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

ELR Citation: 29 ELR 20357
Nos. 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.