In a recent ruling of interest to any company named as a potentially responsible party (“PRP”) at a Superfund site anywhere in the country, the Alabama Supreme Court has followed the majority of state courts and held that a PRP letter constitutes a “suit” under a comprehensive general liability (“CGL”) policy, thus triggering an insurance company’s duty to defend the insured.
For companies receiving PRP letters, the relevant insurance policies will be those in place at the time of the alleged actions that led to the Superfund liability, including policies that could be 40, 50, or 60 years old. For this reason, a company should always keep its CGL policies and review them when faced with a liability occurring during the policies' time period. Companies that no longer have their older insurance policies may still be able to procure coverage by identifying evidence of those past policies.
Given the significant costs of Superfund cleanups, companies named as PRPs should search for their past policies and demand coverage from those insurers that provided historic insurance coverage. This insurance coverage could be worth millions of dollars to a company’s bottom line.
Alabama Follows the Majority of States Requiring Insurers to Provide Coverage for PRP Letters
In Travelers Casualty and Surety Company v. Alabama Gas Corporation, case number 1110346 (CV 10-J-1840-S) (December 28, 2012), the Alabama Supreme Court said that a PRP letter from the Environmental Protection Agency (“EPA”) under the Comprehensive Environmental Response Compensation and Liability Act (“CERCLA”) constitutes a "suit" triggering insurance coverage. The court’s decision interpreted insurance policies sold to Alabama Gas Corporation (“Alagasco”) from the late 1940s until the early 1980s. (The Alabama Supreme Court did not rule on the applicability of any pollution exclusion, which may have been added to the policies in the early 1970s.) The court held that the insurers must defend Alagasco for claims arising from alleged environmental contamination at the site of a former manufactured gas plant in Huntsville, Alabama.
Key Policy Language Found in All CGL Policies
The coverage decision hinged on key policy language found in virtually every CGL policy stating that the insurer must:
- Defend in the name of and on behalf of the insured any suit against the insured alleging such injury, death, damage, or destruction and seeking damages on account thereof, even if such suit is groundless, false, or fraudulent; but [the insurer] shall have the right to make such investigation, negotiation, and settlement of any claim or suit as may be deemed expedient by [the insurer].
CGL policies do not define the word “suit.” Following the majority of other states that have considered the issue, the Alabama Supreme Court interpreted the word “suit” as a reasonable insured would interpret it. These courts have held that PRP letters (or a letter from the state environmental agency equivalent of the EPA) constitutes a “suit.”
EPA's Sweeping Powers Are Tantamount to a "Suit"
These courts also recognize the “nearly” absolute authority of the EPA to determine PRPs’ liability and the severe penalties for a PRP’s failure to cooperate, and viewed that authority as coercive legal action tantamount to a "suit":
The authority given the EPA in regard to determining liability on the part of PRPs, while not absolute, is very nearly so. Given the severe penalties for failure to cooperate and other enforcement tools available to the EPA, a decision by the EPA to designate an insured as a PRP cannot on any practical level be understood as anything less tha[n] the initiation of a “legal action” constituting a “suit” within the contemplation of the insurance contract at issue. PRP letters, like other coercive administrative actions, are suits insured by CGL policies.
Notify Insurers When Faced with Superfund Liability (or Any Other Significant Liability Arising out of Your Company's Operations or Products)
As this case shows, CGL coverage may be available under the insurance policies purchased by a company (or its predecessor companies) during the period that led to the PRP letter, i.e., when the company allegedly sent materials to the site or maintained operations on the site. Given the significant costs of Superfund cleanups, companies named as PRPs should notify those insurers that provided historic insurance coverage. Prompt notice is important to avert a late notice defense by the insurers. Companies should also examine their current policies for any environmental liability coverage and for coverage if the company's alleged contributions to the site do not constitute pollution as defined in CGL policies. Those insurers should be notified as well.
Coverage May Be Available Even If Policies Are Lost or Missing
Companies that no longer have their older insurance policies may still be able to procure coverage by identifying evidence of those past policies. A company's financial records, such as check registers, can be one source of that evidence. A thorough search could reveal valuable insurance coverage.
CGL Coverage Could Be Worth Millions
The availability of coverage under a CGL policy is important to any company facing Superfund liability as a PRP, particularly if that liability arises from alleged contribution to a Superfund site before inception of the pollution exclusion (in its original form in 1973 and in its broader form in the mid-1980s) or if the company did not contribute material to the site that falls within the scope of the pollution exclusion. This insurance coverage could be worth millions of dollars to a company’s bottom line.