Defense Department Pursuit of Insurers for Superfund Cost Recovery

• Author: Major Michele McAnineh Miller
• Pages: 01

Defense and the enwronment is not an eitherlor proposition To choose between them is impossible in this real world of ~erious defense threats and genuine environmental concerns The real choice 16 whether we are going to build a new environmental ethic into the daily business af defense.'

I Introduction

In the past several years. the Department of Defense (DOD) has embarked on an environmental cleanup effort that "represents nothing less than a new stratepc goal for the mihrary."z With some 17,500 defense sites on oyer 1800 installations being examined for environmental problems, the financial stakes are highs In 1991 alone the Defense Department spent some 900 million dollar8 on environmental restoration, with additional

'Practitioner8 should note that a number of new eased recently have beenreparred dealing mth the enwonmental ~nbniance m n e ~ that are the bubiect of

this article -Eo

**Judge Advocate Generays Carps. United Stafea Army Presently aasi.ped

to the Eni,~ronrnenral Law Divmon, Ofice of The Judge Advocate General. D S. Army B A , 1978, Concordla College, J D , 1987. Umvernty of Kansas, LL M , 1992. The Judge Advocate General'i School This article IS based on a rntten dmertsfmn that the author mbrnltted to sstsfy ~n part. the Mssfer of Larsdegee requirements for the 40th Judge Advocate Offlcer Gradvate Courae

'Addrsx by Secretary of Defenbe Dick Cheney to B national enr~ronmental conference, Sepf 4, 1990 quofrd ~n Dianne Dumanoski, Penlngsn ? d e s Firsf SLeppl Tauord Tackiing Poi!ufian. BOSron GLOBE. Sept 9. 1990. at 79

?Keith Schneider. Miiiiary Has A'W SIialegrc Goa! in Clronvp o/ Vast Toric iG'aaiie. ICY Tm~rr. Aug 5. 1991. at A1

ZZd

expenditures of 1.3 billion dollar8 projected for fiscal gear 1992 4

The official total estimated cost for completing all necessary environmental cleanup LS forty billion dollars, but some tommen-tator8 estimate that the Defense Department cleanup eventually could cost as much as ten times that estimate, and take as long as thirty years to complete 6

While much of the cleanup effort may be driven by the Defense Department's recognition of the magnitude of Its environmental damages and a spirit of voluntary compliance, that

IS not entirely the case. In the past two decades. government contractor operations-partieularly at industrial facilities for the production or destruction of munitions-have come under ~ncreas. ing scrutiny by federal and atate regulators and environmental groups. As a result of past operation and disposal practices, the military now LS faced with a plethora of environmental and hazardous waste problems at current and formerly used defense sites 6

In addition, since the mid-l980s, the United States Environmental Protection Agency (EPAI has adopted a policy of aggres-sive pursuit of government contractors operating at military facilities and bases In 1991, mnetyfour defense facilities were listed as priorities for cleanup an the National Pnonty List (SPLl,8 established by the Comprehensive Environmental Response, Compensation, and Liability Act ICERCLAI. or Superfund.*

The military has a substantial interest in the progress and outcome of CERCLA actions at federal facilities As a current owner and operator of the facility, the DOD itself 18 a potentially

'Helame Ole", Huge .Mdatarj Torrc Cleanup Fund Cigid LA TIMES Mar 14 1992 at A34

'137 Cora Rrr 514966-01 I1991 :afstement of Sen Baccvsr The SPL,mandated by CERCLA section 106, 42 US C 5 96068arl8r8B1 119681, LS a hating of rites nsiionrrde that the EPA has deemed to present the greatesr threar to publx healrh and welfare OT io the environment

'42 US C 9601-9675 '1986 (amended 1991,

responsible party in these situations 10 Although the federal government cannot sue the DOD agencies directly for CERCLA enforcement actions, the military agencies are subject to cost recovery actions by states or private parties for the money they expend for cleanup coat8 11

The military departments are also subject to suits by states acting as natural remurces trustees under CERCLA, and may be brought into a case on a clam for contribution or mdemmfication.12 In addition, executive requirements compel the DOD to conduct cleanup operations on Its installations in coqunetian with EPA priorities and plans

Under certain circumstances, the military departments may bear all or part of the CERCLA cleanup costs for a defense contractor's hazardous waste and other environmental pollution at active or former defense sites.14 These expenses may be the result of cost recovery clauses under the applicable contract or indemnification procedures authorized by the Federal Acquzsrtmn Regulation (FAR) or statute If the contractor's operations were covered by a commercial insurance policy, the DOD can seek indemnification from the insurer for the costs the military expended on behalf of the contractor

Seeking recovery from the contractor's in~urance company ISno simple matter The dispute between policyholders and insurers over coverage under the comprehensive general liability policy for environmental damage and hazardous waste cleanup costs has spawned one of today's hottest legal battles 16 State and federal caurt8, in their attempts to apply state imurance laws, have created a patchwork of inconsistent decisions in this area.17

Many courts have denied coverage for environmental cleanup costs based on their interpretations of pollution exclusmn clauses and policy terms such as "sudden" and "damages Others have held in favor of policyholders, rejecting overly technical eonstructions and artificial distinctions in interpreting insurance oolicv terms This article reviews and analvzes the court's

"Boyd. supio note 6. at 12, see a:so mfrn Part IIA

"See infra Part I1 c "See infra Part 111 B

"David E Hoskina Striking a Balance A Piopasal for Interpreting the Pollution Erclusmn Clous~bn ComprshenriLe Geneid Liohiizfy lnarronce Palcc~es. 19 ExmL L REP 10351, 10351 ( h u g 19891

"Set Peter E Hapke, Fedrial Circvif Court Ineurancr Decisions Conroniinatr Superfund Policy 19 E-L L REP 10393 10393 (Sept 19891

decisions interpreting the scope of the comprehensive general liability policy

As background, this article first generally reviews the CEKCLA statutory scheme It then examines the relationships between the DOD and defense contractors that give rise to Defense Department payment of Contractors' environmental cleanup costs. After reviewing and analyzmg the extensme body of case law addressing inwranee coverage for environmental costs, this article will conclude with suggestions for Defense Department representatives contemplating litigation in this area.

I1 Comprehensive Environmental Response, Compensation, and Liability Act (CEKCLA)

A General Scheme

Congress passed CERCLA in 1980 to provide a mechaniam far cleaning up inactive hazardaua waste disposal sites. In 1986, CEKCLA was amended by the Superfund Amendments and Reauthorizatmn Act (SARA,. which generally was designed to strengthen existing authority to clean up Superfund sites 16

The Environmental Protection Agency generally has several options for achieving this goal Section 106 of CEKCLA allows the EPA to order the responsible party to clean up the site 19

Alternatively, the EPA may clean up the site and then seek reimbursement from the responsible parties 20 CERCLA also provides that the government may sue responsible parties for loaa of value to the environment caused by the pollution 2% The EPA

and the responsible party may enter an agreement on how the party will handle the cleanup, which usually 13 formalized in a consent decree 22

In addition, state governments may-with EPA approval-carry out CERCLA cleanup actions using state funds. and then seek reimbursement from responsible parties The Statute also authonzes any person~3--lncludmg the United States-to file a citizen suit in federal court against any party-including the United States-who 1s allegedly in violation of any CEKCLA

standard, regulation, or order 24 These suits can seek injunctive relief and civil penalties 23

B Potentially Respanstble PartLes

CERCLA reaches a broad spectrum of potential polluters, referred to as "potentially responsible parties" or "PRPs." PRPs include the following four categories of parties: (1) current owners and operators of facilities, (2) past owners and operators at the time during which hazardous wastes were disposed; (3) generators-that is, those who arranged far disposal, treatment, or transport of hazardous substances; and (4) transporters of hazardous substances.26

The 1986 SARA extended CERCLA application to facilities owned or operated by federal agencies and mstrumentalities, including the Department of Defense 27 The DOD, therefore, can be a PRP for cleanup costs at DOD facilities as owner, operator, generator, or transporter The military department remains a PRP even If the facility 18 leased or operated by a government contractor The contractor operating or leasing a government facility 1s also potentially responsible as an "operator," despite government ownership of the facility.

Under CERCLA section 107(a), present and past contractors and other third persons operating on government-owned Installatiom and facilities are also potentially liable for hazardous waste cleanup costs a6 "generators ''28 They will be liable even if they did not own the hazardous material OF facility or generate the waste, but only operated the facility or made arrangements to dispose of the hazardous waSte.29 Under CERCLA section 107(a)(4), contractox also can be liable as PRPs if they merely transport hazardous waste for disposal.30

.." ......*$?he mtmen init pmvman 16 not available if the EPA has begvn and 1%pmecutmg diligently. an action under CERCLA that would, rf suecesaful. compel compliance and remedy the nwry that IS the avbjeet of the complaint id

~

'.Id B 9620 Unlike generic €PA cleanup actmn8 which are pmd from Supsrfund cleanup af DOD facihfies 15 funded by the Defense...