Opinion ID: 1974373
Heading Depth: 2
Heading Rank: 2

Heading: Do PRP Letters Trigger the Insurer's Duty to Defend?

Text: [14] ś 72. Having determined that CERCLA response costs for restoring and remediating contaminated property should have been determined to be damages under the relevant CGL policies, we turn to the other holding in Edgerton: that the receipt of a potentially responsible party (PRP) letter from the EPA, or a similar letter from a state agency, does not constitute a suit for which an insurer has a duty to defend. ś 73. The Edgerton court stated the problem in the following manner: The expansive authority granted to state and federal agencies under CERCLA, in order to initiate environmental cleanup of hazardous waste, has had the effect of producing a flood of litigation so as to determine who will pay the cleanup costsâ the PRP or the PRP's insurer. . . . [T]here has been no definitive, nationwide resolution of the ultimate issueâ whether the general comprehensive liability policyâ the CGLâ imposes a duty to defend a federal or state demand for environmental remediation and cleanup costs. Instead, courts have developed competing definitions of what constitutes a suit when environmental cleanup is required. Edgerton, 184 Wis. 2d at 766-68. ś 74. The court went on to observe that: Some courts have concluded that PRP letters have a unique nature within the context of a CERCLA administrative proceeding. These courts have held that the receipt of PRP letters is the functional equivalent of a suit because (a) the letters maintain a confrontational and adversarial posture, and (b) they create the spectre of devastating financial consequences if voluntary cooperation is not forthcoming. As a result, PRP liability for immediate and long-range cleanup and remediation costs necessitates a legal defense. Id. at 770. ś 75. Then the court provided its own answer: We conclude that neither a PRP letter nor a comparable notification letter by a state agency such as the DNR triggers the insurers' duty to defend. . . . . [T]he primary attribute of a suit is that parties to an action are involved in actual court proceedings, initiated by the filing of a complaint. . . . [D]efinitions of suit or legal process all involve a court action. . . . . We find no ambiguity in the term suit as it has been used in the insurance policies. Suit denotes court proceedings, not a functional equivalent. The dissent believes that a reasonable policyholder would view letters from a federal or state agency advising an insured of liability as a suit. To the contrary, the word suit is easily understood and unambiguous to a reasonable policyholder. The proof is in the decisions that hold that a PRP letter is the functional equivalent of a suit. Either there is a suit or there is not. When there is no suit, there is no duty to defend. Id. at 771, 775, 781. [15] ś 76. The Edgerton court's definition of suit gives us pause. An insurance policy is a contract between parties, and it is normally not the province of the court to enlarge the terms of a policy the parties have agreed upon. At the same time, the specific term being applied needs to be put in context. ś 77. Comprehensive general liability policies not only provide protection to insureds through indemnification for damages for which the insured becomes liable, but also for defense costs. John N. Bolus, Contractual Liability Insurance Provisions: An Overview, in Reference Handbook on the Comprehensive General Liability Policy: Coverage Provisions, Exclusions, and Other Litigation Issues 43 (Peter J. Neeson ed. 1995). A literal definition of the term suit in the CGL policy presents some practical difficulties in understanding and reconciling the obligations of the parties in the presence of a CERCLA claim. ś 78. For instance, the CGL policy imposes duties upon the insured. The standard policy has long required that the insured provide notice to the insurer as soon as practicable. The 1973 version of the policy provides: In the event of an occurrence, written notice containing particulars sufficient to identify the insured and also reasonably obtainable information with respect to the time, place and circumstances thereof, and the names and addresses of the injured and of available witnesses, shall be given by or for the insured to the company or any of its authorized agents as soon as practicable. Dorothy Dey & Susan Ray, Annotated Comprehensive General Liability Policy § 3-1, 41 (1985). ś 79. A second provision of the CGL policy requires the insured to immediately forward process to the insurer: If a claim is made or suit is brought against the insured, the insured shall immediately forward to the company every demand, notice, summons or other process received by him or his representative. Dey, supra, at § 3-2, 44. ś 80. This CGL policy language is reinforced in Wisconsin by two statutes. See Wis. Stat. §§ 631.81, 632.26 (2001-02). These two sections govern the notice provisions in Wisconsin insurance policies and set out the rights and duties of the insured and the insurer. Neff v. Pierzina, 2001 WI 95, ś 30, 245 Wis. 2d 285, 629 N.W.2d 177. They have been a part of Wisconsin law for more than a half-century. ś 81. A third provision in the CGL policy imposes a duty on the insured to cooperate in the event of an occurrence, claim, or suit: The insured shall cooperate with the company and, upon the company's request, assist in making settlements, in the conduct of suits and in enforcing any right of contribution or indemnity against any person or organization who may be liable to the insured because of injury or damage with respect to which insurance is afforded under this policy; and the insured shall attend hearings and trials and assist in securing the giving evidence and obtaining the attendance of witnesses. The insured shall not, except at his own cost, voluntarily make any payment, assume any obligation or incur any expense other than for first aid to others at the time of accident. Dey, supra, at § 3-3, 45. [36] ś 82. The CGL policy then addresses the insurer's duty to defend. The relevant clause in the policy provides that the insurer shall have the right and duty to defend any suit against the insured seeking damages. This language appears to imply an equivalency between the insurer's right and the insurer's duty. The insurer's right is partially defined in the previously noted duties imposed on the insured. [16] ś 83. [T]he duty to defend is generally acknowledged to be broader than the insurance company's duty to pay . . . . Bolus, supra, at 43 (emphasis added). Generally, the duty to defend is broader than the duty to indemnify.  Arnold P. Anderson, Wisconsin Insurance Law 212 (3d ed. 1990) (citing Colton v. Swain, 527 F.2d 296 (7th Cir. 1975)) (emphasis added). ś 84. When the CGL policy requires and the insurer insists upon notice and cooperation from the insured, and when the insurer's duty to defend is generally broader than its duty to pay, how is the insurer entitled to assert that it has no duty to defend until an actual suit has been filed? When an insurer has received a copy of the insured's PRP letter, it has become familiar with the nature of the claim. Faced with a PRP letter, which can lead to drastic consequences, including higher costs, and which has been shared with the insurer, the reasonable insured is likely to expect reciprocal cooperation from the insurer in the form of a defense. [17, 18] ś 85. A tender of defense occurs when the insurer has notice that there is a claim against the insured. Towne Realty, Inc. v. Zurich Ins. Co., 201 Wis. 2d 260, 264, 548 N.W.2d 64 (1996). A tender of defense occurs once an insurer has been put on notice of a claim against the insured. This approach `discourages the insurer . . . from defaulting in the performance of its duty to defend.' Id. at 267 (quoting White Mountain Cable Constr. v. Transamerica, 631 A.2d 907, 910 (N.H. 1993)). If there is any doubt about the duty to defend, it must be resolved in favor of the insured. Towne Realty, 201 Wis. 2d at 269 (quoting Shorewood, 170 Wis. 2d at 364). In short, we might look at the language of the CGL policy and conclude that, in the context of a PRP letter from the EPA or a similar letter from a state agency, a reasonable person in the position of the insured would expect the insurer to provide a defense. ś 86. As Edgerton noted, other courts have attacked the problem in a different way after analyzing the unique system of liability under CERCLA. CERCLA was designed not only to require that responsible parties pay for the costs of responding to contaminated property but also to encourage parties to undertake these remediation efforts without litigation and in conjunction with other PRPs for the particular site at issue. See 42 U.S.C. § 9622(a), (e). The EPA's practice is to use PRP letters to achieve the goal of remediating environmental contamination, rather than to bring suit immediately upon identifying a polluter. See EDO Corp. v. Newark Ins. Co., 898 F. Supp. 952, 960 (D. Conn. 1995). Of course, nothing prohibits the EPA from remediating properties itself and then commencing a cost recovery action naming the insured. In these circumstances, the suit condition has undoubtedly been met. ś 87. The existence of a statutory system designed to forgo litigation, while achieving the same relief, minimizes the distinction between administrative claims and formal legal proceedings. See Aetna Cas. & Sur. Co. v. Pintlar Corp., 948 F.2d 1507, 1517 (9th Cir. 1991) (Coverage should not depend on whether the EPA may choose to proceed with its administrative remedies or go directly to litigation.). [37] ś 88. Because of this strong policy in favor of cooperative remediation over litigation, CERCLA provides within its enforcement mechanism significant incentives for prompt and full involvement from all contacted PRPs. Failure to actively engage the EPA following a PRP letter can lead to such adverse consequences as (1) large fines that may include treble punitive damages; (2) an inadequate administrative record affecting the insured's interests; (3) use of the insured's non-compliance against the insured in the apportionment of cleanup costs in subsequent litigation; (4) forfeiture of special rights against latter actions for contribution of response cost payments; and (5) other parties (including perhaps the EPA) cleaning up the site at a higher cost, which will latter be demanded of the insured. See Quaker State Minit-Lube, Inc. v. Fireman's Fund Ins. Co., 868 F. Supp. 1278, 1308 (D. Utah 1994); see also Pintlar, 948 F.2d at 1516; Mich. Millers Mut. Ins. Co. v. Bronson Plating Co., 519 N.W.2d 864, 872 (Mich. 1994). ś 89. PRP notice letters expose an insured to agency action that is not inconsequential to its liability interests. In this case, if Johnson Controls had refused to respond to these letters and refused to become involved in remediation efforts with the EPA or comparable state agencies, then, inevitably, the cleanup and remediation work would have been done by the EPA, the state agencies, or by settling responsible parties, any of whom could have sued Johnson Controls for its share of the costs. PRP letters, which are more analogous to a civil complaint than a traditional demand letter, alerted Johnson Controls that the EPA had begun a legal process to conclusively and legally determine the appropriate response activities that liable parties must perform or pay for to abate the pollution at the sites in question. See Pintlar, 948 F.2d at 1516; Hazen Paper Co. v. U.S. Fid. & Guar. Co., 555 N.E.2d 576, 581 (Mass. 1990). ś 90. This is why many courts have concluded that a PRP letter is so adversarial that it constitutes the functional equivalent of a suit and triggers the insurer's duty to defend. In the absence of such a conclusion, the insured has a perverse incentive not to cooperate with government remedial actions until the EPA or a state agency files a civil action in court to force the insured's compliance with CERCLA. Quaker State, 868 F. Supp. at 1307. Deliberate non-compliance for the purpose of obtaining a defense from the insurer is completely contrary to public policy.