Opinion ID: 2812465
Heading Depth: 2
Heading Rank: 1

Heading: The Policies Predate CERCLA

Text: The Court asserts that EPA letters and orders under CERCLA are the modern equivalent of what would have been a suit at the time the policies were written. Ante at __. It assumes that 12 See Foster-Gardner, Inc. v. Nat’l Union Fire Ins. Co., 959 P.2d 265, 280 (Cal. 1998) (“[T]he unambiguous language of the policies obligated the insurers to defend a ‘suit’ not . . . the ‘substantive equivalent’ of a ‘suit.’”); Johnson Controls, Inc. v. Emp’rs Ins. of Wausau, 665 N.W.2d 257, 305 (Wis. 2003) (Wilcox, J., dissenting) (noting the insured “did not contract to be defended when it faced the ‘functional equivalent of a suit’; it contracted to be defended from ‘suits’”). 13 Another significant problem with this argument is the difficulty of determining what is and is not the “functional equivalent” of a “suit.” Federal and state courts adopting the functional-equivalent approach continue to face a myriad of disputes over this issue. See, e.g., Gull Indus., Inc. v. State Farm Fire & Cas. Co., 326 P.3d 782 (Wash. Ct. App. 2014) (dispute over whether letter from Department of Energy is functional equivalent of suit); Pac. Hide & Fur Depot v. Great Am. Ins. Co., 23 F. Supp. 3d 1208 (D. Mont. 2014) (dispute over whether PRP letter under CECRA is functional equivalent of suit); Anderson Bros. v. St. Paul Fire & Marine Ins. Co., 729 F.3d 923 (9th Cir. 2013) (dispute over whether demand for information under CERCLA is functional equivalent of a suit); Nucor Corp. v. Emp’rs Ins. Co. of Wausau, 296 P.3d 74, 81–82 (Ariz. Ct. App. 2012) (dispute over whether letter from state department of environmental quality is functional equivalent of suit); Melssen v. Auto-Owners Ins. Co., 285 P.3d 328 (Colo. App. 2012) (dispute over whether notice of claim under state statute governing construction defects is functional equivalent of suit). 8 McGinnes and the Insurers intended the policies to cover the kinds of expenses at issue here, but they fell a little short because they defined coverage according to the mechanism the EPA used to impose environmental cleanup costs at the time (“suits”) instead of using a broader term that would include the mechanism the EPA now uses to impose such costs. The Court supports this conclusion by describing the EPA’s CERCLA activities as particularly onerous, one-sided prosecutions, implying that if McGinnes and the Insurers intended the Insurers to pay for the defense of pollution lawsuits, surely they intended the Insurers to pay the costs associated with this far more draconian means of compelling companies to remediate their past pollution. I am not convinced, for at least three reasons. First, the post-policy changes to the EPA’s enforcement authority provide no basis for the Court’s rewriting of the insurance policies here. “Prior to the passage of pollution control laws, which began in the late 1960s, there was no dispute over the meaning of the term ‘suit’ as used in CGL insurance policies. It was generally understood that a ‘suit’ was initiated with the traditional summons and complaint.” 48 A.L.R. 5th 355, § 2[a] (1997). The parties contracted for a duty to defend “suits” and only “suits,” expressly granting the Insurers discretion as to whether to defend against or settle “claims” that were not asserted in a “suit.” The Court replaces these ordinary meanings with some other, as-yet undefined meanings. The Court denies that its holding extends the Insurers’ duty to defend “to every demand letter,” but does not say when a demand letter is a “claim” like any other demand letter and when it is a “suit.” Ante at __. Similarly, the Court denies that its holding extends the Insurers’ duty to defend to “all administrative proceedings,” but does not say which administrative proceedings will amount to a “suit,” like those under CERCLA, and which administrative proceedings will not. Ante at __. The 9 Court simply says that “a simple demand letter threatening or prefacing a lawsuit is nothing like a PRP letter or unilateral administrative order,” ante at __, and “EPA enforcement proceedings are unusual,” ante at __. The difference that the Court finds between CERCLA demand letters and other demand letters, and the difference between CERCLA investigations and other administrative proceedings, appears to be the severity of the potential ramifications of failing to cooperate with the EPA. But neither the EPA’s PRP letters nor its unilateral administrative orders are selfexecuting under CERCLA. As with any party who receives a demand letter, a PRP has the right to deny the EPA’s accusations and force the EPA to bring suit. See 42 U.S.C. §§ 9607(a)(4)(A), (C), 9613(b), (e), (f), (g); Gen. Elec. Co. v. Jackson, 610 F.3d 110, 114 (D.C. Cir. 2010). No doubt, CERCLA strongly incentivizes voluntary compliance and grants the EPA substantial power to obtain it. But the EPA can only compel a PRP’s compliance by pursuing its claims against the PRP in court. See Gen. Elec., 610 F.3d at 114. As the D.C. Circuit has explained, the EPA’s four options for cleaning up a contamination site are to (1) negotiate a settlement with the PRPs, see 42 U.S.C. § 9622; (2) clean up the site itself and seek reimbursement from PRPs in a subsequent suit, see id. §§ 9604(a), 9607(a)(4)(A); (3) file an abatement action in federal district court to compel PRPs to conduct the clean-up, see id. § 9606; or (4) issue a unilateral administrative order instructing PRPs to clean the site. Gen. Elec., 610 F.3d at 114. The unilateral administrative order is the only option that does not involve a voluntary settlement or proceedings in a court of law. Id. But unlike a court’s judgment or a settlement agreement, PRPs are not legally compelled to comply with unilateral administrative orders. Instead, they have the “choice” to “refuse to comply with the [order], in which case the EPA may either bring an action in federal district court to enforce the [order] against the noncomplying PRP . . . or clean the site itself and 10 then sue the PRP to recover costs.” Id. at 115. In other words, while CERCLA provides for strict liability and grants the EPA extensive power to enforce its provisions, it does not render the EPA judge and jury of a PRP’s liability. Instead, a “suit” is necessary to impose liability against the PRP’s will, and nothing in CERCLA’s scheme transforms the EPA’s “claim” into a “suit,” under the common, ordinary meanings of those terms. Second, the facts do not support the Court’s assumption that McGinnes and the Insurers would have chosen to insure against the defense expenses if they had anticipated them. Contrary to the Court’s suggestion, the policies were not written at a time when the EPA was imposing liability for violation of federal environmental regulations through suits rather than administrative processes. Instead, they were written at a time when neither the EPA nor the modern federal environmental regulatory scheme existed at all. The EPA was created in December 1970, after both policies were drafted and executed.14 Nor did extensive federal regulation of pollution exist when the policies were drafted. Before 1970, pollution control was left primarily to the states, which had done very little to implement and enforce pollution remediation requirements on private companies.15 We cannot presume that McGinnes and the Insurers anticipated that the federal 14 See THE GUARDIAN: ORIGINS OF THE EPA, www2.epa.gov/aboutepa/origins-epa (last visited June 18, 2015). Private citizen actions were first authorized under federal law that same year. See Edward Lloyd, Citizens Suits and Defenses Against Them, 59 A.L.I. 781, 812 (2009) (“Citizen suit provisions in environmental statutes originated in the Clean Air Act in 1970.”). 15 See A. Myrick Freeman III, Environmental Policy Since Earth Day I: What Have We Gained?, 16 J. OF ECON. PERSPECTIVES 125, 125 (2002) (“Earth Day I, which occurred on April 22, 1970, is an appropriate starting point for examination of the economic benefits and costs that have been realized through United States environmental policy. There were federal laws on the books dealing with air and water pollution prior to that date. But those laws placed primary responsibility for the implementation and enforcement of pollution control requirements on states, and by 1970, they had not accomplished very much.”). 11 government (or any government) would impose on McGinnes the kind of substantial environmental cleanup costs at issue here through judicial proceedings rather than an administrative process because we cannot presume that they anticipated that the federal government (or any government) would impose these kind of costs at all. The kind of massive pollution liability that exists under modern environmental regulation did not exist when these policies were drafted. Moreover, the Court’s assumption that McGinnes and the Insurers intended coverage for pollution cleanup costs is further undermined by the reality of what happened when the EPA and governmental pollution liability did come into existence. In 1970, the year the EPA and the modern age of federal environmental regulation and enforcement were born, the insurance industry drafted an exclusion that denied coverage for pollution under standard-form CGL policies.16 The 1970 pollution exclusion was incorporated into the standard-form CGL policy in 1973.17 In short, the Court’s assumption that the parties anticipated the kinds of pollution-related costs at issue here and intended the “duty to defend any suit” to cover them finds no support in reality. The kinds of costs that McGinnes incurred here were largely nonexistent when it purchased these policies, and if it had purchased them a few years later, after Congress created the EPA and enacted substantial environmental regulation, a standard-form CGL policy would have excluded them from coverage. 16 See BRITTON D. WEIMER ET AL., CGL POLICY HANDBOOK § 5.01[A] (2d ed. 2013). 17 The 1970 pollution exclusion contained an exception for “sudden and accidental” pollution, which was later eliminated, see id. § 5.01[A], but that exception does not appear to be implicated by the facts underlying this coverage dispute. 12 Third, even if the Court were correct that McGinnes and the Insurers would have written their policies to cover CERCLA response costs if they had known that such activities would someday take place outside of judicial proceedings, Texas law does not permit courts to rewrite the parties’ policies to say what the parties might have wanted them to say if they had contemplated subsequent events. “[T]he parties’ intent is governed by what they said, not by what they intended to say but did not.” Fiess v. State Farm Lloyds, 202 S.W.3d 744, 746 (Tex. 2006). “[I]t is not for this court to vary the terms of the contract into which the parties entered, nor to speculate as to what might or might not have been the consequences if the contract had been differently expressed.” Dorroh-Kelly Mercantile Co. v. Orient Ins. Co., 135 S.W. 1165, 1167 (Tex. 1911). As the author of today’s opinion has himself explained, to “divine the parties’ reasonable expectations and then rewrite the contract accordingly, is contrary to the bedrock principle of American contract law that parties are free to contract as they see fit.” Utica Nat’l Ins. Co. of Tex. v. Am. Indem. Co., 141 S.W.3d 198, 208 n.9 (Tex. 2004) (Hecht, J., joined by Owen, J., dissenting) (quoting Wilkie v. Auto–Owners Ins. Co., 664 N.W.2d 776, 782 (Mich. 2003)). We cannot infer that the parties must have intended the policies to cover non-existent forms of “proceedings” that might one day arise. Even if that had been their unexpressed intent, we must determine their intent from the words they actually used, and the word “suit” does not include such proceedings.