The Washington Court of Appeals found there was no duty to defend the insured under a strict liability statute for alleged contamination when no action was threatened by the agency. Gull Indus., Inc. v. State Farm Fire and Cas. Co., 2014 Wash. App. LEXIS 1338 (Wa. Ct. App. June 2, 2014).
Gull leased a gas station to the Johnsons from 1972 to 1980. In 2005, Gull notified the Department of Ecology (DOE) that there had be a release of petroleum product at the station. DOE sent a letter acknowledging Gull's notice of suspected contamination. In 2009, Gull tendered its defense to its insurer, Transamerica Insurance Group. Gull also tendered its claims as an additional insured to the Johnson's insurer, State Farm. Neither insurer accepted the tenders.
Gull then sued the insurers, arguing they had a duty to defend. Gull contended that because the state statute imposed strict liability, the duty to defend arose whether or not an agency had sent any communications about the statute or cleanup obligations. The insurers moved for partial summary judgment. The trial court ruled in favor of the insurers.
On appeal, the court recognized that the Washington Supreme Court in Weyerhaeuser Co. v. Aetna Cas. & Surety Co., 874 P.2d 142 (Wa. Ct. App. 1994), found that the duty to indemnify may flow from strict liability. But there was no authority that supported a duty to defend when there was no issuance of communications about cleanup obligations.
The court concluded that the undefined term "suit" in the policy was ambiguous in the environmental liability context and may include administrative enforcement acts that are the functional equivalent of a suit. But the court did not agree with Gull's contention that liability under the state statute alone, without any direct enforcement action by DOE, was the functional equivalent of a suit for the purposes of the duty to defend. Instead, an agency action had to be adversarial or coercive in nature in order to qualify as the functional equivalent of a "suit."
Here, the DOE's letter acknowledging receipt of Gull's notice did not present a threat of immediate and severe consequences due to the contamination. Therefore, Gull did not meet its burden on summary judgment to establish there was the functional equivalent of a "suit" to trigger the duty to defend.