Why it matters

The Texas Supreme Court accepted certification from the Fifth Circuit of the question of whether CERCLA administrative proceedings, including notice letters, administrative orders requiring cleanup, etc., constitute “suits” under a commercial general liability policy, triggering an insurer’s duty to defend. Courts are split on the issue, with some applying a narrow construction of “suit” and requiring a formal complaint be filed against the insured in a court of law to trigger the duty to defend. Others have taken a broader view of the term, holding that the issuance of a PRP letter triggers the duty to defend as the functional equivalent of a suit. Finally, a third group of courts have adopted an “it depends” perspective based on the coerciveness of the specific regulatory action taken by the government whether or not coverage is triggered. The Texas high court now will decide whether administrative actions can be squeezed into the term “suit” under Texas law, addressing this hotly contested issue that has split courts across the country.

Detailed Discussion

McGinnes Industrial Maintenance Corporation, a waste disposal company, removed waste from a paper mill and released it in three ponds adjacent to the San Jacinto River during the 1960s and early 1970s.

During the relevant time period, McGinnes purchased commercial general liability (CGL) policies from Phoenix Insurance Company and the Travelers Indemnity Company. The policies provided that the insurer “shall have the right and duty to defend any suit against [McGinnes] seeking damages on account of . . . property damage, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient.” None of the policies defined the term “suit.”

In 2005 the Environmental Protection Agency (EPA) began evaluating McGinnes’ alleged pollution of a Texas river. In 2007 the EPA sent McGinnes a Potentially Responsible Party letter contending that it had contributed to the hazardous waste contamination at the site. The EPA (1) demanded that McGinnes reimburse the EPA for remediation costs, (2) ordered McGinnes to conduct a Time-Critical-Removal-Action to prevent further contamination, and (3) demanded that McGinnes fund a Remediation/Investigation/Feasibility Study (collectively, the EPA CERCLA Action).

McGinnes tendered the EPA CERCLA Action to its insurers who refused to defend. The insurer claimed its duty to defend was triggered only by traditional “suits,” i.e., lawsuits in a court of law, as opposed to administrative suits such as the EPA CERCLA Action. McGinnes then filed a declaratory judgment action seeking a ruling that a defense was owed and payment for more than $2 million in attorneys’ fees it had already racked up.

A federal district court judge granted summary judgment for the insurers, determining that the EPA CERCLA Action was not a suit triggering the duty to defend. The court based its decision on the fact that when the policies were issued in the 1960s and 70s, “this sort of administrative bullying did not exist.”

McGinnes appealed to the Fifth Circuit.

McGinnes cited dictionary definitions of “suit” to contend that the term is ambiguous, with multiple meanings, and as such should be interpreted in its favor. Alternatively, the insurers argued that during the relevant time frame, Texas courts understood “suit” to mean a proceeding in a court of justice.

Neither the Texas Supreme Court nor the Texas courts of appeals have determined whether the EPA’s actions qualify as a “suit” under a CGL policy, the panel said. Only one court in Texas has weighed in on the issue, where a state trial court judge held that the term was sufficiently broad to include PRP letters.

Lacking guidance from the state, the federal appellate panel punted and certified the question to the Texas Supreme Court.

“[T]his action presents an unsettled question of Texas law. No Texas appellate case has addressed the issue, the parties each make reasonable arguments in support of their position, and other courts considering the issue have not come to a consensus. In light of all this, we respectfully submit that this issue should be decided by the Supreme Court of Texas,” the panel wrote, certifying the following question:

“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.”

The Texas Supreme Court accepted the case.

To read the decision in McGinnes Ind. Maintenance Corp. v. Phoenix Ins. Co, click here.