Texas Supreme Court Rules That EPA Proceedings Constitute a “Suit” Under General Liability Policy
08.10.15
This is only gets display when printing
(Article from Insurance Law Alert, July/August 2015)
For more information, please visit the Insurance Law Alert Resource Center.
The Texas Supreme Court ruled that proceedings initiated by the Environmental Protection Agency pursuant to CERCLA constitute a “suit” for purposes of triggering an insurer’s duty to defend. McGinnes Indus. Maint. Corp. v. Phoenix Ins. Co., 2015 WL 4080146 (Tex. June 26, 2015).
After investigating environmental contamination at a waste disposal site used by McGinnes Industrial Waste Corporation, the EPA identified McGinnes as a potentially responsible party (“PRP”) and demanded compensation for cleanup costs pursuant to CERCLA. In addition, the EPA issued an administrative order directing McGinnes to conduct a remedial investigation and feasibility study, warning that a failure to comply would result in civil penalties and punitive damages. McGinnes requested a defense from its liability insurers. The insurers refused on the ground that the EPA proceedings were not a “suit” under their policies. A Texas trial court agreed and granted the insurers’ summary judgment motion. See May 2013 Alert. On appeal, the Fifth Circuit certified the following question to the Texas Supreme Court: “Whether the EPA’s PRP letters and/or unilateral administrative order, issued pursuant to CERCLA, constitute a ‘suit’ within the meaning of the CGL policies, triggering the duty to defend.”
Answering the certified question in the affirmative, the Texas Supreme Court ruled that the insurers were required to defend the EPA proceedings. The court reasoned that the EPA’s CERCLA enforcement proceedings are not merely the “functional equivalent” of a suit (a standard used in several jurisdictions in evaluating an insurer’s duty to defend administrative agency proceedings; see June 2014 Alert; January 2013 Alert) but rather “are the suit itself, only conducted outside a courtroom.” The court explained that because CERCLA effectively redefined a “suit,” a policyholder’s right to a defense “should not be emasculated by the enactment of [CERCLA].” However, the court emphasized that simple demand letters or threats of litigation do not constitute “suits” because they do not command compliance, backed by the threat of fines and penalties. In reaching its holding, the court noted that the “overwhelming majority of jurisdictions” have held that EPA CERCLA proceedings constitute a suit for purposes of an insurer’s duty to defend.