Why it matters:
Last year the Ninth U.S. Circuit Court of Appeals issued a noteworthy decision addressing the subrogation rights of insurers under the federal Comprehensive Environmental Response, Compensation, and Liability Act in Chubb Custom Ins. Co. v. Space Systems/Loral, Inc. According to the Ninth Circuit, an insurer lacked standing to bring a subrogation suit under CERCLA because the insurer did not directly incur environmental response costs and did not allege that the insured was a “claimant” or that it had made a claim to the Superfund or to a potentially liable party, as required by the CERCLA statutes. Thus an insurer can maintain a subrogation action against potentially liable parties only if the insured has made a written demand for a sum certain to the allegedly liable party. In that case, the insured had not made such a demand, leaving Chubb unable to recover the money it paid for the required environmental cleanup. Chubb appealed the decision, filing a writ of certiorari to the U.S. Supreme Court. But in January the justices denied the writ without comment, leaving the Ninth Circuit opinion in place as good law. As a result, insurers may seek to obligate policyholders to make such written demands (perhaps through adding language in the policy) to potentially liable parties, allowing insurers the ability to recover for environmental costs.
In the Ninth Circuit case, Chubb made insurance payments under an environmental insurance policy to its insured, Taube-Koret Campus for Jewish Life, for $2.4 million in cleanup costs incurred in remediating soil and groundwater contamination on its property. After paying the claim, Chubb then filed suit against previous owners of the property, arguing that they were jointly or severally liable for the costs.
Chubb asserted subrogation rights against these previous owners under two sections of CERCLA. First, the insurer argued that its action could be maintained under § 112(c). Section 112(c) provides that “any person” who has paid compensation to a “claimant” for “damages or costs resulting from a release of hazardous substances” is subrogated to all rights “that the claimant has” under CERCLA. A “claimant” is one who makes a written demand for reimbursement of monetary costs under the statute.
Although § 112(c) does not specify to whom the demand must be made, the Ninth Circuit rejected Chubb’s contention that Taube-Koret’s insurance claim constituted a written demand under the statute. Instead, the federal appellate panel held that a claimant must demand reimbursement from either the Superfund or a potentially liable party.
Therefore, the court determined that Taube-Koret was not a “claimant” under § 112(c) and Chubb could not in turn pursue subrogation against the prior owners.
Section 107(a) also failed to support Chubb’s subrogation claims, the panel concluded. That provision provides that potentially responsible parties are liable for the costs of response “incurred by” any person under certain conditions. But the court said § 107(a) applies only to a person who, through his or her own actions, has become statutorily liable for cleanup costs or remediation.
Taube-Koret was liable as the property owner, but Chubb could not allege that its own actions had rendered it liable for any response costs. An insurer “that is only obligated to reimburse the insured for cleanup costs does not itself incur response costs,” the court explained.
As an alternative argument, Chubb pointed to § 113(f), which permits a potentially responsible party to pursue contribution where it has not directly incurred its own costs of response but has reimbursed response costs by other parties. This provision demonstrated to the court that Congress already expressly created the remedy proposed by the insurer. Allowing an entity to pursue recovery under both § 107(a) and § 113(f) would therefore be contrary to congressional intent and could lead to other problems, like double recovery, the panel said.
“CERCLA was not enacted to benefit insurance companies; rather, it was enacted to promote the timely cleanup of contaminated waste sites, impose liability on those responsible for polluting the environment, and to encourage settlement through a complex statutory scheme,” the court said.
To read the decision in Chubb Custom Ins. Co. v. Space Systems/Loral, Inc., click here.