Pollution Defense: WA Court Rules Duty To Defend Triggered By Agency Threat Of Immediate And Severe Consequences

A Washington Court of Appeals held that an explicit or implicit threat of immediate and severe consequences by a government agency triggers an insurers’ duty to defend “any suit;” however, it ruled that in the present case, the agency action was not adversarial and, therefore, did not trigger the duty to defend.

A gas station owner voluntarily reported contamination and its intent to remediate to the Washington Department of Ecology (DOE). The DOE sent a letter acknowledging receipt of the notice and advised the owner of the state cleanup requirements, but did not advise of any consequences for failure to adhere to the requirement or threaten any other consequences. The owner sought defense coverage from its commercial general liability insurer for the investigation of the contamination and reporting. The insurer denied defense coverage on the basis that there was no “suit,” a requirement to trigger the duty to defend.

In its decision, the court noted that Washington courts had not yet considered what constitutes a “suit.” The court found that the undefined term “suit” in the policies was ambiguous and could include administrative enforcement acts that are the functional equivalent of a lawsuit. However, the court stated that the mere possibility of liability under state strict liability laws was not sufficient to trigger the duty to defend and the test for whether agency action was a “suit” is whether the agency action is adversarial or coercive. Applying the facts of the present case, the court found that the DOE’s letter to the policyholder did not convey any “express or implied threat of immediate and severe consequences by reason of the contamination” and therefore there was no “suit” to trigger the duty to defend. The court reasoned that the duty to defend “implies the necessity to ‘defend’ against something” and without any adversarial or coercive interaction whatsoever, no duty to defend can be triggered. The court rejected the policyholder’s public policy arguments, stating that they were compelling but have limited significance in a duty to defend analysis where the language of the policy should determine the duty to defend. Gull Indus., Inc. v. State Farm Fire & Cas. Co., No. 69569-0-1 (Wash. Ct. App. June 2, 2014).

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