9th Circuit Determines that EPA Letters Trigger Insurer’s Duty to Defend

9th Circuit Determines that EPA Letters Trigger Insurer’s Duty to Defend

By Rebecca L. Ross, Charles A. Jones, Jennifer Mathis, Matthew M. Morrissey

On August 30, 2013, the U.S. Court of Appeals for the Ninth Circuit issued an opinion on a contentious environmental insurance coverage issue that has divided state and federal courts. Specifically, in Anderson Brothers, Inc. v. St. Paul Fire and Marine Insurance Co., [enhanced version available to lexis.com subscribers], the Ninth Circuit held that an insured’s receipt of two letters from the U.S. Environmental Protection Agency (“EPA”) triggered its insurer’s duty to defend. Applying Oregon law, the Anderson court determined that Anderson Brothers, Inc.’s (“Anderson”) receipt of two letters from the EPA notifying the company of its potential liability under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) constituted a “suit” under the terms of a St. Paul Fire and Marine Insurance Co. (“St. Paul”) policy.

The first letter that Anderson received from the EPA required the company to submit a detailed response to a questionnaire about its activities at a property identified as a CERCLA “Superfund” site. The questionnaire threatened civil penalties of $32,500 per day of noncompliance and required Anderson to respond to 82 inquiries that would necessarily establish its liability under CERCLA. This type of letter is typically referred to as a “Section 104(e) Letter.” Anderson tendered the Section 104(e) Letter to St. Paul and requested that St. Paul provide a legal defense and indemnity. St. Paul declined to provide a defense.

The second letter that Anderson received from the EPA formally identified Anderson as a Potentially Responsible Party (“PRP”) and encouraged the company to participate in settlement discussions with other PRPs. The letter noted that Anderson may be able to avoid litigation and other costs if it agreed to share the clean-up costs with the other PRPs. Anderson tendered the second letter to St. Paul, and St. Paul again declined to provide a defense.

Anderson sued St. Paul alleging that St. Paul breached its duty to defend by failing to provide a legal defense in response to each of the two letters. St. Paul argued that it did not owe a duty to defend because the letters did not constitute a “suit” within the terms of its policy. The Ninth Circuit rejected St. Paul’s argument and upheld the district court’s grant of summary judgment in favor of Anderson.

In reaching this determination, the Ninth Circuit applied the section of the Oregon Environmental Cleanup Assistance Act (the “OECAA”) that provides an explicit definition of a “suit.” The OECAA instructs courts to apply this definition of a “suit” when interpreting comprehensive general liability policies in cases involving the EPA. The OECAA states that “[a]ny action or agreement by the . . . [EPA] against or with an insured in which . . . the [EPA] in writing directs, requests or agrees that an insured take action with respect to contamination within the State of Oregon is equivalent to a suit or lawsuit as those terms are used in any general liability insurance policy.” The Anderson court held that both letters constituted a “suit” within the terms of the OECAA. The court also determined that the usage of the term “suit” in the St. Paul policy was ambiguous.

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