McGinnes Indus. Maint. Corp. v. Phx. Ins. Co.

Decision Date26 June 2015
Docket NumberNo. 14–0465,14–0465
Citation477 S.W.3d 786
Parties McGinnes Industrial Maintenance Corporation, Appellant, v. The Phoenix Insurance Company and The Travelers Indemnity Company, Appellees
CourtTexas Supreme Court

Christina T. Wisdom, Wisdom Law PLLC, Austin, for Amicus Curiae Texas Association of Manufacturers.

Martha Landwehr, General Counsel, Austin, for Amicus Curiae Texas Chemical Council.

Daniel Ezra Chefitz, Gerald Patrick Konkel, Michael Ward Steinberg, W. Brad Nes, Morgan, Lewis & Bockius LLP, for Amicus Curiae The Superfund Settlements Project.

Charles Flores, David M. Gunn, Beck Redden LLP, Donald Hamilton Kidd, Perdue & Kidd, LLP, Houston, Jodi D. Spencer Johnson, Thacker Martinsek LPA, Russell S. Post, William Robert Peterson, Beck Redden LLP, Houston, for Appellant McGinnes Industrial Maintenance Corporation.

Courtney Elizabeth Ervin, J. Wiley George, Kendall M. Gray, Andrews Kurth

LLP, Shaprecia Bryson, Houston, for Appellee Phoenix Insurance Company.

J. Wiley George, Kendall M. Gray, Andrews Kurth LLP, Houston, for Appellee Travelers Indemnity Company.

Chief Justice Hecht delivered the opinion of the Court, in which Justice Green, Justice Willett, Justice Devine, and Justice Brown joined.

The standard-form commercial general liability ("CGL") insurance policies at issue in this case1 give the insurer "the right and duty to defend any suit against the insured seeking damages". The United States Court of Appeals for the Fifth Circuit asks2 whether "suit" includes superfund cleanup proceedings conducted by the Environmental Protection Agency (the "EPA") under the federal Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA").3 We agree with the overwhelming majority of jurisdictions to have considered the issue that the answer is yes.

I
A

Relief from pollution was first afforded in suits for nuisance and other common law causes of action.4 The United States Supreme Court held that litigants could bring suit based on the federal common law of nuisance5 as long as the common law had not been displaced by federal statute.6 The Resource Conservation and Recovery Act of 19767 and other federal statutes often served as other bases for suits by the EPA.8 State and local governments sued on state statutes and under the common law.9

The enactment of CERCLA in 1980 changed the landscape dramatically, giving the EPA "broad power to command government agencies and private parties to clean up hazardous waste sites."10 The EPA has two options for obtaining a cleanup under CERCLA. "It may conduct the cleanup itself and later seek to recover its costs from potentially responsible parties [ (‘PRPs') ] in a subsequent cost recovery action"—a lawsuit—"or it can compel the PRPs to perform the cleanup (either voluntarily or involuntarily) through administrative or judicial proceedings."11 "[E]veryone who is potentially responsible for hazardous-waste contamination may be forced to contribute to the costs of cleanup."12 The only defenses are an act of God, an act of war, and in some instances, an act or omission of a third party.13

As amended, CERCLA also creates a process that begins in the EPA and ends, only if necessary, in the courts. The process starts with a notice letter informing the recipient that it is a potentially responsible party ("PRP").14 The letter may invite the PRP to negotiate with the EPA over its liability.15 But because defenses to liability are limited, the invitation is effectively a demand.16 The EPA can request information and sanction a PRP's failure to respond with significant fines.17 It can issue a "unilateral administrative order" directing a PRP to conduct a "remedial investigation and feasibility study",18 or else—the else being civil penalties and punitive damages.19 The EPA need turn to the courts only for enforcement of its decisions. A PRP cannot seek judicial review until the process is complete,20 and then only for EPA actions that are arbitrary and capricious, based on the agency's own record.21 As a practical matter, courts afford PRPs no hope of relief, and consequently they have no choice but to comply with the EPA's directives.22 There will seldom be a court proceeding.

B

In the 1960s, petitioner McGinnes Industrial Waste Corporation dumped pulp and paper mill waste sludge into disposal pits near the San Jacinto River in Pasadena, Texas ("the Site"). In 2005, the EPA began investigating possible environmental contamination at the Site. In November 2007, the EPA served a general notice letter on McGinnes's parent company, stating that it was a PRP and offering it "the opportunity to enter into negotiations concerning cleaning up the Site and reimbursing EPA for costs incurred". In December 2008, the EPA served a similar letter on McGinnes. That letter included 58 requests for detailed information covering virtually every aspect of McGinnes's involvement with the Site. The letter noted that a failure to respond could result in penalties of up to $32,500 a day.

In July 2009, the EPA sent McGinnes a special notice letter stating that it had determined that McGinnes was responsible for cleaning up the Site and demanding that McGinnes pay $378,863.61 in costs. The letter required McGinnes to make a good-faith offer to settle with the EPA within 60 days. When McGinnes did not make an offer, the EPA issued a unilateral administrative order directing McGinnes to conduct a "remedial investigation and feasibility study" in accordance with the EPA's specifications. The letter warned McGinnes that its willful failure to comply without cause would subject it to $37,500 per day in civil penalties and punitive damages up to three times the resulting costs to the EPA.

C

During the time McGinnes was dumping waste at the Site, it was covered by standard-form CGL insurance policies issued by Phoenix Insurance Company and Travelers Indemnity Company (collectively "the Insurers").23 Each policy provided that

[t]he company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of ... 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 insured seeking damages on account of such ... property damage, ... and may make such investigation and settlement of any claim or suit it deems expedient....

In May 2008, in the interim between the EPA's first two notice letters, McGinnes requested a defense in the EPA proceedings from the Insurers. The Insurers refused on the ground that the proceedings were not a "suit" under the policy.

McGinnes sued the Insurers in federal district court for a declaration that the policies obligated them to defend the EPA's CERCLA proceedings and also seeking attorney fees already incurred. The court granted the Insurers' motion for partial summary judgment on the duty-to-defend issue, denied McGinnes's motion, and certified its order for interlocutory appeal. The United States Court of Appeals for the Fifth Circuit certified to us the following question24 :

Whether the EPA's PRP letters and/or unilateral administrative order, issued pursuant to CERCLA, constitute a "suit" within the meaning of the CGL policies, triggering the duty to defend.25

As usual, the Circuit "disclaim[ed] any intention or desire that the Supreme Court of Texas confine its reply to the precise form or scope of the question certified."26

II

We agree with the Insurers that "suit" commonly refers to a proceeding in court.27 Although the word is sometimes defined more generally as "the attempt to gain an end by legal process",28 the more specific connotation is an attempt through process in court. But for three reasons we think "suit" in the CGL policies at issue must also include CERCLA enforcement proceedings by the EPA.

A

When the policies at issue were written, the main avenue of redress for pollution was by suing in court on common law or statutory claims. One effect of CERCLA was to authorize the EPA to conduct on its own what otherwise would have amounted to pretrial proceedings, but without having to initiate a court action until the end of the process. The PRP notice letters serve as pleadings. The EPA obtains discovery through requests for information, indistinguishable from interrogatories under the rules of civil procedure. It engages in mediation through its invitations to settle. A unilateral administrative order resembles summary judgment. The fines and penalties for willful non-cooperation in the process are like sanctions in a court proceeding, only prescribed by statute. And part of the judicial function is ceded to the EPA by limiting a PRP's opportunity for review until the end of the process, and then limiting that review to an abuse of discretion by the EPA, based on its own record.

McGinnes argues that EPA proceedings are the functional equivalent of a suit, but in actuality, they are the suit itself, only conducted outside a courtroom. Had the EPA wanted to force McGinnes to clean up the Site before 1980, it would have been required to sue first, and the CGL policies would have obligated the Insurers to defend—to challenge the pleadings, to contest the scope of discovery, to engage in mediation on a level playing field, to resist judgment, and to settle—all without fear of being sanctioned at the very end for not having cooperated with the opponent. CERCLA effectively redefined a "suit" on cleanup claims to mean proceedings conducted by one of the parties, the EPA, followed by an enforcement action in court, if necessary. McGinnes's rights under its policies should not be emasculated by the enactment of a statute intended not to affect insurance, but to streamline the EPA's ability to clean up pollution.29

The Insurers argue that to hold that their duty to defend applies to EPA enforcement proceedings is to extend that obligation to every demand letter. But a...

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