In a recent ruling of interest to any company named as a potentially responsible party (“PRP”) at a Superfund site, the Alabama Supreme Court has 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. 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 affirmatively answered the following certified question (a question sent from another court, here a federal district court, to a state supreme court):
Under Alabama law, is a “Potentially Responsible Party” (“PRP”) letter, from the Environmental Protection Agency (“EPA”), in accordance with the Comprehensive Environmental Response Compensation and Liability Act (“CERCLA”) provisions, sufficient to satisfy the “suit” requirement under a liability policy of insurance?
The Alabama Supreme Court said, yes, indeed, such a PRP letter does constitute a suit triggering insurance coverage.
The court’s decision interpreted policies issued by three insurers, St. Paul Fire and Marine Insurance Company, St. Paul Surplus Lines Insurance Company, and St. Paul Mercury Insurance Company (all subsidiaries of Travelers Casualty and Surety Company). These insurers provided insurance policies 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 coverage decision hinged on key policy language found in virtually every CGL policy stating that the insurer must:
(a) Defend in the name 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].
Alagasco (through its parent company, Energen) sought insurance coverage for claims arising from alleged environmental contamination at the site of a former manufactured gas plant (“MGP”) in Huntsville, Alabama. On October 8, 2008, Alagasco received an “information request” regarding the Huntsville MGP site from the EPA under CERCLA. Alagasco also received a Pollution Report from the EPA. Alagasco tendered the information request and the Pollution Report to the insurers and requested that they provide coverage. The insurers denied coverage on the ground that the information request and Pollution Report did not constitute a suit or claim under the insurance policies. Subsequently, on June 24, 2009, Alagasco received a formal Notice of Potential Liability and Offer to Negotiate from the EPA (the “PRP letter”) and a draft Administrative Order on Consent. Once again, Alagasco sought coverage and once again, the insurers denied coverage, stating that they did not believe the EPA communications constituted a “suit” triggering coverage under the policies.
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CGL policies do not define the word “suit.” Therefore, the Alabama Supreme Court interpreted the word “suit” as a reasonable insured would interpret it and agreed with the majority of state supreme courts that have considered the issue. These courts have held that PRP letters (or a letter from the state environmental agency equivalent of the EPA) constitutes a “suit.”
The Alabama Supreme Court recognized the “nearly” absolute authority of the EPA to determine PRPs’ liability and the severe penalties for a PRP’s failure to cooperate:
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. A PRP letter, like other coercive administrative actions, are suits insured by CGL policies.
This decision 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. Alabama law (and the law of many other states) now requires insurers to pay insureds’ costs incurred to comply with a PRP letter. This insurance coverage may be available under the insurance policies purchased by the 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. Companies that do not have a copy of their older insurance policies may still be able to procure coverage by identifying evidence of that past coverage. Given the significant costs of Superfund cleanups, companies named as PRPs should endeavor to obtain this coverage by notifying those insurers who provided historic insurance coverage. This insurance coverage could be worth millions of dollars to a company’s bottom line.
In a recent ruling of interest to any company named as a potentially responsible party (“PRP”) at a Superfund site, the Alabama Supreme Court has 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. This decision 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. Alabama law (and the law of many other states) now requires insurers to pay insureds’ costs incurred to comply with a PRP letter. This insurance coverage may be available under the insurance policies purchased by the 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. Companies that do not have a copy of their older insurance policies may still be able to procure coverage by identifying evidence of that past coverage. Given the significant costs of Superfund cleanups, companies named as PRPs should endeavor to obtain this coverage by notifying those insurers who provided historic insurance coverage. This insurance coverage could be worth millions of dollars to a company’s bottom line.