Texas Supreme Court Holds that EPA Proceedings Constitute “Suit”

In McGinnes Industrial Maintenance Corp., v. The Phoenix Ins. Co., the Texas Supreme Court answered a certified question from the Fifth Circuit on whether a U.S. Environmental Protection Agency proceeding against an alleged polluter constitutes a suit under an insurance policy, warranting defense coverage. In a 5-4 decision, the Texas court determined that the EPA proceedings constitute suits against and found that the insured could now pursue claims against the insurers for defense costs.

The policyholder sought a ruling allowing it to go after its insurance companies for more than $2 million it expended in defense costs and fines related to EPA proceedings over the policyholder’s dumping of dioxin into pits near the San Jacinto River in 1965 and 1966. The policies did not contain pollution exclusions, but only provided defense costs for suits against the insureds.

The policyholder argued that the EPA proceedings were the equivalent of suits. The court agreed and even took the policyholder’s argument a step further, stating that the EPA proceedings are not the functional equivalent of suits, but are actual suits, only conducted outside a court room. The court based this on the history of EPA suits and the effect of laws that went through in the 1980s.

There was a vehement dissent from 4 of the justices, stating that the court was redefining the word suit, and going against the court’s commitment to enforcing contracts by interpreting them according to the plain language of the contract itself.

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