While several courts around the country have concluded a potentially responsible party ("PRP") letter from the U.S. Environmental Protection Agency ("EPA") or a state regulatory agency is sufficiently adversarial to be the functional equivalent of a suit, no reported decision has yet extended that rationale to a request for information letter received from a regulatory agency. Yet, in what appears to be the first reported decision of its kind in the country, in Ash Grove Cement Co. v. Liberty Mut. Ins. Co., et al., 2010 U.S. Dist. Lexis 103763 (D. Or. Sept. 30, 2010), the U.S. District Court for the District of Oregon Judge Michael G. King held that a letter from the EPA requesting information under §104(e) of the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA") constituted a suit under the insured's primary CGL policies, triggering the duty to defend under Oregon law.
Ash Grove, a cement manufacturer, owns and operates plants on an area of the Lower Willamette River in Portland, Ore., within the Portland Harbor Superfund Site ("site"). The EPA first listed the site on the Superfund National Priorities List in December 2000. In 2008, after already distributing two groups of general PRP notice letters to more than 80 other PRPs, the EPA sent Ash Grove a §104(e) request for information letter. The letter stated that the EPA was seeking information on the site and sought Ash Grove's cooperation. The letter went on to state that compliance was required by law and, if Ash Grove failed to respond, the EPA could bring suit to assess civil penalties of $32,000 per day for each day of noncompliance. The letter did not name Ash Grove a PRP, but rather, requested extensive information and documents about site history, corporate structure, operations, chemicals used, waste disposal practices, persons with knowledge, etc.
Ash Grove maintained CGL policies covering roughly 20 years prior to 1986 from various insurers, including Liberty Mutual and United States Fidelity & Guaranty Company. According to the court, subject to their terms, the CGL policies required the insurers to defend a suit seeking damages arising from injury or property damage caused by an occurrence. Ash Grove requested reimbursement for substantial costs, including legal fees and consultants' costs, incurred in responding to the EPA request for information letter. Both insurers took the position they were not obligated to defend Ash Grove because the EPA letter was not a suit, nor was it even a PRP letter alleging potential liability on the part of the insured.
In reaching its rather unique conclusion, the district court relied heavily on the Oregon Environmental Cleanup Assistance Act ("OECAA"), Or. Rev. Stat. §465, 480 et seq. By statute, the OECAA broadly defines suit to include actions taken under EPA oversight "pursuant to written voluntary agreements, consent decrees and consent orders." OECAA also sets out specific rules of interpretation for general liability policies for environmental claims under Oregon law. Importantly, OECAA §480(2)(b) specifically states that "[a]ny action or agreement by the ... [EPA] against or with an insured in which ... the [EPA] in writing directs, requests or agrees that an insured take action with respect to contamination ... is equivalent to a suit ...."
In examining OECAA, the district court concluded that the EPA's 104(e) request letter for Portland Harbor was not merely a request for information because it included a threat of legal action and substantial penalties for noncompliance. The court analogized the letter to a PRP notice and, quoting the U.S. Court of Appeals for the 9th Circuit's reasoning, the district court found that the EPA letter had the same, "immediate and severe implications," as a PRP notice, citing Aetna Cas. and Sur. Co. v. Pintlar Corp., 948 F. 2d 1507, 1516 (9th Cir. 1991).
The district court rejected the insurers' argument that applying the OECAA rule of construction was contrary to the intent of the parties to the insurance contracts because OECAA did not exist when the policies were executed. Rejecting this argument, the court found that because suit was not defined, the parties' intent could not be ascertained. Finding the general purpose of any of the policies was to provide coverage for liability due to property damage caused by accident, and interpreting the policy language against the drafter, Judge King concluded a reasonable insured would interpret the EPA letter as an effort to impose a liability that ultimately would be enforced by a court, triggering the insured's need for and right to a defense under the policies.
An appeal will almost certainly be taken by the insurers to the 9th Circuit. Stay tuned. Even if upheld on appeal, this decision should have little or no impact outside Oregon given the court's heavy reliance on the very unique and extremely broad OECAA statutory definition of suit as that term is used in a CGL policy for environmental claims under Oregon law. That said, this decision is expected to have far-reaching implications for insurers dealing with parties that are not yet named PRPs, but which receive EPA 104(e) request for information letters from USEPA or Oregon DEQ for Portland Harbor or other sites around the state.
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