EPA Proceedings Constitute A “Suit” Under Texas Law

The Texas Supreme Court held that an EPA PRP letter is a “suit” triggering a duty to defend under a commercial general liability policy.

In 2007 and 2008, the U.S. Environmental Protection Agency (“EPA”) served notice letters on McGinnes Industrial Maintenance Corp. (“McGinnes”) and its parent company, stating that they were Potentially Responsible Parties (“PRP”) for environmental damage near the San Jacinto River (a/k/a the San Jacinto Superfund Site). It was alleged that McGinnes dumped pulp and paper mill waste sludge into disposal pits near the San Jacinto River in the 1960s. McGinnes sought $2,000,000 in defense costs and penalties from Phoenix Insurance and Travelers. The insurers denied coverage and their duty to defend on the ground that the EPA proceedings were not a “suit” under the policies. A federal district court granted the insurers’ motion for partial summary judgment on the duty to defend issue in the subsequent coverage suit. On appeal, the U.S. Court of Appeals for the 5th Circuit certified to the Texas Supreme Court the question of whether an EPA PRP letter issued pursuant to CERCLA constitutes a “suit” under the CGL policies.

The policyholder argued that EPA proceedings are the functional equivalent of a lawsuit. In a 5-4 decision, the majority held that EPA proceedings are not “like a suit,” but “in actuality, they are the suit itself, only conducted outside a courtroom.” The majority reasoned that prior to the enactment of the Comprehensive Environmental Response Compensation and Liability Act of 1980, the EPA had to sue in a court of law in order to force a cleanup; however, the effect of CERCLA’s enactment was to essentially redefine “suit” in EPA cleanup claims as an EPA proceeding that may end up in court. Therefore, the court reasoned, the insurers would have been obligated to defend McGinnes in the EPA’s suit prior to CERCLA’s enactment, and “McGinnes’s rights under its policies should not be emasculated by the enactment of a statute intended not to affect insurance, but to streamline the EPA’s ability to clean up pollution.” The majority additionally noted that the highest courts in 13 of 16 states who have considered the issue have ruled that PRP letters trigger the duty to defend. McGinnes Indust. Maint. Corp. v. Phoenix Ins. Co., No. 14-0465 (Tex. June 26, 2015).

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