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Superfund '91 - Congress' chance to clean up its act.

As the 1991 reauthorization of Superfund looms closer, the insurance industry should seek a more prominent role in directing the course of the cleanup program. Indeed, insurers have already sounded an alarm that this monumental litigation expenditure shamefully wastes money, time and resources. In doing so, insurers hope to turn the attention of Congress to this dire situation when it comes before the legislature next year. The timing is appropriate, because by becoming active participants in the nation's cleanup program, insurers can help minimize the crushing cost of Superfund claims.

From the perspective of the liability insurer, the liability scheme of the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA) is extraordinary. The U.S. legal system offers no parallel for holding a party liable for millions of dollars while affording it little defense and procedural protection. Not only is a potentially responsible party (PRP) strictly liable regardless of the care exercised in waste disposal, but the entity is jointly and severally liable for the entire cost of cleanup, when indivisible, regardless of how many other PRPs exist.

Apart from proving that someone else was solely responsible for the release of the hazardous substance into the environment, the defendant in a Superfund suit has only two legally allowable defenses: the release was caused by an act of war or an act of God. A PRP can seek court relief only after the government has cleaned up the site with money drawn from Superfund. When the PRP finally gets to court, it is without benefit of a jury trial. In fact, the PRP can present little, if any, evidence in the case because court review is limited to the administrative record prepared by the government. In addition, government judgments are granted deference by the court unless they are found arbitrary and capricious.

The rapidly escalating cost of cleaning up hazardous waste sites must surely contribute to insurers' discomfort with the Superfund litigation process. It is estimated that this program will ultimately cost $100 billion to $150 billion, with an additional $91 billion to $128 billion needed to clean up Department of Energy sites and perhaps an additional $100 billion for Department of Defense sites. There are an estimated 10,000 Superfund sites in the United States, and while the average cleanup cost is $25 million per site, the $100 million cleanup figure is becoming more commonplace. Indeed, several sites are approaching the $1 billion mark. The Superfund program, budgeted at $1.6 billion for its first five years, now spends that much every year. Many argue that even this sum is inadequate to fully cover cleanup costs.

In addition to the cost of cleaning up each waste site, Superfund cases generate contribution actions against multiple PRPs and third-party actions against other allegedly responsible parties connected to the site. Many of these parties may also bring suit against one or more in-, surers, asserting liability under their various policies. And, as if all this litigation were not enough, citizens' groups often sue insurers for damages arising from their exposure to the toxic substances located at the site.

If the CERCLA liability scheme is unprecedented and highly unusual, why has the business community failed so spectacularly in almost every court challenge to its provisions and with virtually every proposal for legislative change? The reason is that industry and insurers have ignored the fact that Superfund is basically an environmental statute intended to deal with the cleanup of hazardous waste sites. It is not primarily a liability scheme. By focusing on the impact of the statute on itself, business has forced Congress and the courts to choose between cleanup and abstract notions of cost allocation. Predictably, cleanup has won out.

More Like a Tax

As derived from both the statute and case law, Superfund is a fund initially capitalized by taxes on industries which create or dispose of hazardous waste. However, it is intended to be self-replenishing through the allocation of cleanup costs shared by parties connected to that site, such as owners, operators, generators and transporters. Indeed, the recovery scheme is less a liability system dependent on assignment of fault or responsibility than a site-specific taxation system in which certain people must pay simply because of their connection to the site. The statute deems that owners or operators of the site, or people who disposed of their waste there, presumably profited from the activity and should be required to pay the cost of cleaning up the mess they created.

Although CERCLA uses, and sometimes misuses, terms borrowed from tort, contract and property law, it is not intended to vindicate individual rights and responsibilities by applying doctrines imbued with notions of fairness and social justice. Instead, Superfund requires that recently discovered dangers to public health and the environment must be remedied by those who generated and disposed of the waste. Because traditional notions of due process and justice have little to do with whether or not one owes a tax, the government felt few twinges of conscience as it squeezed out of Superfund most concepts of fairness while cries of anguish from the business community fell on deaf congressional and judicial ears.

The guiding principle behind CERCLA is that the nation's hazardous waste should be cleaned up as promptly, efficiently and effectively as possible. Proposals perceived to further this principle usually gain congressional support, while others languish. Therefore, any proposal by business to improve the Superfund liability system must also improve the cleanup system.

The AIG Proposal

As Superfund 1991 activity gathers steam this spring, I am optimistic that the business community can be a player in the reauthorization process. The Hartford and Crum & Forster have already offered valuable suggestions for improving the Superfund system. And in March 1989, Maurice Greenberg, CEO of American International Group (AIG), outlined the most talked-about industry proposal for Superfund amendment since adoption of the statute in 1980. Arguing that the CERCLA liability scheme is unfair and inefficient, Mr. Greenberg suggested creating a larger fund which, in most cases, would not seek reimbursement from PRPs. By reducing the government's Superfund suits and their attendant contribution and indemnification actions, he said money could be redirected from litigation expenses to cleanup costs, while raising $3 billion per year through a tax on property/casualty insurance premiums. Echoing the primary principle of Superfund improvement, Mr. Greenberg urged that limiting litigation while enhancing funding would bring about faster and more adequate cleanups.

Few would quarrel with the assertion that litigation is a wasteful, inefficient way to recover money. Although there has been no comprehensive study of the cost of Superfund enforcement, contribution, indemnification and toxic tort actions, one study estimates that the cost of Superfund enforcement actions alone is 24 percent to 44 percent of the cleanup costs. Despite the lack of hard data, it can be concluded that the overall cost regarding hazardous waste litigation totals in the billions, and this sum, if rechanneled into cleanups, could substantially augment the Superfund program.

The cost recovery program has met with tepid success, despite huge commitments of government time and resources to Superfund case litigation. In the past two years-the most active years of the Superfund program-the government has recovered less than 3 percent of the $4.3 billion spent. By the time Superfund is reauthorized in 1991, more than $10 billion will have been spent, with recoveries estimated to be about $500 million.

Potential Problems

Despite the cost and inefficiencies of the current system, the AIG proposal raises its own potential problems. The most obvious objection is that tripling the amount available for the Environmental Protection Agency to spend on hazardous waste cleanup could lead to greater waste in the program. Superfund has not developed an efficient record by shoveling out hundreds of millions of dollars to contractors, or for its plodding, unfocused approach to remedial plan design and implementation. According to the most recent congressional report, "EPA can and must do a better job of managing the Superfund program. This conclusion is true regardless of whether EPA is managing its own staff or contractors performing work for the agency."

Another concern is the failure of the AIG proposal to encourage private cleanups, a necessary element of a national hazardous waste cleanup plan. Because even a greatly enhanced Superfund will not provide the more than $100 billion necessary to complete a national cleanup program, the creativity and resources of private industry must be harnessed to accomplish that task within a reasonable time frame. Supporters of the AIG proposal should also determine if it contradicts the underlying theme of U.S. environmental laws that the polluter should be responsible for paying for the cleanup. Allowing the polluter to escape responsibility triggers a visceral reaction among environmentalists and within the business community. Proponents of the AIG proposal should also clarify if assessing the cost of cleanup to insurance companies sets the unfortunate precedent of requiring one industry to pay for the environmental problems created by another. Such a precedent could reflect on the way the government allocates the cost of dealing with other environmental problems such as acid rain, global warming and stratospheric ozone depletion.

Nevertheless, the AIG proposal deserves serious consideration because it focuses attention on major flaws in the current system. Perhaps a combination of waste minimization and enforcement of the Resource Conservation and Recovery Act of 1976 and CERCLA, together with a critical assessment of U.S. experience in the first decade of the Superfund program, will conclude-that a major overhaul is neccessary. However, any suggestion for improving the Superfund system must first be weighed against the steadfast requirement that changes in the system must promote faster, more efficient hazardous-waste cleanups.

Some Solutions

If the Superfund record has been less than successful, the efforts of insurers and other businesses to affect the operation of that program have been a failure in Congress and the courts. To have any significant impact on the future of Superfund, the insurance industry must immediately change its fundamental approach from one concentrating on who pays to one addressing the question, How can we make the system work better? The failure to make this neW commitment will doom insurers and the PRP community to repeat their dismal history in the courts and Congress. However, if insurers diminish the cost and uncertainty of Superfund, a few specific channels could be established into which vast human and financial resources from insurers could be directed to improve the Superfund program.

Superfund Litigation

The insurance industry and the PRPs are at a disadvantage because they number in the thousands, each with an interest in a handful of Superfund lawsuits. The federal government is plaintiff in most of these cases and monitors the rest for possible intervention or amicus curiae participation. Thus, less than 100 justice Department lawyers have prevailed over 10 or 20 times their number of PRP lawyers, winning virtually every significant Superfund principle they have litigated. Although they owe their success, in part, to pro-government bias ingrained in CERCLA's provisions, meticulous care was used by the government in selectively prosecuting and appealing its strongest cases. As long as the private sector remains fragmented, the most severe cases regarding the PRPs will be vigorously litigated by the Justice Department, resulting in still more favorable precedent for the federal government.

Perhaps the only group in the private sector capable of identifying and litigating cases for PRPs is the insurance industry with its contractual rights of defense and subrogation. A coordinated insurance industry effort makes sense in litigating issues related to asbestos, products liability and toxic torts, in which the plaintiffs are less organized and methodical than government Superfund litigators. Given that fact, an even greater effort is needed in dealing with a Superfund enforcement program that explicitly intends to create the most favorable legal precedent possible for the federal government.

The old issues of retroactivity, joint and several liability and pre-enforcement review must be abandoned in favor of new, more important opportunities. There are three issues currently on the cutting edge of Superfund litigation which could benefit from a coordinated industry strategy. The first is recoverable costs. The big-ticket item in today's Superfund litigation is determination of what costs may be recovered for the fund. Sloppy cost documentation, careless allocation of indirect costs of EPA overhead and simple work overcharges are common in Superfund cases and affect bottom line recovery to the tune of millions of dollars. To avoid the tedium and risk of litigating these accounting issues, the government has edged toward a record review approach to cost recovery in which it incurs a lower standard of proof regarding amounts expended by urging the court to allow all unprovable charges to be deemed arbitrary and capricious. The result is a wasteful, disorganized and inefficient contracting system. Tightening up accounting requirements will minimize waste, making more money available for more cleanups.

Another issue that could benefit from a coordinated industry strategy involves remediation standards. The Record of Decision (ROD), which is reviewable on the same arbitrary and capricious standard as cost recovery, determines the technology and construction required to clean up a Superfund site. ROD is the result of a lengthy administrative process and on-site investigation which, if not closely monitored and controlled by the PRP, could mean a more costly site remedy.

To be effective, counsel for PRPs must include an administrative lawyer who can front-load the process, creating an administrative record which can support a challenge to the ultimate cleanup plan under the narrowly constricted rules of administrative review. The ROD process, occurring in 10 EPA regions as well as at headquarters, results in inconsistent remedies and conflicting rationales. A concerted insurance industry effort to bring rationality to the ROD administrative process by participating on behalf of multiple PRPs connected to various sites in different EPA regions should, in the long run, bring more uniformity and cost efficiency to the environmental cleanup process.

Finally, the insurance industry should focus on expanding liability. Government groups have long sought to incorporate into Superfund such principles as enterprise liability, shifting burdens of proof and special rules of pleading and corporate law to allow recovery against more PRPS. Vigilance will ensure that the expanding universe of PRPs stays within boundaries delineated by Congress, and that ordinary rules of pleading and proof are observed for Superfund cases. Business should target cases of excess zeal on behalf of the government for prompt and massive defense to retain fidelity to the statute. Unpredictability in the law is an enemy of rational behavior and, therefore, an obstacle to providing incentives for environmentally responsible conduct.

The most promising way to reduce costs while enhancing the operation of the Superfund program is to foster the settlement of active CERCLA cases. The multiplicity of PRPs at hazardous waste sites, combined with issues of appropriate remedial technology, relevant cleanup standards, state and community concerns and the possibility of toxic tort plaintiffs, creates a Gordian knot situation almost impossible to settle. Groups of PRPs may form steering committees with independent counsel to sue other PRPs, while squabbling among themselves over settlement terms.

At some hazardous waste sites, insurers have the resources to negotiate settlement on behalf of their insureds. They can agree to a reasonable cleanup plan and perhaps elect to sue recalcitrant non-settlers or organize hundreds of de minimus contributors which can then negotiate a final government settlement. By actively asserting authority over the primary waste site litigation, as well as the administrative process, insurers can clean up the site faster and more cost-effectively. Indeed, insurers might cooperate with PRP groups, such as the Mohawk Committee or Clean Sites Inc., to help regulate and improve the settlement process, thus deflating the bloated Superfund litigation docket. Insurers are also well-suited to encourage alternative dispute resolution and consensus building, which will achieve a fairer allocation of costs at a particular site.

In addition to building an administrative record at a waste site, insurers should advocate a more efficient and predictable Superfund program. Much of the wasted time and expense of the program results from its politicization. As with other environmental programs, scientific truth is often lost in the heat of debate among concerned citizens, environmental groups, congressmen, the EPA and the private sector. Insurers do not have a special claim to credibility in this field, but could help develop sound scientific and technological approaches to hazardous waste remediation. For example, they could fund a program at a university in cooperation with environmental groups. As sites such as Love Canal and Times Beach have demonstrated, transaction costs are proportional to the rise in polemics regarding the waste site. By encouraging cleanups that are scientifically sound but do not appear politically possible, the private sector can link arms with government and environmentalists to achieve a rational, efficient cleanup process.

This effort should include reviewing and commenting on proposed revisions to Superfund regulations, reviewing RODs for consistency and scientific soundness and commenting on proposed guidance and management initiatives. By helping the process move forward, industry can dramatically reduce the overall cost of the process while improving quality. These productivity enhancements should be pursued because 20 percent or 30 percent savings in this multibillion dollar program should make a tangible difference in insurers' bottom lines while improving the environment. Moreover, prompt cleanup means quicker resolution of coverage issues and toxic tort claims.

Superfund reauthorization in 1991 is just around the corner. Legislative activities must take in the big picture, forge unions with environmental, industrial, scientific and technological groups and create ideas for improving the whole Superfund program. If one plans to make a proposal, he or she should start preparing the legislative soil now by arranging for debate, commentary and criticism in and outside his or her community. However, without the support of environmentalists, no proposal will pass. The legislative battle over a Superfund overhaul will not be won in the hallways of Capitol Hill but in retreats, discussion groups and one-on-one conversations with environmental leaders and government officials.
COPYRIGHT 1990 Risk Management Society Publishing, Inc.
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1990 Gale, Cengage Learning. All rights reserved.

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Author:Marzulla, Roger J.
Publication:Risk Management
Date:Apr 1, 1990
Words:2993
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