I recently spoke at a CLE, discussing how to tap into insurance for groundwater contamination issues. The Washington Court of Appeals has made that task much harder. In 2014, the Court decided Gull Industries, Inc. v. State Farm Fire & Casualty Co. (“Gull I“), which considered whether an independent cleanup under the Washington Model Toxics Control Act (MTCA) triggered the duty to defend in a Comprehensive General Liability (CGL) Policy, and held that it does not. Two courts have now elaborated on the scope of Gull I, and both have followed its lead in (largely) denying a defense.
Gull involved the investigation and cleanup, beginning in 1984, of a former gas station without any involvement by the Washington Department of Ecology (Ecology). In 2005, Gull notified Ecology of the release at the station and Ecology responded with its standard letter acknowledging receipt of Gull’s report. Ecology said that the property would be added to the Leaking Underground Storage Tank (LUST) database, with the caveat that Ecology had not determined whether Gull was a potentially liable person under MTCA,” and had not formally reviewed or approved of the remedial actions Gull planned. After completing the cleanup, Gull sought defense and indemnification from Transamerica Insurance Group (TIG) and State Farm Fire and Casualty Company for its costs. Both carriers had issued Commercial General Liability (CGL) policies to Gull (or its lessees) in the past. Both carriers denied, after which Gull brought suit for declaratory judgment on the insurers’ defense obligations, among other claims. The trial court held that State Farm and TIG had no duty to defend Gull.
The issue on appeal was whether the undefined term “suit” in Gull’s CGL insurance policy required a lawsuit to trigger an insurer’s defense obligation, or whether something short of a lawsuit will trigger the duty. The Washington Court of Appeals held although a lawsuit is not required, an “agency action must be adversarial or coercive in nature in order to qualify as the functional equivalent of a ‘suit.’” Finding that Ecology’s letters were not adversarial, no defense was owed.
Jorgensen Forge Corp. v. Ill. Union Ins. Co. In the first case decided after Gull I, Jorgensen Forge Corp. v. Illinois Union Insurance Co., the U.S. District Court for the Western District of Washington held that a letter inviting JFC’s voluntary participation in an allocation process under Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) did not trigger its insurer’s defense obligation. JFC had been named a potentially responsible party for environmental claims associated with the Lower Duwamish Waterway Superfund Site. JFC sought coverage under a specialized pollution liability insurance policy on the basis that an invitation from a PRP group, the Lower Duwamish Waterway Group (LDWG), encouraging JFC to join the allocation efforts and threatening further legal action if it did not, was a “claim” under the policy.
Under JFC’s policy, a “claim” was defined as:
the written assertion of a legal right received by the “insured,” including but not limited to a “government action,” suits or other actions alleging responsibility or liability on the part of the “insured” for “bodily injury,” “property damage,” or “remediation costs” arising out of “pollution conditions” to which this insurance applies.
Citing Gull I, the trial court concluded that the LDWG letter did not meet the threshold requirement of “immediate and severe consequences” required under Gull I because the letter amounted to nothing more than an “invitation for voluntary participation.”
Gull Indus. v. Transamerica Ins. Grp. (Gull II). In Gull II, Gull Industries, Inc. v. Transamerica Insurance Group (“Gull II“), the King County Superior Court held that environmental remediation (at 22 sites other than those at issue in Gull I) that were essentially conducted with agency oversight also did not trigger the duty to defend, because as in Gull I, the agency’s communications were not adversarial or coercive and the cleanup was “voluntary.” The court rejected Gull’s assertion that language such as “further action is required to remediate contaminants at the site,” “action must be taken to remedy the situation,” and “[w]ork must be started immediately” was sufficiently adversarial or coercive to trigger the duty. In doing so, the court accepted TIG’s argument that the agencies were merely parroting, strategically, “the statutory strict liability language.
Conclusion. Jorgensen Forge and Gull II join Gull I in eroding the defense available to policy holders for participating in a voluntary cleanup programs. The decisions have already impacted policyholders, with insurers citing it as the basis for refusing to cover investigative or defense costs associated with a contaminated property. These decisions are particularly problematic for policyholders who have no funds to investigate known or suspected contamination. Without insurance funding, policyholders are unable to investigate contamination on their property and determine how to clean it up. The cascade of impacts from the decisions will result in higher cleanup costs over time (costs that insurers still must pay under their indemnification obligations). Policyholders must now carefully consider engaging in the standard VCP process, a process that typically is less costly and more effective for more standard cleanups. Washington might also follow Oregon in adopting something similar to the Oregon Environmental Cleanup Assistance Act, which could expand the interpretation of “suit” broadly in the context of an environmental claim and forbids insurers from denying coverage for environmental investigation costs and remediation costs incurred pursuant to a voluntary agreement or consent decree on the ground that the expenses constitute “voluntary” payments. And until Washington courts decide what “adversarial or coercive” means, policyholders may now need to insist that their neighbors sue them in order to trigger the defense obligations (and insurance dollars) that may be necessary to investigate and delineate contamination. I don’t think this is the last chapter, either at Ecology or in the courts, on Gull, so stay tuned on where those decisions take the future of voluntary cleanup in Washington.