District Court Rules CERCLA § 104(e) Letter Triggers Duty to Defend in Oregon

The United States District Court for the District of Oregon has ruled that an insured’s receipt of a CERCLA § 104(e) information request letter triggers an insurer’s duty to defend under Oregon law. In Ash Grove Cement Co. v. Liberty Mutual Ins. Co.,[1] the Court likened the information request letters – which may be sent to any party that may have information regarding the site, whether or not they are potentially liable – to letters notifying a party of potential CERCLA liability. The Court concluded that under Oregon law regarding construction of insurance policies, threat of enforcement action for non-response to such a letter qualified it as a defensible “suit.” It is not clear, however, whether the decision will be read broadly to apply to all § 104(e) letters received in the state, and an appeal is likely.[2]

CERCLA § 104(e) Letters Generally

Under Section 104(e)(2) of the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA,” commonly called the “Superfund” law),[3] the United States Environmental Protection Agency (“EPA”) is authorized to send information request letters (commonly called “§ 104(e) letters”) that:

require any person who has or may have information relevant to any of the following to furnish, upon reasonable notice, information or documentation relating to such matter: A) The identification, nature, and quantity of materials which have been or are generated, treated, stored, or disposed of at a vessel or facility or transported to a vessel or facility. B) The nature or extent of a release or threatened release of a hazardous substance or pollutant or contaminant at or from a vessel or facility. C) Information relating to the ability of a person to pay for or to perform a cleanup.[4]

The purpose of § 104(e) letters is to identify potentially responsible parties (“PRPs”) – parties that may be liable for cleaning up Superfund sites. According to EPA’s revised PRP Search Manual (2009), by the time EPA sends its first § 104(e) letters, the agency has generally exhausted its public information sources (e.g., title records and corporate filings) and identified former site owners and operators and current corporate predecessors (see the Checklist of PRP Search Tasks for a quick roadmap). EPA compiles its available information, identifies parties that might know more, and uses its information request power to extract additional information to identify still more parties. At large sites with many PRPs, this process can continue for years as EPA compiles information from responses and sends further letters to newly identified parties, all the while officially notifying parties of their potential liability through separate “notice letters.”

Receipt of a § 104(e) letter means, at a minimum, that EPA believes a person has information about what happened at a Superfund site, and it often means that EPA thinks that person is responsible for cleaning the site up. Although many recipients end up as PRPs (and recipients rightly respond with caution), EPA’s net can be cast more widely and the recipient scope will depend in part on what information EPA believes it still needs to complete its PRP search.[5] The content of the requests will also vary widely depending on EPA’s needs, and EPA maintains a broad selection of sample questions to guide its letter writers.

Today’s average § 104(e) letter follows a template drafted in 1995, and begins: “The United States Environmental Protection Agency is investigating the release or threat of release of hazardous substances, pollutants or contaminants” and “seeks your cooperation in providing information and documents relating to the contamination.”[6] This is the kinder, gentler version of the template. The original, drafted in 1988, prominently featured a warning on the first page: “Compliance with the Information Request … is mandatory. Failure to respond fully and truthfully … or adequately to justify such failure to respond can result in … the imposition of penalties up to … $25,000 … for each day of continued non-compliance.”[7]

Ash Grove’s Situation

Ash Grove is a PRP at the Portland Harbor Superfund Site, Oregon’s largest.[8] Pertinent to the District Court’s analysis in Ash Grove, the company had never received a PRP notice letter from EPA regarding the Site.[9] However, it had entered into a tolling agreement to avoid a threatened contribution action from one PRP group, and had been addressed as a PRP by the Site’s natural resource trustees.[10]

After having been indirectly notified of its status as a PRP, Ash Grove received a § 104(e) letter from EPA. In addition to 82 information requests, the letter included the following familiar language: “Failure to respond fully and truthfully to the information request by the due date provided below may result in an enforcement action by EPA … EPA is authorized to commence an action to assess civil penalties of not more than $32,500 per day for each day of noncompliance against any person who unreasonably fails to comply with an Information Request.”[11]

Ash Grove had Comprehensive General Liability insurance coverage between 1963 and 1986 under which the company’s insurers agreed to indemnify the company against claims for property damage, and defend any “suit” that brings such claims. The word “suit” was never defined in these policies. Ash Grove claimed to have spent $750,000 responding to “the § 104(e) letter and other demands by EPA and other entities involved with the Site.”[12] The company tendered the § 104(e) letter to its insurers and sought payment for these costs. The insurers denied coverage on the grounds that the § 104(e) letter was not a “suit” and Ash Grove sued for declaratory judgment.

The District Court’s Ruling and Rationale

The Court’s ruling was simply stated: “The EPA letter to Ash Grove was equivalent to a ‘suit seeking damages’ under Ash Grove’s liability policies,” and therefore triggered a duty to defend.[13] Interpretive gloss was given to the word “suit” by the Oregon Environmental Cleanup Assistance Act (“OECAA”), ORS § 465.480, which provides that in insurance policies the word “suit” shall include: “Any action … by … [EPA] against … an insured in which [EPA] in writing directs, requests or agrees that an insured take action with respect to contamination within the State of Oregon.”

The argument over the Court’s conclusion came down to whether a § 104(e) letter was an “action” by EPA that “directs [or] requests … that an insured take action with respect to contamination.” The insurers argued that there was no “action,” and that “the § 104(e) letter ‘simply asks Ash Grove to voluntarily provide information,’ a ‘benign request’ that is ‘not adversarial,’ and imposes no obligation on Ash Grove to investigate, remediate or clean up contamination.”[14] The Court disagreed, finding it persuasive that Ash Grove’s § 104(e) letter instructed that compliance is “required by law” and subject to civil penalties for non-compliance.[15]

The Court also analogized the § 104(e) letter to a PRP notice letter, reasoning that in that situation the “PRP’s substantive rights and ultimate liability are affected from the start of the administrative process,” and it is “more prudent” to conduct remediation than to await a cost recovery action. Similarly, in the Court’s view, because of “the substantial penalties available to the EPA should Ash Grove not comply with the letter’s requests, it is not accurate to say that the letter imposed no obligation on Ash Grove.…”[16]

The Court also rejected arguments by the insurers that this construction was contrary to the intent of the parties. The relevant words in the policies were not defined, and so “the intent of the parties at the time the policies were issued cannot be ascertained one way or another.”[17] Nor did it matter that the policies pre-dated OECAA.[18] Rather, the Court divined the parties’ intent from the “general purpose of the policies at issue here … to provide Ash Grove with insurance coverage for liabilities and damages that Ash Grove incurred because of property damage.” Id. Since the term was not defined, “A reasonable insured could interpret the § 104(e) letter as an effort to impose on policyholders a liability ultimately enforceable by a court, triggering the need for a defense.”[19]

The Oregon District Court therefore concluded that, under Ash Grove’s policies and OECAA’s interpretational rules, a CERCLA § 104(e) information request emphasizing the duty to respond was “equivalent to a ‘suit seeking damages’” and triggered the carriers’ duty to defend in Oregon.

Conclusion

Setting aside the likely appeal, it bears considering how far beyond the specifics of this case the Court’s ruling will be extended. Two circumstances appear to have particularly affected the court’s reasoning: Ash Grove had already been identified as a PRP by other parties, and the letter included the strong “penalties” warning from the 1988 template. It is not clear how the court would rule if the “kinder, gentler” version of the § 104(e) letter is sent, or if the recipient has not yet been identified as a PRP by some potential claimant. Furthermore, the decision leaves open the question of which portion of Ash Grove’s total response costs (attributable to more than simply answering the 82 information requests) the company can recover through its tender of the § 104(e) letter.

For more information, contact Adam Orford or any member of Marten Law’s Waste Cleanup group.