McGinnis Industrial Maintenance Corp. v. The Phoenix Insurance Co.
Supreme Court of Texas, No. 14-0465 (June 26, 2015)
Opinion by Chief Justice Hecht; Dissent by Justice Boyd
A sharply divided Texas Supreme Court, answering a question certified by the Fifth Circuit, held non-judicial EPA enforcement proceedings under CERCLA are “suits” that must be defended by liability insurers under policies issued before the statute was enacted. Chief Justice Hecht, writing for the five-member majority, acknowledged the term “’suit’ commonly refers to a proceeding in court.” The Court found, however, “CERCLA effectively redefined” the term to make EPA proceedings to collect clean-up costs “the suit itself, only conducted outside a courtroom.” Justice Boyd, writing for the dissent, criticized the holding as essentially rewriting the policy.
The policies at issue were issued several years before CERCLA’s enactment in 1980, and before pollution exclusions were added to most liability policies. According to the majority, CERCLA replaced the previous “avenue of redress for pollution,” filing a lawsuit, by giving the EPA the power to act as tribunal. Under this scenario, “McGinnis’s rights under its policies should not be emasculated by the enactment of a statute not meant to affect insurance, but to streamline the EPA’s ability to clean up pollution.” As additional support for its conclusion, the majority noted that clean-up costs imposed by the EPA are generally considered “damages” under CGL policies, and denying insurers “the right and duty to defend those proceedings creates perverse incentives and consequences for insurers and insureds alike.” Finally, the majority observed that high courts in the great majority of states considering this issue (13 of 16), including every opinion since 1998, rejected the insurers’ position. Recognizing it could not achieve uniformity because the courts have already split, the Court joined the majority because “insureds in Texas should not be deprived the coverage insureds have in thirteen other states.”
Justice Boyd’s blistering dissent accused the Court of abandoning virtually every rule of construction applicable to contracts, including insurance policies. “Today the Court demonstrates that it can and will rewrite your insurance policy if it wants to.” According to the dissent, because “EPA letters and orders do not fall within the common, ordinary meaning of the term ‘suit,’ and the policies’ context does not in any way indicate the contrary, . . . that should end the matter.” Similarly, whether clean-up costs are “damages” concerns the duty to indemnify, and should have no bearing on the “distinct and separate” duty to defend. And, the dissent insisted, the desire for unattainable uniformity did not justify a result that “ignored the policy’s plain language.”
The authors of both opinions apparently believed the policy unambiguously supported their conflicting conclusions. Although Chief Justice Hecht did not say that, his opinion does not invoke the principle on which Justice Boyd recently relied in RSUI Indemnity Co. v. The Lynd Co.—that a court’s task “is to determine whether [the insured’s] construction of the . . . policy is reasonable,” in which case the court “must enforce that construction, even if [the insurer’s] construction is also reasonable.” Justices Willett and Devine, who joined Justice Boyd’s majority opinion in Lynd, joined Chief Justice Hecht’s majority opinion McGinnis.
