A pair of letters from the EPA notifying an insured of its potential liability under CERCLA constituted “suits,” for purposes of standard-form CGL policies, requiring an insurer to provide a defense, the Ninth Circuit Court of Appeals recently ruled. In so ruling, the Ninthh Circuit interpreted Oregon law to be consistent with the majority position on this issue (including the Land O’Lakes decision, discussed above).

Anderson Brothers, Inc., received two letters from EPA, pursuant to CERCLA, notifying Anderson Brothers of its potential liability for a Superfund site at Portland Harbor in Oregon. One letter posited 82 questions to Anderson Brothers, seeking detailed information about past activities at its properties, accompanied by a threat of civil penalties of $32,000 per day for failure to comply. The second letter was a formal “PRP Letter,” informing Anderson Brothers of its potential responsibility for cleanup at the Portland Harbor site and encouraging it to participate in settlement negotiations with other PRPs.

St. Paul Fire and Marine Insurance Co. provided two CGL policies to Anderson Brothers. Anderson Brothers provided notice to St. Paul of the EPA letters under these policies. St. Paul declined coverage on the grounds that they were not “suits” (i.e., they were not actions filed in a court of law).

The Ninth Circuit disagreed, holding that St. Paul had a duty to defend Anderson Brothers. In particular, the court emphasized that a “huge majority” of courts to consider whether a PRP Letter constitutes a “suit” have found that it does. Discussing Oregon law specifically, the court noted that the Oregon Environmental Cleanup Assistance Act defines the term “suit” to include “[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.” The court further noted that the standard-form CGL policies St. Paul issued to Anderson Brothers do not define the term “suit,” and do not otherwise demonstrate any intent contrary to Oregon’s statutory definition of that term.

The court further opined that both letters satisfied the Oregon statutory definition of “suit,” as both were attempts by the EPA “to gain an end by a[] legal process.” The questionnaire in the first letter “compelled Anderson [Brothers] to respond to an intrusive questionnaire the answers to which exposed it to extensive liability – plainly an end obtained through legal process.” Likewise, the second letter specifically alleged that the EPA believed Anderson Brothers was a PRP, leaving “little doubt that the EPA was seeking to obtain Anderson’s cooperation through the legal process of identifying Anderson as a PRP.” Thus, the court concluded, “[i]n light of the unique role settlement and coercive information demands play in CERCLA, there is little doubt that each letter was an attempt to gain an end through legal process.”

The court further rejected an argument by St. Paul that equating the EPA letters with “suits” impermissibly ignores the distinction between the terms “suit” and “claim” under its policies. Specifically, St. Paul argued, equating the EPA letters with “suits” and not “claims” rendered the term “claim” meaningless in the policy, which is contrary to basic principles of contract interpretation. The Ninth Circuit disagreed. While it acknowledged that a normal demand letter would indeed constitute a “claim,” it opined that the EPA letters were “not normal demand letters,” but rather were “formal steps in a legal process administered by the EPA that inexorably leads to the EPA seeking to hold property owners strictly liable for environmental contamination.”

To read the decision in Anderson Brothers, Inc. v. State of Oregon, click here.

Why it matters: The Ninth Circuit noted that whether so-called “PRP Letters” constitute a “suit” under standard-form CGL policies has been widely litigated in both state and federal courts. The Ninth Circuit added its voice to the majority position, which, according to the court, includes 11 state supreme courts (against just 3 ruling to the contrary).