On August 21, 2013, we wrote here that the United States Environmental Protection Agency approved the new ASTM Phase I environmental due diligence standard (ASTM E1527-13). In a move that caught many observers by surprise, however, the EPA stated that both the old and the new ASTM standards could be used to satisfy a party’s need to perform “all appropriate inquiry” in order to obtain defenses to property owner liability for historic contamination. There was considerable confusion over whether a party should use the old or new standard.
When it approved the use of new ASTM standard, EPA indicated that it was approving the new standard as a direct final rule for immediate use because it assumed there would be no negative public comments. The agency was wrong, and it did receive significant negative feedback to its action. The main objections were to the confusion created by allowing the use of either the old ASTM standard or the new standard.
As a result, on October 29, 2013 EPA withdrew its current approval of the new ASTM standard and now plans to approve the new standard through the more formal, and time consuming, administrative rulemaking process.
Therefore, at this time, parties looking to perform environmental due diligence should continue to use only the old ASTM standard until the USEPA formally adopts the new standard.
The New Jersey Supreme Court recently held that insurers can sue co-insurers to recoup defense costs. In Potomac Ins. Co. of Ill. ex rel. OneBeacon Ins. Co. v. Pa. Mfrs. Ass’n. Ins. Co. (A-2-12) (September 16, 2013), the Township of Evesham (“Evesham”) sued its contractor, Roland Aristone, Inc. (“Aristone”), for property damage caused by construction defects. OneBeacon Insurance Co. (“OneBeacon”) and another insurer paid Aristone’s defense costs in the underlying litigation. Although Pennsylvania Manufacturers’ Insurance Company (“PMA”) did not contribute to Aristone’s defense costs, PMA settled with Aristone whereby Aristone released its claims against PMA.
Aristone settled the underlying litigation with Evesham. OneBeacon subsequently sued PMA seeking reimbursement from PMA for PMA’s share of defense costs. PMA asserted that its settlement with Aristone barred OneBeacon’s complaint.
After a trial, the lower court ruled that the release between PMA and Aristone did not include OneBeacon, and that OneBeacon did not release its right to sue PMA for contribution to defense costs incurred by OneBeacon in the underlying lawsuit. The trial court apportioned defense costs between PMA and OneBeacon in accordance with the allocation scheme articulated in Owens-Illinois and Carter-Wallace.
The Appellate Division affirmed the trial court’s decision, and the New Jersey Supreme Court granted PMA’s petition for certification. The Supreme Court ruled in favor of OneBeacon. While acknowledging that this was a novel issue, the Court concluded that OneBeacon’s contribution suit was consistent with Owens-Illinois, which established that progressive damage occurring over a number of years must be allocated among all insurers based their assumed risk.
The Court recognized that allowing an insurer to seek contribution for defense costs from co-insurers is not only equitable but also promotes early settlement and creates an incentive for businesses to purchase sufficient insurance. In addition, the Court concurred with the trial court that the release between Aristone and PMA did not waive OneBeacon’s right of contribution.
This was the first time the New Jersey Supreme Court applied the Owens-Illinois continuous trigger theory to construction defect cases. While this decision encourages global settlements, it may also have a negative effect. If an insured is unable to reach a global settlement, any individual settlement could require the insured to indemnify the insurer from claims by other co-insurers. Although the decision could have mixed results, it provides a useful framework by which defense costs are allocated among insurers of a common insured, and allows insurers to overpay in a settlement knowing that they can then pursue other non-settling insurers for their fair share of defense costs.
On September 24, 2013, the New Jersey Supreme Court ruled that policyholders must look to its solvent insurers before seeking benefits from the New Jersey Property-Liability Insurance Guaranty Association (“Guaranty Association”). Farmers Mut. Fire Ins. Co. of Salem v. N.J. Property-Liability Ins. Guar. Ass’n involved two environmental cleanup cases that were consolidated. In both cases, Farmers Mutual Fire Insurance Company of Salem (“Farmers Mutual”) and an insolvent insurer had issued general liability insurance policies for the property. Farmers Mutual paid all the remediation costs and then sought reimbursement from the Guaranty Association for the Guaranty Association’s allocable share of such costs. The Guaranty Association was created by the New Jersey Property-Liability Insurance Guaranty Act (“PLIGA Act”) to provide coverage when an insurer becomes insolvent.
The Guaranty Association moved for summary judgment arguing that pursuant to the PLIGA Act, it is not responsible to contribute to the cleanup until the policy limits of solvent insurers are exhausted. The lower court rejected this argument. On appeal, the Appellate Division reversed, agreeing with the Guaranty Association. The New Jersey Supreme Court granted certification to hear the case.
Farmers Mutual argued, among other things, that the Appellate Division’s decision disrupts the allocation scheme established by the Court in Owens-Illinois and subsequent cases. Those cases provided a mechanism for apportioning liability for environmental cleanups among multiple insurers. Typically, all insurers that provided coverage from when the contamination occurred are required to provide coverage in an allocated amount based upon the amount of risk each insurer assumed.
The Court reviewed Owens-Illinois and its progeny, as well as the statutory history and language of the PLIGA Act and concluded that insureds must first exhaust the limits of the policies issued by the solvent insurers before seeking benefits from the Guaranty Association. The Court also found that the PLIGA Act takes precedent over the common law principles stated in Owens-Illinois in that the Guaranty Association was to be the insurer of last resort.
Zurich American Insurance Company (“Zurich”) in its amicus curiae brief contended that if the PLIGA Act prevented insureds from seeking benefits from the Guaranty Association before solvent insurers’ policy limits are exhausted, then the insured should be responsible for the time period when the insolvent insurers provided coverage. The Court stated that such an interpretation conflicts with the purpose of the PLIGA Act, which was to minimize financial loss to policyholders because of insolvent insurers. The Court held that Zurich’s position would defeat that purpose if the insured was required to pay the share of an insolvent insurer before receiving any benefits from the Guaranty Association.
While it remains to be seen how this case impacts coverage for insureds, this case will change how damages are allocated among policies where there is an insolvent insurer. This case suggests that coverage provided by an insolvent insurer should not be included in the allocation process, which should benefit insureds seeking coverage for damages.
In a stunning decision, the New Jersey Appellate Division held on August 23 that the State’s general six-year statute of limitations for property damage applies to private claims for contribution under the New Jersey Spill Compensation and Control Act. Morristown Associates v. Grant Oil Co., (App. Div., No. A-0313-11T3, August 23, 2013). The six-year clock begins to run when “the injured party discovers, or… should have discovered that he may have a basis for an actionable claim.” Morristown, slip op. at 3 (quoting Lopez v. Swyer, 62 N.J. 267 (1973)).
The statute of limitations applicable to Spill Act claims has long been a subject of controversy. The Act itself does not specify a limitations period. In 1994, the Appellate Division held that a ten-year statute of repose did not apply to Spill Act contribution claims. Pitney Bowes v. Baker Industries, Inc., 277 N.J. Super 484 (App. Div. 1994). There, the court reasoned that the Spill Act “casts a broad net” and that the purposes of the Act would be defeated if responsible parties were excluded from liability because of a statute of repose.
Five years later, the Appellate Division held that no statute of limitations applied to private claims for contribution under the Spill Act. Mason v. Mobil Oil Corp., 1999 WL 33605936 (N.J.Super.A.D.). However, the decision was unpublished and therefore was not binding on other courts or litigants.
More recently, a federal court interpreting New Jersey law reached the opposite conclusion, holding that the six-year statute of limitations applied to Spill Act claims. Reichhold, Inc. v. United States Metals Refining Co., 655 F. Supp.2d 400 (D.N.J. 2009).
The appellate court in Morristown rejected or distinguished its own earlier decisions, and sided with the 2009 federal court decision.
Still, uncertainty remains. While the Appellate Division has now spoken in Morristown, the State Supreme Court has not yet weighed in on the issue, and the State Legislature, too, could seize the opportunity to amend the Spill Act if it disagrees with the holding in the Morristown case.
When a party buys or leases real estate, they may become liable for the cleanup of pre-existing environmental contamination, even if the new property owner/tenant did not release the contaminants. That liability exists under the Federal Comprehensive Environmental Response, Compensation and Liability Act, also known as the Superfund law. Most states also have similar laws which make the current property owner/operator a responsible party for site contamination. Likewise, lenders are also keenly concerned with the environmental quality of real property used as collateral for their loan transactions.
To provide some protection for new property owners, the Federal Superfund law contains an Innocent Purchaser Defense to property owner liability. If the purchaser conducted “all appropriate inquiry” (“AAI”) into the environmental conditions of the property, that property owner will have a defense to liability if it is later discovered that the property is in fact contaminated.
The AAI requirements are generally met where a buyer has undertaken a “Phase I Environmental Site Assessment.” That term generally refers to an environmental site assessment prepared in accordance with the American Society for Testing and Materials (“ASTM”) Standard E1527-05 – “Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process.” The US EPA’s regulations explicitly approve of the use of ASTM E1527-05 as an allowable method for performing AAI.
The ASTM E1527-05 standard became effective in 2005. ASTM is in the process of finalizing its revised Phase I Standard, E1527-13. The new Standard is expected to be released shortly. As part of the revision process, ASTM submitted the new Phase I standard to US EPA for confirmation/approval that the new E1527-13 standard continues to satisfy the requirements for AAI. On August 15, 2013, the US EPA did just that when it approved the current use of E1527-13 as an additional option for meeting the AAI requirements. US EPA is amending its regulations accordingly, but expects no adverse public comments to its approval of the new ASTM standard.
It is worth noting that the US EPA did not replace the older standard with the new standard. Instead, US EPA indicated that either the 2005 or 2013 ASTM Phase I standard will satisfy the AAI requirements.
The three key changes to the new standard relate to: (a) the identification and analysis of the potential pathways for contamination in soil and groundwater to give off vapors which can migrate into buildings and impact indoor air quality; (b) refined definitions of Recognized Environmental Conditions (“REC”), including the addition of a new term, the “controlled REC” or “CREC”, which is a REC that has been investigated and is already subject to controls and restrictions; and (c) clarification of when an environmental consultant is required to conduct a review of a governmental agency’s files.
Since both the old standard and the new standard will satisfy AAI, which standard should a prospective purchaser or lender require? At this point, since US EPA has approved both standards, there is no simple answer to this question. While it is still too early to tell, we can assume that there may be a slight increased cost for a Phase I under the new ASTM standard. However, the new standard is presumed to have been drafted to correct perceived limitations and issues identified through eight years of experience with Phase I assessments under the old standard. As such, we would expect a more comprehensive analysis of potential issues under the new ASTM standard. At this time, the choice of which standard to apply will need to be determined on case-by-case basis depending upon the needs of the parties in that transaction.
The Site Remediation Reform Act (“SRRA”) established a May 7, 2014 deadline for completing the remedial investigation for all sites that triggered remediation requirements prior to May 7, 1999. If a responsible party fails to do so, the New Jersey Department of Environmental Protection (NJDEP) is required to undertake direct oversight of the remediation of the contaminated site. As this deadline approaches, it is imperative that responsible parties start this process sooner rather than later. We expect environmental consultants will be extremely busy during the early part of 2014 due to people trying to meet the deadline.
Direct oversight means that the responsible party must fund the remediation as directed by the NJDEP, conduct and submit a feasibility study to the NJDEP for approval, implement each remedial action that the NJDEP selects for the site, submit an initial remediation cost review and submit an annual remediation cost review. Further, the responsible party must establish a remediation trust fund in the amount of the estimated cleanup, pay an annual remediation funding source surcharge of one percent, obtain NJDEP’s prior approval before making any disbursements from the trust fund, ensure that all submissions prepared by the Licensed Site Remediation Professional (“LSRP”) are submitted to the NJDEP simultaneously, submit a proposed public participation plan to the NJDEP for approval that contains a strategy to solicit public comments concerning the remediation and implement the publically approved plan.
In response to this draconian result, in June 2013, the NJDEP issued a policy statement entitled “Interpretation of SRRA Requirement to Complete the Remedial Investigation by May 2014.” (see http://nj.gov/dep/srp/timeframe/policy_statement.pdf). The NJDEP’s goal was to articulate what will be deemed to be “completion of the remedial investigation” and the role of an LSRP’s “professional judgment” in satisfying this requirement.
The NJDEP acknowledges that “delineation” does not mean that all of the contamination has been fully investigated in all media to levels at or below applicable standards. This distinction is important as it is in-line with SRRA’s objective to protect human health and the environment by ensuring that the remedial investigation characterizes: (a) the nature and extent of a discharge both on and off-site, (b) the impacts and potential impacts to receptors presented by the discharge and (c) the need for an appropriate remedial action.
The LSRP has the discretion to utilize multiple lines of evidence, including without limitation, extrapolation or modeling based on existing data; application of conceptual site models; or other means for determining the extent of the contamination. It should be noted that although the remedial investigation phase of the case does not need to include delineation to the “clean zone”, such sampling is required to demonstrate attainment of the applicable remediation standards at the conclusion of the remedial action and prior to the issuance of the final case closure document, the coveted response action outcome.
Therefore, although full contaminant delineation is not required to satisfy the NJDEP’s requirement to submit a remedial investigation by May 7, 2014, enough data must be collected so that an LSRP can determine the nature and extent of the contamination to develop the appropriate remedial alternatives.
In EPEC Polymers, Inc. v. NL Industries Inc., Civ. Action No. 12-3842 (D.N.J. May 24, 2013), defendant NL Industries Inc. owned property on one side of the Raritan River, where it produced and discharged waste to the river. Plaintiff EPEC Polymers, Inc. owned property on the opposite side of the river. The U.S. Army Corps of Engineer had dredged the river and dredging spoils were placed on EPEC’s property. These dredged spoils contained, in part, NL’s waste. EPEC spent over $2 million investigating the contamination on its property.
EPEC sued NL under several statutory and common law theories of recovery seeking to recoup its cleanup costs from NL. One of EPEC’s claims was that under CERCLA’s owner/operator liability section, NL was liable. That provision imposes liability on any person who owned or operated the facility at the time of the disposal of a hazardous substance.
NL argued that it cannot be held liable as an owner/operator because it did not own the site at which the cleanup is being conducted. Specifically, NL stated that its property “is not the facility at which hazardous waste came to be located or where EPEC allegedly has incurred ‘response costs’ for which it now seeks recovery under CERCLA.” Therefore, NL reasoned that it could not be held liable as an owner or operator of the facility under CERCLA’s owner/operator liability provision.
The Court rejected this argument and broadly interpreted the definition of facility holding that NL’s property is the “facility” for the purposes of owner/operator liability. Thus, NL can be held liable as an owner/operator under CERCLA even though it did not own or operate the property at which the contamination is being remedied. The Court also held that NL can be liable as an arranger under CERCLA’s liability provisions for having arranged for the dumping of its hazardous waste into the river.
In an effort to streamline administrative law hearings, the New Jersey Assembly recently approved a bill granting the Office of Administrative Law final agency decision-making power in certain contested state agency cases, including those from the Department of Environmental Protection. Under A-1521, passed on April 29, 2013, the department heads of ten state agencies would no longer have the ability to reject or modify administrative decisions, thereby giving final effect to administrative law judge determinations. The nine other agencies include, the Department of Education, Department of Health and Senior Services, Department of Community Affairs, Department of Children and Families, Division of Family Development, Division of Civil Rights, Department of Law and Public Safety, Civil Service Commission, and the New Jersey Motor Vehicle Commission. The bill also authorizes agency heads to issue orders, made available to the public, granting immediate final effect to administrative law decisions in other appropriate contested agency cases not specifically provided for in the legislation.
The New Jersey Supreme Court recently held that the New Jersey Department of Environmental Protection (NJDEP) may not conduct a warrantless administrative inspection of a residential property subject to a Freshwater Wetlands Protection Act (“Act”) permit without the consent of the permittee. The warrantless search exception authorized by the U.S. Supreme Court in New York v. Burger, 482 U.S. 691 (1987), is limited to the administrative inspection of a closely regulated commercial property and does not extend to the inspection of a residential property.
Under the Act, the NJDEP may enter a permittee’s property at reasonable times to conduct inspections and sampling, copy documents or records, and otherwise ensure compliance with the Act once the NJDEP representative presents credentials and the permittee consents to access. If access is denied, the Act’s regulatory scheme grants the NJDEP the ability to issue an administrative order requiring compliance, assess a penalty for each day access is denied, and seek judicial recourse for court-ordered access. Accordingly, while the Act does not permit the NJDEP to “forcibly” enter a residential property, where heightened privacy interests lie, it does provide a process consistent with the Fourth Amendment that allows the NJDEP to eventually gain access and achieve compliance.
The New Jersey Supreme Court adopted this view in the case of NJDEP v. Robert and Michelle Huber (April 4, 2013), where the defendants were found to have violated the Act because of improvements they made to their property in violation of an existing wetlands permit. The parties disputed whether access had been granted, and the defendants argued that the Court should exclude certain evidence based on the Department’s warrantless inspection of their property. The Court held that court-ordered entry would be required before the NJDEP could access and inspect a permittee’s property. However, in this case, the Court found sufficient evidence in the record to uphold the violation even with the contested information excluded.
On March 21, 2013, the New Jersey Appellate Division upheld the validity of the New Jersey Department of Environmental Protection’s (DEP) controversial “Waiver Rule.” The Waiver Rule generally allows the DEP to waive regulatory requirements under certain conditions. The Waiver Rule was proposed by the DEP in March 2011, and was finalized in March 2012 with an effective date of August 1, 2012.
The Waiver Rule contains several conditions that must be met before the DEP will waive a regulatory requirement. First, the waiver request must fall within at least one of four bases for obtaining a waiver: (a) the applicant faces conflicting rules; (b) strict compliance would be unduly burdensome; (c) a waiver would yield a net environmental benefit; or (d) a public emergency warrants the waiver. Second, the waiver cannot fall within any of thirteen categories of DEP rules that cannot be waived (e.g., federal requirements cannot be waived). Finally, the DEP applies several additional specific criteria in reviewing waiver requests. The court indicated that one of the most significant of these additional criteria was to ensure that waivers are consistent with the DEP’s core mission.
A number of environmental groups challenged the legality of the Waiver Rule, claiming that the Waiver Rule was invalid because it exceeded the DEP’s authority and failed to provide adequate standards governing the implementation of the Waiver Rule.
The Appellate Division upheld the Waiver Rule. The court first noted that it was required to defer to the DEP’s interpretations of the various statutes for which it is responsible. Next, the court held that under those environmental statutes, the DEP has inherent authority to waive the requirements of its own regulations, provided that it does so in limited and well defined situations. This authority exists where waivers do not violate a statutory requirement or federal law and comport with the agency’s core mission. Additionally, the agency must issue properly adopted regulations and provide clear standards for how the agency will issue waivers. The court determined that the Waiver Rule met these requirements. An appeal to the New Jersey Supreme Court is expected.
The court did invalidate the Waiver Rule guidance documents issued by the DEP. Before the Waiver Rule became effective in August 2012, the DEP established several guidance documents ostensibly governing the implementation of the Waiver Rule. These guidance documents were available on the DEP’s Waiver Rule webpage. The court held that the DEP’s Waiver Rule guidance documents were invalid because they were effectively agency rules that had not been issued in compliance with the rulemaking requirements of the Administrative Procedures Act. Nevertheless, the Waiver Rule remains in effect because the court found that the rule itself was detailed enough to stand on its own without the guidance documents.