Insurer Must Defend Potential Polluter in EPA Investigation

This case seeks to define a term in an insurance contract which will determine whether an insurer must defend a potential polluter when he gets a notice letter from the Environmental Protection Agency (EPA), or if the insurer can wait until an actual lawsuit is filed. The majority found that the term “suit,” as contained in the insurance contract, could mean notice letters from the EPA as well as a lawsuit filed in court. The dissent would have limited the meaning to a lawsuit filed with a court. While neither ruling would necessarily harm the environment, and the dissenting justices based their opinion strictly on their interpretation of a contract term, the majority’s opinion creates an incentive for a potential polluter to work with the EPA to clean up pollution, resulting in a healther overall environment.

Bronson Plating Company, an electroplating company operating in Bronson, Michigan, received a letter from the U.S. Environmental Protection Agency (EPA) informing the company that it could be a “potentially responsible party” (PRP) under the U.S. Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). CERCLA concerns the clean-up of polluted sites. PRPs are those entities that may be held responsible for the clean-up costs. The EPA had discovered that chemical-tainted wastewater from Bronson’s industrial processes was a possible source of contamination of the North Bronson Industrial Area site. Michigan Millers, one of Bronson’s insurers, then asked a court to declare that it did not have a duty to defend Bronson because the EPA had not filed a “suit” against the company. The Michigan Supreme Court held that, under the terms of the insurance contract, Michigan Millers had a duty to defend Bronson in any proceeding that is the functional equivalent of a suit brought in a court of law, and that this duty was triggered when Bronson received the EPA letter.

The Environmental Protection Agency (EPA) notified the Bronson Plating Company by letter that Bronson was potentially responsible for the costs of cleaning up pollution at the Northern Bronson Industrial Area site. The EPA letter advised Bronson that it was investigating the source of the pollution, demanded that Bronson supply relevant information, and advised Bronson to cooperate in the investigation or risk a civil enforcement action. Michigan Millers, one of Bronson’s insurers, initially agreed to defend Bronson in the proceeding, but then went to court for a declaration that it was not obligated to defend Bronson. The insurance contract stipulated that the insurer has a “duty to defend any suit against the insured…” The insurance company argued that the “potentially responsible parties” letter from the EPA was not a “suit,” and therefore that they did not have to defend Bronson until EPA filed an actual suit in court.

Did the EPA letter trigger the insurance company’s duty to defend Bronson?

The majority held that the letter triggered the duty to defend. The justices determined that the word “suit” is ambiguous, and capable of application to legal proceedings that “are the functional equivalent of a suit brought in a court of law.” When a term in an insurance contract is not defined, the “commonly used meaning” controls. In this case, “a typical layperson might reasonably expect [‘suit’] to apply to legal proceedings other than a court action initiated by a complaint.” The PRP letter starts a process that may result in a formal lawsuit, and the process itself creates a record for future litigation and determines Bronson’s total liability costs.

The majority justices also advanced a policy consideration supporting their ruling. Determining that a PRP letter does not trigger an insurance company’s duty to defend would encourage PRPs to “decline … involvement in site cleanups, waiting instead for an actual lawsuit to be brought in order to receive insurance coverage” and dragging out the cleanup of contaminated sites.

Justice Griffin, dissenting (joined by Justices Brickley and Riley), applied specific principles for interpreting insurance contracts to argue that “suit” in fact unambiguously refers to a court proceeding and thus that the EPA letter did not trigger the insurance company’s duty to defend.