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Foster-Gardner, Inc. v. National Union Fire Ins. Co. of Pittsburgh

Citation: 29 ELR 20357
No. S063425, 18 Cal. 4th 857, (Cal., 08/03/1998, 09/23/1998)

The court holds that a state environmental agency order notifying an insured that it is a potentially responsible party (PRP) for pollution and requiring remediation is not a "suit" triggering insurers' duty to defend under comprehensive general liability (CGL) policies. Under the policies, the insurers are required to defend a "suit," but have discretion to investigate and settle a "claim." The court first holds that the word suit means a civil action commenced by filing a complaint; anything short of this is a claim. The primary attribute of a suit is that parties to an action are involved in actual court proceedings initiated by the filing of a complaint. A claim, however, can be any number of things, none of which rise to the formal level of a suit. The word suit is also easily understood and unambiguous to a reasonable policyholder. Moreover, the policies do not treat the terms suit and claim as interchangeable, but consistently treat them separately. In addition, in determining whether they have a duty to defend, the court has instructed insurers to compare the allegations of the complaint with the terms of the policy, which determine the parameters of a suit and, therefore, the limits of a defense. It is because the insurer's duty to defend depends on the allegations in the complaint that the insurer may or may not owe a duty to defend those allegations. Last, the court holds that the order did not initiate a suit within the meanings of the policies, and it did not give rise to the insurers' duty to defend.

A dissenting judge would hold that an administrative agency notice identifying the recipient as a PRP for environmental pollution and directing the recipient to assume responsibility for remediation triggers an insurer's duty to defend the recipient under a CGL policy. The CGL policy language is ambiguous as to whether a PRP notification letter should be treated as a mere claim or as the initiation of a suit, and under the court's rules of policy interpretation, this ambiguity should be resolved in favor of coverage. Furthermore, a reasonable insured would expect the insurer to pay cleanup costs whether the insured's obligations for those costs is determined administratively or judicially, and a reasonable insured would also expect the insurer to represent and defend its interests in the forum — whether administrative or judicial — in which its cleanup costs were determined.

Counsel for Plaintiff
Kristine L. Wilkes, David L. Mulliken
Latham & Watkins
701 B St., Ste. 2100, San Diego CA 92101
(619) 236-1234

Counsel for Defendants
Randolph P. Sinnott, Gail L. Orr
Sinnott, Dito, Moura & Puebla
660 S. Figueroa St., Ste. 2300, Los Angeles CA 90017
(213) 996-4200

Kirk C. Chamberlin, Stephanie H. Scherby
Charlston, Revich & Williams
1840 Century Park E., Third Fl., Los Angeles CA 90067
(310) 551-7000

George, Baxter, and Chin, JJ., concurring. Kennard, J., dissenting. Mosk and Werdegar, JJ., concurring in dissent.