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LOS ANGELES -- Insurers do not have a duty to defend policyholders against government-ordered environmental clean-ups, the California Supreme Court has ruled.

In a 4-3 decision, the court ruled that insurers must defend commercial general liability policyholders only in civil actions started by the filing of a complaint.

The decision resolves contradictory appeals court decisions made last year (BI, July 28, 1997; Oct. 6, 1997). In both cases, the policyholders had received cleanup orders from the California Environmental Protection Agency and sought a defense from their general liability insurers.

In Foster-Gardner Inc. vs. National Union Fire Insurance Co. of Pittsburgh, Pa., et al. and Fireman's Fund Insurance Co. vs. the Superior Court of Los Angeles County, much of the contention was over the meaning of the word "suit" as used in commercial general liability policies.

In Foster-Gardner, the California Court of Appeals ruled that "suit" could be extended to include administrative claims.

But in the Fireman's Fund case, another division of the same appeals court ruled that the meaning of the word "suit" was unambiguous and referred only to civil actions.

The state's Supreme Court agreed with the second analysis: "The unambiguous language of the policies obligated the insurers to defend a 'suit,' not, as Foster-Gardner asserts, the 'substantive equivalent' of a 'suit.' "

In the CGL policies at issue, the insurers specified that a "suit," rather than a "claim," would trigger a duty to defend, court papers show.

"This delineation encourages stability and efficiency in the insurance system. In exchange for a higher premium, the policies might have obligated the insurer to defend any 'demand' against the insurer, or to provide a defense whenever the insured is subject to government compulsion or investigation. They did not," the high court ruled.

Insurers should not be compelled to pay for defenses when they are not contractually required to do so, according to the court.

The decision is an important precedent, said Laura A. Foggan, a partner at Wiley, Rein & Fielding in Washington and counsel to the Insurance Environmental Litigation Assn.

"The court recognized that commercial general liability contracts do not respond to the vicissitudes of business life. Rather, they afford a defense to suits seeking damages for injuries covered by the policy," she said.

California joins courts in at least seven other states as well as the 6th U.S. Circuit Court of Appeals, which have determined that a cleanup order does not amount to a lawsuit. At least 14 states and the 2nd U.S. Circuit Court of Appeals have ruled in policyholders' favor.

Foster-Gardner Inc. vs. National Union Fire Insurance Co. of Pittsburgh, Pa., et al., California Supreme Court; No. 5063425.