The U.S. Eleventh Circuit Court of Appeals has affirmed a district court’s findings that CGL policies issued decades after property contamination do not cover an insured’s liability for environmental damage and that insurers were not in bad faith for their denial of coverage. Alabama Gas Corp. v. Travelers Cas. And Sur. Co., 2014 WL 2599684 (11th Cir. June 11, 2014).

An insured utility company was a successor-in-interest to an entity that allegedly caused environmental damage years ago.  The insured received a Potentially Responsible Person (“PRP”) letter from the EPA.  It incurred costs to defend against the agency’s enforcement action and ultimately costs to respond to the contamination.  It brought suit against insurers who provided general liability coverage after the damage allegedly occurred.

The district court, finding that no Alabama decision had determined whether a PRP letter constitutes a “suit” under a general liability policy, certified the question to the Alabama Supreme Court which answered in the affirmative.  The district court then held that the insurers had no obligation to defend or indemnify because there was no dispute that the injury to the land occurred prior to the policies’ inception.  Applying an injury-in-fact trigger theory, the court ruled that construction and land work that dispersed pre-existing hazardous substances during the policy periods did not constitute an occurrence.  In a separate ruling, the district court held that the insurers were not in bad faith for denying coverage because they investigated the claim and reasonably took the position that a PRP letter was not a suit triggering the insurers’ defense obligations, despite the fact that the Alabama Supreme Court later took the opposite view.

The Eleventh Circuit, in a one page opinion without analysis, held that both earlier rulings were correct and affirmed the judgments.