California Supreme Court Holds That an Adjudicative Administrative Proceeding Is a 'Suit' for Purposes of Liability Coverage


The California Supreme Court today issued its long-awaited opinion in Ameron International Corp. v. Insurance Co. of the State of Pennsylvania, 2010 WL 4643779 (Nov. 18, 2010), concerning the scope of the term "suit" in commercial general liability policies. The court reaffirmed the validity of Foster-Gardner, Inc. v. National Union Fire Ins. Co., 18 Cal.4th 857, 887 (1998), where it established the "bright-line" rule that a "suit" is "a court proceeding initiated by the filing of a complaint." Nevertheless, the court, in a decision authored by Justice Ming Chin, found that a proceeding before the U.S. Department of Interior Board of Contract Appeals (IBCA) was a "suit" under policies that did not define that term. As the court stated: "This quasi-judicial adjudicative proceeding, employed to resolve government demands against insured parties, is a 'suit' as a reasonable insured would understand that term."

The insured, Ameron, subcontracted for the fabrication and installation of concrete siphons used in the Central Arizona Project aqueduct, a project of the U.S. Department of Interior, Bureau of Reclamation. The Bureau discovered defects in the siphons that necessitated their replacement. The Bureau's contracting officer issued a decision finding Ameron and the general contractor responsible for the defects and seeking almost $40 million in damages. Ameron challenged the decision before the ICBA. After a 22-day proceeding before an administrative judge, the parties agreed to mediation, and Ameron settled the Bureau's claims for $10 million. Ameron sued a number of primary and excess insurers to recover the costs of defense and settlement of the claims.

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