Earlier this week Division One of the Washington Court of Appeals issued its much-anticipated decision in the Gull Industries v. State Farm litigation. The issue was whether a letter from the state equivalent of the EPA constitutes a "suit" under a standard-form legacy GL policy (that is, a policy issued before the ISO form defined "suit"). Only if something constitutes a "suit" does the insurer have a duty to defend, which in the environmental context often means paying for very expensive investigations and studies of contamination and remediation options. So there is potentially a lot at stake.
One word describes this Court of Appeals decision: wrong. Confusingly enough, the decision starts off in the right direction, finding that the term "suit," undefined, is ambiguous. That's in keeping with that other courts have found, including Oregon's courts. That's where the decision falls apart: having found an ambiguity, the court should have applied the maxim that ambiguous terms are applied against the drafter (the insurer). But without any discussion of that standard, rather than adopting a broad, policyholder-friendly interpretation, the court imposed a definition not drawn from any source reflecting the view of an ordinary purchaser of insurance (like the dictionary); rather, the court looked to what other courts had adopted as an interpretation, and picked and chose among aspects of those decisions that it preferred. The interpretation adopted by the Court of Appeals for "suit" is this: something that "communicate[s] an explicit or implicit threat of immediate and severe consequences" if not responded to and is "adversarial or coercive in nature."
The letter sent by Ecology (the Washington state equivalent of EPA) was in response to a voluntary notification by the policyholder that pollution had been discovered and would be cleaned up. Ecology told the insured, in response, that it was placing the site on a list of contaminated sites awaiting cleanup. The letter did not explicitly tell the insured to do anything. But, as noted by the court, the letter advised the insured that there were specific requirements in state law that cleanup efforts must adhere to. Implied in that statement is the threat, drawn from the cleanup-requirements statute, that if those standards were not complied with, there will be enforcement action. But the Court of Appeals completely ignored that reality, simply saying that the letter "did not advise" the insured of those consequences.
The approach taken by Division One has been rejected by many courts, including the Ninth Circuit in Anderson Bros. v. St. Paul Fire & Marine. In Anderson Brothers the Ninth Circuit affirmed its observation in Aetna Cas. & Sur. v. Pintlar, that the realities of environmental statutes must be considered in deciding whether a communication from a regulatory agency that does not spell out every potential liability or ramification is a "suit." In Gull Industries the reality was that the the insured, after self-reporting the contamination, was going to constantly be looking over its shoulder to see what Ecology thought of what it was doing. That makes Ecology's letter a "suit."
The practical effect of decisions like this one is to discourage policyholders from voluntarily entering into agreements with regulators or self-reporting contamination and cleanup efforts. Instead, policyholders are encouraged to bait regulators into taking explicitly "adversarial or coercive" steps. That's bad for the environment and bad for the public. It may be that the Court of Appeals was trying to goad Ecology into changing the wording of its letters, but there's no reason that the burden of solving this problem should be put in the hands of environmental regulators. This may be a rare circumstance where Washington legislators and policyholder advocates can take a page from Oregon, and enact a Washington version of the Oregon Environmental Cleanup Assistance Act, which (as some of my colleagues have noted) contains a definition of the term "suit" that much broader than the standard adopted by the Washington court.
