The United States District Court for the Western District of Washington recently held that several insurers breached their insurance contracts when they refused to defend their insureds against letters from the EPA and the Washington State Department of Ecology identifying them as potentially liable parties at a Washington Superfund site. King Cty. v. Travelers Indem. Co., No. 2:14-cv-01957-BJR, Order Granting in Part and Denying in Part King County’s Motion for Summary Judgment and Denying Travelers’ Motion for Summary Judgment (W.D. Wash. Feb. 10, 2017) (“Order”). While some Washington court of appeals and federal court decisions under Washington law have approached this holding, this is the first clear decision on this point under Washington law.
The case involved standard comprehensive general liability policies issued in the 1960s, ’70s, and early ’80s that require the insurer to defend “suits” that assert claims that are conceivably covered by the policy. The insurers argued that the letters from the agencies (commonly referred to as General Notice Letters, “GNLs,” or “PRP letters”) were not “suits,” an undefined term in the policies.
Rejecting this argument, the court relied heavily on a 2014 Washington court of appeals case, which concluded that the undefined term “suit” is ambiguous and that it may include administrative enforcement acts that are functionally equivalent to a lawsuit. Gull Indus., Inc. v. State Farm Fire & Cas. Co., 181 Wn. App. 463, 477, 326 P.3d 782 (2014). For an administrative enforcement act to qualify as a “suit” under the policies, the action must be “adversarial or coercive in nature.” Id. The court also noted that the Ninth Circuit, in Anderson Bros. v. St. Paul Fire & Marine, had determined that a PRP letter triggered the duty to defend, under Oregon law.
Based on Gull, the court concluded that the EPA and the Department of Ecology had assumed an adversarial position by exercising their authority to designate King County as strictly liable for cleanup costs. Order at 9. Additionally, it was “conceivable” from reading the notice letters and attached correspondence that King County was facing significant liability with possible devastating financial consequences. Id. Thus, in contrast to the passive agency letters at issue in Gulf, the letters to King County were functionally equivalent to a suit. Id. at 9-10.
This case confirms the generally understood practice in Washington that GNL letters trigger the duty to defend. The insurers in this case were perhaps emboldened by the Gulf decision. The lesson for insurers should be that Gull is confined to its facts. Ideally, insurers will also get the message that further resistance to assuming the duty to defend in environmental cases could lead Washington to join Oregon in holding that EPA 104(e) information requests are also functionally equivalent to a suit, which was another part of the holding in Anderson Bros.