INSURER NINTH CIRCUIT AND CALIFORNIA SUBROGATION RIGHTS FOR RECOVERY OF ENVIRONMENTAL WASTE CLEANUP COSTS PAID

I’m litigating a subrogation case on behalf of an insurer to recover costs paid by the insurer for environmental waste cleanup. The case is against the actual wrongdoers: the company that originally generated the waste, a waste packer, and a transporter. The insurer paid amounts relating to the incident and cleanup to its insured for property loss, third party governmental entities, a third party non-governmental entity, and vendors. I thought that you might find a summary of this topic interesting as the law on an insurer’s standing and rights to recover environmental waste cleanup costs paid is still developing. The following summary is from a Ninth Circuit and California law perspective.

There are two primary sources of law that may give an insurer rights to recover environmental waste cleanup costs paid: the Comprehensive Environmental Response, Compensation, and Liability Act “CERCLA” and California State law both statutory and common law. Of course in appropriate circumstances an insured also has its direct standing and rights to recover damages and costs from wrongdoers, which as an option the insured and insurer also might want to discuss and evaluate.

Under CERCLA there are two primary statutes that may provide the insurer with standing and rights to recover from third party wrongdoers amounts that the insurer has paid for environmental waste cleanup: 42 USC §9612 [CERCLA §112] and 42 USC §9613 [CERCLA §113]. You might be aware that in CHUBB v. Space Systems/Loral, Inc. earlier in 2013 the Ninth Circuit held that CHUBB as an insurer did not itself have subrogation standing or rights under 42 USC §9607 [CERCLA §107], although the insured might still have direct rights and standing under §107. Courts generally, including the Ninth Circuit, are more often reading and interpreting CERCLA narrowly based on its express wording.

In pertinent part CERCLA §112(c), subrogation, provides:

(2) Any person, including the Fund, who pays compensation pursuant to this chapter to any claimant for damages or costs resulting from a release of a hazardous substance shall be subrogated to all rights, claims, and causes of action for such damages and costs of removal that the claimant has under this chapter or any other law.

In CHUBB the court held that a claimant as defined at 42 USC §9601(5) is a person who presents a written demand for reimbursement of monetary costs under the statute [i.e., CERCLA].

Depending on the facts and circumstances of each case several uncertainties can remain about the application of §112 for later court determination at least including for example the definition of the term claimant, the timing of the demand for reimbursement, where or to whom the demand for reimbursement can be made, who can make the demand for reimbursement, the nature and timing of the action (i.e., a separate legal action or in an existing action) in which the §112 claim should be made, and which rights or the nature of the rights of the claimant to which the insurer is subrogated. Meanwhile however, the insurer should state a claim for reimbursement under §112.

In pertinent part CERCLA §113(f), contribution, provides:

(1) Any person may seek contribution from any other person who is liable or potentially liable under section 9607(a) [CERCLA §107] of this title, during or following any civil action under section 9606 [CERCLA §106] of this title or under section 9607(a) [CERCLA §107] of this title. Such claims shall be brought in accordance with this section and the Federal Rules of Civil Procedure, and shall be governed by Federal law. In resolving contribution claims, the court may allocate response costs among liable parties using such equitable factors as the court determines are appropriate. Nothing in this subsection shall diminish the right of any person to bring an action for contribution in the absence of a civil action under section 9606 [CERCLA §106] of this title or section 9607 [CERCLA §107] of this title.

Similar to §112, depending on the facts and circumstances of each case uncertainties can remain about the application of §113 for later court determination at least including for example the standing and rights for recovery that an insurer compared to a directly liable party has under §113 through subrogation, the nature and timing of the action (i.e., a separate legal action or in an existing action) in which the §113 claim should be made, and the nature of “contribution” which has its own procedural requirements and limitations. Nevertheless however, the insurer should still state a claim for reimbursement under §113.

You should also keep in mind that in appropriate circumstances a wrongdoer or potentially responsible party against whom you might proceed under CERCLA might be able to settle claims against it in a manner that shields or protects that wrongdoer from any further liability to any party or entity for arising from the environmental waste or incident.

Under California state law there are two primary sources that provide for an insurer’s right and standing to recover from third party wrongdoers costs paid for environmental waste cleanup: the Hazardous Substance Account Act (“HSAA”), Cal. Health and Safety Code §§25300-25395, and California common law. Common law claims which I am not going to discuss here include standard indemnity, contribution, allocation and apportionment of fault, and subrogation claims.

In pertinent part the HSAA at Cal. Health and Safety Code §25363 and subsection (e) thereof provides that any person who has incurred removal or remedial action costs may seek contribution or indemnity from any person who is liable. In resolving claims for contribution or indemnity, the court may allocate costs among liable parties using those equitable factors which are appropriate.

Similar to the discussions above pertaining to CERCLA, depending on the facts and circumstances of each case uncertainties can remain about the application of §25363 for later court determination at least including for example the standing and rights for recovery that an insurer compared to a directly liable party has under §25363 through subrogation, the nature and timing of the action (i.e., a separate legal action or in an existing action) in which the §25363 claim should be made, and with respect to contribution the nature of “contribution” which has its own procedural requirements and limitations. Nevertheless however, the insurer should still state a claim for reimbursement under §25363.

Note that there may also still be issues that are undecided about possible CERCLA preemption. And, similar to the above discussion pertaining to CERCLA, you should also keep in mind that in appropriate circumstances a wrongdoer or potentially responsible party against whom you might proceed might be able to settle claims against it in a manner that shields or protects that wrongdoer from any further liability to any party or entity for arising from the environmental waste or incident.

I hope you found this discussion helpful. Dave Tate, Esq. (San Francisco/California)

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