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Insurers Take Notice: Ninth Circuit Rules that EPA Request Letter Triggers Duty to Defend

On May 11, 2016, the Ninth Circuit Court of Appeals ruled that a general liability insurer owed a duty to defend an environmental matter even though no suit had technically been filed.  Ash Grove Cement Co v. Liberty Mutual Insurance Co, et al. (13-35900, 9th Cir. 2016). Pursuant to its authority under section 104(e) of the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA), the Environmental Protection Agency (EPA) will, as part of its investigation of a Superfund site, typically issue an information request to any person or entity that it believes to have information regarding the release of hazardous substances at the site. The Ash Grove Cement decision establishes that a”104(e) letter” is a “suit” under Oregon law, immediately triggering an insurer’s obligation to defend. This significant Ninth Circuit precedent may impact Superfund-related proceedings well beyond Oregon, and insurance companies will surely be taking notice.

In the case at hand, Ash Grove Cement Co. received an EPA 104(a) letter, which essentially is a notice to a potentially responsible party (PRP) of a Superfund cleanup site. Although coverage under the insurance policy in question was triggered by a “suit,” and there was no suit technically filed against Ash Grove, the Court nevertheless ordered Liberty Mutual to provide a defense. The Court noted that the Ninth Circuit has already found that a 104(e) letter is a "coercive information demand" that is "an attempt to gain an end through legal process," and was therefore a "suit" under Oregon law. Anderson Bros., Inc. v. St. Paul Fire & Marine Ins. Co., 729 F.3d 923, 932-33, 935 (9th Cir. 2013). The ruling means that defense cost coverage begins at this critical stage and continues until the site investigation and associated cleanup is complete.

The ruling was, in part, based on Oregon’s Environmental Cleanup Assistance Act, which defines “suit” very broadly to include an EPA issued PRP letter. Specifically, the Act declares that for the purposes of insurance coverage, a “suit” includes any instance where the EPA, in writing, “directs, requests or agrees that an insured take action with respect to contamination.” While Ash Grove Cement is focused on Oregon law, it is persuasive authority for courts in other states that have not yet decided this issue.

The interesting question from a California perspective is – does this decision create a possible change in the standard as to what may be considered a “suit” for triggering coverage in the state? The California Supreme Court has long held that a duty to defend is not triggered by a PRP letter. Foster-Gardner, Inc. v. National Union Fire Ins. Co. 18 Cal. 4th 857 (1998). However, insurers often remove insurance coverage declaratory relief suits, and the federal courts within the Ninth Circuit may decide to rule in a more policy holder friendly manner to be consistent with the Ash Grove Cement decision.

M&R will keep a close eye on how courts at both the state and federal levels adjudicate this issue in the coming months. In the meantime, both insurers and policyholders will want to carefully document all 104(e) related correspondence and consult qualified counsel.

This blog post is not offered as, and should not be relied on as, legal advice. You should consult an attorney for advice in specific situations.