The Animas Spill: EPA Liability and Insurance Coverage

by Perkins Coie
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When a contractor for the Environmental Protection Agency accidentally released three million gallons of contaminated mining work wastewater into the Animas River in August 2015, the EPA immediately took responsibility, as it should. To the general public and the press, this appeared to be a magnanimous gesture on the part of the government because it is commonly believed that one cannot sue the government for such mistakes. This general belief, however, is not correct.[1]

Indeed, under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), 42 U.S.C. §§ 9601 et seq., the EPA really had no choice. Although there have been only a handful of cases where the courts have allowed actions against federal and state governments for botched cleanups of hazardous waste sites, there is a strong foundation for such cases. Companies, municipalities and individuals injured by the Animas River spill have a strong basis for a claim against the EPA and its contractor for their costs and losses from the spill. In this update, we analyze the EPA’s liability for the Animas River spill as well as look at insurance recovery applicable to victims who suffered damage in this incident and similar spills.

Dobbas, Bestfoods and Government Immunity for Cleanup Mismanagement

As demonstrated by a 2014 decision by Judge William B. Shubb of the United States District Court for the Eastern District of California, California Department of Toxic Substances Control v. Jim Dobbas, Inc., No. 2:14-595 WBS EFB, 2014 WL 4627248 (E.D. Cal. Sept. 16, 2014), the EPA and state governments are not immune to suits for mismanaging the cleanup of hazardous waste sites. At many such sites, particularly “orphan” sites—sites where no visible responsible party is involved—the agency overseeing the cleanup activities may fit within CERCLA’s loose definition of “operator.” Under 42 U.S.C. § 9601(20)(a), “owner or operator” is simply defined as “any person owning or operating such facility.” A hazardous waste site fits the definition of “facility.”

In a groundbreaking decision by the United States Supreme Court in United States v. Bestfoods, 524 U.S. 51, 66 (1998), the Court explained that an “operator” was “someone who directs the workings of, manages, or conducts the affairs of a facility.” The Court went on to conclude that “an operator must manage, direct, or conduct operations specifically related to pollution, that is, operations having to do with the leakage or disposal of hazardous waste, or decisions about compliance with environmental regulations.” Id. at 66-67. See also United States v. Twp. of Brighton, 153 F.3d 307, 315 (6th Cir. 1998); FMC Corp. v. U.S. Dep’t of Commerce, 29 F.3d 833, 840 (3d Cir. 1994) (en banc).

As Judge Shubb’s opinion in Dobbas points out, this requires the court to allow claims against the government where there are well-pled allegations that the government’s management of a site has contributed to contamination of the environment.

Although the spill in the Animas River is a dramatic example of the EPA’s failure to manage properly the cleanup of the Gold King Mine, in Dobbas the alleged failure of the state of California was much more subtle. The two main alleged “responsible parties” in the Dobbas action counterclaimed against the state for mismanaging the cleanup of the site over a period of more than 25 years.

The Dobbas court granted the defendants’ counterclaims against California but noted that to prevail, the defendants would need to show a level of control over the facility that the courts still have not yet agreed upon. See City of Los Angeles v. San Pedro Boat Works, 635 F.3d 440, 444 (9th Cir. 2011); Brighton, 153 F.3d at 313-14; Nurad Inc. v. William E. Hooper & Sons Co., 966 F.2d 837, 842 (4th Cir. 1992). A more narrowly defined definition of operator in this context may be found in Long Beach Unified School District v. Dorothy B. Godwin California Living Trust, 32 F.3d 1364, 1367 (9th Cir. 1994), and United States v. Dart Industries, Inc., 847 F.2d 144, 146 (4th Cir. 1988).

A number of courts have granted motions to dismiss such claims, but those cases were based on a pre-Bestfoods consideration of the term “operator.”

Does the government agency involved have to actually wield the shovel that released the contamination? Judge Shubb says no. “Bestfoods does not require an operator to play an active role. It requires only that an entity ‘manage, direct, or conduct . . . operations having to do with the leakage or disposal of hazardous waste, or decisions about compliance with environmental regulations.’ Bestfoods, 524 U.S. at 66.” Dobbas, 2014 WL 4627248, at 4.

Holding the Government Responsible

Not only should victims of governmental actions that cause contamination of natural resources consider claims against governmental agencies that may have caused contamination during cleanup operations, potentially responsible parties (PRPs) being pursued by governments for contribution at such sites should consider filing counterclaims against the government if there is evidence of such negligence.

Insurance Recovery and the Animas Spill

The release of three million gallons of mining waste into the Animas River is not only an immediate tragedy, it may have adverse effects for years to come. The documented toxic heavy metals contained in the release, including lead, arsenic, cadmium, beryllium, mercury and copper, are all heavier than water. As such, they may accumulate in sediment lining the bottom of the Animas River and its tributaries. Once in the sediment, those metals have the potential to be ingested by fish and other wildlife. After being ingested, these metals may accumulate in the fatty tissues of those animals, impacting not only their health but also the health of other animals, including humans, that eat them. Moreover, there may be secondary pollution of groundwater resources where these heavy metals accumulate in groundwater recharge zones that communicate with the affected surface waters.

Although the EPA has indicated it takes responsibility for the Animas spill, the costs involved could be massive. Until the government gets around to compensating those impacted, are there any other nongovernmental resources that might provide monies to victims of this spill? For example, is there any insurance that might cover these losses? The answer is yes.

CGL Coverage

For each hazardous waste site involved in cleanup activities, the government requires those involved to provide proof of financial resources to cover such accidents. These “financial responsibility” requirements (CERCLA Section 108(b)) may be satisfied by a company’s own financial resources or, more commonly, insurance. Here, not only was the EPA involved, but the EPA’s contractor was actually responsible for the “shovel in the ground” work. Thus, that contractor should also have been required to have insurance.

The type of insurance required for such cleanup operations is comprehensive liability coverage—often referred to as Comprehensive General Liability (CGL) coverage. CGL policies cover liability for bodily injury, property damage and personal injury to third parties. CGL coverage should be available for this spill, assuming no so-called absolute pollution exclusion was attached to the policy.

E&O and First-Party Property Coverage

In addition to this coverage, the contractor involved should have Errors and Omissions (E&O) coverage. E&O policies provide coverage for a company’s activities that result in damage because of its failure in providing expert services (in this case, remediation services).

To the extent that the contamination involved has damaged equipment or caused equipment to break down, resulting in expensive repairs or replacement, First-Party Property policies may provide coverage. These are policies taken out by the entities suffering physical damage to their plant and equipment, e.g., irrigation systems and public and private groundwater, surface water and drinking water systems. These policies generally require that the insurance company advance monies to repair or replace damaged property or equipment. Some policies also provide compensation for losses in business caused by the damage. Moreover, if the insurance company provides compensation, it is then likely that the insurance company will take the time and spend the money trying to get its funds back from the parties that caused the damage, so the victims of the spill do not have to use their resources for that purpose.

 

[1] This is known widely as “sovereign immunity.” CERCLA contains a waiver of such immunity and makes governments liable “coextensive[ly] with the scope of liability imposed by 42 U.S.C. § 9607.” United States v. Shell Oil Co., 294 F.3d 1045, 1053 (9th Cir. 2002).

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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