SDV Insights

New Jersey Jumps On Board: EPA PRP Letters are a "Suit" Under a CGL Policy

In a positive development for policyholders, a New Jersey Superior Court judge determined that Environmental Protection Agency (“EPA”) “potentially responsible party” (“PRP”) letters constitute a suit under a commercial general liability (“CGL”) policy. This decision entitles policyholders who receive a PRP letter to a defense from their insurer when they first receive the PRP letter. 

In Cooper Indus. v. Emplrs Ins. of Wausau, 2016 N.J. Super. Unpub. LEXIS 2003, one of the focuses of the case was what constitutes a “suit.” 

CGL policies provide two separate coverage grants, indemnity and defense. These policies usually state that the insurer “shall have the right and duty to defend any suit...” Although the final indemnity figure may be larger than defense costs, in complex environmental multiparty cases, defense bills may be enormous. 

In actions the EPA takes under CERCLA, the bulk of defense fees may be incurred without a formal complaint being filed in court. In fact, final settlement may occur without any court proceedings.

In Cooper Industries, the PRP letter was issued because a company that Cooper Industries had purchased was alleged to have polluted the “Lower-Passaic River Site,” a part of the “Diamond Alkali Superfund Site,” with effluent from their battery production. The policyholder argued that the PRP letter was a “suit.” Cooper Industries’ insurer argued that only a formal court proceeding was a “suit,” and that the PRP letter did not entitle Cooper Industries to a defense. 

The court, focusing on the similarities between procedures following the issuance of a PRP letter and a court proceeding, agreed with the policyholder. It noted that the PRP letter served as a type of pleading, that the EPA would follow PRP letters with discovery requests, and that the parties would then often proceed to mediation. The court further noted that if the policyholder “failed to take action, and instead waited for the EPA to file a lawsuit, it would have been subject to strict joint and several liability and other potential damages under CERCLA.” The court noted that the remedial nature of the CERCLA statute would best be served by the insurer providing defense after the PRP letter was filed. 

New Jersey policyholders who receive a PRP letter should immediately tender it to all CGL policies for any year in which any portion of the cause of pollution damage to third parties occurred. 

For future discussion of this issue, reach out to Philip Brown-Wilusz at or 203-287-2107, or Tracy Alan Saxe at or 203-287-2101.

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