May 12, 2014

 The Eighth Circuit Court of Appeals held that a potentially responsible party (PRP) letter from the Environmental Protection Agency (EPA) to the insured under the Comprehensive Environmental Response, Compensation, and Liability Act was a "suit" within the meaning of the insured's commercial general liability (CGL) policies. This case is Land O' Lakes, Inc., v. Employers Insurance Company of Wausau, 728 F.3d 822 (8th Cir. 2013).

 Land O' Lakes, Inc. is a member-owned agricultural cooperative. Midland Cooperatives, Inc. sold a now dormant oil refinery in Cushing, Oklahoma to Hudson Oil Refinery Company. In 1982, Hudson Oil abandoned the refinery, and Land O' Lakes merged with Midland thereby acquiring the refinery. Land O' Lakes held CGL policies with Employers Mutual Liability Insurance Company of Wausau ("Wausau") and the Travelers Indemnity Company ("Travelers") (collectively, "the Insurers"). The EPA targeted Hudson Oil in a cleanup action and the Oklahoma Department of Environmental Quality (ODEQ) began to monitor the site. Then, in 1998, the EPA and the ODEQ detected problems involving hazardous materials and placed the refinery on the National Priorities List, thus designating the refinery as a Superfund site.

 Under CERCLA, a PRP may be required to pay the costs of cleaning up a Superfund site that it or its predecessors previously owned. In 2001, the EPA sent Land O' Lakes a Special Notice Letter ("the 2001 PRP Letter"), informing Land O' Lakes that it was considered to a PRP. In response, Land O' Lakes claimed that it bore no responsibility for the cleanup costs because Hudson Oil, not Land O' Lakes caused any alleged contamination. Wausau and Travelers declined to defend Land O' Lakes and in 2008, the EPA sent Land O' Lakes a second Special Notice Letter ("the 2008 PRP Letter"), inviting Land O' Lakes to enter negotiations regarding cleanup. Land O' Lakes reiterated its earlier denial.

 In 2009, the EPA issued a Unilateral Administrative Order (UAO) directing Land O' Lakes to implement the cleanup remedy selected, with which Land O' Lakes complied. It then filed a breach-of-contract action against the Insurers demanding reimbursement of the costs incurred in defending the EPA action and a declaration that the Insurers were required to indemnify Land O' Lakes. The district court granted the Insurers' motion for summary judgment.

 At issue on appeal is whether the 2001 PRP Letter was a "suit" that triggered the Insurers' duty to defend. The Minnesota Supreme Court concluded that a PRP letter is a "suit" as that term is used in various CGL policies. Land O' Lakes argued that although the 2008 PRP Letter was a suit, the 2001 PRP Letter was a mere "invitation to participate in an investigation," and not a suit. Alternatively, it argued that even if the 2001 PRP Letter constituted a suit, no claim for arguably-covered damages was made until the EPA sent the 2008 PRP Letter.

 The Court of Appeals agreed with the district court that the 2008 PRP Letter was a continuation of the claims made by the EPA in the 2001 PRP Letter. Thus, the Insurers had a duty to defend the insured. The Insurers breached that duty in 2001 because the 2001 PRP Letter was a "suit" for arguably-covered damages as contemplated under the pertinent CGL policies and the 2008 PRP Letter was not the commencement of an entirely new enforcement action. The 2001 PRP Letter marked the beginning of an adversarial administrative process that sought to impose liability upon Land O' Lakes for remediation costs associated with the refinery.

 The court based its decision on attributes of the 2001 PRP Letter, which notified Land O' Lakes of its potential liability under CERCLA; informed Land O' Lakes that a 60-day formal negotiation period would commence upon receipt of the letter and asked it to participate; advised that Land O' Lakes was potentially liable for the payment of necessary future costs; and warned that if Land O' Lakes did not agree to perform or finance after good-faith negotiations, the EPA would commence cleanup and issue an administrative order or pursue civil litigation for reimbursement of its costs.

 Editor's Note: "Suit" is a defined term under the commercial general liability policy, which means "a civil proceeding in which damages because of 'bodily injury,' 'property damage' or personal and advertising injury' to which this insurance applies are alleged." Included in the definition of "suit" is an arbitration proceeding and any other alternative dispute resolution proceeding. The PRP letter was issued under CERCLA protocol and alleged damages to which Land O' Lakes' CGL policy applied. Thus, the court correctly ruled that the PRP letter was a "suit" within the meaning of the CGL for which the Insurer owed a duty to defend.

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