted that premise.
However, other courts have recognized that the insurance company’s promise to pay defense costs to
its policyholder goes well beyond this scope. And
in Anderson Brothers, the 9th Circuit confirmed on
Aug. 13, 2013, that under Oregon law, insurance
companies cannot deny the defense costs paid by
the policyholder in responding to certain letters
issued by the EPA. Specifically, Anderson Brothers
held that the following communications from the
EPA constituted a “suit” under Oregon law, thereby
triggering a duty to pay defense costs under the
insurance policy:
• A General Notice Letter under Sections 106
and 107 of the Comprehensive Environmental Response, Compensation, and Liability Act
identifying the policyholder as a potentially
responsible party.
• n Information Request Letter under Section
A
104(e) of CERCLA seeking information regarding activities that may have resulted in releases of
hazardous substances.
The Anderson Brothers court explained that the
General Notice Letter under Sections 106 and
107 of CERCLA constituted a “suit” in the overwhelming majority of jurisdictions. Given the
broad powers vested in the EPA to compel remediation, and the vital necessity of a potentially
responsible party in participating settlement negotiations with the EPA as early as possible, Anderson Brothers and other courts have described
the policyholder’s receipt of a general notice
letter as “the functional equivalent of a ‘suit.’”
The Anderson Brothers reached a similar result
with respect to the information request letter. The
9th Circuit explained that the term “suit” — undefined in the policy — was susceptible to two
different interpretations. The broader interpretation, and the one advocated by the policyholder,
was “to attempt to gain an end by any legal process.” This interpretation was consistent with the
Oregon Environmental Cleanup Assistance Act’s
definition of “suit,” which includes “any action
or agreement by the . . . [EPA] against or with an
insured in which . . . the [EPA] in writing directs,
requests, or agrees that an insured take action
“
Few companies
may realize that
comprehensive general
liability policies can be
used to defray the costs
of responding to an
Environmental Protection
Agency inquiry. ... .
”
with respect to contamination within the State of
Oregon.” Considering that the Section 104(e) letter requested that the policyholder respond to an
82-question information request, and that compliance with the information request was required by
law, the court found that this communication also
constituted a “suit” under the policy.
Based on cases such as Anderson Brothers and
others, policyholders facing information requests
by the EPA should demand that their insurance
companies honor their defense obligation by defending these suits. Considering that the costs of
responding to EPA letters and information requests
can be significant, policyholders would be remiss in
failing to notify their insurance companies of such
a development.
Continued next page
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