ELR Citation: ELR 20397
No(s). 90-1217 (1st Cir. Sep 27, 1990)

The court holds that correspondence from the New York Department of Environmental Conservation (NYDEC) to an insured owner of a contaminated site was not the functional equivalent of a "suit" sufficient to trigger the insurer's duty to defend under the terms of a comprehensive general liability (CGL) policy. A metal finishing company sought reimbursement from its insurer for cleanup of groundwater contamination and filed suit alleging that the insurer failed to defend and indemnify. The court holds that some showing of probable and imminent governmental action is a condition precedent to coverage. Because hazardous waste laws hold potentially responsible parties to so strict a liability standard, the actual probability and immediacy of toxic waste liability is an apt measure for determining whether governmental action has triggered the functional equivalent of a "suit." A property owner bears the consequences of strict liability only when the government clearly evinces its intent to enforce the law. NYDEC's communications patently lack any significant indicia of adversariness and place the insureds under no compulsion to begin a cleanup of the site. No mention is made of a "denial" or an "order." Contrary case law holding that a state agency's letter triggers the insurer's duty to defend is distinguishable because it was based on a threat of immediate action. Moreover, New York law provides for notice and an opportunity for a hearing before NYDEC has authority to implement a cleanup order. The court next holds that because the insurer had no duty to defend under the terms of the policy and New York insurance law, it follows a fortiori that it had no obligation to indemnify. The "damages" for which indemnity is sought did not result from NYDEC's demands or its assumption of an adversarial stance. As such, the insured company's losses cannot form the basis for an indemnity claim against an insurer under the provisions of a CGL policy. Finally, the court holds that the company's bad-faith claim is meritless and that its claim for consequential damages cannot stand.

[The district court's decision is published at 21 ELR 20392.]

Counsel are listed at 21 ELR 20392.

Before CAMPBELL, Circuit Judge, COFFIN, Senior Circuit Judge, and SELYA, Circuit Judge.