For 20 years now, Washington law has required an insurance company to indemnify an insured for historic environmental contamination under general liability policies, even in the absence of an overt, threatened action by a regulatory agency. Weyerhaeuser Co. v. Aetna Cas. & Sur. Co., 123 Wn.2d 891, 896-97, 874 P.2d 142 (1994).
Earlier in June of this year, the Washington Court of Appeals added clarity to the other significant duty in an insurance contract—the duty to defend. Gull Indus., Inc. v. State Farm Fire & Cas. Co., No. 69569-0-1, 2014 WL 2457236 (Wn. Ct. App. June 2, 2014) establishes much-needed guide posts for when the duty to defend arises in the context of insurance environmental claims under the state cleanup statute—the Model Toxics Control Act (“MTCA”).
In sum, the court held that (1) the undefined term “suit” in a general liability policy is ambiguous and may include an administrative enforcement act that is the functional equivalent of a suit; and (2) an agency action must be adversarial or coercive in nature in order to qualify as the functional equivalent of a “suit.”
This ruling marks the first time an appellate decision delineates when the duty to defend is triggered. It serves as a guide for insureds to develop communication with the regulatory agency—Washington Department of Ecology (“Ecology”)—necessary to trigger an insurance company’s defense obligation.
While the court did not go as far as finding a duty to defend solely on the basis of the strict liability scheme of MTCA, it does allow for an administrative communication from Ecology that relays “an explicit or implicit threat of immediate and severe consequences by reason of the contamination” to qualify as a “suit” for which the insurer must defend.
The facts of the case can be guide posts for insureds. The court found that there was no “suit” because the communication from Ecology merely notified the insured of the following:
- The fact that the reported contamination was above certain regulatory cleanup levels;
- The fact that the property was placed on the state’s cleanup database;
- The need to comply with applicable laws; and
- The option to seek assistance from Ecology under the Voluntary Cleanup Program.
Furthermore, Ecology’s communication failed to establish several things that further removed it from being a suit:
- It did not inform the insured of the consequences for noncompliance with the laws;
- It did not determine that the insured was a potentially liable party under MTCA; and
- It did not imply that Ecology has reviewed and approved any proposed remedial action.
For insureds and insurers handling environmental insurance claims in Washington, Gull Industries brings a welcome clarification in an area of law that has been longing for one.