In a decision that could have implications for the cleanup of polluted industrial sites, the Second District Court of Appeal has ruled that an oil company's insurer has no responsibility to pay for state-mandated remediation. In a 2-1 ruling, the court held that the insurer's promise to defend a "suit" did not force the insurer to defend an administrative proceeding. Furthermore, the court said, the insurer must pay only court-ordered damages, and not fines coerced by an administrative agency. In a dissent, Justice Richard Aldrich wrote that the majority ruling "frustrates the legislative purpose behind the administrative procedure to effect speedy, efficient response and remediation of our environment." The case arose because of pollution at refineries operated by Powerine Oil Company. During its peak, Powerine operated numerous Southern California facilities, including its original Santa Fe Springs refinery opened during the 1930s. By the mid-1980s, however, a poor petroleum market had forced Powerine into bankruptcy and the only facility still operating was the company's Santa Fe Springs refinery. In 1985, the Los Angeles Regional Water Quality Control Board issued a cleanup and abatement order for the Santa Fe Springs facility because leaking jet fuel, gasoline and other petroleum products had contaminated the soil and groundwater. In later years, the San Diego Regional Water Quality Control Board ordered cleanup of Powerine's former San Diego storage facility, and the Los Angeles board issued another order to clean up pollution. In total, the water boards cracked down on 10 Powerine sites. Also, the federal Environmental Protection Agency named Powerine as a potential responsible party (PRP) for the cleanup of hazardous waste dumps in Santa Fe Springs and Monterey Park, both of which had accepted materials from Powerine. The company, which conceded at least some responsibility for the pollution, turned to its several insurers for help in defending the administrative actions. However, the insurance companies, with one exception, denied coverage. One of the insurers sued to get a declaratory judgement regarding the coverage issue. Powerine counter-sued all of its insurers and won a portion of its suit at the trial court level. On appeal, the insurance companies relied heavily on a decision made last year by the California Supreme Court in Foster-Gardner, Inc. v. National Union Fire Ins. Co., (1998) 18 Cal.4th 857 (mod. at 19 Cal.4th 253). The court ruled in that case — involving an insurer's duty to defend during an environmental compliance administrative process — that the "unambiguous language of the policies obligated the insurers to defend a ‘suit,' not … the ‘substantive equivalent' of a suit." The insurance companies' argument persuaded the majority on the Second District, Division Three bench. The appellate court said that the Foster-Gardner decision was based on a literal interpretation of contract language — not a functional interpretation. Further, the Foster-Gardner decision provided a "bright-line" rule that limits an insurance company's obligations, Justice Walter Croskey wrote in his opinion. Because Powerine chose to comply with the cleanup orders, no court order — for which the insurer would be responsible — existed. Croskey quoted from a similar Illinois case, Zurich Ins. Co. v. Carus Corp., 293, Ill.App.3d 906: "The rule … is clear: an insurer's duty to defend and indemnify is triggered by a suit against the insured, and in the absence of a lawsuit, no such duty exists. Since no suit was brought against [the insured], the insurers had no duty to defend or indemnify." But in the dissent, Aldrich said the literal interpretation was improper, and he called the majority decision "shortsighted." He argued that the costs of complying with the government's remediation orders qualified as "damages" that the insurers had a duty to indemnify. The difference had to do with the method the government used to enforce cleanup requirements, and "our Supreme Court has repeatedly rejected a construction in which coverage turns on the form of action taken against the insured," he wrote. The majority's ruling forces a polluter to ignore an agency's cleanup orders and await an adverse court judgement from an agency-initiated lawsuit, Aldrich wrote. In that instance, the government would undertake the cleanup and give the bill to the polluter, which could be ruined by the expense of the cleanup and the penalties for violating cleanup orders. Plus, environmental remediation, the goal of the entire process, would be delayed. At the court's request, a number of parties submitted amicus briefs, including, on behalf of Powerine, the state Attorney General's Office and the Port of Oakland. The Case: Certain Underwriters at Lloyd's London v. Superior Court, No. B129909, 99 C.D.O.S. 8564, 1999 Daily Journal D.A.R. 10929, filed October 25, 1999. The Lawyers: For Lloyd's: Patrick Cathcart, Hancock, Rothert & Bunshoft, (213) 623-7777. For Powerine: David Isola and Aaron Bowers, Isola & Bowers, (209) 367-7055.