The California Supreme Court reviewed the Fourth District Court of Appeal’s decision in Ameron International Corp. v. Insurance Company of the State of Pennsylvania, 150 Cal Ap4th 1050, on November 18, 2010 and found grounds to distinguish this case from its ruling in Foster-Gardner v. National Union Fire Ins. Co., 18 Cal.4th 857, 959 P.2d 265 (1998).

Foster-Gardner has provided the California rule regarding the requirements for insurer defense and indemnity in third-party property damage claims since 1998. Its requirement that policies which do not define the term “suit” are to be read as requiring a suit in a court of law to trigger the insurer’s defense obligation, has long acted as a bar to the tender of environmental property damage claims in California, since the enforcement of environmental regulations there is effected by the issuance of administrative orders, not typically by suit in a court of law.

In Foster-Gardner, the California Department of Toxic Substances issued an order for site remediation and Foster-Gardner tendered this as a claim to its insurers, expecting them to defend and indemnify it under coverage from its comprehensive general liability insurance policies. When the insurers refused, Foster-Gardner brought suit for breach of contract. The policies did not define the term “suit.” The Supreme Court, addressing the ambiguity, defined “suit” to mean “a proceeding brought in a court of law by the filing of a complaint.” California courts have since applied this “bright line rule” in cases involving policies in which “suit” is not defined, to require a suit in a court of law in order to trigger an insurers’ duty to defend.

In Ameron, the Court of Appeal reluctantly applied Foster-Gardner’s “bright line rule” to the proceedings of the United States Department of Interior Board of Contract Appeals (“IBCA”) and found that they did not constitute a “suit” as required by Ameron’s policies and therefore had not triggered Ameron’s insurers’ duty to defend.

Stating that this case presented a “case of first impression,” the California Supreme Court granted review to decide the narrow issue of “whether under the applicable Ameron policies at issue, Foster-Gardner applies to preclude the obligation to provide a defense and potential indemnity coverage” in that administrative adjudicative hearing.

The Supreme Court’s Ameron opinion was rendered on November 18, 2010. The court noted that in its Foster-Gardner decision, it had been concerned that the lack of a formal complaint could leave insurers with insufficient notice of the parameters of the action against the insured. It therefore carefully examined the pleading requirements of the Interior Board of Contract Appeals to determine whether IBCA’s pleading process adequately informed the insurer of the nature of the dispute so that it might determine its duty to defend under its insurance policies.

The Court distinguished the Ameron case from the Foster-Gardner case based on the formal complaint process. Whereas in Foster-Gardner, there had not been a complaint for the insurer to examine, in Ameron there was. The Court found that the IBCA pleading requirements met the standards for a complaint under California’s Code of Civil Procedure and therefore met the Foster-Gardner test.

Considering the possible precedential value of this decision, it should be noted that the Court’s opinion has yet to be published. In that sense, it is not yet final. Also, it should be noted that the Department of Interior Board of Contract Appeals was terminated effective June 6, 2007. Its jurisdiction was consolidated into that of the Civilian Board of Contract Appeals along with the boards of the following Federal Departments: Agriculture, Energy, Housing & Urban Development, Veterans Affairs, Labor and Transportation, as well as the General Services Administration.

An intriguing question is whether important future developments in California insurance coverage law will now be made during deliberations in the Civilian Board of Contract Appeals, as environmental property damage coverage cases are brought in that forum.