EPA PRP letter is a “suit” triggering duty to defend; umbrella insurer without pollution exclusions must “drop down” and defend when the claim constitutes an “occurrence” not covered by underlying insurance.

In two separate opinions, the 9^th Circuit, applying Oregon law, held that a 104(e) letter from the EPA constitutes a “suit” triggering an insurer’s duty to defend, and an umbrella insurer’s duty to defend a pollution claim is triggered where the primary policy contains a pollution exclusion because the claim constitutes an “occurrence” not covered by underlying insurance.

In Ash Grove Cement Co. v. State of Oregon, the Ninth Circuit, applying Oregon law, affirmed the lower court’s decision that Liberty Mutual Insurance Company (“Liberty Mutual”) and United States Fidelity and Guaranty Company (“USF&G”) had a duty to defend Ash Grove Cement Company (“Ash Grove”) with regard to responding to a request for information from the EPA.

Ash Grove operates two cement plants on the shore of the Willamette River within the Portland Harbor Superfund Site (the “Site”).  Ash Grove received an information request from the EPA pursuant to section 104(e) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, regarding contamination at the Site (the “104(e) Letter”).  Ash Grove sent the 104(e) Letter to Liberty Mutual and USF&G.  A year later, Ash Grove sued its insurers seeking a declaratory judgment that they had a duty to defend Ash Grove in connection with the 104(e) Letter.

Under the Liberty Mutual and USF&G policies, the insurers are required to defend any “suit” against Ash Grove.  The insurers argued that they did not have a defense obligation because the 104(e) Letter was not a “suit” under Oregon law.  The Ninth Circuit disagreed and held that a 104(e) letter is a “‘coercive information demand[]’ that is ‘an attempt to gain an end through legal process,’ and is therefore a ‘suit’ under Oregon law.”  In so holding, the court rejected the following arguments by the insurers:  (1) the 104(e) Letter was not intended to be treated as a “suit” under the policies because the policies distinguished between a suit and a claim; (2) the 104(e) Letter was not a “suit” because it did not require an insured to take action with respect to contamination;  (3) the 104(e) Letter contained no allegations of “property damage” which could impose liability on Ash Grove sufficient to trigger the duty to defend; and (4)  requiring an insure to defend a 104(e) letter would violate the Oregon Constitution and the United States Constitution by retroactively and materially expanding the scope of the defense obligation.

The insurers also argued that if there was a duty to defend, it ended when Ash Grove submitted its response to the 104(e) Letter.  Again, the Ninth Circuit disagreed and found that the duty “continue[s] as to each unit [of property] until the Record of Decision for that unit [i]s filed.”  In addition, the court found that the duty to defend does not require formal tender and is triggered by notice.  Thus, the Ninth Circuit held that Liberty Mutual and USF&G are obligated to defend Ash Grove with regard to the 104(e) Letter.  Ash Grove Cement Co. v. State of Oregon, No. 13-35900 (9th Cir. May 11, 2016).

In Northwest Pipe Company v. RLI Insurance Company, the Ninth Circuit, applying Oregon law, affirmed a lower court’s decision and held that an umbrella insurer’s duty to defend was trigged by an “occurrence” that other insurers did not cover.  Northwest Pipe Company (“NW Pipe”) received letters from the EPA and the Oregon Department of Environmental Quality regarding possible contamination at a site as the result of an occurrence in 1985-1986.  During that timeframe, RLI had issued an umbrella policy without a pollution exclusion that sat above a primary policy that contained a pollution exclusion.

According to the court, the RLI policy “provided ‘gap coverage’ for property damage arising from an occurrence not covered by other insurers.”   The RLI policy’s “Other Insurance” clause did not alter the conclusion because the court found that no other insurance was available.  Additionally, the court found that NW Pipe complied with the RLI policy’s conditions by maintaining the primary policy even though that policy had an absolute pollution exclusion.  According to the court, the fact that the primary insurers were defending NW Pipe did not negate RLI’s duty to defend.  “RLI’s duty does not depend on whether other insurers are defending claims.  Rather, RLI’s duty to defend is triggered when the occurrence is not coved by another policy.”  Thus, the Ninth Circuit held: “Because the loss may have occurred while RLI was the only insurer on the risk for a pollution incident, RLI must defend.”  Northwest Pipe Co. v. RLI Ins. Co., No. 14-35542 (9th Cir. May 13, 2016).