Failure to Perform Appropriate Pre-Purchase Investigation Renders Buyer Liable for Cleanup

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[author: Gerard M. Giordano]

New Jersey property buyers need to be aware of liability for existing contamination as a result of failing to do an appropriate environmental investigation prior to purchasing.  The recent case State Farm Fire and Cas. Co. v. Timothy Shea, No. A-4124-10T1 (App. Div. Sept. 28, 2012) illustrates such risks.

In State Farm, Kimberly Rossi owned property on which a leaking underground storage tank (“UST”) was located.  She sold the property but retained the obligation to cleanup the contamination from the UST.  Shea owned the property adjacent to Rossi and did not perform a pre-purchase environmental inspection despite the fact that there was evidence of an UST on his property.

While investigating the contamination on her property, Rossi discovered a leaking UST located on Shea’s property. State Farm, on behalf of Rossi, and Cumberland Mutual Insurance Company, on behalf of Shea, sued each other seeking to recover cleanup costs.

The trial court found that the contaminant plumes migrating from Shea’s UST and Rossi’s UST were separate and distinct.  The court concluded that because Shea did not perform an environmental assessment before acquiring his property he was not an innocent purchaser, which would have absolved him from liability.  The court ruled that each party was responsible for the cleanup of their respective contaminant plume.

On appeal, Shea argued that the trial court improperly required him to conduct a pre-purchase environmental investigation.  Shea also contended that the trial court never addressed whether the contamination on his property occurred during his ownership as required by N.J. Dep’t of Env’l. Prot. v. Dimant, No. 1-2-11 (N.J. Sept. 26, 2012)

In addressing the first issue, the court noted the statutory requirements that must be met for a buyer to be an innocent purchaser.  The court stated that while Shea was not required to do an environmental assessment, he needed to have performed the appropriate pre-purchase inquiry of the property if he wanted to qualify as an innocent purchaser.  Because Shea did not conduct any type of environmental assessment prior to purchasing his property, he was not an innocent purchaser.

The court further ruled that Dimant was inapplicable in that it did not address whether a property owner such as Shea would be absolved from liability if contamination was found to occur prior to his ownership.  Unlike in Dimant, the court determined that there was credible evidence to allow a fact-finder to conclude that the contamination from Shea’s UST leaked during the time he owned the property.  The Appellate Division affirmed the lower court’s ruling.