You and your company are facing Superfund liability. What can you do to manage your costs? Depending on the history of the site, you may be able to draw on general liability insurance, other people’s insurance or contributions from other potentially responsible parties. Integrating these sources of funding with practical cost-savings and oversight of environmental consultants can ease the Superfund burden. You need experienced professionals to advise on oversight and to evaluate and tap potential resources. A fully coordinated approach would involve these professionals in not only overseeing investigation and cleanup, but doing so in a way that satisfies the community and regulators without paying a fortune.
Superfund Liability Has Long Tentacles
Risk of Superfund liability may be on the rise after a long period of relative inactivity. In early March 2010, the U.S. Environmental Protection Agency (EPA) announced that the Gowanus Canal in Brooklyn, had been designated a Superfund site. Heavily polluted with industrial waste and sewage since the first World War, the canal, according to the EPA estimate, would take over 10 years to be cleaned up at a projected cost in excess of $300 million. Nine other sites in seven states — Alaska, Florida, Illinois, Michigan, North Carolina, Oregon and Texas — were also recently designated as Superfund sites.
Superfund liability has long tentacles. The Superfund Enforcement program achieves its site-cleanup objective by finding the companies or people responsible (or “potentially” responsible) for contamination at a site and negotiating with them to either clean up the site or contribute clean-up funds for remediation activity undertaken by another party. Joint and several Superfund liability may be triggered if:
- Hazardous Substances are present at a facility,
- there is a Release or possible Release of these Hazardous Substances,
- Response Costs are incurred or anticipated, and
- the defendant is a liable party — that is, one that owns, operates or causes waste to be sent to, or disposed of, at the site.
Moreover, the definition of a liable party was recently broadened. In February 2010, the United States District Court for the Northern District of Illinois held that the lessor of equipment used at a contaminated site was liable as a facility “Owner” under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA, commonly known as Superfund), 42 U.S.C. § 9601 et seq. United States v. Saporito, 2010 WL 489703 (N.D. Ill. Feb. 9, 2010).
This expansion of the definition of an Owner and thus the responsibility of additional parties in a Superfund action can both help and hurt policyholders facing Superfund liability. On the one hand, if a lessor can be deemed an Owner, this will broaden the scope of potentially responsible parties in such an action. On the other hand, it may help those parties deemed responsible by diluting every party’s share as well as providing additional bases for recovery, including an opportunity for contribution.
Steps to Take to Offset Potential Liability
Provide Timely Notice. For those facing potential liability, there are ways to offset costs. To facilitate and maximize recovery, preliminary steps are crucial. First, provide immediate and effective notice to all known previous liability or environmental impairment insurance carriers. Many companies have complex corporate histories, but that does not mean that historic insurance assets are worthless. To the contrary, many states allow the coverage to follow the liability and, thereby, prevent a windfall to the insurance company that accepted the risk in the first place. Millions of dollars have been recovered on behalf of defunct entities — even where insurance policies are missing and must be reconstructed.
Many policies and jurisdictions, however, require notice within a certain period of time, and failure to comply could prove fatal to a claim depending on applicable state law. When providing initial notice of a claim or potential claim, all that is necessary is a copy of the document received by the policyholder alleging liability — for example, a potential responsible party (PRP) letter identifying the policyholder in the context of Superfund liability (note that states and some municipalities have equivalent environmental laws very similar to Superfund). In some cases, an insurance company will require compliance with special notification provisions — these may be outlined in the policy — so be sure to check with your broker or even your insurance carrier or an experienced coverage professional to avoid diminishing your rights.
Seek Out All Existing and Historical Policies. A related and equally important step is to find all insurance policies. Given the imperative to provide timely notice on all policies that may be triggered, it is important to find all relevant policies as quickly as possible, so that notice can be provided on behalf of you or predecessor companies or other affiliated entities. If liability extends far into the past or if your company has undergone changes of ownership, it might be necessary to hire an insurance archaeologist or other expert who can track down lost or missing policies. Searches for indirect evidence of coverage such as accounting or government contract records have led to the discovery of millions of dollars in coverage assets. Moreover, just because an insurance company is insolvent does not mean that recovery is unavailable. Many states have created mechanisms, such as state guaranty funds, which pay out claims made to insolvent insurance companies. Some states even allow entities harmed by environmental property damage a direct right of action to pursue another’s coverage. See New York Navigation Law § 190 (McKinney’s 2010).
Document and Preserve All Communications. Preserve all documents — not just those generated in the course of litigation but even simple communications with the EPA and your insurance company. In some cases archived documents may shed light on other parties that were aware of, or may have contributed to, your liability. If so, such documents could provide a basis for a contribution action. It is therefore critically important that company document retention policies are reviewed and that essential personnel, even retirees and broker representatives, be alerted as to the information that could and should be located and retained.
Following these steps, a qualified professional can perform a coverage analysis. A simple but key component of such analysis is to display available coverage on a chart. This chart will demonstrate, for a given year, what insurance was available, who provided it, how much coverage existed, and who the broker was, as well as any deviations from standard-form language. Key exclusions or other coverage limitations can also be noted (e.g., aggregate or per occurrence limits, follow-form language, broad “umbrella” versus straight excess coverage, etc.).
Conclusion
Following the steps outlined above should give your company a sound basis for reducing its liability while simultaneously satisfying the environmental concerns of regulators and, more importantly, the needs of the communities and habitats surrounding the Superfund site. It has been said that an ounce of prevention is worth a pound of cure. Usually, you cannot recover historic pollutants, but you can recover historic insurance coverage.