McGinnes Industrial Maintenance Corp. v. Phoenix Insurance , 571 F. App'x 329 ( 2014 )

Case: 13-20360 Document: 00512659942 Page: 1 Date Filed: 06/11/2014
IN THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT United States Court of Appeals
Fifth Circuit
FILED
No. 13-20360 June 11, 2014
Lyle W. Cayce
Clerk
MCGINNES INDUSTRIAL MAINTENANCE CORPORATION,
Plaintiff–Appellant
v.
THE PHOENIX INSURANCE COMPANY; THE TRAVELERS INDEMNITY
COMPANY,
Defendants–Appellees.
Appeal from the United States District Court
for the Southern District of Texas
USDC No. 4:11-CV-4000
Before BARKSDALE, CLEMENT, and OWEN, Circuit Judges.
PER CURIAM:*
This diversity action involves an important and determinative question
of Texas law as to which there is no controlling Texas precedent. Accordingly,
we certify the unresolved question to the Supreme Court of Texas.
CERTIFICATION FROM THE UNITED STATES COURT OF APPEALS
FOR THE FIFTH CIRCUIT TO THE SUPREME COURT OF TEXAS,
PURSUANT TO ART. 5, § 3-c OF THE TEXAS CONSTITUTION AND RULE
58 OF THE TEXAS RULES OF APPELLATE PROCEDURE
*Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not be
published and is not precedent except under the limited circumstances set forth in 5TH CIR.
R. 47.5.4.
Case: 13-20360 Document: 00512659942 Page: 2 Date Filed: 06/11/2014
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TO THE SUPREME COURT OF TEXAS AND
THE HONORABLE JUSTICES THEREOF:
I. Style of the Case
The style of the action is McGinnes Industrial Maintenance Corporation,
Plaintiff–Appellant v. The Phoenix Insurance Company; The Travelers
Indemnity Company, Defendants–Appellees, Case No. 13-20360, in the United
States Court of Appeals for the Fifth Circuit, on appeal from the United States
District Court for the Southern District of Texas, Houston Division. Federal
jurisdiction over the case is based on 28 U.S.C. § 1332.
II. Statement of the Case
McGinnes Industrial Maintenance Corporation is in the waste disposal
business. In the 1960s, McGinnes removed waste from a paper mill and
released it into three ponds located adjacent to the San Jacinto River.
Meanwhile, the Phoenix Insurance Company and the Travelers Indemnity
Company (collectively, Travelers) issued commercial general liability (CGL)
policies to McGinnes covering the years 1967-68, 1968-69, and 1970-71. 1
Without defining “suit,” the policies all provide,
[Insurer] shall have the right and duty to defend any suit against
[McGinnes] seeking damages on account of . . . 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 . . . .
In 2005, the EPA began evaluating a site that included the three waste
ponds. After determining that the ponds contained hazardous substances, the
EPA sought McGinnes’s cooperation in further studies of the site by contacting
McGinnes four times. The EPA acted pursuant to the Comprehensive
1McGinnes alleges Travelers also issued CGL policies covering the years 1965-66, 1966-67,
and 1969-70, but neither party has been able to locate them.
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Environmental Response, Compensation, and Liability Act (CERCLA), which
was passed in 1980 to remedy the serious environmental and health risks
posed by pollution and authorizes the EPA to achieve this aim in various
ways. 2
The EPA’s first communication with McGinnes was in 2007, when it sent
a “General Notice Letter” to McGinnes’s indirect parent company, Waste
Management. The letter stated that the EPA “has determined that you, Waste
Management, are a Potentially Responsible Party (PRP)” because of evidence
that Waste Management, doing business as McGinnes, “contributed to the
hazardous waste contamination at the Site.” The General Notice Letter stated
that, because of Waste Management’s PRP status, under CERCLA it “may be
required to perform or fund cleanup actions” and “may also be responsible for
all costs incurred by [the] EPA in responding to conditions at the Site.” 3 The
letter invited Waste Management “to enter into negotiations toward a
settlement” with the EPA. 4
The second communication was a 2008 letter to McGinnes entitled
“Combination General Notice Letter and 104(E) Information Request Letter.”
In addition to repeating much of what was in the first letter, the second letter
indicated that the “EPA is requesting certain documents and information . . .
relating to [McGinnes’s] barging of waste paper mill sludge to the Site” and its
2 United States v. Bestfoods, 524 U.S. 51, 55 (1998) (citing CERCLA, 42 U.S.C. §§ 9601-28);
see also Matter of Bell Petroleum Servs., Inc., 3 F.3d 889, 894 (5th Cir. 1993) (explaining that
CERCLA gives the President certain powers but the President “has delegated most of his
authority under CERCLA to the EPA”); Exec. Order No. 12,580, 52 Fed. Reg. 2923 (Jan. 23,
1987) (delegating various powers under CERCLA to the EPA).
3See 42 U.S.C. § 9607(a) (parties that have accepted hazardous substances for transport to a
hazardous waste site shall be liable for “all costs of removal or remedial action” and “any
other necessary costs of response” incurred by other parties).
4See 42 U.S.C. § 9622(a) (granting the President the authority to enter into agreements with
PRPs to perform any response action).
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business relationships with Waste Management. The letter included fifty-
eight questions and required “a separate narrative response for each” question.
The letter noted that CERCLA gave the “EPA the authority to require
[McGinnes’s] response to this information request.” 5 The letter further
indicated that failure to respond timely could result in fines of $32,500 per day
and that furnishing false statements could result in criminal liability. 6
Next, the EPA sent McGinnes a “Special Notice Letter” in 2009.
CERCLA explicitly provides for special notice procedures to facilitate
settlement agreements with PRPs. 7 The letter provided,
The EPA has determined that a Remedial Investigation and
Feasibility Study (RI/FS) must now be performed at the Site. The
EPA has determined that the use of special notice procedures . . .
may facilitate a settlement . . . to perform the RI/FS. Accordingly,
[the] EPA offers [McGinnes] this opportunity to enter into RI/FS
negotiations because [the] EPA believes that [McGinnes] may be
responsible for the cleanup of the Site under [CERCLA].
The letter attached the notice itself, which requested that McGinnes make a
“good-faith offer” to settle with the EPA within sixty days. 8 Finally, the notice
5 See 42 U.S.C. § 9604(e)(2) (the EPA “may require” persons to furnish information regarding
sites); id. § 9604(e)(5)(A) (“If consent is not granted regarding any request [for information],
the [EPA] may issue an order directing compliance with the request.”); id. § 9604(e)(5)(B)
(the EPA “may ask the Attorney General to commence a civil action to compel compliance”
with a request or order for information).
6 See 18 U.S.C. § 1001(a) (criminal penalties for making false statements); 42 U.S.C. §
9604(e)(5)(B) (after a civil action is commenced, a court may assess a civil penalty for
noncompliance against persons who unreasonably fail to comply with requests or orders for
information).
7 42 U.S.C. § 9622(e).
8 See 42 U.S.C. § 9622(e)(2)(B) (providing for the sixty-day window).
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said that the EPA had already incurred response costs at the site of
$378,863.61 and “demand[ed]” that McGinnes pay such costs. 9
Several months later, the EPA sent its fourth and final communication:
a letter attaching a “Unilateral Administrative Order.” Because McGinnes
allegedly failed to submit a good faith offer to negotiate, the EPA “concluded
that work at the Site can no longer be delayed,” and attached an order
requiring McGinnes to conduct the Remedial Investigation and Feasibility
Study at the site. The order was issued under § 106(a) of CERCLA, which
allows the EPA to issue orders “as may be necessary to protect public health
and welfare and the environment.” 10 The letter provided that McGinnes “will
be subject to civil penalties” for each day it refused to comply with the order
without cause and warned that failure to comply without cause might result
in punitive damages. 11 It ended by stating that the “EPA reserves the right to
bring an action . . . for recovery of any response costs incurred” at the site. 12
McGinnes notified Travelers of the EPA’s actions and requested that it
provide a defense pursuant to the CGL policies, but Travelers refused to
defend, claiming that no suit had been filed. McGinnes then sued Travelers
seeking, among other things, over $2 million in attorney’s fees as well as a
declaratory judgment that Travelers was required to defend it. McGinnes and
9See 42 U.S.C. § 9604(a)(1) (the EPA “is authorized to . . . provide for remedial action relating
to” hazardous substances “or take any other response measure” deemed necessary); id. §
9607(a)(4)(A) (responsible parties are liable for the costs of such actions).
10 42 U.S.C. § 9606(a).
11See 42 U.S.C. § 9606(b)(1) (a person who fails to comply with an order may be fined for each
day of violation or non-compliance in an action brought in a U.S. district court to enforce such
order); id. § 9607(c)(3) (providing for punitive damages that can be recovered by bringing a
civil action for failing to comply with an order without cause).
12 See 42 U.S.C. § 9607(a).
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Travelers filed cross motions for partial summary judgment as to the duty to
defend.
The district court granted Travelers’s motion, holding that the EPA’s
actions were not a suit triggering the duty to defend. The court first noted that
when the policies were issued in the late 1960s and early 1970s, CERCLA did
not exist. The court continued that “[a]t the time [the policies] were written
and priced, the policies understood suit to mean a lawsuit before a neutral
magistrate who would decide causation, liability, and actual damages by
reference to formal standards.” Thus, according to the district court, “[t]he
policies covered the risks of lawsuits, but not those of a virulent administrative
state.” Because the EPA’s actions were not a “suit,” the district court held that
Travelers did not have a duty to defend. The district court certified its order
for interlocutory appeal, and this court granted leave to appeal the order.
III. Legal Issue to be Resolved
The sole question in this action is whether, under Texas law, the EPA’s
PRP letters and unilateral administrative order, issued pursuant to CERCLA,
constitute a “suit” within the meaning of the CGL policies, triggering the duty
to defend. The policies are governed by Texas law. 13 Under a CGL policy, “the
duty to defend protects the [insured] against the expense of any suit seeking
damages covered by the policy.” 14 Thus a “breach of the duty to defend entitles
the insured to the expenses it incurred in defending the suit, including
13 See TEX. INS. CODE ANN. art. 21.42 (West 2013) (“Any contract of insurance payable to any
citizen . . . of this State by any insurance company . . . doing business within this State shall
be held to be a contract made and entered into under [Texas law] relating to insurance, and
governed thereby . . . .”). McGinnes is a Texas corporation.
14 Trinity Universal Ins. Co. v. Emp’rs Mut. Cas. Co., 592 F.3d 687, 691 (5th Cir. 2010)
(internal quotation marks omitted).
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reasonable attorney’s fees and court costs.” 15 The duty arises when a party
“sues the insured on allegations that, if taken as true, potentially state a cause
of action within the coverage terms of the policy.” 16
The Supreme Court of Texas and Texas courts of appeals have not
determined whether the EPA’s actions qualify as a “suit” under a CGL policy,
thereby triggering the duty to defend. 17 The only Texas court to have
addressed the issue is a Texas state district court, which held that “suit” in
CGL policies was sufficiently broad to include PRP letters in CERCLA-type
proceedings. 18 The court reasoned that PRP letters “are as likely to be coercive
as any lawsuit and as likely to carry grave legal consequences.” 19 It held that
the test for determining if an order or letter is a “suit” “is whether the insured
is legally disadvantaged by the consequences of failing to take the action
demanded in the order or letter.” 20
Because of the lack of Texas appellate precedent on the issue, the parties
make competing arguments as to why the Supreme Court of Texas would
decide the question in their favor. McGinnes, citing dictionary definitions of
“suit,” contends that the term is ambiguous: one meaning is narrow and
requires legal action in court and the other is broader and means an effort to
15 Primrose Operating Co. v. Nat’l Am. Ins. Co., 382 F.3d 546, 559 (5th Cir. 2004).
16GEICO Gen. Ins. Co. v. Austin Power Inc., 357 S.W.3d 821, 823 (Tex. App.—Houston [14th
Dist.] 2012, pet. denied).
1746 EVA FROMM O’BRIEN & ANDREW J. TORRANT, TEXAS PRACTICE SERIES, ENVIRONMENTAL
LAW § 34:5 (2d ed. 2013) (“Appellate courts have not addressed the suit issue under Texas
law.”).
Gulf Metals Indus. Inc. v. Chi. Ins. Co., No. 96-04673, slip op. at 13 (126th Jud. Dist. Ct.
18
Mar. 13, 1998), aff’d on other grounds, 993 S.W.2d 800 (Tex. App.—Austin 1999, pet. denied).
19 Id. at 12.
20 Id. at 13.
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gain an end by legal process. 21 Applying the rule that ambiguities in insurance
contracts are interpreted in favor of the insured, 22 McGinnes argues that the
broader meaning would control and include the EPA’s PRP letters and
unilateral administrative order. McGinnes further asserts that its
interpretation of “suit” dovetails with the Fifth Circuit’s broad interpretation
of “damages” in CGL policies governed by Texas law. 23 McGinnes also
contends that the majority of other jurisdictions have interpreted “suit”
broadly to cover EPA actions like the ones here.
Travelers emphasizes that Texas contract law requires interpreting
contracts consistent with the circumstances and law existing when the
contract was entered. 24 In the time frame in which the CGL policies were
issued, Travelers asserts, the Supreme Court of Texas and Texas courts of
appeal defined “suit” as a proceeding in a court of justice. Travelers also
contends that construing the word “suit” broadly would render the term “claim”
in the policy meaningless. 25 Travelers adds that a broad definition of “suit”
21 See, e.g., III WEBSTER’S THIRD NEW INTERNATIONAL DICTIONARY OF THE ENGLISH
LANGUAGE 2286 (1966) (defining “suit” as, among other things, “the attempt to gain an end
by legal process: prosecution of right before any tribunal: LITIGATION”).
22See Gilbert Tex. Constr., L.P. v. Underwriters at Lloyd’s London, 327 S.W.3d 118, 133 (Tex.
2010).
23See, e.g., SnyderGeneral Corp. v. Century Indem. Co., 113 F.3d 536, 538-39 (5th Cir. 1997)
(holding that, for purposes of an indemnity provision in a CGL policy, the term “damages”
covered the payment of environmental cleanup costs even when incurred voluntarily by the
insured and not as a result of a court order).
24 See Associated Indem. Corp. v. CAT Contracting, Inc., 964 S.W.2d 276, 285 (Tex. 1998)
(stating that Texas law presumes parties intend to define terms how Texas decisions have
interpreted them); Coker v. Coker, 650 S.W.2d 391, 394 (Tex. 1983) (“Whether a contract is
ambiguous is a question of law for the court to decide by looking at the contract as a whole in
light of the circumstances present when [it] was entered.”).
25 See, e.g., Foster-Gardner, Inc. v. Nat’l Union Fire Ins. Co., 959 P.2d 265, 280-81 (Cal. 1998)
(“[T]he policies do not treat the terms ‘suit’ and ‘claim’ as interchangeable, but consistently
treat them separately. . . . This careful separation indicates that the insurers’ differing rights
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violates the eight-corners rule, which provides that “the duty to defend is
determined by the claims alleged in the petition and the coverage provided in
the policy.” 26 According to Travelers, if the term “suit” can refer to the PRP
letters and the administrative order, the eight-corners rule cannot be applied
since four of the eight corners—i.e., the petition or complaint—are missing.
Travelers also criticizes cases from other jurisdictions that adopt a broad
definition of “suit” for not adhering to the plain, ordinary meaning of the
contract terms. 27 Travelers argues that the better-reasoned decisions are from
states interpreting “suit” narrowly.
In short, this action presents an unsettled question of Texas law. No
Texas appellate case has addressed the issue, the parties each make
reasonable arguments in support of their position, and other courts considering
the issue have not come to a consensus. In light of all of this, we respectfully
submit that this issue should be decided by the Supreme Court of Texas.
IV. Question Certified
We hereby certify the following question of law to the Supreme Court of
Texas :
Whether the EPA’s PRP letters and/or unilateral administrative order,
issued pursuant to CERCLA, constitute a “suit” within the meaning of
the CGL policies, triggering the duty to defend.
and obligations with respect to ‘suit[s]’ and ‘claim[s]’ were deliberately and intentionally
articulated in the policies.”).
26See Pine Oak Builders, Inc. v. Great Am. Lloyds Ins. Co., 279 S.W.3d 650, 654 (Tex. 2009)
(emphasis added); see also Foster-Gardner, Inc., 959 P.2d at 281 (“[I]t is because the insurer’s
duty to defend depends on the allegations in the complaint that the insurer may or may not
owe a duty to defend those allegations.”) (emphasis in original).
27See Gilbert Tex. Constr., L.P., 327 S.W.3d at 126 (holding that an insurance “policy’s terms
are given their ordinary and generally-accepted meaning unless the policy shows the words
were meant in a technical or different sense”).
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We disclaim any intention or desire that the Supreme Court of Texas confine
its reply to the precise form or scope of the question certified.
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