SAM WINER & COMPANY, INC.

v.

COMMERCIAL UNION INSURANCE COMPANIES, INC.

IN THE ELKHART SUPERIOR COURT I

CAUSE NO. 20D01-9207-CP347

OPINION

Plaintiff filed suit against the defendant requesting the court to enter judgment in favor of the plaintiff and against the defendant declaring that the defendant Commercial Union is obligated to defend and indemnify the plaintiff to coverage limits in all respects in the USEPA and IDEM actions at the Main Street Well Field Site. The defendant thereafter filed an answer in denial.

The defendant filed a Motion for Summary Judgment and a brief in support of its motion. The defendant has not filed any affidavit or other matters in support of its motion, nor has he designated what constitutes the record that he relies on to support his motion.

Trial Rule 56(c) requires a moving party to designate to the court all parts of pleadings or what matters it relies on for purposes of the motion. TR 56(H) provides no judgment rendered on the motion shall be reversed on the ground that there is a genuine issue of material fact unless the material fact and the evidence relevant thereto shall have been specifically designated.

Plaintiff filed a cross-motion for partial summary judgment, together with the affidavit of Joseph D. Winer and Thomas A. Coz. Plaintiff also filed its brief in support of its motion and its response to the defendant’s motion. Since nothing has been filed showing a factual dispute, the court must consider the facts set forth in plaintiff’s motion as being true for purposes of this motion. Any facts claimed or alleged in a brief, but not otherwise properly included in the record as required by TR 56 are not be considered. The resolution thus becomes an issue of law.

The facts in this case are as follows:

1. The company owns property located at 923 Edwardsburg Avenue, Elkhart, Indiana (the "property). The property is located directly across Edwardsburg Avenue from the southwest corner of the Main Street Well Field. Id. The Company has operated a metal scrap yard business on the property since 1924. Winer Aff., para. 2.

2. The Company contracted with Commercial Union or comprehensive general liability policies covering the Company from 1974 until 1988. Winer Aff., para. 11. Copies of the Company’s policies are attached to the Plaintiff’s Complaint as Exhibits A through K.

3. On January 17, 1991, the Company, along with several other companies and property owners near the property, received a "general notice of liability" letter from the United States Environmental Protection Agency ("USEPA") notifying the Company that USEPA considered it to be a potentially responsible party ("PRP") as an owner and operator of part of the Main Street Well Field Superfund Site (the "Site") under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA") the "Superfund" statute, 42 U.S.C. Sec.9601 et seq. Winer Aff., para. 4. The USEPA has drawn a groundwater capture or contamination zone at the Site that includes the Company’s property. Winer Aff., para. 4. The general notice of liability letter demanded payment from the Company and other PRPs for USEPA’s past costs of $5,530,00 expended in environmental investigation and cleanup actions taken at the Site.

4. On August 23, 1991, the Company and other PRPs received a "special notice of liability" letter which notified the Company that the USEPA by then had incurred $6,313,900 in response costs and that pursuant to the Company’s PRP status the Company was responsible for reimbursing USEPA for those costs. Winer Aff., para. 5.

5. On February 21, 1992, the USEPA issued to the Company and seven other PRPs a unilateral order, Docket No. VW92-C140, pursuant to Section 106 of CERCLA (42 U.S.C. sec 9606), ordering the Company to contribute to the past and future cleanup of the Site or face treble damages and penalties of up to $25,000 a day. Winer Aff., para. 6.

6. The Company was not aware that the property would be included as part of the Site until the Company received the USEPA’s January 17, 1991 general notice of liability letter. Winer Aff., para. 8. The Company has never maintained pits, ponds, or lagoons on the property for the storage or disposal of hazardous waste. Winer Aff., para. 7. The Company, is not aware of any spills, leaks or releases of hazardous substances at the property. Id. Accidental leaks or spills of motor oil and hydraulic fluid from scrap motor vehicles and Company equipment have occurred periodically during the Company’s operations at the property, including during the years insured by Commercial Union. Id. The Company does not believe that any major portion of the contamination of the Site came from the property. Id. The Company is aware of releases or hazardous substances from landowners near the property that could have migrated on or below th property and adjacent properties. Id.

7. The USEPA’s administrative action forced the Company to engage attorneys on January 25, 1991 and incur attorneys’ fees and costs to defend against the USEPA’s CERCLA action. See, Affidavit of Thomas A. Coz attached as Exhibit "B" to the Company’s Brief. ("Coz Aff.") The USEPA action has had the same impact on the Company as a court action and if lost would result in a money judgment against the Company. In defending the USEPA CERCLA action through September 20, 1993 the Company has incurred attorneys’ fees in the amount of $66,873.33, and additional expenses of $8,620.22. Coz Aff., para. 5.

8. On June 25, 1992, the Company signed the "Participation Agreement Relating to Administrative Order for Remedial Design and Remedial Action at Main Street Well Field Facility, Elkhart, Indiana" (the "Participation Agreement"). Winer Aff., para. 9. On September 21, 1993, the Company signed "Addendum No. 1 Participation Agreement Relating to Administrative Order for Remedial Design and Remedial Action at Main Street Well Field Facility, Elkhart, Indiana " ("Addendum No. 1") which binds the Company to pay at least $48,000 towards the remedial design and remedial action at the Main Street, Well Field Site. Id. The Company has paid the first $8,000 installment of the Company’s $48,000 obligation under the Addendum No. 1. Id.

9. The Company’s adoption of addendum No. 1 does not release the Company from any liability under the unilateral order for the $6,313.900 in past costs that the USEPA already has incurred or for treble damages and penalties for failing to comply with the order. Winer Aff., para. 10. The Company also remains subject to suits for contribution from other PRP’s that settle with USEPA. Id.

10. On May 17, 1991, the Company demanded Commercial Union defend and indemnify the Company under all of its policies. Commercial Union has refused to indemnify the Company for any portion of the $6,313,900 in damages ordered by the USEPA. Winer aff., para. 123. Commercial Union also has refused to assume the Company’s defense or to pay the attorneys’ fees and costs that the Company has incurred in defending against the USEPA’s action. Id.

The issue before the court is whether a CERCLA administrative action, initiated by the notification of liability letters and a unilateral order served on the plaintiff by USEPA, constitute a suit against the defendant Commercial Union which obligates them to defend the plaintiff under the comprehensive general liability policies issued by defendant to plaintiff.

The language in the policies which plaintiff contends obligates the defendant to defend and indemnify plaintiff reads as follows:

The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of:

Coverage A. bodily injury or,

Coverage B property damage

to which this insurance applies caused by an occurrence, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false, or fraudulent and may make such investigation and settlement of any claim or suit as it deems expedient....

Commercial Union’s policies all define "occurrence" as: An accident, including continuous or repeated exposure to conditions, which result in bodily injury or property damage neither expected nor intended from the standpoint of the insured.

Under Indiana law insurance contracts are subject to the same rules of interpretation as are other contracts. If the language of the policy is clear and unambiguous, it is to be given its plain and ordinary meaning. Where the language is ambiguous or of doubtful meanings, the rules of construction in insurance contract disputes favor coverage and the non-drafter insured and against the drafter and no coverage. Eli Lilly & Company v. Home Insurance Co., (1985) Ind., 482 N.E.2d 467.

An insurance policy is ambiguous if reasonable persons may honestly differ as to the meaning of the language used. In this case, the policy in question does not define the term "suit". Thus, the term must be construed as it would be understood by the average lay person, Continental Insurance Co. v. Novey, (1982) Ind. App., 437 N.E.2d 1338, or as sometimes phrased by "the policyholder of average intelligence," Asbury v. Indiana Union Mutual Insurance Co., (1982), Ind.App., 441 N.E.2d 232.

No Indiana Appellate Court has decided the issue raised in this case. The defendant cites as support of its position the trial court decision in Ulrich Chemical Inc., v. American States Insurance, No. 73C01-8901-CP016 (Ind. Cir. Ct., Shelby County. July 26, 1990). The trial court stated that terms of an insurance policy must be construed in accord with their plain and ordinary meaning, citing, Ashbury v. Indiana Union Mutual Insurance Co., supra, as its authority. The Court then found that a significant dispute exists concerning the ordinary meaning of the term suit." The court, without further discussion, found the plain and ordinary meaning of the word "suit" to be a cause of action before a court of law or a court proceeding. The court then held that an administrative claim or proceeding is not a suit. (This court notes that the federal case from Idaho cited by the trial court has been overruled)

This court does not find that opinion to be either persuasive or dispositive as to the issue raised. The trial court in Ulrich acknowledged and found that a significant dispute existed as to the plain, ordinary meaning of the word "suit". That finding must carry with it the conclusion that reasonable people or policy holders of average intelligence have an honest difference of opinion with respect to the meaning of the language used. That is the definition of ambiguous and as such draws into play the rules of construction favoring coverage, the insured or non-drafter and disfavoring the defendant insurer. The trial court then failed to apply those rules and thus reached an erroneous conclusion.

It does appear that both Main and Delaware support the defendant’s position. Several, appellate cases from Michigan have been cited, but those decisions appear to go both ways. The Michigan Supreme Court has apparently heard arguments, but has not rendered its opinion resolving the conflict. Since the Michigan law is unsettled, the cases cited are not authoritative or helpful in this case.

The plaintiff has directed the court to some 45 cases holding that an insurer’s obligation to defend suits also includes administrative proceedings. The court also notes that plaintiff’s brief contains the amicus curiae brief filed by the Indiana Department of Environmental Management in the appeal of the Ulrich case from the Shelby county Circuit Court. In the Ulrich case, the Attorney General notes that at least 24 courts of sister states and 10 Federal Courts have ruled that "suit’ as used in standard C G L policies include federal and state administrative enforcement proceedings that are the predominant means of making people pay for environmental harm. Although Appendix A containing the list of cases does not appear to be included in this brief, the statements do not appear to be disputed.

In Avondale Ind. Inc. v. Travelers Insurance Co. (2^nd Circ. 1989) 887 Fed. 1200, the policy in question required Travelers to defend any suit against the insured seeking damages on account of bodily injury or property damage. The issue before the court was whether an administrative proceeding is a suit and whether the remedial costs expended by Louisiana for pollution cleanup that potentially may be assessed plaintiff are damages within the meaning of the policy.

The court found the administrative proceeding to be a suit. In so ruling, the court found the demand letter commenced a formal proceeding against Avondale, advising it that a public authority had assumed an adversarial position against it that a public authority had assumed an adversarial position against it and that to disregard the demands may result in the loss of substantial rights The court said "these strike us as the hallmarks of litigation, and are sufficiently adversarial to constitute a suit under New York law and within the meaning of the policy."

A similar result was reached in Spangler Const. v. Industrial Crankshaft, (1990) N.C. 388 S.E.2d 557. The court stated that "suit" should be given the meaning it has acquired in ordinary speech. Four dictionary definitions were cited, including Webster’s Third New World International Dictionary 2286 (1976) which defined suit as the attempt to gain an end by legal process. The court then found the compliance orders were an attempt by the State to gain an end by the legal process. Since reasonable people in the position of the insured may not have understood the term "suit" as limiting the duty to defend until a court proceeding had ben initiated, the court states it must give effect to reasonable interpretations which favor the policyholder and concluded the term "suit" as used covered compliance orders.

A.Y. McDonald Industries v. INA, 1991) Iowa, 475 N.W.2d 607 is a case specifically involving the EPA Superfund Law. Again noting the various definitions of the word suit, the court found the term ambiguous and joined the majority of courts that adopt the broader meaning of the term. The court went on to state that it agreed with the following:

The EPA processes for the enforcement of obligations to aid in the cleaning up of environmental pollution hacve moved away from the use of lawsuits toward the use of agency demands for participation in remedial action. Those requests are dangerous for the alleged polluter to ignore because they often result in dispositive, extrajudicial solutions. The consequences of the receipt of an EPA [demand] letter [are] so substantially equivalent to the commencement of a lawsuit that a duty to defend [arises] immediately.

Hazen Paper Co. 407 Mass. at 695-96, 555 N.E.2d at 581.

The EPA demand letter is not the same as a conventional demand letter based on a personal injury claim. The identification of an insured as a "potentially responsible party" (PRP) has more serious consequences than a demand letter in a personal injury case. For example, the insured can be fined for failure to cooperate in the EPA’s process of cleanup. In addition, if the EPA ultimately recovers the costs of cleanup, the insured’s failure to settle before any legal action by the EPA could increase the amount of recovery against the insured. Id. a 696, 555 N.E.2d at 581.

To the insured’s obligation to respond positively to the [EPA’s demand] letter [is] strong. The prospects of avoiding financial responsibility [are] minimal because liability is not based on fault. [See CERCLA, 42 U.S.C. ] sec. 9607(a) (1982) & Supp.V.1987) and the available defenses are very limited. [See CERCLA, 42 U.S.C.] sec. 9607(b). Moreover, the risk to which [the insured is] exposed [is] substantial because, as a practical matter, its liability is joint and several. Early involvement in the settlement discussions is thus often crucial to protect one’s interest. Any court action by EPA is limited to the administrative record [see CERCLA, 42 U.S.C.] sec. 9613 (j) (2). (1982 & Supp. V 1987), and judicial review considers only whether the EPA "decision was arbitrary and capricious or otherwise not in accordance with law." [see CERCLA, 42 U.S.C.] secs. 9613 (f) (2), 9622(d). The situation [is] such that the opportunity to protect [the insured’s] interest could well [be] lost, long before any lawsuit would be brought. It would be naive to characterize [an] EPA [demand] letter as a request for voluntary action. [The insured has ] no practical choice other than to respond actively to the letter. Id. at 696-97, 555 N.E.2d at 581-82 (some citation omitted).

The court concluded saying the administrative process pursued by the EPA was an attempt by the government to gain an end by legal process and that such actions were covered by the term "suit" in CGL policies.

The most persuasive case on issue is Aetna Casualty and Surety Co., Ind. v. Pintlar Corp. (9^th Cir. 1991) 946 F2d 1507. There the language in the policy was identical to the language in the instant case. Under Idaho’s plain meaning doctrine of construction, the court looks to the plain meaning of the language. In resolving this issue, the court made the following statement.

Unlike the garden variety demand letter, which only exposes one to a potential threat of future litigation, a PRP notice carries with it immediate and several implications Generally, a party asserting a claim can do nothing between the occurrence of the tort and the filing of the complaint that can adversely affect the insureds’ rights. However, in a CERCLA case, the PRP’s substantive rights and ultimate liability are affected from the start of the administrative process. Avondale Industries, Inc. v. Travelers Indem. Co. 697 F.Supp. 1314, 1321 (S.D.N.Y.1988) ("Adverse consequences can befall an insured during the administrative pollution cleanup process."), aff’d 887 F2d 1200 (2d Cir. 1989).

The extent of CERCLA liability is far-reaching. The ability to choose the response action greatly empowers the government. In order to influence the nature and costs of the environmental studies and cleanup measures, the PRP must get involved from the outset. In many instances, it is more prudent for the PRP to undertake the environmental studies and cleanup measures itself than to await the EPA;s subsequent suit in a cost recover action.

There are many incentives to cooperate with the EPA. For instance, pursuant to 42 U.S.C. C. sec. 9607 (c) (3), if a person who is liable for a release or threat of release of a hazardous substance fails to "properly provide removal or remedial action upon order of the President, pursuant to section 9604 or 9606 of this title," the EPA can choose to proceed with a Superfund-Financed cleanup, and then seek punitive damages. Lack of cooperation may expose the insured, and potentially its insurers, to much greater liability, including the EPA’s litigation costs.

As a result an "ordinary person" would believe that the receipt of a PRP notice is the effective commencement of a "suit" necessitating a legal defense. The PRP letter forced Gulf to hire technical experts and lawyers to protect its interest in connection with EPA’s actions. Moreover, if the receipt of a PRP notice is held not to trigger the duty to defend under CGL policies, then insureds might be inhibited from cooperation with the EPA in order to invite the filing of a formal complaint.

We hold that the EPA’s administrative claims against the insureds triggered insurers duty to defend. Coverage should not depend on whether the EPA may choose to proceed with its administrative remedies or go directly to litigation. A fundamental goal of CERCLA is to encourage and facilitate voluntary settlements. Interim Guidance on Notice Letters, Negotiations, and Information Exchange, EPA Memorandum, 53 Fed.Reg. 5298 (1988). It is in the nation’s best interest to have hazardous waste cleaned up effectively and efficiently. But the insured is not required to submit to, and may in fact wish to oppose the threat. In either event, the insurer’s duty to defend may well be triggered.

Further, we do not agree with insurers complaints of obliteration of a bright-line test. The rationale behind defending insureds when a complaint has been filed is that, traditionally, that is when the jeopardy to the insureds’ rights can be adversely affected. The focus should be on the underlying rationale and not on the formalistic rituals. If the threat is clear then coverage should be provided. The filing of an administrative claim is clear is signal that legal action is at hand.

Last is the case of Coakly v. Main Bonding & Casualty Co. (1992) N.H. 618 A.2d 777. Using the plain and ordinary meaning of "suit", as understood by a "lay person of average intelligence" (language similar to Continental Casualty Co. v. Novey, supra, and Asbury v. Indiana Union Mutual Insurance Co., supra,) and noting the several dictionary definitions, the court found the term ambiguous. consequently, the rule of construction required the court to hold in favor of the insured and against the drafter.

Many of the cases deciding the meaning of "suit" have also dealt with the corollary issue of whether the governmental imposed environmental cleanup costs are damages within the meaning of that term as used in CGL policies. Most of the courts finding that "suit" includes EPA administrative actions also find that such cleanup costs are included in the term damages in CGL policies. Defendant has not erased that issue in this case and as a consequence this court must conclude that such costs are damages under the policy.

At least one Indiana court using the plain and ordinary meaning standard has found a significant dispute exists concerning the meaning of "suit". That finding establishes that favor of the insured and coverage and against the drafter. The litigated cases disclose that the substantial majority of courts ruling on the issue have found an ambiguity in the meaning of "suit" and have ruled that administrative actions under CERCLA are "suits" within the terms of CGL policies.

An examination of the policy language in each of the five cases cited above discloses that it is identical to the language used in the instant case. Further, Indiana rules of contract interpretation appear to be the same as those in the above cases.

Finally, it should be noted from the Ulrich appeal, Indiana’s environmental cleanup law is not unlike much of the Superfund law. Both can issue corrective orders through administrative action and both can go directly to court. The choice lies with the government and the forum it chooses is one of form and not substance.

Because there is a substantial dispute as to the meaning of "suit" that ambiguity must be construed in favor of the plaintiff insured and against the defendant insurer. Accordingly, "suit" includes administrative actions under CERCLA and creates a duty of defendant to defend under its CGL policies. This result would not only be consistent with the Indiana rules of construction, but would place Indiana in the mainstream and along side the majority or jurisdictions.

The court now finds that no disputes as to any material issues of fact exist and that as a matter of law the plaintiff is entitled to summary judgment. The court now grants Summary Judgment for the plaintiff and against the defendant on plaintiff’s motion and also denies the defendant’s Motion for Summary Judgment against plaintiff.

DONALD W. JONES, JUDGE

ELKHART SUPERIOR COURT I