Opinion ID: 1897110
Heading Depth: 1
Heading Rank: 16

Heading: suit versus claim

Text: The trial court determined that the PRP letter of September 23, 1985, was akin to a suit and that the letter triggered Continental's duty to defend. Continental argues that the PRP letter was not a suit and that because there was no suit, Continental had no duty to defend. Continental asserts that its policies differentiate between claims and suits and that the duty to defend applies only to suits. Continental argues that letters or administrative orders of environmental agencies are not suits triggering a duty to defend, relying on Foster-Gardner, Inc. v. Nat. Union Fire Ins., 18 Cal.4th 857, 959 P.2d 265, 77 Cal.Rptr.2d 107 (1998). In that case, the insured was ordered by the state EPA to remediate pollution. The insured sued its insurers when they refused to defend. The insurers argued that the word suit, as used in the policies, meant a civil action commenced by filing a complaint. Anything short of this is a `claim.' Id. at 878, 959 P.2d at 279, 77 Cal.Rptr.2d at 121. The court stated that the policies at issue required the insurers to defend a suit but that the policies allowed discretion to investigate and settle a claim. Continental's policy stated: The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of A. bodily injury or B. 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 bodily injury or property damage, even, if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient, but the company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the company's liability has been exhausted by payment of judgments or settlements. (Emphasis supplied.) The PRP letter from the EPA, dated September 23, 1985, informed Dutton that it was believed to be a party responsible for contamination of landfills. The letter stated that if the EPA used public funds to clean up the hazardous substances, responsible parties may be . . . liable for all costs incurred by the government in responding to the contamination. Dutton was directed to notify the EPA verbally by the close of business on October 1 and in writing by October 4 of the nature and extent of the actions it was willing to undertake. If the EPA did not receive the requested responses, it would assume that Dutton was declining to undertake the necessary response actions at the site and the EPA would proceed to take any action necessary. The trial court determined that the PRP letter was a warning to Dutton that it could be responsible for the contamination. Dutton chose to accept responsibility for remediating the contamination. If Dutton had refused to take action, the EPA could have proceeded with its investigation, and if the investigation proved that Dutton was responsible, then a suit would have been initiated. The court noted that damages awarded as a result of a suit could have been greater if Dutton had not taken steps to mitigate by cleaning up the contamination. The trial court concluded that a PRP letter is akin to a suit, based upon the severity and significant repercussions if Dutton took no action. It noted that insurance companies such as Continental which insure for this type of damage have common knowledge of the outcome when the EPA is involved in addressing contaminations. The court relied on two cases: Aetna Cas. and Sur. Co., Inc. v. Pintlar Corp., 948 F.2d 1507 (9th Cir.1991), and Anderson Development Co. v. Travelers Indem. Co., 49 F.3d 1128 (6th Cir.1995). In Aetna Cas. and Sur. Co., Inc. v. Pintlar Corp., 948 F.2d at 1517, the court held: [T]he EPA's administrative claims against the insureds triggered insurers' duty to defend. Coverage should not depend on whether the EPA may choose to proceed with its administrative remedies or go directly to litigation. A fundamental goal of CERCLA [Comprehensive Environmental Response, Compensation, and Liability Act of 1980] is to encourage and facilitate voluntary settlements. Interim Guidance on Notice Letters, Negotiations, and Information Exchange, EPA Memorandum, 53 Fed. Reg. 5298 (1988). It is in the nation's best interests to have hazardous waste cleaned up effectively and efficiently. But the insured is not required to submit to, and may in fact wish to oppose the threat. In either event, the insurer's duty to defend may well be triggered. The federal court stated that a PRP notice differs from a garden variety demand letter in that it carries immediate and severe implications, rather than simply exposing a party to a potential threat of future litigation. Aetna Cas. and Sur. Co., Inc. v. Pintlar Corp., 948 F.2d at 1516. [T]he PRP's substantive rights and ultimate liability are affected from the start of the administrative process. Id. The court further noted that it may be more prudent for the PRP to undertake the environmental studies and cleanup measures itself than to await the EPA's subsequent suit in a cost recovery action. Id. at 1517. Lack of cooperation may expose the insured, and potentially its insurers, to much greater liability, including the EPA's litigation costs. Id. As a result, an `ordinary person' would believe that the receipt of a PRP notice is the effective commencement of a `suit' necessitating a legal defense. Id. If the threat is clear then coverage should be provided. The filing of an administrative claim is a clear signal that legal action is at hand. Id. at 1518. In Anderson Development Co. v. Travelers Indem. Co., 49 F.3d at 1132, the federal court applied a recent Michigan case in which the state court determined that a PRP letter constituted the initiation of a suit triggering [the insurer's] duty to defend. The federal court agreed with the state court's conclusion that a PRP letter issued by the EPA can be considered the functional equivalent of a `suit' brought in a court of law. Id. at 1131. Courts have reached differing conclusions as to what is necessary to trigger a duty to defend. Some courts have held that the receipt of a PRP letter invokes an insurer's duty to defend. In these cases, the courts have found the word suit to be ambiguous and defined it broadly, taking into consideration the perceived coercive impact of a PRP letter and the ability of the EPA to enforce strict liability in actions under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980. See, e.g., Aetna Cas. and Sur. Co., Inc. v. Pintlar Corp., 948 F.2d 1507 (9th Cir.1991) (applying Idaho law); A.Y. McDonald Industries v. INA, 475 N.W.2d 607 (Iowa 1991); Coakley v. Maine Bonding & Cas. Co., 136 N.H. 402, 618 A.2d 777 (1992). Other courts have determined that the word suit should be liberally interpreted in favor of the insured. These courts looked at whether the EPA letters were coercive to determine if a PRP letter or a notification letter from a state agency triggered the insurer's duty to defend. See, e.g., Ryan v. Royal Ins. Co. of America, 916 F.2d 731 (1st Cir.1990); Professional Rental v. Shelby Ins., 75 Ohio App.3d 365, 599 N.E.2d 423 (1991). Still other courts have determined that the word suit was unambiguous and applied the plain meaning of the word. As a result, they concluded that the commencement of some action in a court of law was required before an insurer's duty to defend is triggered and that the issuance of a PRP letter does not invoke the duty to defend. See, Ray Industries, Inc. v. Liberty Mut. Ins. Co., 974 F.2d 754 (6th Cir. 1992) (rejected by Anderson Development Co. v. Travelers Indem. Co., 49 F.3d 1128 (6th Cir.1995)); Patrons Oxford Mut. Ins. Co. v. Marois, 573 A.2d 16 (Me.1990); City of Edgerton v. General Cas. Co., 184 Wis.2d 750, 517 N.W.2d 463 (1994), overruled, Johnson Controls v. Employers Ins., 264 Wis.2d 60, 665 N.W.2d 257 (2003). The interpretation of an insurance policy is a question of law. In reviewing questions of law, an appellate court resolves the question independently of the lower court's conclusion. Rickerl v. Farmers Ins. Exch., 277 Neb. 446, 763 N.W.2d 86 (2009). We agree with the rationale in Aetna Cas. and Sur. Co., Inc. v. Pintlar Corp., supra , and Anderson Development Co. v. Travelers Indem. Co., supra . Whether an insurer is required to provide coverage on a policy should not be dependent on whether the EPA proceeds with administrative remedies or files litigation. A PRP letter is the functional equivalent of a suit as described in the insurance policies, and therefore, the insurers had a duty to defend Dutton. The PRP letter from the EPA carried with it the EPA's coercive powers. Dutton conducted an investigation to determine whether it was a PRP and determined that it was. Dutton proceeded to plan for remediation and developed new methods in an attempt to save further expense. The term suit can be readily understood to apply to actions that are the functional equivalent of a suit filed in a court of law. The PRP letter advised Dutton that it was immediately at risk. If Dutton declined the necessary response, its substantive rights and ultimate liability were affected from the receipt of the PRP letter. As noted in Aetna Cas. and Sur. Co., Inc. v. Pintlar Corp., 948 F.2d 1507 (9th Cir.1991), an ordinary person would believe that the receipt of a PRP letter was in effect the commencement of a suit. The language of an insurance policy should be considered in accordance with what a reasonable person in the position of the insured would have understood it to mean. Dutton I. The threats of the letter were clear and carried immediate implications. The trial court was correct in finding there was a suit. Continental's cross-appeal on this issue has no merit.