Pollution: WA Federal Court Holds That PRP Is the “Functional Equivalent” to a “Suit”: Duty to defend triggered.

A Washington federal district court, applying Washington law, held that The Travelers Indemnity Company and Travelers Casualty & Surety Company, f/k/a The Aetna Casualty and Surety Company (collectively, “Travelers”) and other insurers breached their duty to defend King County for enforcement actions arising out of the environmental pollution of two Washington Superfund sites.  The court held that being named a “potentially responsible party” (“PRP”) by the United States Environmental Protection Agency (“EPA”) constitutes a “suit” under general liability policies and, therefore, the insurers had a duty to defend King County in the EPA proceedings.

King County was designated as a PRP by the EPA and as a “potentially liable party” (“PLP”) by the Washington Department of Ecology (“DOE”) for contamination of the Lower Duwamish Waterway Superfund site and the Harbor Island Superfund site.   In July 2013, King County tendered the claims to Travelers and its other insurers demanding that they defend King County against the enforcement actions.  The insurers denied coverage.  King County filed suit alleging that the insurers breached their duty to defend the claims and, in doing so, had acted in bad faith.  Both King County and Travelers moved for partial summary judgment regarding the duty to defend.  King County also moved on its bad faith claims against the insurers.

Under Washington law, “the duty to defend is ‘based on the potential for liability,’ and thus summary judgment on the issue may be granted in favor of the insured if there are any facts in the Complaint that ‘could conceivably impose liability upon the insured within the policy’s coverage.’”  According to the insurers, King County did not tender a “suit” that triggered their duty to defend.  King County disagreed and asserted that the claims were “conceivably” covered under the policies and therefore the insurers’ duty to defend was triggered.

The Travelers’ policies provide, in relevant part, that Travelers will “[d]efend any suit against the Insured alleging such injury, sickness, disease or destruction and seeking damages on account thereof …” The term “suit” is not defined by the policies.   Under Washington law, the term “suit” is ambiguous in the environmental liability context and it may include administrative enforcement acts as long as the agency action is adversarial or coercive in nature.  The court held that the EPA and DOE initiated administrative proceedings were the “functional equivalent to a suit against King County.”  According to the court, both agencies demonstrated the adversarial nature of the claims by designating King County as a strictly-liable PRP and PLP and by actively demanding remedial action of King County:  “Certainly, it is conceivable from the face of the King County’s notice to Travelers and the attached agency correspondence that King County was facing ‘significant civil liability’ with possible ‘devastating financial consequences’ as it would in a typical lawsuit.”

Although the court held that the insurers breached their duty to defend, it found that King County did not meet its burden to demonstrate that the insurers’ denial of coverage was “unreasonable, frivolous, or unfounded.”   Thus, King County’s motion regarding bad faith was denied.   King County v. Travelers Indem. Co., NO. 2:14-cv-01957-BJR (W.D. Wash. Feb. 10, 2017).