Quasi-Judicial Proceedings Before An Administrative Agency Board May Trigger A Duty To Defend Depending On The Definition Of "Suit"

Quasi-Judicial Proceedings Before An Administrative Agency Board May Trigger A Duty To Defend Depending On The Definition Of "Suit"

07.18.2007

In Ameron International Corporation v. Insurance Company of the State of Pennsylvania, 150 Cal.App.4th 1050 (May 15, 2007), the Court of Appeal examined whether proceedings before the U.S. Department of Interior Board of Contract Appeals ("IBCA") was a "suit" seeking "damages" triggering a duty to defend, where actions were initiated by the filing of a complaint, witnesses could be subpoenaed and cross-examined, rules of evidence applicable to non-jury trials applied, and money awards could be issued by the administrative law judge. The Court concluded the proceedings did not trigger a duty to defend under policies that did not define "suit," but did trigger a duty to defend under policies that defined "suit" as including more than civil actions in a court of law.

The case arose out of the Government's claim for defects in concrete siphons made by Ameron used in an aqueduct system. Pursuant to the terms of the construction contract, Ameron and the general contractor challenged the Government's decisions before the IBCA. After 22 days of trial, Ameron and the general contractor settled the Government's claims for $10 million. Except for one insurer, Ameron's insurers refused to pay the defense costs incurred in the proceedings or for Ameron's settlement.

Ameron then sued its numerous primary and excess/umbrella insurers. Some of the policies did not define either "suit" or "damages." Others defined "suit" to encompass more than court actions and did not exclude administrative proceedings or provided indemnity for "loss." The trial court ruled the insurers had no duty to defend or indemnify.

On appeal, the Court extensively reviewed the Supreme Court's decisions in Foster Gardner, Inc. v. National Union Fire Ins. Co., 18 Cal.4th 857 (1998) [duty to defend "suit seeking damages," where "suit" was not defined in the policy, was triggered only by a civil action prosecuted in a court of law], Certain Underwriters at Lloyd's of London v. Superior Court (Powerine I), 24 Cal.4th 945 (2001) [where policy imposed duty to indemnify for "all sums that the insured becomes legally obligated to pay as damages," and neither "suit" nor "damages" were defined, duty to indemnify was limited to "money ordered by a court" and did not extend to expenses required by an administrative agency's environmental clean-up order], and Powerine Oil Co., Inc. v. Superior Court (Powerine II), 37 Cal.4th 377 (2005) [excess/umbrella policies that included "expenses" as well as "damages" from "claims or suits" imposed duty to indemnify for administrative agency's environmental cleanup order].

Based on those decisions, the Court concluded no duty to defend or indemnify existed under the policies that did not define "suit" or "damages." The Court noted that although the IBCA functions in many respects like a court, including trials of disputes resulting in money awards, the IBCA was a quasi-judicial administrative agency board and not a "court."