8.5.7 Administrative Proceedings as "Suits"

• Jurisdiction: Arizona

There is a split of authority on whether administrative proceedings by which federal and state environmental protection agencies pursue remediation constitute a "suit" within the meaning of standard CGL policies, obligating insurance companies to defend the insured throughout the administrative process. The Arizona courts have not addressed the issue.

The traditional view defines "suit" as requiring a court action of an adjudicating nature.^[350] When a broad definition of "suit" is utilized, coverage is often found. For example, the court in Fireman's Fund Insurance Co. v. Ex-Cell-O Corp.,^[351] held that coverage did not hinge upon the form of action or nature of the relief sought, "but on an actual or threatened use of legal process to coerce payment or conduct by a policy holder."^[352] The court continued, "Accordingly, I hold that a 'suit' includes any effort to impose on the policy holder a liability ultimately enforceable by a court, and the 'damages' include money spent to clean up environmental contamination."^[353]

In Avondale Industries, Inc. v. Travelers Indemnity Co.,^[354] the court held that Travelers had a duty to defend the environmental administrative proceedings. The court observed:

Travelers' policy requires it to defend "any suit against the insured seeking damages on account of bodily injury or property damage." Whether the administrative proceeding is a suit and whether the remedial costs expended by the State of Louisiana that potentially may be assessed against Avondale are damages-within the meaning of the policy-are the remaining questions that we must answer. Appellant Travelers and amicus . . . argue that the proceeding is not a "suit" as the term is commonly understood under an insurance policy, and that costs are not damages. The district court came to a contrary conclusion . . . We have little trouble viewing this administrative proceeding as a suit. The demand letter commences with a formal proceeding against Avondale, advising it that a public authority has assumed an adversarial posture towards it, and that disregarding the DEQ's demands may result in the loss of substantial rights by Avondale. These strike us as the hallmarks of litigation, and are sufficiently adversarial to constitute a suit under New York law and within the meaning of the policy.

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Notes:

[350]See, e.g., Simon v. Maryland Casualty Co., 353 F.2d 608 (5th Cir. 1965), where the court observed:

A suit is against an assured when, in a judicial proceeding...