Opinion ID: 1176222
Heading Depth: 4
Heading Rank: 2

Heading: The functional and hybrid approaches

Text: Under the functional approach, any receipt of a PRP letter or other pre-complaint environmental agency activity constitutes a suit. [7] In a refinement of the functional approach, other courts have determined that a PRP letter or other pre-complaint environmental agency action is a suit only if it is sufficiently coercive and threatening. ( Ryan v. Royal Ins. Co. of America (1st Cir.1990) 916 F.2d 731, 741-742 [applying N.Y. law: origins and purpose of the duty to defend seem best accommodated ... by focusing... [on the] coerciveness, adversariness, the seriousness of the effort with which the government hounds an insured, and the gravity of imminent consequences; these do not include a state environmental agency's implied invitation to voluntary action].) [8] This is the hybrid approach. These courts essentially do not consider a mere preliminary notification to be a suit, but conclude a proceeding becomes a suit if it progresses beyond the mere notification or request for voluntary action stage. Because the Order received by Foster-Gardner in this case is considerably past the mere notification stage, we need not differentiate between the two approaches here. Under both the functional and hybrid approach, the term suit is deemed ambiguous, and interpreted to refer to proceedings other than those in a court of law initiated by the filing of a complaint. Some courts are persuaded that the fact that another reasonable interpretation of the term `suit' exists simply creates an ambiguity. ( Morrisville Water & Light Dept. v. United States Fidelity & Guar. Co., supra, 775 F.Supp. at p. 733.) Having found ambiguity, courts then determine that an insured would reasonably expect a defense of the administrative agency's order or other activity. ( Aetna Casualty & Surety Co., Inc. v. Pintlar Corp., supra, 948 F.2d at p. 1517[[A]n `ordinary person' would believe that the receipt of a PRP notice is the effective commencement of a `suit' necessitating a legal defense. The PRP letter forced Gulf to hire technical experts and lawyers to protect its interests in connection with EPA's actions.].) For many courts that conclude an administrative action is a suit, [o]f critical importance is the creation of the administrative record and the role it may play in future litigation. Documentation sought by the EPA, and which [the insured] must produce under the force of law, will determine the amount and type of waste generated by [the insured] and discharged onto the site. Given the strict liability stance of CERCLA, this information is all that is needed to establish both the fact and proportional share of [the insured's] liability at the site. [¶] Moreover, because the EPA may implement any investigatory and remedial action it deems necessary at the site, subject only to an abuse of discretion review, the total cost of the project will also be determined before litigation is brought. The significant authority given to the EPA in such matters allows it essentially to usurp the traditional role of a court of law in determining and apportioning liability. Such matters are concluded by the EPA before the action is ever brought to court. ( Michigan Millers Mut. Ins. Co. v. Branson Plating Co., supra, 519 N.W.2d at pp. 871-872, italics omitted; Aetna Casualty & Surety Co., Inc. v. Pintlar Corp., supra, 948 F.2d at p. 1516 [Unlike the garden variety demand letter, which only exposes one to a potential threat of future litigation, a PRP notice carries with it immediate and severe implications. Generally, a party asserting a claim can do nothing between the occurrence of the tort and the filing of the complaint that can adversely affect the insured's rights. However, in a CERCLA case, the PRP's substantive rights and ultimate liability are affected from the start of the administrative process.]; Avondale Indus., Inc. v. Travelers Indem. Co., supra, 887 F.2d at p. 1206; Morrisville Water & Light Dept. v. United States Fidelity & Guar. Co., supra, 775 F.Supp. at p. 733; Hazen Paper v. U.S. Fidelity and Guar., supra, 555 N.E.2d at p. 581.) Other courts have stated that [c]overage should not depend on whether the EPA may choose to proceed with its administrative remedies or go directly to litigation. ( Aetna Casualty & Surety Co., Inc. v. Pintlar Corp., supra, 948 F.2d at p. 1517.) If the threat is clear then coverage should be provided. ( Id. at p. 1518.) In response to the concern that a decision in [the insurer's] favor might blur the distinction between `claim' and `suit' evidenced in [the] insurance policies, one court has stated, we wish to emphasize that this opinion should in no way be viewed as intimating that every request for relief should be considered the initiation of a suit that the insurers are obliged to defend. Rather, our determination on this issue is made primarily based on the unique aspects of CERCLA actions and the authority given to EPA under the statute.... Accordingly, we do not disturb the basic claim/suit distinction contained within the subject insurance policies. ( Michigan Millers Mut. Ins. Co. v. Bronson Plating Co., supra, 519 N.W.2d at p. 871, fn. 13.) Finally, courts have relied on certain policy considerations, such as the need to encourage prompt and efficient hazardous waste cleanup. [I]f the receipt of a PRP notice is held not to trigger the duty to defend under CGL policies, then insureds might be inhibited from cooperation with the EPA in order to invite the filing of a formal complaint.... A fundamental goal of CERCLA is to encourage and facilitate voluntary settlements.... It is in the nation's best interests to have hazardous waste cleaned up effectively and efficiently. ( Aetna Cas. & Sur. Co., Inc. v. Pintlar Corp., supra, 948 F.2d at p. 1517; Avondale Indus., Inc. v. Travelers Indem. Co., supra, 887 F.2d at p. 1206 [common sense argues that for Travelers to proffer a defense now is better for it, Avondale, and the public interest in a prompt cleanup of the hazardous waste]; Michigan Millers Mut. Ins. Co. v. Bronson Plating Co., supra, 519 N.W.2d at p. 872[[F]rom a policy perspective,... the position urged by [the insurers] would only increase the litigiousness of this already extensively litigated area of the law. Limiting an insurer's duty to defend to an actual court proceeding preceded by a complaint would merely encourage PRPs to decline `voluntary' involvement in site cleanups, waiting instead for an actual lawsuit to be brought in order to receive insurance coverage. This would have the effect of substantially protracting the cleanup of contaminated sites.].)