NJ Court Rules EPA Notice Letter Triggers Coverage

NJ Court Makes Key Ruling Over Receipt of EPA Notice Letter

Ruling on an issue of first impression in New Jersey, a New Jersey court has held in Cooper Industries LLC v. Employers Insurance of Wausau A Mutual Co. et al that receiving a General Notice Letter from the Environmental Protection Agency (EPA) pursuant to the Comprehensive Environmental Response Compensation and Liability Act of 1980 (CERCLA) can trigger coverage under a commercial general liability insurance policy.But why does this EPA notice letter matter in the first place?

The EPA Notice Letter

On March 10, 2010, the EPA issued a General Notice Letter to Cooper Industries LLC, naming Cooper as a “potentially responsible party” (PRP) for pollution remediation of a 17-mile stretch of the Passaic River known as the Lower Passaic River Restoration Project. In the General Notice Letter, the EPA maintained that Cooper was responsible for the cleanup as the successor to the McGraw-Edison Company.

The agency also requested that Cooper become a cooperating party by participating in a Cooperating Parties Group Agreement (CPG Agreement), which is a type of settlement between and among the EPA and other potentially responsible parties. The EPA warned that if Cooper declined to join the cooperating group, the EPA “may apply the CERCLA enforcement process, pursuant to Section 106(a) and 107(a) of CERCLA, 42 U.S.C. §9606(a) and §9607(a) and other laws.”

The Insurance Coverage Dispute

In May 2011, Cooper notified OneBeacon Insurance Company, whom Cooper contends issued policies to Cooper’s predecessor, McGraw-Edison, of the EPA General Notice Letter and demanded that OneBeacon provide Cooper with a defense to the EPA action. OneBeacon refused to provide a defense to Cooper. As a result, Cooper assumed its own defense and entered into the CPG Agreement.The company subsequently filed a declaratory action against OneBeacon and its other insurance carriers seeking indemnification in connection with the EPA action. Cooper maintains that, as a result of OneBeacon’s failure to provide Cooper with a defense, it has incurred (and is continuing to incur) more than $4.1 million in defense costs. Among other arguments raised, OneBeacon contends that its duty to defend has not been triggered because the EPA’s notice letter to Cooper is not a “suit,” as the term “suit” plainly means some type of court proceeding.

 The Court’s Decision

The court held that the General Notice letter did constitute a suit, triggering OneBeacon’s duty to defend Cooper. In reaching his decision, Judge Garry J. Furnari noted that many other jurisdictions have adopted the same position. Judge Furnari also highlighted the fact that the EPA relies on Notice Letters to encourage cooperation, subjecting those who fail to comply to contempt proceedings, fines, and treble damages and barring them from filing a contribution action against settling PRPs. “[G]iven the coercive nature of CERCLA, it would be naive to characterize the EPA letter as a request for voluntary action,” he wrote.“Had Cooper failed to take action, and instead waited for the EPA to file a lawsuit, it would have been subject to strict joint and several liability and other potential damages under CERCLA,” Judge Furnari further explained. “While the reasonableness of Cooper’s settlement with the CPG may very well be at issue later in this case, there is no question that a policy in favor of triggering coverage before a formal complaint is filed serves to enhance the important functions of the Statute. To hold otherwise would discourage prompt and cooperative remediation efforts and the timely cleanup of hazardous waste sites.”

Given Judge Furnari’s decision, insureds who receive a CERCLA General Notice letter from the EPA should immediately notify their carriers and contact their attorneys in order to secure coverage for related costs.

Otherwise, if you have any questions or if you would like to discuss the matter further, please contact me, Dan McKillop, at 201-806-3364.