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July 08, 2015

Sup. Ct. of Texas goes beyond plain meaning of “suit” in interpreting coverage under a CGL policy

In a 5 – 4 decision, the Texas Supreme Court has gone beyond the plain meaning of the word “suit” in a CGL policy wording “right and duty to defend any suit” to include EPA CERCLA pollution cleanup proceedings, such that insurers are now obligated to provide a defense even without there being a traditional lawsuit. In McGinnes Industrial Maintenance Corp. v. The Phoenix Insurance Co., the Court was asked a certified question by the Federal 5th Circuit Court of Appeals: whether the EPA’s PRP letter and/or unilateral administrative order, issued pursuant to CERCLA, constitute a “suit” within the meaning of the CGL policies, triggering the duty to defend.

The Court answered the question “yes.” It reasons that when the CGL forms were put together in the 60’s and 70’s, the main avenue of redress for pollution was by suing in court on common law or statutory claims. However, when CERCLA became law in 1980, it authorized the EPA to conduct what are in essence pre-trial proceedings and to issue notice letters that serve as “pleadings” without having to initiate a suit. Also the EPA can issue unilateral administrative orders similar to a summary judgment. The Court believes part of the judicial function was ceded to the EPA. Further, the Court reasoned that since it is relatively well settled in the 5th Circuit that CERCLA cleanup costs are considered “damages” under a CGL policy, it would create perverse incentives and consequences if the insurers did not have the right and duty to defend. The final basis for the ruling was that 13 out of 16 state’s high courts have ruled the same way.

Four Justices joined in a scathing dissent, mocking the majority’s decision in ways not usually seen by the public:

“If you don’t like your insurance policy, the Supreme Court of Texas can now change it for you.”

“Forget what we have repeatedly said….”

“Ignore our former commitment to interpreting insurance policies by relying on the ‘ordinary, everyday meaning of its words to the general public.’”

“Disregard our prior conviction that a contract’s language is the best representation of what the parties mutually intended.”

“As it turns out, those objectives are now provisional, and like a contract, the Court’s precedential opinions are just words on paper, so you cannot assume we really meant what we chose to say

“We will even make up our own definitions so your words can mean something completely new. Why….Because it seems like a good thing to do here (and on top of that, everyone else is doing it.) My law professors (and my momma) taught be me better. I respectfully dissent.”

“This is a disturbing decision, not because of its effect on these parties or the insurance policies at issue, but because of its effect on Texas law. I can only hope that today’s decision will soon be seen as a fluke, an oversight, and a rare misstep by a Court that has otherwise been steadfastly committed to enforcing contracts as written, to refraining from rewriting parties’ agreements, and to determining the parties’ intent by relying on the ordinary meanings of the terms the parties choose.”

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This is indeed a rare win for policyholders on an insurance policy interpretation by the Texas Supreme Court of an ordinary, everyday meaning of a word in a CGL policy that went against insurers.