The Texas Supreme Court has accepted a certified question from the U.S. Fifth Circuit Court of Appeals whether an insurer has the duty to defend in response to notice letters from the EPA regarding potential environmental violations.  McGinnes Industrial Maintenance Corp. v. Phoenix Ins. Co. and Travelers Indemnity Co., 2014 WL 2599926 (5th Cir. Tex. June 11, 2014).

In the 1960s, the insured removed waste from a paper mill and released it into three ponds.  The insured’s CGL policies during this time provided that the insurer “shall have the right and duty to defend any suit … seeking damages on account of ... property damage.  The EPA advised the insured’s parent company that it might be a Potentially Responsible Party (“PRP”) under federal statute as it contributed to the contamination of the sites.  The EPA followed up with a Special Notice Letter, a request for a settlement offer, and a Unilateral Administrative Order.  The parent then tendered the defense to one of its insurers, which refused to defend because there was no “suit.”

Because only one district court in Texas had addressed this issue, the Fifth Circuit certified to the Texas Supreme Court the question whether the EPA’s notice letters to a PRP and/or unilateral administrative orders constitute a “suit” within the meaning of CGL policies, triggering the duty to defend.