W.C. Richards Co. v. Hartford Accident & Indemnity Co.
Annotate this Case
SIXTH DIVISION
June 20, 1997
No. 1-96-3859
W.C. RICHARDS COMPANY, INC., ) Appeal from the
) Circuit Court of
Plaintiff-Appellant, ) Cook County
)
v. )
)
HARTFORD ACCIDENT AND INDEMNITY )
COMPANY, ) Honorable
) Stephen A. Schiller,
Defendant-Appellee. ) Judge Presiding.
PRESIDING JUSTICE GREIMAN delivered the opinion of the
court:
In a declaratory judgment action, plaintiff W.C. Richards
Company, Inc., the insured, appeals the trial court's order
granting summary judgment to defendant Hartford Accident and
Indemnity Company, the insurer, and finding that defendant did
not owe plaintiff a duty to defend relating to certain
environmental issues. The issue on appeal is whether, under
California law, the defendant insurer had a duty to defend the
plaintiff insured in a matter initiated by a state environmental
regulatory agency, i.e., the California Regional Water Quality
Control Board (the Board).
We reverse and find that defendant had a duty to defend.
The facts are not in dispute. From 1960 to 1991, plaintiff
owned and operated an industrial paint manufacturing facility in
Anaheim, California (the Anaheim site). By letter dated August
14, 1990, the Board informed plaintiff that the Anaheim site was
determined to be a possible source of pollutants found in nearby
groundwater. The outcome of the instant appeal is determined by
whether or not the Board letter triggered defendant's duty to
defend.
The Board letter, entitled "REQUEST FOR TECHNICAL REPORT,"
informed plaintiff that "a statewide sampling program to
determine the extent and nature of volatile organic contamination
in groundwater throughout the state" had been conducted pursuant
to a legislative directive. Plaintiff's Anaheim site was under
the jurisdiction of the Board for the Santa Ana region (Regional
Board). The letter then stated as follows:
"Results obtained from the sampling of wells in
this geographical area indicate that chlorinated
volatile organic contaminants (VOCs) are present in the
groundwater.
The Regional Board is conducting a follow up
investigation to determine the source of these
pollutants. Regional Board staff has been
investigating current and past industrial users of
chlorinated organic chemicals, such as solvents, in
Anaheim. As a result, we have found that there has
been historical use of chlorinated solvents at your
facility and that poor handling and disposal practices,
which could have resulted in discharges of wastes, have
existed. From the information gathered during our
investigation, your facility has been determined to be
one of the possible sources of the pollutants found in
the groundwater near this site.
Since your company is the current operator of the
facility and owner of the site, your company is
responsible for any wastes that may have been
discharged there. Therefore, in accordance with
Section 13267 of the California Water Code, we request
that you submit a technical report. The technical
report must be signed by a registered engineering
geologist or engineer with a minimum of 5 years
experience in hydrogeology."
The Board letter then outlined the information that should be
included in the report. The letter further advised plaintiff
"that if this investigation finds that contaminants are present
that could adversely impact groundwater, additional
investigations or remedial measures may be necessary."
Subsequently, plaintiff submitted the Board letter to
defendant and requested that defendant provide a defense based on
this letter. The relevant language of the insurance policy that
applies to defendant's duty to defend states as follows:
"The company will pay on behalf of the insured all sums
which the insured shall become legally obligated to pay
as damages because of
Coverage A - bodily injury or
Coverage B - 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 the insured seeking
damages on account of such bodily injury or property
damage, even if any of the allegations of the suit are
groundless, false or fraudulent, and may make such
investigation and settlement of any claim or suit as it
deems expedient, but the company shall not be obligated
to pay any claim or judgment or to defend any suit
after the applicable limit of the company's liability
has been exhausted by payment of judgments or
settlements." (Emphasis added.)
Defendant did not defend plaintiff in the Board matter.
Subsequently, plaintiff filed a complaint and a first
amended complaint for declaratory judgment and other relief,
alleging that defendant breached its duty to defend. Plaintiff
and defendant filed cross-motions for summary judgment.
Following a hearing on these motions, the trial court issued a
written opinion on October 1, 1996. The trial court granted
summary judgment in favor of defendant and held as follows:
"This court therefore rules that the action taken by
the [Board] in this case was not the equivalent of a
'suit.' The [Board's] actions did not implicate the
same 'immediate and severe' consequences that the Ninth
Circuit found to invoke an insured's right to a defense
in Pintlar [Aetna Casualty & Surety Co. v. Pintlar
Corp., 948 F.2d 1507 (9th Cir. 1991)]. Because there
was no 'suit,' there was no resulting duty to defend,
and therefore summary judgment is granted in favor of
the insurer, Hartford." (Emphasis in original.)
On appeal, plaintiff asserts that the trial court erred and
argues that, under California law, the Board administrative
action constituted a suit for purposes of the duty to defend.
Defendant counters that the language of the Board letter was
insufficient to trigger its duty to defend because the language
was investigatory in nature and did not threaten or invoke severe
and immediate consequences.
Our review of rulings on a motion for summary judgment is de
novo. Outboard Marine Corp. v. Liberty Mutual Insurance Co., 154 Ill. 2d 90, 102 (1992). Summary judgment is proper where there
are no genuine issues of material fact and the moving party is
entitled to judgment as a matter of law. Outboard Marine, 154 Ill. 2d at 102.
Initially we find, and the parties agree, that the
substantive issues in this case are governed by California law.
Where the insurance policy does not contain an express choice of
law, as in the present case, the policy provisions are "'governed
by the location of the subject matter, the place of delivery of
the contract, the domicile of the insured or of the insurer, the
place of the last act to give rise to a valid contract, the place
of performance, or other place bearing a rational relationship to
the general contract.'" Lapham-Hickey Steel Corp. v. Protection
Mutual Insurance Co., 166 Ill. 2d 520, 526-27 (1995), quoting
Hofeld v. Nationwide Life Insurance Co., 59 Ill. 2d 522, 528
(1975). The application of these factors in the present case
establishes that California law governs because the site at issue
is located in California, the insurance policy was delivered to
plaintiff's Anaheim plant, and the policies were countersigned by
defendant's agent in California. Moreover, the matter at issue
(the Board claim) concerned a facility located in California and
is based upon a California regulatory agency. Accordingly, we
look to California law to determine whether or not the Board
letter triggered defendant's duty to defend.
The parties correctly direct particular attention to the
decisions of the ninth circuit in Pintlar and the California
Court of Appeals in Haskel, Inc. v. Superior Court, 33 Cal. App. 4th 963, 39 Cal. Rptr. 2d 520 (1995).
In Pintlar, the ninth circuit addressed an insurer's duty to
defend an insured that received a notification from the
Environmental Protection Agency (EPA) deeming the insured to be a
potentially responsible party (PRP) in connection with
environmental contamination pursuant to the Comprehensive
Environmental Response, Compensation, and Liability Act (CERCLA)
42 U.S.C.A. 9601 et seq. (West 1991). Pintlar, 948 F.2d 1507.
The ninth circuit held:
"the EPA's administrative claims against the
insureds triggered insurers' duty to defend. Coverage
should not depend on whether the EPA may choose to
proceed with its administrative remedies or go directly
to litigation. A fundamental goal of CERCLA is to
encourage and facilitate voluntary settlements.
[Citation.] It is in the nation's best interests to
have hazardous waste cleaned up effectively and
efficiently. But the insured is not required to submit
to, and may in fact wish to oppose the threat. In
either event, the insurer's duty to defend may well be
triggered." Pintlar, 948 F.2d at 1517.
In Haskel, the California court of appeal cited Pintlar with
approval. Haskel, 33 Cal. App. 4th at 971, 39 Cal. Rptr. 2d at
523. In Haskel, the plaintiff insured was named as a PRP by the
EPA for groundwater contamination and similarly accused by the
Board for soil and groundwater contamination. Both the EPA and
the Board directed the plaintiff to take certain action. The
Haskel court observed that "[t]hese federal and state
administrative directives were the only actions taken against
[plaintiff] (and are hereinafter referred to as the 'underlying
action'). No judicial proceeding has yet been filed." Haskel,
33 Cal. App. 4th at 971, 39 Cal. Rptr. 2d at 523. In a footnote
following this statement, the Haskel court provided the following
guidance:
"The record before us reflects no consideration of
the question of whether the threatened administrative
action constitutes a 'suit' within the meaning of
Haskel's CGL [comprehensive general liability]
coverage. Although the issue is not before us, we
note, for the assistance of the trial court, that the
issue was addressed in [Pintlar], where the court [was]
faced with this very question ***." Haskel, 33 Cal. App. 4th at 971 n.3, 39 Cal. Rptr. 2d at 523 n.3.
The Haskel court then directly quoted the holding of Pintlar as
stated above.
Following the opinion in Haskel in 1995, California courts
heeded the assistance provided in Haskel and found that Board
letters triggered an insurer's duty to defend. See Wynn's
International, Inc. v. Continental Insurance Co., No. C-94-3766-
CAL-ENE (N.D. Cal.) (August 14, 1995) (order for partial summary
judgment); GrayBill Terminals Co. v. Fireman's Fund Insurance
Co., No. 677722 (Sup. Ct., San Diego County) (December 19, 1995)
(order granting summary adjudication of duty to defend); Varian
Associates, Inc. v. Aetna Casualty & Surety Co., No. 944196 (Sup.
Ct., San Francisco City and County) (February 27, 1996) (order on
motion for summary adjudication).
In Wynn's International, the plaintiff insured (a die
casting plant) received both a PRP letter from the EPA and
directives from the Board. After noting the decisions in Pintlar
and Haskel, the United States District Court specifically held
"that the EPA and Board notices were 'suits' under California law
for purposes of triggering the insurer's duty to defend." Wynn's
International, slip op. at 14.
In GrayBill Terminals, a California superior court ruled
that the duty to defend was triggered by a "Site Assessment
Order" issued by the CRWQCB. The court specifically held "[a]s a
matter of law [the insurer] had a duty to defend [the insured] in
the proceedings initiated by the California Regional Water
Quality Control Board [CRWQCB]." GrayBill Terminals, slip op. at
3.
In Varian Associates, a California superior court ruled that
the plaintiff insured had presented a prima facie case that the
insurer had a duty to defend in four administrative actions
concerning environmental contamination at four separate sites,
i.e., one site in Utah, one site in Massachusetts, and two sites
in California. The court noted that the insured had incurred
response costs pursuant to the California Water Code and that
such costs are damages, relying on Aerojet-General Corp. v.
Superior Court, 211 Cal. App. 3d 216, 237, 257 Cal. Rptr. 621,
634 (1989). Although the four administrative agencies that
initiated the environmental claims are not named, the decision
obviously signifies that the Board was involved for the two
California sites because it bears the responsibility for
enforcing the California Water Code.
Prior to the California Court of Appeal's decision in
Haskel, the United States District Court, Central District of
California, interpreted Pintlar differently and found that the
insurers had a duty to defend the insureds in administrative
proceedings initiated by CERCLA PRP letters but not in
administrative matters initiated by the Board. McDonnell Douglas
Corp. v. Allstate Insurance Co., No. CV-93-6290-RSWL (EEx) (C.D.
Cal.) (October 27, 1994) (McDonnell Douglas). The court in
McDonnell Douglas, however, specifically noted that the
California courts of appeal had not yet examined the issue of
whether initiation of a Board administrative proceeding triggers
an insured's right to a defense.
In light of the subsequent decision issued by the California
Court of Appeal in Haskel, McDonnell Douglas would be considered
wrongly decided. The task of speculating on how a certain court
may rule when faced with a clean slate, as was the court in
McDonnell Douglas, is difficult at best. Faced with a similar
clean-slate conundrum and conflicting outcomes in different
jurisdictions, the sixth circuit found that Michigan law would
hold that a PRP letter did not trigger a duty to defend in Ray
Industries, Inc. v. Liberty Mutual Insurance Co., 974 F.2d 754
(6th Cir. 1992). After the Michigan Supreme Court addressed the
issue, however, a different result obtained (Michigan Millers
Mutual Insurance Co. v. Bronson Plating Co., 445 Mich. 558, 519 N.W.2d 864 (1994)), and the conclusion reached by the sixth
circuit in Ray Industries was effectively nullified by the sixth
circuit in Anderson Development Co. v. Travelers Indemnity Co.,
49 F.3d 1128, 1131 (6th Cir. 1995).
We, however, do not have a clean slate and believe that
McDonnell Douglas misinterpreted the holding in Pintlar. Our own
supreme court found that Pintlar "determined that the receipt of
a PRP letter invokes an insurer's duty to defend." (Emphasis
added.) Lapham-Hickey Steel, 166 Ill. 2d at 530. Our supreme
court, however, held that a "suit" requires an action in a court
of law. Were we applying Illinois law, we acknowledge that a
different result would obtain under Lapham-Hickey.
Most notably, however, the same district court that issued
McDonnell Douglas (Central District of California) subsequently
interpreted Pintlar to hold that an administrative proceeding
with a state or federal agency can trigger the duty to defend.
Zero Corp. v. Employers Insurance of Wausau, No. CV 94-3164 (JGx)
(C.D. Cal.) (December 16, 1994). In Zero Corp., the insured was
notified by both the EPA and the Board regarding environmental
contamination. In addressing the duty to defend, the court
interpreted and relied with approval on Pintlar:
"Finally, on the issue of whether a 'PRP' letter or
some other administrative proceeding can trigger the duty to
defend despite policy language specifying the need for a
'suit,' the Ninth Circuit [in Pintlar] has answered that
litigation is not needed.
* * *
As a preliminary matter, the Court agrees with the
Ninth Circuit's holding in [Pintlar] that the PRP notice
could and did trigger the duty to defend here. Pintlar is
well-reasoned and, as a result, leaves little doubt that
[the insured] found itself in an adversarial relationship
with the state and federal agencies. Although other
jurisdictions have declined to consider a PRP notice to be a
'suit' under comprehensive general liability policies, the
Court believes that such an approach exalts form over
substance." (Emphasis in original.) Zero Corp., slip op.
at 11-13.
As stated in Zero Corp., we find no discernable difference
between state and federal agencies regarding environmental
concerns. Empowered by statute, a state, such as California, can
impose severe sanctions and penalties similar to the power
exercised by federal agencies. An "insured's defense coverage
should not depend solely on the whim of the drafter of the claim,
that is, on whether the claim contains the word 'encourage'
instead of 'demand' or 'voluntary' instead of 'mandatory.'" EDO
Corp. v. Newark Insurance Co., 898 F. Supp. 952, 960 (D. Conn.
1995) (citing Pintlar, 948 F.2d 1507, with approval).
The letter is not merely a request for information. The
language employed imposes a significant allegation of liability
when it suggests that "poor handling and disposal practices"
could have resulted in discharge of wastes and that the facility
is a possible "source of pollutants found in groundwater." The
letter further states that since plaintiff is the owner of the
site, it "is responsible for any wastes discharged there."
Plaintiff is additionally advised that it may be required to
provide "remedial measures."
The reality is that the Board letter in the instant case,
like a PRP letter, constitutes a coercive effort to obtain
plaintiff's response. An insured, like the instant plaintiff, is
compelled to take action to avoid or lessen its liability whether
the impetus derives from a state or federal agency and an
insurer's duty to defend is the same.
We believe that Haskel, following the holding of Pintlar,
and the subsequent California court decisions demonstrate that
California law would find that the Board letter was sufficient to
trigger defendant's duty to defend. Accordingly, we reverse the
trial court's order granting summary judgment to defendant.
Reversed and remanded.
THEIS and QUINN, JJ., concur.
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