Michigan Millers Mutual Insurance v. Bronson Plating Co.

519 N.W.2d 864, 445 Mich. 558

• Court: Michigan Supreme Court
• Decided: July 12, 1994
• Docket: 95639, (Calendar No. 17)
• Status: Published

Opinions

Mallett, J.

Defendants appeal the Court of Appeals determination that defendants’ duty to defend was triggered by plaintiff Bronson Plating Company’s receipt of a letter from the United States Environmental Protection Agency, informing Bronson of its potential liability at the contaminated North Bronson Industrial Area site. Defendants argue that receipt of the notice did not give rise to a duty to defend because the letter did not signal the initiation of a "suit” within the meaning of the subject insurance policies.

We find that the term "suit,” as used in the insurance policies at issue, is ambiguous and capable of application to legal actions, other than court proceedings, that are the functional equivalent of a suit brought in a court of law. We further hold that the notice of potential liability received by Bronson in this instance, signaled the initiation of a legal proceeding that was the functional equivalent of a traditional court action, and thereby triggered the insurers’ duty to defend. We affirm.

i

The pertinent facts of this declaratory judgment action are not in dispute. Since the 1940s, the Bronson Plating Company has engaged in the electroplating of various metal parts at its facility at the North Bronson Industrial Area in Bronson, Michigan. In its electroplating process, Bronson has utilized a variety of chemicals and compounds, including nickel, nickel-chrome, lead, caustic soda, sulfuric acid, and hydrochloric acid. The process involved the release of large quantities of waste water, and this waste was identified by the epa and the Michigan Department of Natural Resources as a possible source of environmental contamination of the North Bronson Industrial Area.

Bronson had purchased comprehensive general liability insurance from Michigan Millers Mutual Insurance Company, and three of its policies were in effect consecutively from January 1970 through January 1977. Each of these policies provided that the insurance company shall have the "duty to defend any suit against the insured seeking damages on account of . . . bodily injury or property damage”¹ (emphasis added). In addition to its insurance contracts with Michigan Millers, Bronson was insured under several primary and umbrella/ excess policies issued by other insurance companies,² each of which contained similar language with respect to the insurer’s duty to defend.

In April 1986, the epa, acting under the Comprehensive Environmental Response, Compensation and Liability Act (cercla),³ notified Bronson by letter that it may be liable for contamination of the North Bronson Industrial Area (the "site”). This communication, frequently referred to as a "potentially responsible party” (prp) letter, advised Bronson that the epa had "documented the release ... of hazardous substances ... at the . . . site, and is planning to spend public funds to control and investigate these releases.” In its prp letter, the epa, inter alia, requested Bronson’s voluntary participation in connection with certain studies, and cautioned that Bronson’s failure to do so could result in it being held jointly and severally liable for any costs that were expended. Pursuant to its letter, the epa also demanded that Bronson supply relevant information, it encouraged good-faith negotiations between Bronson and the agency and with other potentially responsible parties, and it explained that failure to comply "may result in a civil enforcement action being brought against you by epa.”

Although the prp letter to Bronson was not issued until April 1986, Bronson began notifying its insurers in November 1985 that the epa considered it to be a possible source of groundwater contamination at the site.⁴ Bronson’s letter to Michigan Millers was dated March 21, 1986, and demanded

pursuant to the terms of any applicable policies of insurance issued by you, . . . that you undertake your responsibility to defend, indemnify and hold Bronson Plating harmless from and against any and all damages ... or any liability . . . arising out of the listing of the North Bronson Industrial Area on the npl by [the] epa ....

While the other insurers declined to do so, Michigan Millers agreed to provide a defense for Bronson, subject, however, to a reservation of its rights. Michigan Millers then commenced the instant declaratory judgment action, seeking a judicial determination, inter alia, that it was not obligated to defend Bronson because no "suit” had been commenced. Bronson filed a counterclaim and joined the other named insurance companies as counterdefendants. In its countercomplaint, Bronson sought a declaration that its insurers had a duty both to defend and indemnify Bronson.

The trial court then considered cross-motions for summary disposition and, addressing only the duty to defend issue, ruled that the insurers had no obligation under the insurance policies to provide a defense "in the absence of a complaint filed in a Court against Bronson by the epa or the dnr.”

Thereafter, a divided panel of the Court of Appeals reversed.⁵ The panel majority registered its agreement with the reasoning and result in Polkow v Citizens Ins Co of America, 180 Mich App 651; 447 NW2d 853 (1989), rev’d on other grounds 438 Mich 174; 476 NW2d 382 (1991),⁶ and declared: "[W]e hold in this case . . . that a 'suit’ has been brought.” 197 Mich App 482, 491; 496 NW2d 373 (1992) .

We then granted leave to appeal, limited to the question whether the epa letter notifying Bronson of its potential liability for alleged environmental contamination constitutes a "suit” that gives rise to the insurers’ duty to defend under the terms of the applicable insurance contracts.⁷ 443 Mich 880 (1993) .

II

Defendants argue that the prp letter received by Bronson did not constitute the initiation of a "suit,” triggering their duty to defend. To resolve defendants’ claim, we must first determine whether "suit,” as used in the subject insurance policies, is an ambiguous term admitting of more than one construction, i.e., whether the term may refer to some legal action other than a court proceeding initiated by a complaint. Second, if the term is ambiguous and capable of broader definition, whether it may reasonably be understood to encompass the prp letter received by Bronson.

A

When interpreting insurance policies under Michigan law, we are guided by a number of well-established principles of construction. Foremost among those is the maxim that an insurance policy must be enforced in accordance with its terms. Upjohn Co v New Hampshire Ins Co, 438 Mich 197, 207; 476 NW2d 392 (1991). A court may not read ambiguities into a policy where none exist. Auto-Owners Ins Co v Churchman, 440 Mich 560, 567; 489 NW2d 431 (1992).

Although the term "suit” was not defined within the relevant insurance policies, that fact, alone, is not conclusive evidence that ambiguity exists. Group Ins Co of Michigan v Czopek, 440 Mich 590, 596; 489 NW2d 444 (1992). Rather, where no definition is provided, the court must interpret the term according to its "commonly used meaning,” id., taking into account the reasonable expectations of the parties. Vanguard Ins Co v Clarke, 438 Mich 463, 472; 475 NW2d 48 (1991). Where ambiguity is found, the court must construe the term in the manner most favorable to the insured. Auto Club Ins Ass’n v DeLaGarza, 433 Mich 208, 214; 444 NW2d 803 (1989).

There is a division of opinion, both within Michigan and among other jurisdictions, regarding the definition of the term "suit,” and its application to nontraditional legal proceedings.⁸ Some courts have found that "suit” must refer unambiguously to a court proceeding initiated by a complaint, while others hold that the term may also encompass some nonjudicial proceedings.

In determining what a typical layperson would understand a particular term to mean, it is customary to turn to dictionary definitions. Having, canvassed a number of lay dictionaries, we note that most definitions of "suit” do include a reference to some type of court proceeding, e.g., "the act, the process, or an instance of suing in a court of law.” The Random House Dictionary of the English Language (1987). Nevertheless, "suit” is not defined exclusively in those terms. For instance, Webster’s New World Dictionary of the American Language (2d college ed, 1982), provides the alternative definition, "attempt to recover a right or claim through legal action,” while Webster’s Third New International Dictionary of the English Language (1964), defines suit as "the attempt to gain an end by legal process: prosecution of a right before any tribunal.”

The existence of these alternative and more general definitions of a "suit” persuasively suggests that a typical layperson might reasonably expect the term to apply to legal proceedings other than a court action initiated by a complaint. Morrisville Water & Light Dep’t v United States Fidelity & Guaranty Co, 775 F Supp 718, 731-732 (D Vt, 1991). Where the insurers fail to provide otherwise, that commonly understood meaning must prevail.

Furthermore, defendants’ suggestion that this Court has previously limited application of the term "suit” to court proceedings is unconvincing. The only Michigan Supreme Court case law interpreting the term in the context of triggering an insurer’s duty to defend is inconclusive with regard to the case before us.

In Patterson v Standard Accident Ins Co, 178 Mich 288; 144 NW 491 (1913), this Court addressed the question whether a criminal prosecution constitutes a "suit” against which an insurer is obliged to defend. In its opinion, the Patterson Court explored the definition of "suit,” observing as follows:

It must be conceded that the word "suit,” as applied to legal controversies, both by the legal profession and others, is now used and recognized as a generic term of broad significance, often understood and used, even by legislatures and courts, to designate almost any proceeding in a court, even, though rarely, being applied to a criminal prosecution in certain connections, [id. at 292. Emphasis added.]

Despite this observation, focusing on the use of the term with regard to court actions, when the Court proceeded to set forth a definition of "suit,” it did so more broadly, stating:

"Suit,” in its general unqualified use in legal documents, such as the one before us, naturally means, and should be construed as intended to include, the mode or manner authorized and adopted by law to redress civil injuries. [Id. Emphasis added.]

On this basis, the Patterson Court determined that criminal prosecutions were not covered.

The Patterson discussion fails to definitively endorse or reject the application of the term "suit” to nonjudicial proceedings. However, by defining "suit” broadly as the "mode or manner authorized and adopted by law to redress civil injuries,” the Court certainly left open the possibility that proceedings occurring outside the courtroom could be encompassed. Accordingly, defendants’ reliance upon Patterson is misplaced.⁹

We also note that a broader definition of the term "suit” reflects more accurately the modern realities of our legal system. As the legal community and state and federal legislatures struggle to relieve the ever-increasing burdens on our courts and the constantly rising costs of litigation, a gravitation is evident toward less formal and more expeditious means of dispute resolution. This movement has manifested itself in the growing use of arbitration, as well as increased authority given to administrative agencies to resolve disputes, so that the functional equivalents of suits brought in a court of law have developed.¹⁰ As is discussed in more detail below, this point is particularly valid in the context of cercla actions, where the Legislature has deliberately and painstakingly developed a system in which a prp has every incentive to "voluntarily” cooperate with the epa, before actual litigation,¹¹ and where significant legal prejudice may develop if the prp fails to do so.¹²

Therefore, we find the term "suit” as used in the insurance policies at issue, to be ambiguous and capable of application to legal proceedings initiated in other than a traditional court setting.

B

Having determined that the term "suit” is capable of application to nonjudicial legal proceedings, we must next determine whether the prp letter received by Bronson did, in fact, constitute the initiation of a suit under the subject insurance policies. Once again, the jurisdictions are split on this issue.

Some courts have found that a typical prp letter from the epa constitutes the initiation of a suit, thereby giving rise to the duty to defend. Those courts have emphasized the particular nature of CERCLA-related actions, and the unique authority given to the epa to develop an essentially binding record and to design and implement actions that the prps may later be held liable for. See, e.g., Coakley v Maine Bonding & Casualty Co, 136 NH 402, 416-419; 618 A2d 777 (1992); Hazen Paper Co v United States Fidelity & Guaranty Co, 407 Mass 689, 696-699; 555 NE2d 576 (1990).

In contrast, other jurisdictions have declined to impose a duty to defend absent a more definitive and directive epa action, e.g., an order to undertake site investigation or cleanup. Those courts have tended to focus on the "voluntary” participation sought by the epa, as well as the lack of certainty that litigation would ensue if the prp failed to comply. See, e.g., Ryan v Royal Ins Co of America, 916 F2d 731, 741 (CA 1, 1990); Avondale Industries, Inc v Travelers Indemnity Co, 887 F2d 1200, 1206 (CA 2, 1989), cert den 496 US 906 (1990).

In determining whether a "suit” was initiated in the present case, we must examine the contents of the prp letter received by Bronson. In pertinent part, that letter informed Bronson that the epa had identified it as a potentially responsible party for contamination at the North Bronson Industrial Area. Barring an immediate offer from any of the prps to conduct a remedial investigation and feasibility study (ri/fs), the epa would undertake to complete one. If the epa did so, under the terms of 42 USC 9607(a), Bronson could be held jointly and severally liable for "all costs associated with the removal or remedial action and all other necessary costs incurred in cleaning up the site, including investigation, planning and enforcement.” Further, the epa required Bronson to submit documentation regarding any waste it had released onto the site. Failure to comply with this demand could result in civil action and fines.

Taking into account the various components of this prp letter and its ramifications, we find that the legal proceeding initiated by the receipt of that notice is the functional equivalent of a suit brought in a court of law.¹³ Of critical importance is the creation of the administrative record and the role it may play in future litigation. Documentation sought by the epa, and which Bronson must produce under the force of law, will determine the amount and type of waste generated by Bronson and discharged onto the site. Given the strict liability stance of cercla, this information is all that is needed to establish both the fact and proportional share of Bronson’s liability at the site.¹⁴

Moreover, because the epa may implement any investigatory and remedial action it deems necessary at the site, subject only to an abuse of discretion review,¹⁵ the total cost of the project will also be determined before litigation is brought. The significant authority given to the epa in such matters allows it essentially to usurp the traditional role of a court of law in determining and apportioning liability. Such matters are concluded by the epa before the action is ever brought to court.¹⁶

The epa’s powers may also be viewed as coercing the "voluntary” participation of prps. The entire cercla scheme revolves around "encouraging” prps to engage in voluntary cleanups. Only in so doing may a prp have a voice in developing the record that will be used against it and in determining the amount of its liability through selection of investigatory and remedial methods and procedures. The significance of these incentives is underscored by the fact that EPA-conducted cercla actions have historically been considerably and, some would suggest, needlessly more expensive than those actions conducted by prp groups.¹⁷

Finally, we note, from a policy perspective, that the position urged by defendants would only increase the litigiousness of this already extensively litigated area of the law. Limiting an insurer’s duty to defend to an actual court proceeding preceded by a complaint would merely encourage prps to decline "voluntary” involvement in site cleanups, waiting instead for an actual lawsuit to be brought in order to receive insurance coverage. This would have the effect of substantially protracting the cleanup of contaminated sites.

iii

We find that the term "suit,” as used in the insurance policies at issue, is ambiguous and capable of application to nontraditional legal actions that are the functional equivalent of a suit brought in a court of law. We further hold that, under this definition, the prp letter received by Bronson constituted the initiation of a "suit” that the insurers were obliged to defend under the terms of their insurance policies.

We affirm.

Cavanagh, C.J., and Levin and Boyle, JJ., concurred with Mallett, J._

1 Each of the policies contained the following provision:

I. COVERAGE A — BODILY INJURY LIABILITY

COVERAGE B — PROPERTY DAMAGE LIABILITY

The Company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of

A. bodily injury or

b. property damage

to which this insurance applies, caused by an occurrence, and 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, but the company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the company’s liability has been exhausted by payment of judgments or settlements.

2 The other insurers, which were joined in this action as counter-defendants, are: Federal Insurance Company, one of the Chubb Group of Insurance Companies, Auto-Owners Insurance Company, Commercial Union Insurance Company, Great Southwest Fire Insurance Company (now known as VanLiner Insurance Company), Hartford Accident & Indemnity Company, Indiana Insurance Company, Indiana Lumbermens Mutual Insurance Company, Liberty Mutual Insurance Company, and Hamilton Mutual Insurance Company. Except where otherwise indicated, we refer collectively to Michigan Millers and the counterdefendant insurance companies as the "insurers.”

3 42 USC 9601 et seq.

4 In October 1984, the epa had proposed that the site be placed on the National Priorities List (npl), under § 105 of cercla, and the listing became final in June 1986. The npl is a prioritization of contaminated sites compiled and updated annually by the epa. 42 USC 9605(a)(8)(B). A contaminated site must be included on the npl if the epa intends to use public cercla funds (the superfund) to finance remedial action in connection with the site. 40 CFR 300.425. The North Bronson Industrial Area was also placed on the Priority List of Contaminated Sites by the dnr pursuant to the Michigan Environmental Response Act, 1982 PA 307, as amended. MCL 299.601 et seq.; MSA 13.32(1) et seq.

5 Judge Reilly dissented, stating that she would "adopt the reasoning of City of Evart v Home Ins Co, unpublished opinion per curiam of the Court of Appeals, decided April 10, 1989 (Docket No. 103621), and Ray Industries, Inc v Liberty Mutual Ins Co, 974 F2d 754 (CA 6, 1992), and affirm the trial court’s order granting summary disposition.” 197 Mich App 482, 496; 496 NW2d 373 (1992).

6 The panel majority quoted with approval this sentence from the Polkow opinion:

In our view, subjecting the insured to administrative mechanisms mandating an environmental investigation and cleanup, backed by the power to expose the insured to a money judgment in a court of law, amounts to a "suit” for the purposes of invoking the coverage of the policy. [180 Mich App 657.]

7 The issue whether costs incurred by an insured in response to a letter from an environmental regulatory agency are “damages on account of . . . property damage” has been the subject of extensive litigation. See, e.g., United States Aviex Co v Travelers Ins Co, 125 Mich App 579; 336 NW2d 838 (1983). See, generally, Cordes, Who gets the bill? Determining insurers’ duty to defend and indemnify against hazardous waste clean-up costs under general liability policies, 18 Envtl L 931 (1988). In light of the limitations imposed by the grant order, we do not address that issue.

8 Some courts have found this division of authority to be, itself, conclusive evidence that ambiguity exists. See, generally, anno: Division of opinion among judges on same court or among other courts or jurisdictions considering same question, as evidence that particular clause of insurance policy is ambiguous, 4 ALR4th 1253. We do not adopt that view. Nevertheless, we do find the division of authority to be instructive and to at least lend credence to the position that more than one reasonable interpretation of the term exists. C & J Commercial Driveway, Inc v Fidelity & Guaranty Fire Corp, 258 Mich 624, 629; 242 NW 789 (1932) (A split of authority demonstrates "at least that [the term] is of doubtful meaning and requires construction”).

9 We disagree with the dissent’s suggestion that Patterson must be read to implicitly limit application of the term to traditional court proceedings. Post at 595-596 ("while resolving the issue of the type of court proceedings contemplated by the term 'suit’ in the particular contract, the Patterson Court necessarily found that the commencement of court proceedings is indispensable to the existence of a 'suit’ ”). A finding that "suit” refers exclusively to court proceedings was not indicated by the Court’s reasoning in that case. Because only judicial proceedings were at issue, application of the term to nonjudicial proceedings was neither necessary nor relevant to the Court’s discussion. Therefore, the Court’s failure to discuss the term in the context of nonjudicial proceedings should not be read to suggest that an implicit limitation was intended.

10 Even outside the environmental arena, courts have defined the term "suit” broadly and found it to encompass arbitration, Madawick Contracting Co v Travelers Ins Co, 307 NY 111, 117-119; 120 NE2d 520 (1954), and administrative proceedings. Solo Cup Co v Federal Ins Co, 619 F2d 1178, 1188, n 7 (CA 7, 1980), cert den 449 US 1033 (1980); Campbell Soup Co v Liberty Mutual Ins Co, 239 NJ Super 488, 496-499; 571 A2d 1013 (1988), aff’d 239 NJ Super 403; 571 A2d 969 (1990); School Dist No 1, Multnomah Co v Mission Ins Co, 58 Or App 692, 703-704; 650 P2d 929 (1982); Community Unit School Dist No 5 v County Mutual Ins Co, 95 Ill App 3d 272, 278-279; 50 Ill Dec 808; 419 NE2d 1257 (1981).

11 There is no question that prps, as well as the government, could benefit from less litigation in this area. The transaction costs related to ameliorating a cercla site can be staggering. In a recently published study, the experiences of 108 prps at eighteen superfund sites were examined. It was concluded that those prps spent an average of $1.24 million on site-related costs between 1981 and 1991. Of that amount, some twenty-one percent, or $260,000 per prp was spent on transaction costs, primarily legal fees. Dixon, Drezner & Hammitt, Private-sector cleanup expenditures and transaction costs at 18 super-fund sites (RAND, 1993).

12 See, generally, note, The best equitable defense is a good offense, 29 Nat Resources J 849 (1989).

13 In making this determination, we are cognizant of the concern raised by the insurers that a decision in plaintiff’s favor might blur the distinction between "claim” and "suit” evidenced in their insurance policies. While the policies reserve for the insurer the right to investigate any "claim,” the insurers’ duty to defend extends only to a "suit.” In response to this concern, we wish to emphasize that this opinion should in no way be viewed as intimating that every request for relief should be considered the initiation of a suit that the insurers are obliged to defend. Rather, our determination on this issue is made primarily based on the unique aspects of cercla actions and the authority given to epa under the statute. As explained by the Ninth Circuit Court of Appeals in Aetna Casualty & Surety Co, Inc v Pintlar Corp, 948 F2d 1507, 1516-1517 (CA 9, 1991):

Unlike the garden variety demand letter, which only exposes one to a potential threat of future litigation, a prp notice carries with it immediate and severe implications. Generally, a party asserting a claim can do nothing between the occurrence of the tort and the filing of the complaint that can adversely affect the insureds’ rights. However, in a cercla case, the prp’s substantive rights and ultimate liability are affected from the start of the administrative process. Avondale Industries, Inc v Travelers Indem Co, 697 F Supp 1314, 1321 (SD NY, 1988) ("Adverse consequences can befall an insured during the administrative pollution cleanup process”), aff’d 887 F2d 1200 (CA 2, 1989).

Accordingly, we do not disturb the basic claim/suit distinction contained within the subject insurance policies.

14 42 USC 9607(a). Defenses to cercla liability are virtually nonexistent. 42 USC 9607(b).

15 42 USC 9613(j)(2) provides that the government’s selection of a response action will be upheld "unless the objecting party can demonstrate, on the administrative record, that the decision was arbitrary and capricious or otherwise not in accordance with law.”

16 See, e.g., Coakley, supra at 418 ("One would not expect a traditional tort defendant to concede the 'damages’ portion of a case, and it likewise would be myopic to conclude that the Coakleys’ rights are not substantially determined by the administrative process described in the prp notice”), citing Hazen Paper Co, supra at 695-697.

17 Anderson, Negotiation and informal agency action: The case of superfund, 1985 Duke L J 261, 302 (1985) ("epa assessment and cleanup costs might average thirty to forty percent more than equivalent private cleanups”); Babich, Understanding the new era in environmental law, 41 SC L R 733, 760, n 118 (1990) (" '[T]he government may spend from 100 percent to 500 percent more than a private client would spend to accomplish essentially the same site study or cleanup’ ”), quoting Lee, EPA response action: Contracting and cost recovery under CERCLA, 4 Toxics L Rep 216, 219, n 41 (1989).