LOS ANGELES-Whether government cleanup orders are sufficient to trigger an insurer's duty to defend a policyholder in a pollution case is a question that the California Supreme Court likely will decide.

In the latest state appellate decision on this case, a panel of the California Court of Appeals found that insurers do not have to defend policyholders that have merely received a pollution cleanup letter from a government environmental agency.

However, that opinion directly contradicts a July ruling issued by a different panel of the same court.

Attorneys say the split-which hinges on the definition of the word "suit" in the commercial general liability policy-almost ensures that the issue will have to be settled by the California Supreme Court.

Unless the decision is overturned on appeal, the latest ruling will saddle the policyholder with more than $1 million in legal costs fighting the cleanup order, a lawyer for the insurer says.

The decision also means a victory for insurers in the long-running dispute over whether the word "suit" in comprehensive general liability policies means strictly lawsuits or whether it has a broader meaning, said Donald W. McCormick, managing attorney at Coran, McCormick, Constants & Goldberg in Glendale, Calif., who represented Fireman's Fund Insurance Co. in the most recent dispute.

"It is a question that has vexed insurers and insureds for several years, and now that we have two opposing points of view, it makes it more likely that we shall have a definitive ruling from the California Supreme Court," he said.

In the earlier decision, FosterGardner Inc. vs. National Union Fire Insurance Co. of Pittsburgh, Pa., a three-judge panel of the 2nd Appellate District of the California Court of Appeals favored policyholders by ruling that a cleanup order from an environmental regulatory body is equivalent to a lawsuit and that insurers must defend policyholders against such orders (BI, July 28).

But, in Fireman's Fund Insurance Co. vs. the Superior Court of Los Angeles County, another panel in the 2nd Appellate District ruled that Fireman's Fund need not pay the defense costs of Vickers Inc., which had received a potentially responsible party letter from the U.S. Environmental Protection Agency.

Judge Miriam A. Vogel, who presided on the three-judge panel, firmly set the Fireman's Fund ruling in opposition to the earlier ruling.

"Division Two of our court held that an insurer's duty to defend any 'suit' includes a duty to defend an administrative 'claim.' In the case now before us, we reach the opposite conclusion," she wrote in the opinion.

In the Foster-Gardner decision, the appellate panel failed to address the issue of the plain meaning of "suit" and "claim" and whether those terms were ambiguous, Judge Vogel wrote.

Fireman's Fund insured Vickers from 1971 to 1985 under a standard CGL policy using Insurance Services Office Inc.'s then-standard wording.

The policy wording obligated the insurer to a "duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage. . .and may make such investigation and settlement of any claim or suit as it deems expedient," according to court papers.

In 1991, the EPA and the Regional Water Quality Control Board notified Vickers that it was a potentially responsible party at its Los Angeles facility under the Comprehensive Environmental Response, Compensation and Liability Act, which created Superfund. In May 1991, Vickers demanded that Fireman's Fund defend it in the administrative proceedings, court papers say. Fireman's Fund denied any obligation to do so, on the grounds that there was no lawsuit.

Vickers then sought summary judgment on the issue and the trial court ruled in its favor, saying that the letters were the "functional equivalent" of a "suit," according to court papers.

The crux of the case is the court's assessment of whether "suit" can be extended to include administrative "claims," court papers say.

Throughout the CGL policy, the words "suit" and "claim" are used. "A construction that reads 'suit' to include a 'claim' makes the reference to 'claim' superfluous and leaves us with no explanation for the disjunctive use of the two words," court papers say.

The court said in their popular use, the words have different meanings.

"A 'claim' can be any number of things, none of which rises to the formal level of suit-it may be a demand for payment communicated in a letter, or a document filed to protect an injured party's right to sue a governmental entity, or the document used to initiate a wide variety of administrative proceedings," the court wrote.

The plain meaning of suit is an action or proceeding pursued in a court of law, court papers say.

The two decisions in California place the state between the larger band of courts in at least 14 states and the 2nd U.S. Circuit Court of Appeals, which have determined that a cleanup order amounts to a lawsuit, and the courts in at least seven states and the 6th circuit, which favored insurers.

Vickers' attorneys did not return phone calls.

Fireman's Fund Insurance Co. vs. the Superior Court of Los Angeles County. California Court of Appeals, 2nd Appellate District; No. B113595