Ninth Circuit: Insurers Had No Obligation to Defend Lawsuit Based on Previous Tender of Potential Administrative Proceeding

February 21, 2017 | Insurance Coverage

The U.S. Court of Appeals for the Ninth Circuit has ruled that an insured’s failure to tender an environmental lawsuit to three insurance companies was fatal to its coverage claim, even though the insured previously had tendered a potential administrative proceeding to the carriers.

The Case

M.B.L., Inc., a defunct dry cleaning products company, sued three insurance companies for defense of an environmental lawsuit.

The U.S. District Court for the Central District of California held that the insurers did not have a duty to defend M.B.L. in the lawsuit.

M.B.L. appealed to the Ninth Circuit, maintaining that its failure to tender the lawsuit to the insurers was not fatal to its coverage claim because they had constructive knowledge of the lawsuit due to M.B.L.’s previous tender of a potential administrative proceeding, and due to correspondence from a different insurance company to these three insurers.

The Ninth Circuit’s Decision

The Ninth Circuit affirmed.

In its decision, the circuit court explained that M.B.L.’s insurance policies with the three insurers imposed a duty to defend only “suits” against M.B.L.

That policy language limited the three insurers’ duty to defend to “a civil action prosecuted in a court.” A proceeding conducted before an administrative agency pursuant to an environmental statute was not a “suit” within the meaning of the policies, the circuit court said. Therefore, it found, M.B.L.’s tender of the pending agency proceeding had not triggered a duty to defend.

The Ninth Circuit also rejected M.B.L.’s constructive notice argument. It reasoned that the three insurers’ duty to defend M.B.L. could be triggered “only by a tender of the environmental lawsuit” to them.

The case is M.B.L., Inc. v. Federal Ins. Co., No. 14-56107 (9th Cir. Jan. 13, 2017).

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  • Robert Tugander

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