The Comprehensive Environmental Response Compensation and Liability Act of 1980 ("CERCLA") authorizes private causes of action to recover damages resulting from hazardous waste pollution. Often, this process begins with the Environmental Protection Agency ("EPA") issuing a notice letter to a potentially responsible party for the pollution (a "PRP") to inform it that it may be subject to liability for future remediation costs. A PRP's failure to respond to this notice—known as a “PRP letter”—may result in significant fines or, subsequently, a formal lawsuit.

A typical commercial general liability (“CGL”) insurance policy obligates an insurer to defend an insured against any suit seeking damages because of, among other things, property damage. A common issue that arises regarding PRP letters is whether the PRP letter constitutes a "suit" and, thus, triggers potential coverage under a CGL policy. Although the majority of jurisdictions hold that it does, New Jersey courts have not definitively ruled on the issue until recently. In Cooper Indus., LLC v. Emplrs. Ins. Wausau, 2016 N.J. Super. Unpub. LEXIS 2003, 1 (N.J. Super. Ct. Law Div. 2016), the New Jersey Superior Court, Law Division, heard the issue as a matter of first impression and held that a PRP letter does, in fact, constitute a “suit” under a CGL policy.

In Cooper, The EPA issued a PRP letter to Cooper Industries, LLC ("Cooper"), naming Cooper (the successor to McGraw-Edison Company ("McGraw")) as a PRP for the remediation of a polluted area of the Lower-Passaic River (the “Site”). Cooper, 2016 N.J. Super. Unpub. LEXIS 2003 at 2. The EPA alleged that McGraw contributed to pollution of the Site between 1900 and 1980 due to its various battery production operations in the area. Id. The EPA requested that Cooper participate in an agreement among numerous companies to pay for a comprehensive study of the Site (the Cooperating Parties Group Agreement, or "CPG") in order to settle, and warned Cooper that it would apply the CERCLA enforcement process if Cooper declined to join. Id. at 3.

OneBeacon America Insurance Company ("OneBeacon") provided coverage for McGraw under a CGL policy. Id. Upon receiving the PRP letter, Cooper demanded that OneBeacon provide a defense against the EPA. Id. OneBeacon refused. Id. at 4. Accordingly, Cooper assumed its own defense and participated in the CPG, incurring more than $4.1 million dollars in defense costs. Id. Cooper then filed a declaratory action and moved for partial summary judgment seeking a defense and indemnification from OneBeacon. Id. at 5. OneBeacon argued that Cooper was not entitled to coverage. Id.

The main issue in Cooper was whether the EPA's PRP letter constituted as a "suit" and triggered coverage under the OneBeacon policy. Id. at 7. Since this issue was one of first impression in New Jersey, the court began its analysis by observing how other jurisdictions consider the issue. Id. at 19. The court determined that the majority of jurisdictions have held that a PRP letter constitutes a "suit" and triggers the duty to defend. Id.; see, e.g., Travelers Cas. & Sur. Co. v. Ala. Gas Corp., 117 So. 3d 695, 702-708 (Ala. 2012); Land O' Lakes, Inc. v. Emp'rs Mut. Liab. Ins. Co. of Wisc., 846 F. Supp. 2d 1007, 1022 (D. Minn. 2012); McGinnes Indus. Maint. Corp. v. Phx. Ins. Co., 447 S.W.3d 786 (Tex. 2015). Conversely, the minority of jurisdictions hold that a PRP letter is not a suit because a PRP letter does not comport with the “plain meaning” of “suit”—that is, a PRP letter is not a civil action commenced by filing a complaint. Id. at 20 (citing Foster-Gardner v. national Union Fire Ins. Co., 18 Cal. 4th 857 (Cal. 1998).

The court next looked to New Jersey Supreme Court precedent generally. The New Jersey Supreme Court has established that coverage does not hinge on the form of action taken, but on actual or threatened use of a legal process to coerce payment or conduct by a policy holder. Morton Int'l Inc. v. Gen. Acc. Ins. Co. of Am., 134 N.J. 1, (1993). Furthermore, an administrative proceeding does not constitute a "suit" if the conciliation proceeding is voluntary and not coercive. Campbell Soup Co. v. Liberty Mut. Ins. Co., 239 N.J. Super. 488, 501-502 (N.J. Super. Ct. Ch. Div. 1988), affirmed 239 N.J. Super. 403 (N.J. Super. Ct. App. Div. 1990) (holding that an insurer is not required to defend and indemnify for a discrimination claim pending before the Equal Employment Opportunity Commission (“EEOC”) because the EEOC has no statutory power to enter a coercive order and an employer can refuse to attempt conciliation).

Guided by this principle, the court found that PRP letters are coercive in nature, as they are based on strict liability and only provide for limited defenses. Cooper, 2016 N.J. Super. Unpub. LEXIS 2003 at 23. Indeed, once the EPA designates an entity as a PRP, the EPA has broad authority to compel that entity to clean up a contaminated area. Id. A PRP who fails to cooperate with a PRP letter faces contempt of proceedings, fines, and treble damages. Id. Furthermore, the EPA's determination is only subject to review for abuse of discretion based solely on the administrative record. Id. Thus, the court found that "given the coercive nature of CERCLA, it would be naïve to characterize the EPA letter as a request for voluntary action." Id. at 24.

The court in Cooper ultimately adopted the majority approach. Id. Specifically, the court adopted the standard articulated by the Texas Supreme Court in McGinnes, supra. Id. In McGinnes, the court analogized the EPA's PRP letter process to that of a lawsuit, and determined that a PRP letter functions as a suit itself, only conducted outside of a courtroom. 477 S.W.3d at 791. For example, the court reasoned that PRP letters serve as pleadings, whereby the EPA then obtains discovery through requests for information. Id., The court also noted that the fines and penalties for non-cooperation in the PRP process are akin to sanctions in a court proceeding. Id. Moreover, as in a formal litigation, judicial review in the PRP process is limited until the process concludes. Id.

The court recognized that, had Cooper failed to take action in entering into the settlement with the EPA, the EPA would have filed a lawsuit and Cooper would have been subject to damages under CERCLA. Id. Notably, the court determined that public policy dictates the encouragement of prompt and cooperative remediation efforts in a timely fashion, thus, coverage is triggered before a formal complaint is filed to enhance the important functions of CERCLA. Id. Ultimately, the court concluded that Cooper established the existence of a potentially covered claim and that OneBeacon's duty to defend was triggered. Id. at 38.

Through this decision, New Jersey unifies itself with the majority of jurisdictions and follows the national trend whereby PRP letters constitute a "suit" that triggers coverage under a CGL policy. Insurers who practice in New Jersey should therefore handle receipt of, and potential coverage for, PRPs accordingly.

Thank you to the New Jersey Insurance Coverage Group and legal intern Derek Prevete for their contributions.