Casualty v. Ala. Gas Corp.

Citation117 So.3d 695
Decision Date28 December 2012
Docket Number1110346.
CourtSupreme Court of Alabama


Frank Winston, Jr., and Ruth S. Kochenderfer of Steptoc & Johnson LLP, Washington, D.C.; and Andrew J. Sinor, Jr., and John S. Johnson of Hand Arendall, LLC, Birmingham, for appellants.

W. Scott Laseter of Kazmarek Geiger & Laseter LLP, Atlanta, Georgia; and Rebecca W. Pritchett and Fred R. DeLeon, Jr., of Pritchett Environmental & Property Law LLC, Birmingham, for appellee.

Laura A. Foggan and M. Addison Draper of Wiley Rein LLP, Washington, D.C.; and John W. Scott and Joshua S. Thompson of Scott Dukes & Geisler, PC, Birmingham, for amicus curiae The Complex Insurance Claims Litigation Association, in support of the appellants.


The United States District Court for the Northern District of Alabama, Southern Division (“the federal district court), has certified to this Court the following question pursuant to Rule 18, Ala. R.App. P.:

“Under Alabama law, is a ‘Potentially Responsible Party (‘PRP’) letter from the Environmental Protection Agency (‘EPA’), in accordance with the Comprehensive Environmental Response Compensation and Liability Act (‘CERCLA’) provisions, sufficient to satisfy the ‘suit’ requirement under a liability policy of insurance?”

We answer this question in the affirmative.

I. Facts and Procedural History

The plaintiff in the underlying action is Alabama Gas Corporation (“Alagasco”). Defendants St. Paul Fire and Marine Insurance Company, St. Paul Surplus Lines Insurance Company, and St. Paul Mercury Insurance Company are all direct and indirect subsidiaries of defendant Travelers Casualty and Surety Company. The defendants (hereinafter sometimes collectively referred to as “Travelers”) are the providers or the predecessor to the providers of Alagasco's Comprehensive General Liability (“CGL”) insurance policies from the late 1940s until the early 1980s.

In its certification to this Court, the federal district court provided the following pertinent background information:

“St. Paul Fire policy .... provides that [Travelers] must:

(a) Defend in the name and on behalf of the insured any suit against the insured alleging such injury, death, damage, or destruction and seeking damages on account thereof, even if such suit is groundless, false, or fraudulent; but [Travelers] shall have the right to make such investigation, negotiation and settlement of any claim or suit as may be deemed expedient by [Travelers].’ (emphasis added).

“Said policy applies only to ‘occurrences' that occur during the policy period. The term ‘occurrence’ is defined in the policy to include ‘a continuous or repeated exposure during the policy period to conditions which unexpectedly and unintentionally cause ... injury to or destruction of tangible property, including the loss of use thereof.’ 1

“From sometime in the latter half of the 19th Century until approximately 1946, gas for lighting, cooking, heating and other purposes was supplied to the customers in Huntsville, Alabama by a manufactured gas plant located near the intersection of Holmes Avenue and DallasAvenue (the ‘Huntsville MGP’). The basic operation of the Huntsville MGP involved the superheating of coal or a combination of coke and oil in low oxygen chambers to produce gas that was then purified and fed through a gas distribution system to the citizens of Huntsville.

“In 1918 the Huntsville Gas Company was incorporated and acquired an interest in the Huntsville MGP. Alagasco is a corporate successor to the Huntsville Gas Company. In or around 1946, Alagasco converted the Huntsville MGP from a gas manufacturing process to a propane air system, although on information and belief, at least some of the former gas manufacturing fixtures and facilities remained in place. Alagasco sold the Huntsville MGP and the city-wide distribution system to the City of Huntsville in 1949.

“The City of Huntsville operated the Huntsville MGP as a propane air operation until March 1952, when a natural gas pipeline reached that part of Alabama and the City converted to natural gas. The City of Huntsville continued to use the site for various purposes ancillary to its utility services until approximately 1967.

“In November 1967 the City of Huntsville conveyed the former Huntsville MGP site to an entity cooperating with the federal Department of Housing and Urban Development (‘HUD’) and the Huntsville Housing Authority. Between November 1967 and May 1970, entities working in cooperation with HUD and the Housing Authority demolished the remains of the former Huntsville MGP and, between May 1970 and April 1971, built the Searcy Homes public housing project on that site. Title to Searcy Homes passed to the Housing Authority in 1971.

“In June 1998 the parent company to [Alagasco], Energen, alerted defendants that there were actual or potential claims arising from historical manufactured gas plant (‘MGP’) operations. This notification included the Huntsville MGP.

“Subsequently, Energen, as the ‘Policyholder,’ and St. Paul Fire and Marine Insurance Company, as the ‘Insurer,’ entered into a ‘Confidentiality Agreement for Settlement Negotiations' (the ‘Agreement’) in February 1999. This Agreement states that Energen ‘has received or expects to receive one or more claims and/or lawsuits with respect to alleged environmental contamination.’ The second ‘WHEREAS' clause states that ‘Policyholder asserts that losses associated with the Claims and potential Claims are covered under certain insurance policies issued to Policyholder or its predecessors by various insurers, including St. Paul Fire & Marine Insurance Company.’ The third and final ‘WHEREAS' clause states that ‘Policyholder and Insurer wish to enter into good faith negotiations toward the possible resolution of claims.’ The Agreement further states that [t]he sole and exclusive remedy of any party hereto for any alleged failure to negotiate in good faith to resolve issues during the Negotiation Period shall be cancellation of this Agreement.’ The Agreement defines ‘Negotiation Period’ as ‘extending from the date of execution of this Agreement until this Agreement is terminated by either party.’ Termination of the Agreement requires twenty-four hours written notice to the other party's signatory. Neither Energen nor [Travelers] has ever canceled the Agreement.

Plaintiff alleges the operations of the Huntsville MGP left behind what is considered hazardous substances under federal and state environmental laws. On October 8, 2008, plaintiff received an information request regarding the Huntsville MGP site from the Environmental Protection Agency (‘EPA’) under the authority of section 104(e) of the Comprehensive Environmental Response, Compensation and Liability Act. Plaintiff also received a Pollution Report which stated:

‘EPA's Enforcement Section is preparing an assessment of liability and ability to pay on Potential Responsible Parties (PRPs) related to the site. If it is determined that one or more PRPs are able to complete a removal action, [the agency] may pursue an Administrative Order on Consent (AOC) with them to carry out the time-critical removal action and provide reimbursement for past costs.’

“On October 29, 2008, Alagasco forwarded the Information Request and Pollution Report to the defendants and stated that they may constitute a claim under defendants' policies. Alagasco additionally tendered the defense and made a demand for coverage. On November 10, 2008, defendants responded stating their belief that the EPA's assertions did not rise to the level of a ‘formal claim’ and therefore defendants were unable to state a coverage position until ‘such a claim or lawsuit is received.’

“From October 2008 to June 2009, plaintiff and the EPA held talks regarding the site and the fact that plaintiff was the lead PRP. Plaintiff continued to update defendants on the communications with the EPA as well as demand a defense. On June 24, 2009, plaintiff received a formal Notice of Potential Liability and Offer to Negotiate from the EPA (the ‘PRP Letter’) and a draft AOC. Plaintiff forwarded the PRP Letter to defendants and again reiterated a demand for defense. Defendants twice responded saying [they were] still reviewing the file and plaintiff should act in what it believed was plaintiff's best interests. On February 3, 2010, defendants notified plaintiff that [they] did not believe any of the communications from the EPA constituted a ‘suit’ such that [they] did not believe [they] had ‘any potential defense obligations at the time.’

(Citations omitted.)

On July 9, 2010, Alagasco filed in the federal district court a complaint against Travelers seeking a declaration of the rights and obligations of the parties under the CGL policies issued to Alagasco. The complaint contained allegations of breach of contract, bad faith, and waiver and estoppel, and, in addition to seeking declaratory relief, sought monetary damages and defense costs.

Alagasco filed a motion for a partial summary judgment in the federal district court action, arguing that Travelers had a duty to defend Alagasco against the charge made by the United States Environmental Protection Agency (“the EPA”) that it is a “Potentially Responsible Party (“PRP”). In response, Travelers filed a cross-motion for a summary judgment, arguing that it had no duty to defend Alagasco because the EPA's PRP letter did not constitute a “suit” under the CGL policies.

Because neither the courts of this State nor any federal court applying Alabama law has ever addressed the issue whether a PRP letter from the EPA satisfies the “suit” requirement under a liability policy of insurance, and because the issue is potentially dispositive of claims in the action, the federal district court has propounded to this Court the certified question quoted at the outset of this opinion.

II. Discussion and Analysis

Before we address the question...

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