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'Litigation storm' is impeding cleanups.

Superfund's fundamental problem is that the program's primary funding mechanism is its liability system. Having to rely on this adversarial funding scheme to pay for cleanup has turned EPA from a cleanup agency to a fund-raising operation.

Officially titled as the Comprehensive Environmental Resources Compensation and Liability Act (CERCLA), Congress enacted Superfund in 1980 in response to environmental disasters like Love Canal. It envisioned a short-term program aimed at a limited number of sites involving obvious "polluters." The program's fundraising mechanism was founded on the concept that the "polluter" should pay for cleanup. Congress made Superfund liability strict, joint and several and retroactive. In doing so, it gave EPA extraordinary legal clout to raise money for cleanup by establishing liability on a site-by-site basis.

In theory, this seems like a good way to punish "bad" beavhior, have Superfund pay for itself and provide incentives for responsible waste practices in the future. The reality, however, has proven quite different. Instead of bringing about swift, efficient cleanup, Superfund has generated a storm of litigation that is both impeding the cleanup process and causing enormous sums of money to be spent on non-cleanup related activities, such as hiring lawyers, private investigators and consultants. Actual cleanup costs are approaching $30 million per site.

Because any single PRP (potentially responsible party) can be held liable for this entire cost--even for waste disposal that occurred decades ago and was perfectly legal at the time--they are forced to identify and seek contributions from other parties at the site. These PRPs then sue their insurance companies for reimbursement under general liability policies which were written years ago and not intended to cover Superfund liability.

Superfund Liability Forces

PRPs to Litigate

The transaction costs and legal fees associated with this process are in addition to the actual cost of cleanup. They can consume between 30 to 60 percent of the total money spent on Superfund by the government, PRPs and their insurers. Over time, they are expected to total more than $16 billion, according to statements made at a recent Superfund conference by Paul Portney of the respected environmental research group Resources for the Future. These fees do absolutely nothing to clean up sites, and as EPA, PRPs, and their insurers legitimately battle over liability, cleanup can take a back seat to raising money.

These lawsuits are not only legitimate, but virtually unavoidable under the current system. Some involved in the Superfund debate have accused businesses of litigating--in particular against municipalities--to slow down the process and avoid responsibility.

This simply is not true. It is not unreasonable for the usually limited number of PRPs named by EPA at MSW sites to ask anyone who contributed hazardous substances--not just hazardous wastes--to bear a proportionate burden of the costs for closing the site. some municipalities argue that the presence of industrial wastes is the only reason landfills become Superfund sites, and therefore, conclude that industrial PRPs should pay the entire cost of cleanup. This position ignores the fact that MSW contains hazardous substances, as well as poses environmental risks from the decomposition of organic materials.

Even sites containing no industrial wastes must be properly closed, capped and outfitted with methane kgas and leachate collection facilities. These processes often account for a large percentage of the cost to close a landfill, regardless of the presence of industrial waste.

PRPs that litigate against municipalities are taking the necessary, often last resort steps to protect their employees, customers, suppliers and shareholders against the potentially devastating costs of liability. In fact, publicly traded companies may breech their fiduciary responsibility to their shareholders if thay fail to litigate. Because EPA has an agency-imposed policy against naming local governments in Superfund actions, business PRPs are forced to do it for EPA.

Put in the same position, local governments face exactly the same dilemma as they attempt to protect their citizens. It is one thing to accept responsibility to help clean up the environment, as most PRPs do. It is entirely another decision to blindly accept a disproportionate, potentially ruinous share of the costs. Congress recognized this fact when it explicitly gave PRPs the right to spread the cost of liability more equitability through the use of third-party contribution suits.

Certainly, those ensnared in this legal web are paying huge costs. But it is simplistic to think that these costs are confined only to PRPs and their insurers. In fact, they are ultimately borne by all Americans. Even local governments must pass on their Superfund costs through higher taxes or by issuing bonds. The nation's challenge, then, is to find another way to raise money for Superfund that will ensure that cleanup costs passed along are no longer bloated by environmentally unproductive legal fees and other transaction costs.

The AIG Proposal

AIG believes that there is an alternative approach that will significantly reduce transaction costs, expedite cleanup and safeguard icnentives for responsible waste handling.

We have proposed that the use of Superfund liability to raise cleanup funds for old sites be abandoned. In its place, a broad-based fund, which we have called the National Environmental Trust Fund (NETF), would be created. This fund would be paid for by businesses and other organizations, without regard to liability, and its resources would be dedicated to cleaning up old hazardous waste sites.

The specific definition of "old" has not yet been decided. We are looking at several options and asking interested parties to talk to us about their recommendations. One recommendation is to expand the "date driven" eligibility to include the cleanup of municipally-used, multiparty sites--regardless of their dates of operation. Given the scope of municipal liability, an approach like this should be considered as part of any serious reform proposal.

We want to stress that our proposal would not do away with the liability system completely. It would remain in place for current and future waste disposal. Many believe that Superfund, in tandem with the Resource Conservation and Recovery Act (RCRA), provides important incentives for responsible waste handling. Our proposal would not undermine any such incentives.

How the NETF would be funded has not yet been determined. Originally, AIG proposed the fund be financed by adding a separate fee to commercial and industrial insurance premius, with a method of payment also established for businesses and organizations that self-insure. Another option would be to raise the current corporate environmental tax under Superfund. Both options would make the costs of cleanup more predictable, eliminate transaction costs and guarantee a very broad base of contributors--including insurers. We are open to suggestions of other ways to raise funds. Our one criterion is that the funding mechanism spread the cost of cleanup across all sectors of the economy.

Progress Toward

Superfund Reform

The rising level of concern now being voiced by municipalities is a welcome addition to the debate over Superfund reform. As Congress and EPA hear from greater numbers of interested parties, they have begun to take a closer look at the problems with Superfund liability. Congress has begun holding hearings on Superfund, and EPA has made the program a top priority, with a strong emphasis on municipal liability.

The change in attitude towards Superfund reform has been dramatic since the 101st Congress quickly extended the program's taxes until 1995 without public comment or debate. At the time, Congress, the Administration and others in Washington seemed skeptical about the political likelihood of enacting a major reform of Superfund. Many people also had a surprisingly poor understanding of how the law works and who it affects.

Since then the truth about Superfund has begun to emerge and with it, a new acceptance that the law must be examined. As Superfund's liability net expands, the number of people who understand the program and are outraged by it increases. Media coverage has increased, generating greater public awareness and discussion. The business community is beginning to advocate liability reform and discuss options for funding an alternative approach. And hundreds of cities and counties passed resolutions and sent letters to Congress calling for comprehensive reform of the Superfund liability system.

We Need Comprehensive Reform

of Superfund Liability Now

AIG believes that a broad-based fund like the NETF would be an effective solution for everyone embroiled in Superfund, including municipalities. Replacing the liability system at old sites with the NETF would:

[section] raise substantially more money;

[section] enable EPA and the states to focus their time on cleanup, not fund-raising;

[section] sharply reduce transaction costs;

[section] provide incentives for responsible waste management now and in the future;

[section] allow citizens greater say in remedy selection; [section] increase the likelihood that innovative technologies are used; and

[section] spread the cost of liability across all sectors of the economy.

The first step toward this type of long-lasting reform, however, must be a comprehensive review of Superfund's liability system. Like everyone concerned with the effectiveness and costs of Superfund, local officials must speak up if they want the law changed to help solve the country's growing waste disposal and cleanup problems, not exacerbate them.

As Jessica Mathews, vice president of the World Resources Institute, said in a Washington Post op-ed article: "Superfund rests on the popular notion that the polluter should pay. But continued homage to a theory is less important than the reality that indirectly everyone is paying, and no one has money to burn. Fairness can be served and egregious wrongdoers punished without spending half, or even one-fifth of a cleanup program's costs in the courts."

AIG believes that it is time for people to stop chanting the same shopworn slogans and find new ways to attack this important national problem. We offered our proposal as a constructive effort to improve our hazardous waste cleanup law. We are eager to work with all parties interested in helping Superfund to achieve that goal.

Jan M. Edelstein is special assistant to Maurice R. Greenberg, chairman of American International Group, Inc. AIG is the nation's largest underwriter of commercial and industrial liability insurance and is brought into Superfund litigation when its policyholders, which include local governments, business interests, and others, become PRPs.
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Title Annotation:Special Report: Future of Superfund Needs Careful Attention
Author:Edelstein, Jan M.
Publication:Nation's Cities Weekly
Date:Feb 24, 1992
Previous Article:Superfund liability poses increasing threat to cities.
Next Article:Cleanups will demand cooperation, accountability.

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