Griffin Case Allows the Recovery of Pre-Tender Environmental Cleanup Costs
By Christopher R. Hermann
The recent decision in Griffin v. Allstate Ins. Co. represents a significant development in the field of environmental insurance recovery. The Griffin court made clear that policyholders can claim coverage for costs incurred in environmental investigation and cleanup before notice was sent to the carrier, so long as the insurer has not suffered prejudice due to the delay (a substantial burden that the insurer would have to prove). For decades, insurers have vigorously resisted payment of pre-tender costs under commercial liability policies, and in courts of the Northwest they have been extremely successful in doing so. In addition, although Griffin is a Washington case, it offers a significant new opportunity to recover insurance funds in at least three cases: (1) the claim involves an Oregon site, but can be made under a policy issued to a parent, subsidiary or affiliate in Washington, (2) an Oregon company is a PLP at a Washington site, or (3) a Washington company whose Oregon facility has potential environmental liability. At a minimum, all Oregon-based companies should be aware of the decision and its potential use in pursuing claims to recover pre-tender defense costs at Oregon sites, as well as its potential to influence in the development of Oregon law on this issue.
In August 2001, the Washington Court of Appeals concluded that an insurance company’s duty to defend a policyholder includes pre-tender costs. Griffin v. Allstate Ins. Co., 108 Wash. App. 133, 29 P.3d 777, 779 (2001). Because the duty to defend in Washington generally includes funds spent on environmental investigation and remediation, Griffin significantly expands the amount of funds that companies can recover under their comprehensive general liability policies.
In Griffin, the policyholders were sued for depositing fill in a stream and thereby threatening their neighbor’s water supply and rendering their property unusable for certain purposes. Id. at 780. The policyholders hired a lawyer, who had the suit dismissed for defective service. Id. Soon thereafter, the neighbors refiled the complaint, at which point the policyholders tendered the claim. Id. at 781. In reaching its holding and awarding the policyholders their pre-tender costs, the court reasoned that such costs would not be allowed if the insurer could show that it suffered actual and substantial prejudice as a result of the costs being incurred before tender. Id. at 782. However, in this case, the insurer did not succeed in overcoming that difficult burden.
Griffin therefore represents a tremendous opportunity for recovery of environmental cleanup costs. Environmental claims against businesses and individuals under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") and similar state statutes routinely total hundreds of thousands of dollars, and often millions. A company’s CGL policy may contain enough coverage to offset all or part of those costs. However, many entities are not aware of this potential source of funds when they begin environmental investigation and remediation. Consequently, many businesses have already lost thousands of dollars of potential coverage by the time they tender the claim. Now, though, Griffin provides those businesses with a chance to look back at their pre-tender costs and make a claim.
Although Griffin is the holding of a Washington court, it will be helpful to Oregon businesses, too. For example, Griffin will be immediately applicable to a Washington company that does business in Oregon or that has an Oregon subsidiary and operates on a contaminated site in Oregon. It will also present a direct application to an Oregon company with a claim under a Washington policy or an Oregon company whose Washington facility has potential environmental liability. Under Washington law, the law of the state with the most significant relationship to the insurance contract will apply. That relationship is determined by the parties’ expectations of which law would apply, as determined through the nature and quality of their contacts with each state at the time of contracting. Dairyland Insurance Co. v. State Farm Mutual Automobile Insurance Co., 701 P.2d 806, 808, 41 Wash. App. 26 (1985). Whether or not Griffin will apply in Oregon will therefore depend upon the unique facts of each individual case.
Even beyond the immediate, direct application to cases with a Washington nexus, Griffin will be persuasive authority on this issue in Oregon because Oregon courts have never reached the issue. Although an insurance company may cite Oregon Ins. Guar. Ass'n v. Thompson, 93 Or. App. 5, 760 P.2d 890 (1988) for the proposition that Oregon law precludes the recovery of pre-tender costs, the facts of Thompson are distinguishable from Griffin. In Thompson, the policyholder never tendered sufficient notice of the claim to the insurer. Id. at 894. The court held that such lack of sufficient notice made the issue of prejudice "irrelevant," and consequently found no duty to defend. Id. Therefore, the Thompson court did not have the opportunity, as did the Griffin court, to venture beyond a finding of adequate notice and decide whether the insurer was prejudiced by untimely notice. The facts of Griffin, or a similarly situated case, would therefore be an matter of first impression in Oregon. Finally, it is worth noting that as in Washington, Oregon courts are generally very policyholder friendly, and for this reason may be open to adopting the reasoning and holding of Griffin.
For Additional Information, Contact: Christopher R. Hermann, Stoel Rives LLP, 503-294-9236. Mr.Hermann is a partner in the Environmental and Natural Resources Practice Group in the Portland, Oregon, and Seattle, Washington, offices of Stoel Rives LLP. Mr.Hermann represents policyholders in environmental law and litigation matters and in obtaining coverage for environmental liability insurance claims. Mr. Hermann is an Adjunct Professor of Law at the Northwestern School of Law, Lewis and Clark and teaches a seminar on Environmental Liability Insurance Coverage. Paul Logan is an associate in the Environmental and Natural Resources Practice Group in the Portland, Oregon, office of Stoel Rives LLP.