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California Supreme Court Determines That Administrative Proceedings Can Be “Suits”
In a closely watched case by the insurance bar, the California Supreme Court in Ameron Int’l v. Ins. Co. of the State of Pennsylvania ruled that a proceeding before the United States Department of the Interior Board of Contract Appeals (“IBCA”) constitutes a “suit” that triggers insurance coverage under a commercial general liability policy. In its unanimous opinion published on November 18, 2010, the Supreme Court limited the reach of its prior Foster-Gardner v. National Union Fire Ins. Co. decision, which rigidly defined the term “suit” as a court proceeding initiated by the filing of a complaint.
The proceeding at issue in Ameron was a federal adjudicative proceeding before an administrative law judge of the former United States Department of IBCA. The proceeding involved “22 days of trial, numerous witnesses, and substantial evidence,” and involved many of the same procedural requirements as a normal lawsuit filed in a court of law. In the IBCA proceeding, witnesses testify under oath and are subject to cross-examination by opposing counsel, and evidence is presented subject to the Federal Rules of Evidence. After considering all these factors, the Supreme Court determined that given the nature of the quasi-judicial proceeding before the IBCA, a reasonable insured would expect that the IBCA proceeding was the equivalent of a “suit” and, therefore, would expect the policy to provide coverage for defense of such proceedings.
This case is significant because the Supreme Court showed a willingness to carve out an exception to the “bright-line” standard set forth in Foster-Gardner that only a lawsuit filed in court could constitute a “suit” as that term appears in most general liability policies. Foster-Gardner was decided by a sharply divided Supreme Court at the time with a critical dissenting opinion by Justice Kennard. In Ameron, Justice Kennard wrote a concurring opinion, wherein she reiterated her strong belief that Foster-Gardner was wrongly decided. Although Justice Kennard would prefer that Foster-Gardner be overruled, she believes that the Ameron decision “is at least a step in the right direction.”
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