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Duty To Defend Environmental Claims

Rodney Taylor | November 1, 2013

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For businesses, the most common form of liability insurance against third-party claims for bodily injury and property damage is the commercial general liability (CGL) insurance policy. A typical CGL policy obligates an insurer to "pay those sums that the policyholder becomes legally obligated to pay as damages because of bodily injury or property damage to which the policy applies." This is referred to as the duty to indemnify. The insuring clause also articulates the insurer's right and duty to defend the policyholder against "any suit against the insured seeking those damages…." 1

As such, subject to the terms and conditions of the particular policy as issued, the principal obligations that an insurer owes to its insured are: (1) the duty to indemnify the insured for sums the insured is legally obligated to pay as a result of claims and suits and (2) the duty to defend the insured against claims and suits within the policy coverage. This article focuses on the latter obligation and will:

  • discuss the duty to defend as articulated in a very recent decision under Oregon law holding that "potentially responsible party (PRP)" and "general notice letters" issued by the Environmental Protection Agency (EPA) qualify as a "suit" under standard CGL policies;
  • provide a survey of the duty to defend such PRP letters and similar communications under the applicable law in the various jurisdictions within the United States; and
  • examine the duty to defend in the context of "modern" pollution liability policies—including a recent case that discusses an insurer's obligation to defend a claim.

Section 104(E) Information Requests and General Notice Letters under CERCLA

Within the past year, several jurisdictions have weighed in on the debate of whether certain written communications from the US EPA alleging potential liability under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), 42 U.S.C. § 9601 et seq, constitute "suits" for the purpose of triggering an insurer's obligation to defend against EPA inquiries that are not lawsuits made in a court of law. The most recent is a decision filed on August 30, 2013, by the Ninth Circuit Court of Appeals interpreting Oregon law. In Anderson Bros., Inc. v. St. Paul Fire & Marine Ins. Co., 729 F.3d 923 (9th Cir. 2013), the insured received two letters from the EPA notifying it of potential liability for environmental contamination at the Portland Harbor Superfund Site (the "Site"). The first letter was issued pursuant to Section 104(e) of CERCLA (the "104(e) Letter") and sought Anderson's "cooperation" in the EPA's investigation of the release of hazardous substances at the Site. Among other things, the letter required Anderson to submit a detailed response to a questionnaire about its activities at its properties and informed Anderson that "[w]hile EPA seeks your voluntary cooperation … ," compliance with the request was required by law, the failure of which could result in an enforcement action and civil penalties.

The second letter from the EPA, titled "General Notice Letter for the Portland Superfund Site" (the "General Notice Letter"), formally identified Anderson as a PRP and stated that Anderson could be required to clean up the Site as ordered by the EPA and to reimburse the EPA for its own expenditures in cleaning the Site. The General Notice Letter "encourage[d]" Anderson to participate in settlement negotiations with other PRPs in allocating the cleanup costs. Anderson tendered both letters to its insurer, St. Paul Fire and Marine Insurance Co., which had issued CGL policies to Anderson providing coverage for damages arising from "occurrences" that happened between 1979 and 1980 and January 1980 and 1981, respectively.

St. Paul rejected the tender of defense, asserting that the letters sent to Anderson were not "suits" because they were not filed in a court of law, and therefore St. Paul's obligation to defend was not triggered. Anderson sued St. Paul for breach of the duty to defend, and the district court granted Anderson's motion for partial summary judgment, concluding that both of the letters triggered St. Paul's duty to defend, and granted Anderson's motion for attorney's fees pursuant to Oregon law. St. Paul filed an appeal.

The Ninth Circuit affirmed the lower court, noting that a "huge majority of US courts [have held] that a policyholder's receipt of a PRP notice from the US EPA is the functional equivalent of a suit." Indeed, the court noted that it was one of the first to adopt that now-majority view. The court also noted that its task was aided by two Oregon intermediate appellate decisions, which held the term "suit" to be ambiguous and stated that it could reasonably be interpreted to include any "attempt to gain an end by any legal process." Because of the ambiguity of the term, the court looked to the Oregon Environmental Cleanup Assistance Act (OECAA), which provides an explicit definition of "suit" when interpreting CGL policies in cases involving administrative actions by the EPA. The OECAA stated that "any 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 is equivalent to a suit or lawsuit as those terms are used in any general liability insurance policy." By application of the OECAA definition, the court held that both the 104(e) Letter and General Notice Letter constituted "suits" under the policy, triggering St. Paul's obligation to defend.

Survey of States on the Duty To Defend PRP Letters

The following table is a compilation of important decisions regarding the duty to defend in the context of PRP letters or other types of environmental administrative actions that are not necessarily filed in a court of law.

State Court Citation Duty To Defend?
Alabama Supreme Court Travelers Cas. & Sur. Co. v. Alaska Gas Corp., 117 So. 3d 695 (Ala. 2012) Yes
Alaska No decisions N/A N/A
Arizona No decisions N/A N/A
Arkansas No decisions N/A N/A
California Supreme Court Foster-Gardner, Inc. v. National Union Fire Ins. Co. of Pittsburgh, Pa., 959 P.2d 265 (Cal. 1998) No
Colorado Supreme Court Compass Ins. Co. v. City of Littleton, 984 P.2d 606 (Colo. 1999) Yes
Connecticut Supreme Court R.T. Vanderbilt Co. v. Continental Cas. Co., 273 Conn. 448, 870 A.2d 1048 (2005) Yes
Delaware Third Circuit Court of Appeals Harleysville Mut. Ins. Co. v. Sussex Cnty., 831 F. Supp. 1111 (D. Del. 1993), aff'd, 46 F.3d 1116 (3d Cir. 1994) No
D.C. No decisions N/A N/A
Florida District Court Racal-Datacom Inc. v. Insurance Co. of N. Am., 1998 U.S. Dist. LEXIS 23580 (S.D. Fla. Feb. 11, 1998) No
Georgia District Court Boardman Petroleum v. Federated Mut. Ins., 926 F. Supp. 1566 (S.D. Ga. 1995) Yes
Hawaii District Court U.S. Fire Ins. Co. v. Estate of Campbell, 2011 U.S. Dist. LEXIS 149854 (D. Haw. Dec. 29, 2011) Yes
Idaho Ninth Circuit Court of Appeals Aetna Cas. & Sur. Co v. Pintlar Corp., 948 F.2d 1507 (9th Cir. 1991) Yes
Illinois Supreme Court Lapham-Hickey Steel Corp. v. Protection Mut. Ins. Co., 655 N.E.2d 842 (Ill. 1995) No
Indiana State Court of Appeals Travelers Indem. Co. v. Summit Corp. of Am., 715 N.E.2d 926 (Ind. Ct. App. 1999) Yes
Iowa Supreme Court A.Y. McDonald Indus., Inc. v. Insurance Co. of N. Am., 475 N.W.2d 607 (Iowa 1991) Yes
Kansas Trial Court Harpool Bros., Inc. v. Trinity Universal Ins. Co., No. 89–C–702 (Kan. Dist. Ct. Nov. 17, 1989) Yes
Kentucky Supreme Court Aetna Cas. & Sur. Co. v. Commonwealth, 179 S.W.3d 830 (Ky. 2005) Yes
Louisiana District Court Joslyn Mfg. Co. v. Liberty Mut. Ins. Co., 836 F. Supp. 1273 (W.D. La. 1993);aff'd, 30 F.3d 630 (5th Cir. 1994);cert. denied, 513 U.S. 1127 (1995) No
Maine Supreme Court Patrons Oxford Mut. Ins. Co. v. Marois, 573 A.2d 16 (Me. 1990) No
Maryland State Court of Appeals Bausch & Lomb, Inc. v. Utica Mut. Ins. Co., 330 Md. 758 (1993) Yes
Massachusetts Supreme Court Hazen Paper Co. v. U.S. Fid. & Guar. Co., 555 N.E.2d 576 (1990) Yes
Michigan Supreme Court Michigan Millers Mut. Ins. Co. v. Bronson Plating Co., 445 Mich. 558, 519 N.W.2d 864 (1994), overruled on other grounds, Wilkie v. Auto-Owners Ins. Co., 469 Mich. 41, 664 N.W.2d 776 (2003) Yes
Minnesota Eighth Circuit Court of Appeals Land O' Lakes, Inc. v. Employers Ins. Co. v. Employers Mut. Ins. Co of Wis., 846 F. Supp. 2d 1007 (D. Minn. 2012), appeal dismissed, 2013 U.S. App. LEXIS 18033 (8th Cir. Minn. Feb. 14, 2013) Yes
Mississippi No decisions N/A N/A
Missouri Eighth Circuit Aetna Cas. & Sur. Co. v. General Dynamics Corp., 968 F.2d 707 (8th Cir. 1992) No
Montana No decisions N/A N/A
Nebraska Supreme Court Dutton-Lainson Co. v. Cont'l Ins. Co., 279 Neb. 365 (2010) Yes
Nevada No decisions N/A N/A
New Hampshire Supreme Court Coakley v. Maine Bonding & Cas. Co., 618 A.2d 777 (N.H. 1992) Yes
New Jersey District Court NL Indus. v. Commercial Union Ins. Co., 1993 U.S. Dist. LEXIS 21463 (D.N.J. May 27, 1993) Pending
New Mexico No decisions N/A N/A
New York Second Circuit Avondale Indus., Inc. v. Travelers Indem. Co., 887 F.2d 1200 (2d Cir. N.Y. 1989) Yes
North Carolina Supreme Court C.D. Spangler Constr. Co. v. Industrial Crankshaft & Eng'g Co., 388 S.E.2d 557 (N.C. 1990) Yes
North Dakota No decisions N/A N/A
Ohio State Court of Appeals Professional Rental Inc. v. Shelby Ins. Co., 599 N.E.2d 423 (Ohio App. 1991) No
Oklahoma No decisions N/A N/A
Oregon Ninth Circuit Anderson Bros. v. St. Paul Fire & Marine Ins. Co., 729 F.3d 923 (9th Cir. Or. 2013) Yes
Pennsylvania No decisions N/A N/A
Rhode Island District Court Emhart Corp. v. North River Ins. Co., 2006 U.S. Dist. LEXIS 68686 (D.R.I. Sept. 8, 2006) Yes
South Carolina Court of Common Pleas F.W. Scheper v. U.S. Fid. & Guar., No. 90–CP–07–879 (S.C. Ct. C.P. Oct. 29, 1991) No
South Dakota No decisions N/A N/A
Tennessee No decisions N/A N/A
Texas No decisions N/A N/A
Utah District Court Quaker State Minit-Lube v. Fireman's Fund Ins. Co., 868 F. Supp. 1278 (D. Utah 1994) Yes
Vermont Supreme Court Hardwick Recycling & Salvage, Inc. v. Acadia Ins. Co., 2004 Vt. 124 (2004) Yes
Virginia No decisions N/A N/A
Washington District Court Boeing Co. v. Aetna Cas. & Sur. Co., 1990 U.S. Dist. LEXIS 20231 (W.D. Wash. Apr. 17, 1990) Yes
West Virginia No decisions N/A N/A
Wisconsin Supreme Court Johnson Controls, Inc. v. Employers Ins., 2003 Wis. 108 (2003) Yes
Wyoming District Court Hutchinson Oil Co. v. Federated Serv. Ins. Co., 851 F. Supp. 1546 (D. Wyo. 1994) Yes

The Duty To Defend under "Modern" Pollution Liability Insurance Policies

While there has been considerable interpretation of the duty to defend PRP letters and similar types of communications under CGL policies, there is a paucity of case law interpreting the duty to defend under current or "modern" environmental liability insurance policies that are specifically designed to provide insurance protection against an insured's legal liability arising from a discharge, dispersal, release, or escape of pollutants at, on, under, or migrating beyond the boundaries of a scheduled location or during the performance of scheduled operations. These policies are often referred to as "pollution liability" in that they protect against liabilities arising out of pollution conditions. Subject to the terms and conditions of the policy as issued, they typically protect an insured against third-party claims for bodily injury, property damage, and cleanup costs and can include additional coverages such as emergency response and public relations expenses in the event of certain pollution conditions.

Interestingly, in an unusual twist on the discussion of the obligation to defend an insured from something less than a lawsuit filed in a court of law, a recent case from the Fifth Circuit involved the duty to defend actual lawsuits filed by the EPA alleging violations of the Clean Air Act (CAA) and state environmental laws under the terms and conditions of a premises pollution liability insurance policy. Louisiana Generating LLC v. Illinois Union Ins. Co., 2013 U.S. App. LEXIS 9837 (5th Cir. May 15, 2013) ("LaGen"). In LaGen, the underlying lawsuit involved alleged air emissions in violation of the CAA from LaGen's coal-fired electric steam-generating plant in Louisiana. In February 2005 and December 2006, the EPA had sent LaGen notices of violations (NOVs) alleging that certain modifications at the facility were done without a permit and caused net emissions increases in violation of the CAA.

The EPA and the Louisiana Department of Environmental Quality (LDEQ) filed suit in February of 2009. The complaints asserted that LaGen operated the plant without seeking the required air quality permit and that, as a result, the facility "ha[d] emitted excess amounts of regulated pollutants into the air."

LaGen tendered the lawsuit to its insurer under its "Custom Premises Pollution Liability Insurance" policy that covered the facility. The insurer denied that it had any duty to defend or indemnify LaGen on the ground that none of the prayers for relief under the complaint were covered under the policy. Each party filed actions for declaratory judgment, and each moved for summary judgment on the issue of the duty to defend. The district court granted summary judgment in favor of LaGen on the duty to defend, and both parties appealed.

The Fifth Circuit was charged with determining whether any of the claims asserted against LaGen "arguably arise from covered events," which would trigger a duty to defend the entire action under New York law—the law specified in the policy. Contrary to the insurer's assertion that the relief sought by the EPA/LDEQ could not potentially fall within coverage, the court found that a plain reading of the lawsuit included allegations and prayers for relief that could potentially result in covered remediation costs. Specifically, the court noted that the EPA sought to require LaGen to "mitigate, offset and remediate" the alleged increased emissions of pollutants into the atmosphere in violation of the CAA, which suggested to the court a "reasonable possibility of coverage under the policy" for "remediation costs."

One of the more pertinent issues relevant to the discussion in this paper concerned the insurer's argument that it had no duty to defend because the claims were "first made" when the NOVs were issued by the EPA and prior to the effective date of the policy. The policy defined "claim" as "the assertion of a legal right, including but not limited to a 'government action(s)', suits or other actions alleging responsibility or liability on the part of the insured for … property damage, or remediation costs as a result of pollution conditions to which this insurance applies" and defined "government action" as an "action taken or liability imposed by any federal [or] state … government agency or body acting under the authority of 'environmental law.'"

The court summarily dismissed the insurer's argument, noting that the policy provided that "[a]ny pollution conditions specifically referenced or identified in documents listed on the Schedule of Known Endorsement … are deemed to be first discovered during the policy period." One of the documents scheduled was a report that discussed the two NOVs, so the court found the only possible purpose for such listing was that claims and remediation costs relating to that known pollution condition were within the scope of coverage. For purposes of this article, it is useful to note that the insurer considered the NOVs to constitute a "claim" (albeit, one made prior to its policy period and thus, from the insurer's perspective, not covered under its policy). The insurer's argument suggests that the receipt of an NOV (like the one received in LaGen) could trigger a duty to defend an insured, even prior to receipt of an actual lawsuit or other adversarial proceeding in a court of law. In addition, the LaGen policy definition of "claim" referenced the undefined term "suit" so, if courts were to determine that the existing body of law regarding CGL policies applies with equal force to pollution liability policies, an insurer would have the duty to defend an insured following receipt of a PRP letter or similar written communication.


The duty to defend an insured confronted with potential liability for environmental contamination is a critical consideration. As the foregoing discussion suggests, coverage under certain CGL policy forms (prior to the absolute pollution exclusion and specific definition of "suit") will in large measure be determined under applicable law. Under the current or "modern" environmental pollution liability policies, whether a duty to defend is owed will depend on the policy language contained in the policy as issued, the breadth of which may, like the CGL policies, be subject to debate. In any case, an insured faced with liability, whether an actual lawsuit or something less, should immediately review all potentially applicable insurance and provide notice to all potentially implicated insurers.

The LaGen case should also serve as a cautionary tale—whether something constitutes a "claim" for purposes of the duty to defend can cut both ways. Absent the endorsement scheduling the NOVs, the outcome could have been a finding that the "claim" (receipt of the NOVs) was made prior to the applicable policy term. So, when confronted with a PRP Letter, NOV, or other communication from a regulatory authority, a policyholder should immediately consult with its advisers to explore whether a duty to defend is triggered under the particular language of the policy and the law of the applicable jurisdiction and ensure that it takes all of the steps necessary to preserve those valuable insurance rights.

Opinions expressed in Expert Commentary articles are those of the author and are not necessarily held by the author's employer or IRMI. Expert Commentary articles and other IRMI Online content do not purport to provide legal, accounting, or other professional advice or opinion. If such advice is needed, consult with your attorney, accountant, or other qualified adviser.


1 The information contained in this article is furnished as a matter of information for your convenience. It only summarizes the certain statutes, regulations, and policy wordings; is not intended to reflect all the terms and conditions of same; and is not intended to provide individualized business or legal advice. The information contained herein was compiled from sources that Aon considers reliable; however, Aon does not warrant the accuracy or completeness of any information herein. Should you have any questions regarding how the subject matter of this article may impact you, please contact your appropriate legal or business advisers.