Insurers and policyholders alike need to take a close look at the duty to defend in the wake of the recent decisions in Gull Industries and Jorgensen Forge Corporation.
Washington Courts have long held that an obligation to pay environmental cleanup expenses can be “damages” even in the absence of a traditional lawsuit. Weyerhaeuser.{}. However, until last year, the Washington appellate courts had not addressed “whether administrative actions that fall short of an actual lawsuit constitute a “suit” triggering the insurer’s duty to defend environmental claims[.]” Gull Indus., Inc. v. State Farm Fire & Cas. Co., 181 Wn. App. 463, 473 (2014).
In the Gull decision, the Court of Appeals noted this issue has been the subject of much litigation nationwide, with three different approaches holding sway in various jurisdictions. Many Courts hold that “suits” are civil lawsuits, which begin with the filing of a complaint against the plaintiff in a court of law. Another group finds that the term “suit” is ambiguous in the environmental context and that an environmental regulator’s decision to issue a “potentially responsible party” letter begins something that is the functional equivalent of a suit. In Gull, the Court of Appeals adopted a third line of authority, which holds that the term “suit” is not limited solely to lawsuits in civil courts, but includes communications that are sufficiently “adversarial or coercive in nature in order to qualify as the functional equivalent of a ‘suit.’” Gull Indus., Inc. v. State Farm Fire & Cas. Co., 181 Wn. App. 463, 477 (2014).
Judge Rothstein’s April 29th, 2015 opinion in The Jorgensen Forge Corp. v. Illinois Union Inc. Co., 12-1458-BJR is the first decision to grapple with Gull’s implications for policyholders and insurers. The Jorgensen Forge decision was somewhat unusual in that a policyholder took the position that a claims-made policy issued after a PRP letter could be triggered because the PRP was not a lawsuit, and was not even a “claim.”
The court in Jorgensen Forge held that there was insufficient evidence to conclude on the record before it that the PRP letter at issue was the beginning of an adversarial or coercive “suit.” This decision is likely correct but illustrates two issues that are likely to feature prominently in future cases. First, the Jorgenson Forge suggests that the federal courts, at least, will look past the formal label that appears on an administrative communication, and instead determine whether a suit exists based on the entire record of communications between an enforcement agency and a policyholder. In this respect, Jorgenson Forge is good news for insurers, because it suggests that there will be no “suit” when an agency “cooperatively” issues a PRP letter at the request of policyholder for the purpose of triggering coverage.
Second, although the Jorgenson Court found that a fact dispute prevented it from awarding summary judgment to a carrier it was “troubled” by allegations that the policyholder was withholding discovery of communications “that could potentially demonstrate there is no duty to defend.” Disputes over access to a complete record of a policyholder’s interactions with an environmental regulator will be a key dispute in future cases.
