An important lesson on contracting with environmental consultants recently came out of a federal district court in California in Golden Gate Way, LLC v. Enercon Services, Inc., 20-cv-03077-EMC (N.D. Cal. Nov. 18, 2021).

Golden Gate Way (GGW) hired environmental consultant Enercon to perform a Phase II Environmental Site Assessment in connection with a refinancing of a loan on GGW’s property which had previously been used for a dry-cleaning business. The contract contained a common provision limiting Enercon’s liability to the fee paid to Enercon for work under the contract (which turned out to be about $15,000). At GGW’s request, Enercon agreed to add a provision to the contract making GGW an additional insured under certain Enercon insurance policies.

After Enercon completed the Phase II work, GGW alleged that Enercon exacerbated contamination on the subject property and sought to recover under Enercon’s insurance policies as well as filing suit against Enercon for damages. Unfortunately for GGW, the Enercon insurance policies contained pollution exclusion provisions (excluding coverage for losses in connection with the potential spread of contamination at Enercon job sites). Thus, the GGW insurance claims were denied.

Enercon moved for partial summary judgment in GGW’s lawsuit based on the contract’s limitation of liability provision. The district court granted the motion, holding that the terms of the agreement (including the limitation of liability provision and agreement to add GGW as an additional insured) (1) were the result of an arms-length transaction between sophisticated parties, (2) did not violate public policy, and (3) were not the result of fraud or other malfeasance.

GGW’s experience serves as a reminder when contracting for environmental investigation and remediation services, it is important to pay close attention to contractual provisions such as limitation of liability clauses and, when relying on insurance, to pay close attention to policy terms and exclusions.

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