Opinion ID: 2812465
Heading Depth: 2
Heading Rank: 2

Heading: Coverage for “Damages”

Text: The Court’s second reason for imposing a duty to defend here is that courts in other jurisdictions have construed the policies’ coverage for “damages” to include CERCLA cleanup costs—i.e., that the Insurers have a duty to indemnify against such costs. The Court reasons that “[t]o interpret the policies as covering the damages incurred as a result of pollution cleanup 13 proceedings without giving the Insurers the right and duty to defend those proceedings creates perverse incentives and consequences for insurers and insureds alike.” Ante at __. The Court then identifies possible disincentives and indicates that these possibilities, whether likely or not, “illustrate the problem with a duty to indemnify without a duty or right to defend.” Ante at __. This ground for rewriting the parties’ policies is problematic for several reasons. First, it presupposes this Court’s ruling on a question that we have never decided and that is not presented here. Not all courts have agreed that CERCLA cleanup costs are “damages” under a CGL policy. See, e.g., Indus. Enters., Inc. v. Penn Am. Ins. Co., 637 F.3d 481, 489–90 (4th Cir. 2011) (noting that the standard CGL policy language preceded the enactment of CERCLA in 1980 and finding no evidence that subsequently created CERCLA liabilities somehow became automatically includable in the term “property damage” upon the enactment of CERCLA, without any change to the policy language). We have never addressed that issue, and we need not (and thus cannot) do so here. Second, even if the term “damages” includes CERCLA cleanup costs that the insured voluntarily accepts without any court proceedings, the Court ignores the policies’ distinction between the Insurers’ duty to indemnify and their duty to defend. “The duty to defend and the duty to indemnify are distinct and separate duties.” King v. Dall. Fire Ins. Co., 85 S.W.3d 185, 187 (Tex. 2002). If we treat the two duties as the same, we render meaningless the contract’s express distinction between them. This we cannot do, even if we think our approach represents better policy and better alignment of the parties’ interests and incentives. Third, recognizing the contract’s distinction between the duty to defend and the duty to indemnify does not necessarily create “perverse incentives.” See ante at __. If in fact the Insurers’ 14 duty to indemnify requires them to pay all liabilities that the insured voluntarily incurs in response to a PRP letter or administrative order, the policies incentivize the Insurers to investigate and settle those claims promptly to minimize their potential liabilities. But that presents a different question than whether the Insurers must provide a defense or reimburse the costs the insured incurs in responding to the EPA’s demands. According to the policies’ language, the Insurers must “pay on behalf of [McGinnes] all sums which [McGinnes] shall become legally obligated to pay as damages because of . . . property damage to which this insurance applies,” and may elect to investigate and settle “any claim or suit it deems expedient.” But we are asked in this case whether they must defend McGinnes against the EPA’s demands and orders, and under the policies’ language that duty applies only to a “suit” seeking such damages. The policies’ use of the term “damages,” even if construed to include presuit liabilities (an issue not presented here), is consistent with the common, ordinary meaning of the term “suit” to define the Insurers’ duty to defend.