Alabama Joins Those Jurisdictions Holding PRP Letter to be "Suit" under CGL Policy

In answering a certified question from a federal district court, the Alabama Supreme Court concluded that action by the Environmental Protection Agency ("EPA") naming an insured as a Potentially Responsible Party ("PRP") satisfied the definition of "suit" under the insured's Comprehensive General Liability ("CGL") policy. From shortly after World War II through the early 1980's, Alabama Gas Corporation ("Alagasco") maintained CGL policies with Travelers Casualty and Surety ("Travelers"). Alagasco had owned and operated a manufactured gas plant in Huntsville, Alabama until 1949, when it conveyed the plant site to the City. During its period of operation, Alagasco allegedly caused the discharge of hazardous substances. In 2008, the EPA sent an information request to Alagasco, and later named Alagasco as a PRP. In turn, Alagasco notified Travelers of potential liability issues and requested Travelers' coverage position. Travelers declined to provide a defense, instead taking the position that the communications from the EPA did not constitute a "suit" so as to impose a duty to defend. The term "suit" was not defined in the policy. Alagasco filed a lawsuit against Travelers in federal court in July, 2010 seeking a declaratory judgment that Travelers' duty to defend arose once EPA named Alagasco as a PRP. Answering the certified question, the Alabama Supreme Court held that the EPA's designation of Alagasco as a PRP satisfied the "suit" requirement in the CGL policy. The Court reasoned that the PRP letter amounted to a "suit" because of the significant ramifications attendant to PRP status, including potentially severe penalties for failure to comply with cleanup directives. Additionally, the Court analyzed the large body of case law developed nationally over the meaning of the term "suit," which has come to include arbitration proceedings and "all kinds of coercive administrative actions." The decision is significant because it signals Alabama's acceptance of the modern legal trend, adopted by at least ten other states, defining the "suit" requirement in a CGL policy to include agency actions short of the commencement of formal legal proceedings. As this decision provides the potential for a duty to defend not only PRP letters but similar administrative proceedings, it may be favorable to insured businesses in Alabama with either a CGL or a professional liability policy. For more information on environmental law topics, please contact one of the Burr & Forman team members for assistance. We are happy to answer any questions or concerns you may have.

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