* Gull Industries, Inc., Appellant V. Allianz Underwriters Insurance Co., Et Al., Respondent

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IN THE COURT OF APPEALS OF THE STATE OF WASHINGTON
DIVISION ONE

GULL INDUSTRIES, INC., No. 69569-0-

Appellant/Cross Respondent,
Vv.

STATE FARM FIRE AND CASUALTY
COMPANY and TRANSAMERICA
INSURANCE GROUP,

Respondents/Cross Appellants,

ALLIANZ UNDERWRITERS INSURANCE
COMPANY; AMERICAN ECONOMY
INSURANCE COMPANY; AMERICAN
STATES INSURANCE COMPANY (successor
to WESTERN CASUALTY and SURETY
COMPANY); CHICAGO INSURANCE
COMPANY; COLUMBIA CASUALTY
COMPANY; FEDERAL INSURANCE
COMPANY; FIREMAN’S FUND INSURANCE
COMPANY; GENERAL INSURANCE
COMPANY OF AMERICA; GRANITE STATE
INSURANCE COMPANY; INDIANA
INSURANCE COMPANY; NATIONAL UNION
FIRE INSURANCE COMPANY OF
PITTSBURGH, PA; PA; NORTH PACIFIC
INSURANCE COMPANY; OHIO CASUALTY
INSURANCE COMPANY; PACIFIC
INDEMNITY COMPANY; SAFECO
INSURANCE COMPANY OF AMERICA;
UNITED STATES FIDELITY & GUARANTY
COMPANY; WESTPORT INSURANCE
CORPORATION; and ZURICH-AMERICAN
INSURANCE COMPANY,

BW 2~ NAL AIO
NOLOMINSYM 49 FIVLS

LAG Sivaddy¥ 40 LYN09

PUBLISHED OPINION

FILED: June 2, 2014
Defendants.

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No. 69569-0/2

VERELLEN, A.C.J. — The Model Toxics Control Act (MTCA), chapter 70.105D
RCW, imposes strict liability upon the owner or operator of contaminated property.
Such strict liability may trigger the duty to indemnify under commercial liability policies
even if no agency has taken or overtly threatened formal legal action.’ We are asked to
decide what triggers a duty to defend “any suit” when the owner of contaminated
property faces strict liability under the MTCA. We conclude that the term “suit” is
ambiguous in this context and does not require that a summons and complaint be filed
or served or that an administrative action be commenced. Rather, under a functional
equivalent standard, the duty to defend is triggered if a government agency
communicates an explicit or implicit threat of immediate and severe consequences by
reason of the contamination.

The Department of Ecology (DOE) letter to Gull Industries Inc. acknowledged
receipt of Gull’s voluntary report of contamination and intent to remediate. The letter did
not communicate any explicit or implicit threat of immediate and severe consequences.
Therefore, we affirm the partial summary judgment that State Farm Fire and Casualty
Company and Transamerica Insurance Group (TIG) have no duty to defend.

We reject TIG’s challenge to the trial court’s CR 54(b) designation.

FACTS

Gull owned a gas station in Sedro-Woolley. To insure itself against liability

arising from the operation of this station, Gull obtained liability coverage with TIG for

both bodily injury and property damage from 1981 until 1986.

1 Weyerhaeuser Co. v. Aetna Cas. & Sur. Co., 123 Wn.2d 891, 896-97, 874 P.2d
142 (1994).

No. 69569-0/3

Gull leased the Sedro-Woolley station to Hayes Johnson and Mary Johnson from
1972 to 1982. Under the terms of the lease, the Johnsons were required to obtain
liability insurance to cover the service station’s operations. The Johnsons obtained
coverage from State Farm from July 28, 1977 through July 28, 1978 under policy
number 98-59-34-77. The Johnsons then obtained another policy through State Farm
under policy number 98-60-04-39, which covered the period from July 28, 1978 through
July 28, 1981. But this second policy was immediately cancelled, and the cancellation
request was processed on August 4, 1978. Gull and State Farm dispute whether the
Johnsons renewed that policy with State Farm.?

Here, the reconstructed insurance policies at issue include the duty to defend
against a “suit.” First, the parties agree that the State Farm policies stated:

This Company will pay on behalf of the Insured all sums which the Insured

shall become legally obligated to pay as damages because of bodily injury

or property damage, arising out of service station operations; and this

Company shall have the right and the duty to defend any suit against the

Insured seeking damages payable under the terms of this policy, even if

any of the allegations of the suit are groundless, false or fraudulent; but

this Company may make such investigation and settlement of any claim or

suit as it deems expedient.)
Similarly, the TIG policies stated:

The company will pay on behalf of the insured all sums which the insured

shall become legally obligated to pay as damages because of bodily injury
or property damage to which this insurance applies, caused by an

2 State Farm argues that the second policy was in effect only 17 days after its
cancellation, providing coverage through August 21, 1978, but not through July 1981.

3 Because of the amount of time that has passed since these policies were
issued, original copies are no longer available. However, the parties have agreed as to
the likely original contract language. The language for the State Farm policy comes
from a “Service Station Policy” and for the TIG policy comes from a “Blanket General
Liability” policy. Clerk’s Papers at 112, 161.

4 Id. at 119 (emphasis added).

No. 69569-0/4

occurrence. 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.!!

None of the policies defined the term “suit.”

In 1984, Gull investigated underground storage tanks at a number of Gull’s
service stations. The investigation at the Sedro-Woolley station identified hydrocarbons
in the soil adjacent to the underground storage tanks and revealed a continuous release
of hydrocarbons during the period the Johnsons leased the station. As a result, Gull
undertook voluntary remediation, including investigation and cleanup of the soil and
groundwater.

In 2005, Gull notified DOE that there had been a release of petroleum product at
the Sedro-Woolley station. DOE sent Gull a letter acknowledging Gull’s notice of the
suspected contamination.

In 2009, Gull tendered its claims for defense and indemnification for the costs of

the cleanup at the Sedro-Woolley station to TIG. TIG did not accept Gull’s tender. In

5 Id. at 161 (emphasis addea).

6 Older standard comprehensive general liability (CGL) policies often failed to
define “suit.” See Weyerhaeuser, 123 Wn.2d at 902; see also Mark S. Dennison, What
Constitutes “Suit” Triggering Insurer’s Duty To Defend Environmental Claims—State
Cases, 48 A.L.R.5th 355, § 2[a] (1997) (explaining that prior to the passage of pollution
control laws, insurance companies did not define the term “suit” because there was no
dispute over that term's meaning; it was generally understood that a “suit” was initiated
with the traditional summons and complaint). A standard form CGL policy introduced in
1987 includes a definition of “suit” in the duty to defend provision. Jennifer Buse, Note,
CERCLA Cost Recovery Suits: A Suit against an Insured for Damages under a
Comprehensive General Liability Policy, 14 Wm. MITCHELL L. REv. 829, 845 n.108
(1988). We do not address the impact of CGL policies that include an express definition
of “suit.”

No. 69569-0/5

March 2010, Gull tendered its claims as an additional insured under the Johnsons’
policy to State Farm. State Farm did not accept Gull’s tender.

Gull then sued TIG, State Farm, and 5 other insurers in Skagit County, asserting
claims for declaratory judgment, breach of contract, breach of fiduciary duty, and bad
faith relating to the Sedro-Woolley site. It also commenced a lawsuit in King County
asserting claims for declaratory relief and damages against 19 insurance companies in
connection with over 200 sites across Washington. In May 2012, these lawsuits were
consolidated in King County.

State Farm moved for partial summary judgment, arguing, in part, that it had no
duty to defend. TIG joined State Farm’s motion on that issue. Gull opposed the motion,
arguing that the duty to defend was triggered because it faced strict liability for
environmental cleanup costs under the MTCA. The trial court granted State Farm and
TIG’s motion, concluding they have no duty to defend Gull. Gull appeals.

The trial court entered a CR 54(b) designation that there is no just cause for
delay and directed the entry of a final judgment. TIG cross appeals the trial court's
CR 54(b) ruling.’

DECISION

Gull contends that because the MTCA imposes strict liability, the duty to defend

should arise whether or not an agency has sent any communications about the statute

or cleanup obligations. It argues that this approach would be consistent with the

Washington State Supreme Court decision in Weyerhaeuser Co. v. Aetna Casualty &

7 State Farm cross appealed, but the parties have advised the court that the
issues raised in the cross appeal have been settled.

No. 69569-0/6

surety Co. that the duty to indemnify may flow from such strict liability.® But there is no
compelling authority that supports such an absolute duty to defend standard. As

expressly recognized in Weyerhaeuser, the duty to defend analysis is completely

independent of the duty to indemnify.? We reject Gull’s proposed standard.

This court reviews summary judgment orders de novo, engaging in the same
inquiry as the trial court.‘ Summary judgment is appropriate when there is no genuine
issue of material fact and the moving party is entitled to a judgment as a matter of law."
All facts and reasonable inferences are considered in the light most favorable to the
nonmoving party, and summary judgment is appropriate only if, from all the evidence,
reasonable persons could reach but one conclusion. ‘4

“Courts construe insurance policies as contracts.”'* The court must examine the
policy as a whole in determining the meaning of a particular term.'* A trial court must
enforce the policy as written if the language is clear and unambiguous, and it may not

create an ambiguity where none exists.'® “If terms are defined in a policy, then the term

8 123 Wn.2d 891, 874 P.2d 142 (1994).
9 Id. at 902.
10 Hadley v. Maxwell, 144 Wn.2d 306, 310, 27 P.3d 600 (2001).

11 Vallandigham v. Clover Park Sch. Dist. No. 400, 154 Wn.2d 16, 26, 109 P.3d
805 (2005) (quoting CR 56(c)).

12 Id.

13 Austl. Unlimited, Inc. v. Hartford Cas. Ins. Co., 147 Wn. App. 758, 765, 198
P.3d 514 (2008).

14 Polygon Nw. Co. v. Am. Nat'l Fire Ins. Co., 143 Wn. App. 753, 785, 189 P.3d
777 (2008).

15 Quadrant Corp. v. Am. States Ins. Co., 154 Wn.2d 165, 171, 110 P.3d 733
(2005).

No. 69569-0/7

should be interpreted in accordance with that policy definition.”'® If policy terms are not

defined, then they are to be given their “plain, ordinary, and popular” meaning.'”

Language in an insurance policy is ambiguous if susceptible of two different but
reasonable interpretations.'® Ambiguous policy language must be liberally construed in
the insured’s favor.'? “But a court may not give an insurance contract a ‘strained or
forced construction which would lead to an extension or restriction of the policy beyond
what is fairly within its terms.”2° The interpretation of an insurance contract is a
question of law.2’ We review questions of law de novo.?4

The MTCA compels a potentially liable person (PLP) to address environmental
contamination through strict joint and several liability provisions, regardless of fault or

intent.22 Under the MTCA, DOE identifies hazardous waste sites and either requires

PLPs to clean up the waste or undertakes the cleanup itself and seeks reimbursement

16 Kitsap County v. Allstate Ins. Co., 136 Wn.2d 567, 576, 964 P.2d 1173 (1998).

'7 Id. (quoting Boeing Co. v. Aetna Cas. & Sur. Co., 113 Wn.2d 869, 877, 784
P.2d 507 (1990)).

18 McAllister v. Agora Syndicate, Inc., 103 Wn. App. 106, 109, 11 P.3d 859
(2000).

191d.
20 |d. (internal quotation marks omitted) (quoting Tewell, Thorpe & Findlay, Inc. v.

Cont’'l Cas. Co., 64 Wn. App. 571, 576, 825 P.2d 724 (1992)).

21 State Farm Gen. Ins. Co. v. Emerson, 102 Wn.2d 477, 480, 687 P.2d 1139
(1984).

22 Mains Farm Homeowners Ass'n v. Worthington, 121 Wn.2d 810, 813, 854
P.2d 1072 (1993).

23 RCW 70.105D.040. The federal equivalent of the MTCA, the Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), 42
U.S.C. §§ 9601-9675, refers to a “potentially responsible party” (PRP), which is the
equivalent of a PLP under state law. The MTCA is “heavily patterned” after CERCLA.
Taliesen Corp. v. Razore Land Co., 135 Wn. App. 106, 127, 144 P.3d 1185 (2006).

No. 69569-0/8

from the PLPs.*4 DOE may issue a formal letter to a PLP outlining specific
requirements for cleanup.2° A PLP who refuses to comply with an order compelling
cleanup is liable for up to three times the cleanup costs incurred by DOE and a daily
civil penalty.26

After the passage of the MTCA and the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980 (CERCLA) (the federal equivalent of
the MTCA), 42 U.S.C. §§ 9601-9675, insureds began to seek reimbursement from
insurance companies for costs expended in order to comply with these laws.?’
Historically, comprehensive general liability (CGL) policies did not specifically address
coverage for property damage or defense costs incurred as a result of strict liability
under environmental laws.28 As a result, courts around the country have had to address
whether the strict liability imposed by environmental laws is sufficient to trigger
indemnification and defense coverage under these policies.

In Weyerhaeuser, the Washington State Supreme Court addressed whether an

insured could seek indemnification coverage for costs expended to clean up

contaminated property under the MTCA, even where DOE made no overt threat of

24 RCW 70.105D.020(26) (defining “potentially liable person” as a person found
liable by “credible evidence” under RCW 70.105D.040), .030-.050 (outlining
government's jurisdiction for investigation, cleanup, and enforcement and the property
owner's liability).

25 The federal Environmental Protection Agency (EPA) issues PRP letters that
similarly explain why the party is a PRP, outline the potential liability under CERCLA,
begin an exchange of information, invite voluntary cleanup before administrative
enforcement, and facilitate negotiation of a settlement agreement. Dennison, supra,

§ 2[a].
26 RCW 70.105D.050(1).
27 Dennison, supra, § 2[{a].
28 Id.

No. 69569-0/9

formal legal action, such as a suit in court or issuance of a PLP letter.22 Weyerhaeuser
filed a declaratory judgment action against its insurers, seeking a declaration of
indemnity coverage for cleanup expenses at dozens of polluted sites.°° The policies
provided indemnification for all sums that the insured was obligated to pay by reason of
the liability imposed by law for damages to property.*’ They did not require a “suit” in
order for coverage to attach.°?

The insurers argued that there must be an adversarial proceeding, or at least the
threat of such a proceeding, before indemnification coverage exists.** But the Supreme
Court concluded that nothing in the language of the insurance policy required a “claim”
or an overt threat of action before the insured became legally obligated to comply with
the mandatory provisions of the environmental statute.*4 Characterizing this argument
as an attempt to add language to the policies, the court noted that if the insurers
intended to provide coverage only if there were a lawsuit or the threat of a lawsuit, they
could have written policy language to reach that result.5° Furthermore, the Supreme
Court reasoned that requiring a lawsuit or an overt threat of legal action would
discourage parties subject to the MTCA to begin remedial action until formal

enforcement by DOE so that the costs would be covered by insurance.** The effect of

29 Weyerhaeuser, 123 Wn.2d at 896.
30 Id. at 893.

31 Id. at 896-97.

32 Id. at 902.

33 Id. at 899.

34 Id. at 913.

35 Id.

36 Id. at 907-08.

No. 69569-0/10

such an outcome would be to “dramatically slow the progress of hazardous waste
cleanup in Washington.”°”

As in the commercial liability policies at issue here, many CGL policies recite the
duty to defend “any suit” without including any definition or description of what
constitutes a “suit.” Washington courts have not yet addressed the issue of what
constitutes a “suit” for the purpose of triggering the insurer’s duty to defend
environmental liability claims against the insured. Nationally, whether administrative
actions that fall short of an actual lawsuit constitute a “suit” triggering the insurer’s duty
to defend environmental! claims is a vigorously contested issue.°*°

Some courts have adopted a narrow construction of the term “suit” as used in
CGL insurance policies, requiring that a formal complaint be filed against the insured in
a court of law in order to trigger the duty to defend.*° Under this approach, the term
“suit” is deemed unambiguous: if no complaint has been filed, there is no “suit” and the

insurer has no duty to defend.*

37 Id. at 908.

38 See supra note 6.

38 Dennison, supra, note 6.
40 Id. § 3.

41 See Foster-Gardner, Inc. v. Nat'l Union Fire Ins. Co., 18 Cal. 4th 857, 869 n.6,
959 P.2d 265, 77 Cal. Rptr. 2d 107 (1998) (citing Lapham-Hickey Steel Corp. v. Prot.
Mut. Ins. Co., 166 Ill. 2d 520, 655 N.E.2d 842, 847-48, 211 Ill. Dec. 459 (1995) (“suit” in
an all risks policy clearly and unambiguously refers to a court proceeding so there is no
duty to defend environmental agency letters and proposed consent decree); Patrons
Oxford Mut. Ins. Co. v. Marois, 573 A.2d 16, 20 (Me. 1990) (administrative proceeding
is not a “suit”); Technicon Elecs. Corp. v. Amer. Home Assur. Co., 141 A.D.2d 124,145-
46, 533 N.Y.S.2d 91 (1988) (in dicta states that PRP letter does not constitute a “suit’);
Aetna Cas. & Sur. Co. v. Gen. Dynamics Corp., 968 F.2d 707, 713-14 (8th Cir. 1992)
(EPA demand is not a suit for damages under Missouri law)).

10

No. 69569-0/11

Other courts have adopted a broader construction of the term “suit” and
concluded that the issuance of a potentially responsible party (PRP)*? letter to an
insured is the functional equivalent of a suit, triggering the duty to defend.4* These
courts reason that given the strict liability imposed under the environmental laws, the
term “suit” is ambiguous in this context and may include administrative actions that do
not rise to the level of an actual lawsuit.44 These cases focus on the devastating
financial consequences if a PRP fails to cooperate with the government cleanup effort,
making a lawsuit unnecessary to compel compliance with any cleanup orders.*5

Finally, some courts have held that whether a “suit” exists depends on the

coerciveness of the specific regulatory action taken by the government.*® These courts

42 See supra note 23.
43 Dennison, supra, §§ 4, 5[a].

44 See Foster-Gardner, 18 Cal. 4th at 871-73 & n.7 (citing SCSC Corp. v. Allied
Mut. Ins. Co., 536 N.W.2d 305, 315 (Minn.1995) (“suit” includes a request for
information), overruled on other grounds by Bahr v. Boise Cascade Corp., 766 N.W.2d
910 (Minn. 2009); Coakley v. Me. Bonding & Cas. Co., 136 N.H. 402, 417-18, 618 A.2d
777 (1992) (PRP notice and state agency administrative order are a “suit”); C.D.
Spangler Constr. Co. v. Indus. Crankshaft & Eng’g. Co., 326 N.C. 133, 154, 388 S.E.2d
557 (1990) (compliance orders were an attempt by the State to gain an end by legal
process and hence were “suits”); Avondale Indus., Inc. v. Travelers Indem. Co., 887
F.2d 1200, 1206 (2d Cir. 1989) (under New York law, demand letter from administrative
agency is a “suit”); Morrisville Water & Light Dep't v. U.S. States Fid. & Guar. Co., 775
F. Supp. 718, 731-32 (D. Vt. 1991) (PRP letter from the EPA is a “suit” under Vermont
law)).

45 Dennison, supra, § 2[a].

46 See Foster-Gardner, 18 Cal. 4th at 871-72 & n.8 (citing Hazen Paper Co. v.
U.S. Fid. & Guar. Co., 407 Mass. 689, 694-97, 555 N.E.2d 576 (1990) (‘“[t]he
consequences of the receipt of the EPA letter were so substantially equivalent to the
commencement of a lawsuit that a duty to defend arose immediately”; no such duty
arose as to a different agency letter because it “does not allege the occurrence of any
damage that falls within the policy coverage”); Prof'l Rental, Inc. v. Shelby Ins. Co., 75
Ohio App. 3d 365, 372, 599 N.E.2d 423 (1991) (‘“suit” includes “substantial efforts which
force the insured to take action or suffer serious consequences if the insured fails to

11

No. 69569-0/12

also conclude that the term “suit” is ambiguous.*”? As an example of this approach, in

Ryan v. Royal Insurance Co. of America, the First Circuit Court of Appeals considered

whether government correspondence that was not a PRP letter could trigger the duty to
defend.*® There, Ryan received several letters from the New York Department of
Environmental Conservation (NYDEC) after reporting groundwater contamination on his
property.*® The first letter stated that federal law required correction of hazardous waste
contamination, that the United States Environmental Protection Agency (EPA) retains
primary responsibility for the implementation of the corrective action provision, and it
elaborated on the kinds of corrective activities usually required in EPA consent orders.°°
NYDEC indicated that it would place the contaminated site on an informational listing of
all sites known or suspected to contain hazardous wastes and that the state Superfund
program would address the site if the EPA did not do so.*' The letter further explained
what the state Superfund program customarily entailed, remarked on deficiencies in the
site assessment report submitted by Ryan, and requested Ryan to submit plans for any

proposed remedial work.5? In two subsequent letters, NYDEC first advised Ryan of the

cooperate”); Hartford Accident & Indem. Co. v. Dana Corp., 690 N.E.2d 285, 296-97
(Ind. Ct. App. 1997) (“coercive and adversarial administrative proceedings” are “suits,”
but less coercive actions such as “mere notification or investigation when no
enforcement action is contemplated” are not “suits”); Ryan v. Royal Ins. Co. of Am., 916
F.2d 731, 741 (1st Cir. 1990) (potential liability alone, without any adversarial or
coercive action by an administrative agency, is not a “suit’)).

47 Foster-Gardner, 18 Cal. 4th at 872-73.
48 916 F.2d 731 (1st Cir. 1990).

49 Id. at 732.

50 Id.

51 id.

52 Ig.

12

No. 69569-0/13

need to submit a complete closure plan and thereafter told Ryan that NYDEC would
likely not pursue certain treatment, storage, and disposal violations at the site if Ryan
accomplished closure in an approved manner.*?

The First Circuit concluded that potential liability alone, without any adversarial or
coercive action by an administrative agency, did not constitute a “suit” under the
insurance policy.54 Although a lawsuit need not be commenced in order to constitute a
“suit,” there must be more than an invitation to initiate cleanup in order to trigger the
insurer's duty to defend.5> The court held that the correspondence from NYDEC did not
indicate “coerciveness or a serious state enforcement effort” and could not “realistically
be termed adversarial.”* It rejected Ryan’s argument that strict liability under an
environmental statute constituted a “suit”:

Even though environmental liability may be strict, it is only when the

government actually purposes to enforce the law against a property owner

that the latter will bear the consequences of strict liability. If the

government decides for any reason (e.g., shortage of funds) not to pursue

public rights, the property owner will avoid liability, no matter how dim his

prospects on the law and the facts. Thus, absent serious pursuit of the

public interest by the agency charged—what the district court, and other

authorities, term “adversariness’—the factual expectancy of liability is too

low to satisfy either the principle of indemnity or any plausible construction

of the policy language.'57!

We conclude that the undefined term “suit” is ambiguous in the environmental

liability context and may include administrative enforcement acts that are the functional

equivalent of a suit. This is consistent with the Weyerhaeuser court's acknowledgment

53

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all

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. at 741.

g
= |

56 |

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_ at 741-42.
. at 742,

57 |

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13

No. 69569-0/14

that “[i]nsurance coverage in the environmental claims area may be quite different than
in other insurance settings” because “[e]nvironmental statutes impose liability, often
without fault, on polluters in order to safeguard society in general.”©° It makes no
difference whether an insured voluntarily cleans up contamination or waits until after
government intervention—it is liable either way.°° For this reason, a strict reading of
“suit” is not appropriate here.

We do not agree with Gull’s contention that liability under the MTCA alone,
without any direct enforcement action by DOE, is the functional equivalent of a suit for
the purposes of the duty to defend. Instead, we adopt the analysis outlined in Ryan and
hold that an agency action must be adversarial or coercive in nature in order to qualify
as the functional equivalent of a “suit.”

Here, the only communication Gull received was a letter from DOE
acknowledging receipt of Gull’s notice that the property was contaminated and that it
intended to pursue an independent voluntary cleanup. DOE gave notice to Gull that
Gull's report reveals the soil and groundwater are above the MTCA “Method A Cleanup
levels” and that DOE placed the property on the leaking underground storage tank list
with an “Awaiting Cleanup” status.©° The letter also advised Gull to "be aware that there
are requirements in state law which must be adhered to” but did not advise of any

consequences that might attach to the failure to adhere to those requirements.®' The

58 Weyerhaeuser, 123 Wn.2d at 909.

59 Id. at 909-10 (quoting 1 Top I. ZUCKERMAN & MARK C. RASKOFF, ENVIRONMENTAL
INSURANCE LITIGATION § 3.02, at 3-8 (1992)).

60 Clerk’s Papers at 142.
61 Id. at 143.

14

No. 69569-0/15

letter expressly indicated DOE has not determined that Gull is a PLP and does not imply
that DOE “has formally reviewed and approved of the remedial action” planned by
Gull.® Finally, the letter explains that Gull “may request assistance from Ecology under
the Voluntary Cleanup Program,” which was “established in response to the public’s
need for Ecology to provide formal, detailed guidance to parties conducting independent
cleanups, and to more readily review cleanup actions undertaken.”©* The letter did not
present an express or implied threat of immediate and severe consequences by reason
of the contamination.®* Therefore, consistent with Ryan, Gull has not met its burden on
summary judgment to establish there is the functional equivalent of a “suit” here,
triggering the duty to defend.

Gull and DOE argue that interpreting the term “suit” to exclude voluntary
remediation by an insured who is liable under the MTCA but not yet subject to formal
enforcement action by DOE will destroy any incentive for property owners to voluntarily

remediate, contrary to the policy concerns addressed in Weyerhaeuser. The public

policies addressed in Weyerhaeuser are compelling. But such policy concerns have

limited significance in a duty to defend analysis.® “[T]his is very much a secondary
reason—no court has ever held that it was the primary reason” for finding a duty to

defend.® Under the language of these policies, the public policy of promoting voluntary

82 Id. at 142.
63 Id. at 143.
64 See Ryan, 916 F.2d at 742.

85 See 2 TOD I. ZUCKERMAN, ENVIRONMENTAL INSURANCE LITIGATION § 12:34 (2d ed.
2013).

ld.

15

No. 69569-0/16

cleanups alone does not compel an automatic duty to defend; the duty to defend is
triggered by the functional equivalent of a lawsuit.

Gull’s remaining arguments are not persuasive. Gull argues that United States v.

Atlantic Research Corp.®” supports finding a “suit” here. There, the United States

Supreme Court considered whether CERCLA allows PRPs with a cause of action to
recover costs from other PRPs in the absence of formal litigation.°* But that was a
contribution case that did not address the meaning of “suit” in a duty to defend clause.
Therefore, it is not helpful here.

Gull argues that there should be a duty to defend because insureds need
insurance proceeds to help pay for the necessary first step of investigation. But Gull
cites no authority that the construction of an insurance policy turns on the needs of an
insured.

Gull argues that “suit” should not be given a “technical” or “lawyerly” definition®
and that the average policyholder does not distinguish between being forced to pay
legal and other “defense” costs as a result of actual coercive action from a government
agency, as opposed to the implicit threat of such action under the MTCA. But the duty
to defend implies the necessity to “defend” against something. In the face of no
adversarial or coercive interaction whatsoever, an average policyholder would not likely
believe such a duty was triggered.

Because DOE did not communicate an explicit or implicit threat of immediate and

severe consequences by reason of the contamination of the Sedro-Woolley site, Gull

67 551 U.S. 128, 127 S. Ct. 2331, 168 L. Ed. 2d 28 (2007).
68 Id. at 131.
69 Appellant's Opening Br. at 27-31.

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was not faced with the functional equivalent of a suit. TIG and State Farm had no duty
to defend.

TIG contends that the trial court abused its discretion in granting Gull’s motion for
a CR 54(b) designation. We disagree.

CR 54(b) makes an immediate appeal available in situations in which it could be
unjust to delay entering a judgment on a distinctly separate claim until the entire case
has been finally adjudicated.”° Four elements are required for a CR 54(b) final

ite

judgment: “(1) more than one claim for relief or more than one party against whom relief
is sought; (2) an express determination that there is no just reason for delay; (3) written
findings supporting the determination that there is no just reason for delay; and (4) an
express direction for entry of the judgment.’””'

In determining whether there is no just reason for delay, the trial court should
consider the following five factors:

“(1) [T]he relationship between the adjudicated and the unadjudicated

claims, (2) whether questions which would be reviewed on appeal are still

before the trial court for determination in the unadjudicated portion of the

case, (3) whether it is likely that the need for review may be mooted by

future developments in the trial court, (4) whether an immediate appeal

will delay the trial of the unadjudicated matters without gaining any

offsetting advantage in terms of the simplification and facilitation of that

trial, and (5) the practical effects of allowing an immediate appeal.”!”2!
Essential to whether CR 54(b) certification should be granted is whether waiting for final

judgment on all the claims or parties will expose the appellant to some danger of

70 Doerflinger v. N.Y. Life Ins. Co., 88 Wn.2d 878, 880, 567 P.2d 230 (1977).

71 Hulbert v. Port of Everett, 159 Wn. App. 389, 405-06, 245 P.3d 779 (2011)
(internal quotation marks omitted) (quoting Fluor Enters., Inc. v. Walter Constr., Ltd.,
141 Wn. App. 761, 766-67, 172 P.3d 368 (2007)).

72 Id. at 406 (alteration in original) (internal quotation marks omitted) (quoting
Lindsay Credit Corp. v. Skarperud, 33 Wn. App. 766, 772, 657 P.2d 804 (1983)).

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hardship or injustice that can be alleviated only through an immediate interlocutory
appeal.’3 The decision to enter a judgment under CR 54(b) is reviewed for abuse of
discretion.’4

Here, in support of the CR 54(b) designation, the trial court entered the following
findings of fact:

7. The Court finds that Gull has asserted more than one claim in
this action against more than one party. Gull’s Amended Complaint raises
multiple claims against all twelve defendants in this case.

8. Gull is not seeking a stay of the litigation with respect to any of
those claims.

9. The Court’s Orders Denying State Farm’s and TIG’s Duty to
Defend represent an adjudication of a single issue at a single site, namely,
State Farm’s and TIG’s defense obligation to Gull at the Highway 20 site
located in Sedro-Woolley, Washington.

10. The Court's decision that State Farm and TIG owe Gull no
defense obligation at the Sedro-Woolley Site constitutes a final
adjudication on that one issue.

11. Gull’s remaining claims against all defendants are unaffected
by that decision.

12. The Court finds that the issue of whether State Farm and TIG
owe Gull a duty of defense with respect to environmental contamination at
the Sedro-Woolley site is segregable from the other issues in this case
and that an immediate appeal of that issue will not prevent the existing
litigation from going forward.

13. The court finds that an appellate [court] should review the
ruling that there is no duty to defend as opposed to a duty to indemnify as
outlined in Weyerhaeuser Co. v. Aetna, 123 Wn.2d 891, 874 P.2d 142
(1994) to avoid a lengthy and costly second trial if an appellate court
concludes that the court’s ruling should be reversed.

73 Doerflinger, 88 Wn.2d at 882; Fox v. Sunmaster Prods., Inc., 115 Wn.2d 498,
503, 798 P.2d 808 (1990); Pepper v. King County, 61 Wn. App. 339, 350, 810 P.2d 527
(1991).

74 Hulbert, 159 Wn. App. at 404.

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14. The Court finds that there is no just reason to delay entry of a
final judgment in favor of State Farm and TIG with respect to their duty to
defend Gull at the Sedro-Woolley site.!75
TIG argues that “the trial court’s ruling is incomplete until it is applied to the costs
that Gull has incurred for Sedro-Woolley,” namely, a decision on which costs incurred
by Gull are indemnity costs and which costs are duty to defend costs.” It argues that

such issues are closely intertwined and not separate from the duty to defend issue and,

therefore, should not be appealed piecemeal. TIG relies on Doerflinger v. New York

Life Insurance Co.’’ There, the Washington State Supreme Court held that where an

appellant relies upon nearly identical facts or allegations to establish multiple theories
for relief, the multiple claims requirement for CR 54(b) is not met.’® But here, the duty to
defend and the duty to indemnify are independent duties, each requiring the court to
analyze separate contractual provisions and separate facts. They are separate claims,
and Doerflinger is not applicable.

TIG also argues that Gull did not show any hardship or injustice that this appeal
would prevent. The risk of hardship or injustice without an immediate appeal is a critical
consideration for a CR 54(b) determination. Normally, a vague assertion of the length
and cost of a second trial would be an inadequate basis for certification. But Gull did
not make a purely abstract or artificial showing of risk of harm. In its briefing to the trial
court, Gull’s primary hardship argument focused on the impact of the duty to defend

issue On numerous contaminated sites across the state. Given the potential impact of

78 Clerk’s Papers at 943-44.

76 Br. of Respondent TIG at 29.

77 88 Wn.2d 878, 567 P.2d 230 (1977).
78 Id. at 881.

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this legal issue on other cases, the risk of hardship or injustice is established. The trial
court did not abuse its discretion.

We affirm.

WE CONCUR:

Dye, |. Ae
|

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