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Environmental & Energy Law Monitor

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

No Need To Wait For NJDEP’s Approval When Seeking Contribution For Site Cleanups

Posted in Environmental Litigation, Remediation Oversight

Parties that find themselves responsible for the remediation of contaminated property in New Jersey do not have to wait for the New Jersey Department of Environmental Protection (“NJDEP”) to approve a final cleanup plan before seeking other responsible parties to contribute to cleanup costs pursuant to New Jersey’s Spill Compensation and Control Act (“Spill Act”).

The New Jersey Supreme Court, in Magic Petroleum Corp. v. ExxonMobil Corporation, recently held responsible parties may file contribution claims seeking to allocate liability even before the cleanup is complete.  The Court did, however, point out that although trial courts may assign liability based on evidence presented at trial, they cannot issue a final damages award until the cleanup is done.

Magic Petroleum, Inc. (“Magic”) had owned and operated a gas station, and the underground storage tanks had leaked petroleum and caused site contamination.  In a separate proceeding, the NJDEP sued Magic for costs incurred by NJDEP during the remediation of the gas station.  As the sole “Responsible Party” targeted by NJDEP, Magic was responsible for the entire cleanup cost.

Seeking to offset its remediation costs, Magic filed a lawsuit for contribution against Exxon Mobil Corporation (“Exxon Mobil”), the owner of a former gas station on neighboring property.  Magic claimed that contamination from that neighboring property migrated onto the Magic property.  Both the trial court and the Appellate Division dismissed Magic’s suit again Exxon, holding that while the court and NJDEP both have the ability to determine whether Exxon Mobil is a discharger, only NJDEP had the ability to identify the contamination, analyze the extent of the discharge, and develop a cleanup plan.  The Appellate Division went on to note that these issues must be addressed by the NJDEP before the court allocates liability.

Magic appealed to the New Jersey Supreme Court for relief.  The Court held that while the extent of the cleanup has yet to be determined, it agreed that the trial court can determine whether ExxonMobil is also a responsible party.  The Court explained that “the trial court may assign liability to responsible parties before obtaining NJDEP’s written approval of a remediation plan, based on evidence presented at trial, but … the court may not be able to issue a final damages award.”

The Court explained this distinction when it noted that while recoverable cleanup and removal costs may include only those approved by the NJDEP, a court may allocate a percentage of responsibility for the remediation costs at a particular site.

A site remediation can easily last many years, causing responsible parties to incur substantial expenses.  This ruling is important for two reasons.  Individual responsible parties are no longer forced to bear the full brunt of the cleanup costs until the remediation is complete and, in doing so, it promotes the prompt remediation of contaminated property.

Additionally, the Site Remediation Reform Act changed remediation projects by placing the bulk of oversight duties in the hands of Licensed Site Remediation Professionals (LSRPs) and retained only limited oversight responsibilities for the NJDEP.  Therefore, this case leaves open the issue of whether cleanup work and costs approved by an LSRP, and not by the NJDEP, can be recovered under the Spill Act as currently drafted.  This is a critical issue for parties engaged in cleanups, and it needs to be reviewed by the legislature, the NJDEP, or the courts.

The Absolute Pollution Exclusion May Not Be That “Absolute”

Posted in Environmental Litigation

The Absolute Pollution Exclusion (“APE”) contained in current general liability insurance policies excludes coverage for costs related to the cleanup of environmental pollution.  Insurance companies have taken the position that any damages arising from “pollution,” regardless of the circumstances under which they occur, are excluded by the APE.  However, in certain situations Courts have ruled that the APE is inapplicable.  The recent New Jersey Law Division decision in Westwood Products, Inc. v. Great American E&S Insurance Company, L-2320-13 (May 12, 2014) is an example of the Court’s erosion of the absoluteness of the APE.

Westwood Products, Inc. manufactures and sells heating and plumbing supplies.  Westwood was sued by a third party, Roy and Joanna Wilson (the “Wilsons”), in a Canadian court alleging that a Westwood-built oil filter, which had been installed in their fuel oil tank, failed, causing contamination at their property.  After Westwood notified its insurer, Great American E&S Insurance Company (“Great American”), of the claim, Great American denied coverage based on the APE.  Westwood subsequently initiated a declaratory judgment action against Great American seeking coverage.

When the Wilsons sued, Westwood had a “Products-Completed Operations Hazard” liability policy.  The policy had an APE, which excluded coverage for bodily injury and property damage arising from environmental contamination.  Westwood contended that under New Jersey law, the APE only applies to intentional environmental pollution and not to product liability-related contamination cases.

Great American countered by arguing that the underlying environmental action falls squarely within the APE clause and, therefore, coverage should be denied.  The Court reviewed the history of the approval of the APE.  The Court cited to a New Jersey Supreme Court case, Nav-Its Inc. v. Selective Ins. Co., in which the insured was provided coverage for bodily injury claims arising from fumes inside a building.  In that case, the Court noted that the pollution exclusion was designed to eliminate coverage for gradual environmental contamination and government required cleanup such as Superfund response costs.  The Court stated that Nav-Its restricted the APE to “traditional environmental pollution” situations, concluding that Nav-Its was much broader than Great American’s interpretation.  Specifically, the APE would not apply to claims that were not “traditional environmental pollution” claims.

The Court ultimately held the allegations in the complaint against Westwood were made based on negligence as opposed to intentional acts, and were not a “traditional environmental pollution” situation that would exclude coverage based on the APE.  The Court held that the APE was inapplicable.

The lesson from this case is that a claim, either for bodily injury or property damage, which arises out of contamination, is not automatically excluded by a policy’s APE clause.  As an insured, you must evaluate the situation carefully to determine the cause of the contamination.  In certain situations, claims that arise from environmental contamination indeed may be covered under your policy.

CERCLA Contribution and Trust Funds: A Matter for State Law

Posted in Environmental Litigation, Managing Environmental Risk in Transactions

The Second Circuit Court of Appeals in New York recently held that the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), commonly known as Superfund, does not require contribution from beneficiaries of a responsible party’s estate.

In Asarco LLC v. Goodwin, the appeals court noted that as part of Asarco’s Chapter 11 bankruptcy, Asarco paid the United States, the State of Washington, and the Port of Everett, Washington, $50.2 million to resolve certain environmental claims arising from the release of hazardous substances at two sites in Washington State.

Having emerged from bankruptcy, Asarco sought contribution from the Trustees of the residual trusts created by the will of John D. Rockefeller, whose current beneficiaries are his great-grandchildren.  Asarco alleged that the remediation costs were fairly attributable to the activities of corporations controlled by Rockefeller as owner and operator of the contaminated sites.

Under CERCLA, the following parties are responsible for clean-up costs: (1) current owners or operators of facilities or sites from which a release of hazardous substances has occurred; (2)  past owners or operators of a facility or site at the time of  a release of a hazardous substance; (3) parties who arranged for the disposal or transport of hazardous substances; and (4) parties who accepted hazardous substances for transport and selected the site.

Asarco contended that the court should craft a rule under CERCLA mandating that a decedent’s personal liability is transferred to those who benefit from the decedent’s estate, a rule known as the “trust fund doctrine.” The court noted that CERCLA was silent as to contribution claims brought against trusts.  The court went on to state that since CERCLA is a comprehensive and detailed law, state law governs matters left unaddressed under the federal program.  As a result, the court noted that state probate law governs whether liability may be imposed against the beneficiaries of Rockefeller’s estate and turned to New York law in order to address Asarco’s arguments.

Although the court assumed, for the purpose of addressing other issues, that New York law permits the imposition of liability against Rockefeller’s trust, it stopped short of certifying the issue to the New York Court of Appeals for its definitive resolution.  When faced with the possibility of future CERCLA liability, it is important to be aware of the state probate laws pertaining to trust beneficiaries where the trust includes assets coming from environmentally sensitive businesses.

EPA Gives New ASTM Standard the Nod in Proposed Rule

Posted in Transactions Involving Contaminated Property

As indicated in our latest blog post, here, on US EPA’s adoption of the new ASTM E1527-13 Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process, US EPA has taken the step necessary to make it clear that the  2013 Phase I standard should dictate future landowner efforts to meet the all appropriate inquiry (“AAI”) requirements to achieve liability protection under the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”).

In December 2013, US EPA issued a final rule solidifying the agency’s adoption of the 2013 standard by inserting a reference to ASTM E1527-13 into the AAI Rule (40 CFR part 312) to accompany the 2005 standard, effectively permitting the use of either standard for AAI compliance.  On Monday, US EPA proposed to clean up the AAI Rule to remove the reference to the old ASTM E1527-05 standard in order to alleviate any confusion as to which standard governs Phase I Environmental Site Assessments going forward.

Importantly, ASTM E1527-05 is still AAI-compliant for properties acquired between November 1, 2005 and the effective date of the proposed rule.  To smooth the transition to the new standard and give parties time to complete investigations under the old standard, US EPA expects to delay the effective date of the rule until one year from when the final rule is published.

As we wrote here, a key change to Phase I investigations under ASTM E1527-13 includes an assessment of the potential for vapor encroachment into buildings at the subject property, and the inclusion of a new definition to characterize contamination where a chemical has been released and the cleanup allows some residual contamination to remain in-place at the property – this is now a “Controlled Recognized Environmental Condition.”

US EPA proposes no other changes to the AAI Rule and the proposed rule is currently undergoing the 30-day comment period.

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.