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Environmental & Energy Law Monitor

News & Updates on Environmental & Energy Law in the Mid-Atlantic Region and Throughout the United States

Storing Heating Oil In Residential Tank Is Not An Abnormally Dangerous Activity In New Jersey

Posted in Environmental Litigation, Transactions Involving Contaminated Property

The Appellate Division recent held that the storage of home heating oil in an underground storage tank is not an abnormally dangerous activity.  In Ross v. Lowitz, the plaintiffs, John and Pamela Ross, owned property that was contaminated by heating oil that migrated on to their property from an adjacent property that was owned by defendant, Lowitz, and previously owned by defendant, Ellman.  Both individual defendants had insurance.

Prior to purchasing her property from Ellman, Lowitz had the underground heating oil tank (“UST”) tested, which did not detect any leaks.  Lowitz also maintained heating oil supply contracts with heating oil vendors who never reported any problems with the UST.

In 2003, Lowitz entered an agreement to sell her property.  Prior to closing the sale, the UST was tested again, which revealed a leak.  The sale did not go forward.

In 2004, plaintiffs purchased their property, which was adjacent to Lowitz’s property.  In 2007, plaintiffs signed a contract to sell their property and at about the same time were informed that contamination from Lowitz’s property had migrated on to their property.  Consequently, the plaintiffs’ buyers canceled the contract.

Plaintiffs filed a lawsuit against the individual defendants (Ellman and Lowitz) and their insurance companies seeking damages.  The plaintiffs alleged negligence, strict liability, Spill Act liability, trespass, nuisance and breach of the covenant of good faith and fair dealing against the insurance companies.

The trial court entered an Order providing relief to the plaintiffs during the cleanup, which included payment of plaintiffs’ carrying cost on their mortgage and repairing certain damage to plaintiffs’ property.  The cleanup of the contamination was eventually completed and the New Jersey Department of Environmental Protection issued a no further action letter.  The cleanup was paid entirely by the defendants’ insurance companies.  Because the cleanup was completed, plaintiffs dismissed their claims under the Spill Act and the common law theory of strict liability.

As to the remaining claims, the defendants filed motions for summary judgment, which were granted by the trial court.  Plaintiffs appealed, and the Appellate Division held that liability for private nuisance and trespass is not imposed without proof of some fault, i.e., negligence, or an intentional or hazardous activity requiring a higher standard of care.  The Court further observed that strict liability is only applicable where the injury was caused by abnormally dangerous or intentional conduct.

Although the strict liability claim had been dismissed, the Court analyzed whether strict liability could be imposed under common law theories of nuisance or trespass.  The Court concluded that a homeowner’s use of an underground storage tank for storing home heating oil is not an abnormally dangerous activity for which strict liability may be imposed.  The Court further held that the individual defendants acted diligently and reasonably to maintain the USTs and that the discharge of heating oil was not the result of defendants’ negligent or intentional acts.  As such, the Court affirmed the dismissal of plaintiffs’ negligence, nuisance and trespass claims.

As to the insurance company defendants, the Appellate Division also affirmed the trial court’s decision that there was no basis as a matter of law for plaintiffs to assert direct claims against the defendant insurance companies.  Moreover, the Court determined that plaintiffs were not third party beneficiaries of the insurance policies, which would have entitled them to make a direct claim against the policies.

The New Environmental Due Diligence Standard Saga Continues

Posted in Transactions Involving Contaminated Property

To supplement our prior blog posts [here and here] with respect to this issue, on December 30, 2013, the USEPA published a final rule (“Final Rule”) adopting the ASTM E1527-13 Standard Practice for Environmental Site Assessments, Phase I Environmental Site Assessment Process, as a standard that satisfies the “All Appropriate Inquiry” (“AAI”) requirement for a landowner liability defense under Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”). 

In August of 2013, USEPA published a direct Final Rule, which USEPA subsequently withdrew in response to criticism for including a dual standard regime that would have allowed purchasers to satisfy AAI by completing the Phase I complying with either the ASTM E1527-13 or the prior standard, the ASTM E1527-05.  In the current rule, USEPA now affirmatively recommends that Phase I Environmental Site Assessments follow the standards set forth in the ASTM E1527-13 and has announced its intention to publish a proposed rule to replace the regulatory reference to ASTM E1527-05 with ASTM E1527-13, in lieu of simply referencing both acceptable standards. 

Interestingly, USEPA adopted the ASTM E1527-13 Standard to satisfy the procedures provided in AAI, but specifically states that this is not mandatory.  However, USEPA believes that the new ASTM standard will result in a clearer presentation of information of interest to prospective landowners, particularly regarding prior contamination or potential obligations or restrictions on future use.  As such, prospective landowners whose goal is to qualify for the CERCLA landowner liability defenses should arguably use the updated ASTM E1527-13 standard to avoid future questions regarding compliance with the AAI component of the defense. 

It should be noted that simply because one has performed an AAI compliant Phase I ESA, does not automatically qualify the owner to use the defense.  In certain circumstances, parties must comply with continuing obligations, such as land use restrictions (deed notices and activity and use limitations).  Thus, the inquiry as to whether a party is eligible to assert the landowner defenses is fact specific and depends on the environmental condition of the property and the steps taken by the party attempting to assert the defense.  Regardless, environmental assessments based on the ASTM Standards are frequently used in the commercial acquisition and financing markets, which should anticipate that the new standard will become the appropriate standard with this final rule.

NJ Legislature Passes Bill to Extend May 2014 Remedial Investigation Deadline – Christie Expected to Sign

Posted in Remediation Oversight

One of the most draconian aspects of NJ’s 2009 Site Remediation Reform Act is the authority of NJDEP to take direct oversight of older cleanups, stripping responsible parties of cleanup decision-making and requiring a trust fund in the amount of the cleanup to be established.  That trust fund makes NJDEP the named beneficiary in the event of default.  One path to direct oversight under the law: the failure of a party remediating a site since May 1999 or before to complete the remedial investigation phase of the cleanup by May 7, 2014.

Assembly bill 4543, which was passed by the Assembly and the Senate on January 13, 2014, offers a two-year extension, allowing subject parties to apply for an extension of time to complete the remedial investigation until May 7, 2016.  The legislation is the result of industry groups in the state pressing the legislature for relief, and by most accounts, NJDEP itself will be relieved when the bill is signed since taking direct oversight would mean dedicating state resources that are already spread thin.

The downside to the extension:  the applicant must establish a trust fund in the amount projected to complete the remedial investigation.  While the amount of this fund is far less than the requirement under direct oversight (the amount of the entire cleanup), it still may be more than a company or individual has available at any one time.  Careful review of NJDEP’s recent guidance on what aspects of the remedial investigation must be completed, and certain flexibility offered to do so, is imperative and can impact the amount of the trust fund.

The extension is not automatic. The applicant must establish compliance with certain key aspects of the act, including having retained a Licensed Site Remediation Professional for the project, having satisfied technical requirements on certain key filings and met mandatory timeframes, and being current on the payment of NJDEP fees.  Application for the extension must be made by March 7, 2014 or 30 days from passage of the bill, whichever later.

The new law is expected to be signed soon by Governor Christie.

Think Twice Before Throwing Out Those Old Business Records

Posted in Environmental Insurance

Property owners or operators faced with an environmental cleanup often incur significant expenses to cleanup their property.  Before starting the actual cleanup, property owners/operators should take the time to explore all possible avenues to obtain reimbursement for cleanup costs.  The first step should be to look at existing insurance coverage, particularly old comprehensive general liability (“CGL”) insurance policies.

Prior to 1986, most CGL policies contained a “sudden and accidental” exclusion.  This exclusion barred coverage for contamination unless it was caused by a “sudden and accidental” event (i.e., a spill).  Several states interpret this exclusion to preclude gradual pollution such as leaks from underground storage tanks.  But New Jersey does not and, regardless of whether the discharge was sudden or gradual, the “sudden and accidental” pollution exclusion does not preclude coverage in New Jersey.  Subsequent to 1986, insurers inserted the “Absolute Pollution Exclusion” into liability policies, which generally bars coverage for pollution regardless of whether it is gradual or sudden.

It is not uncommon for an insured to no longer have old policies.  The burden is on the insured to show that the policy existed and the terms and conditions of the policy.  Even if you are unable to find the policy, secondary information such as canceled checks, accountants’ ledger sheets, coverage charts prepared by insurance brokers or agents, corporate records, and loan documents can be used to establish that a policy existed.  Optimally, the property owner/operator needs to determine the name of the insurer, the policy number, the policy period and the limit of liability.  As to the specific terms and conditions of a policy, an insurance expert can assist with this task.

The bottom line is that old business records that take up space and clutter your storage area may in fact be a treasure trove in the event you need to locate/identify early insurance policies.  Before disposing of your old business records, you should review them carefully to determine if they contain information about early insurance coverage. Although it is a time consuming and tedious task, it could save your company a great deal of money if you are required to cleanup contamination at your property.

Not So Fast With the New Environmental Due Diligence Standard

Posted in Transactions Involving Contaminated Property

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.

Co-Insurer’s Contribution Claim for Defense Costs Upheld by New Jersey Supreme Court

Posted in Environmental Insurance, Environmental Litigation

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.

Insureds Must Exhaust Coverage From Solvent Insurers Before Seeking Benefits From PLIGA

Posted in Environmental Insurance

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.

Six-Year Statute Of Limitations Applies To Spill Act Contribution Claims

Posted in Environmental Litigation

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.

US EPA Approves, But Does Not Require, Use of the New ASTM Phase I Environmental Site Assessment Standard

Posted in Transactions Involving Contaminated Property

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.

May 2014 is not that far away – New Jersey’s Mandatory Deadline for Remedial Investigations

Posted in Uncategorized

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.