Schnapf environmental report

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A Newsletter Covering Recent Environmental Developments and Caselaw

July/August 2000 Vol. 2, Issue 4

Editor’s Note

Welcome to the Schnapf Environmental Report. The list of topics covered in this issue is as follows:

  • Federal Environmental Criminal Enforcement Declines

  • EPA Reduces Penalties Under Audit Policy

  • Companies Obtain Relief Under State Audit Policies

  • CERCLA Recycling Exemption Requires Due Diligence

  • EPA Announces National Environmental Performance Track Program

  • Pennsylvania To Make Land Use Part Of Environmental Permit Reviews

  • CONRAIL Agrees to Fund Community Environmental Projects As Part of Settlement

  • Environmental Compliance Issues for Telecommunications Industry

  • Second Circuit Rules 1950s CGL Policy Applies to Gradual Pollution

  • Insurer Liable for Contaminated Property Acquired By Insured Policy Expired

  • Negligent Due Diligence Claims Against Environmental Consultants Increase

  • EPA Bringing NSR Actions Against Additional Industry Sectors

  • EPA Letter List Factors To be Considered in NSR Applicability Determinations

  • Company to Buy Emission Reduction Credits as Part of Settlement

  • Value of Emissions Credits Rise in California

  • EPA Settles Actions For CFC Violations

  • Mortgage lender To Issue “Green” Mortgages

  • Critics Challenge Kyoto Protocol Emission Trading Program

  • EPA Proposes Regulations to Replace Tulloch Rule

  • EPA Issues TMDL Rule

  • Louisiana Company Fined for Drilling Wells in Wetlands

  • Ninth Circuit Upholds Wetlands Mitigation Formula

  • Missouri and Pennsylvania to Create Wetlands Banks

  • States Seeking Corporate Funding to Save Wetlands

  • Local Government Regulations Differ on Protection of Wetlands

  • Federal District Court Rules EPA Harassed Mill Owner

  • EPA Continuing to Bring UST Enforcement Actions

  • NY Appellate Courts Rule That Innocent Property Owners Not Liable for UST Contamination

  • NY Court Rules USTs are Fixtures Creating Liability for Landlord

  • EPA Proposes Amendments to CAMU Rule

  • EPA Brings PCB Enforcement Action Against Airport Authority and Contractor

  • Landlords and Property Managers Face Fines For LBP Disclosure Violations

  • EPA Approves 40 New Superfund Redevelopment Initiative Grants

  • EPA Awards Seven BCRLF Grants

  • HUD Announces New Brownfield Grants

  • EPA Announces Prospective Purchaser Agreements

  • If You Clean It, They Will Play

  • California Creates Brownfield Fund

  • Wisconsin Law Providing Liability Relief To Municipalities Spurs Development

  • Successful Brownfield Projects in Pennsylvania

  • Pennsylvania Proposes Revising Brownfield Cleanup Standards

  • North Carolina Enacts Tax Credits for Brownfield Development and Dry Cleaners

  • EPA Completes Investigation At Florida Elementary School

  • EPA Completes Cleanups at Former Farm Sites

  • EPA Orders Warehouse Owners and Operators to Perform Cleanup

  • EPA Announces new Environmental Cost Accounting Protocol for Superfund Cleanups

  • EPA To Change Method for Calculating When Superfund Cleanups are Completed

  • Lender Liability Site to Be Redeveloped

  • Prior Owner Not Liable Under CERCLA For Passive Migration

  • 1990 First Circuit Decision on Parent Liability Not Altered by Best Foods Ruling

  • Conrail Allowed to Bring Cost Recovery Action

  • Automatic Stay Does Not Bar State Superlien Law

  • CERCLA Lender Liability Decision Does Not Bar Action Against State Finance Authority


Federal Environmental Criminal Enforcement Declines

Until the mid-1990s, federal enforcement for environmental crimes was directed largely at corporations. However, the last few years has seen a dramatic shift in criminal prosecutions towards individuals. Enforcement statistics recently released by the Department of Justice (“DOJ”) for fiscal year 1997 illustrate this trend.

While the total number of businesses, organizations and individuals charged with federal environmental crimes declined for a second straight year from 511 to 446, only 25% percent of the cases were brought against businesses or organizations. The balance of the cases were brought against individuals and corporate officers. Of the 446 case brought against individuals in 1997, 85% resulted in convictions. 25% of the convictions resulted in jail time. The average prison term was 21 1/2 months but half the sentences were for a year or less.

In 1997 federal prosecutors commenced 952 criminal investigations compared to 909 for 1996. 53% of the 1997 criminal investigations involved alleged violations of wildlife protection laws while 47% involved pollution offenses. Federal prosecutors declined to prosecute 70% of the businesses or organizations that were investigated for a pollution offense and 67% of those investigated for a wildlife offense. The DOJ declined to bring criminal charges against 55% of the individuals investigated for pollution offenses and 38% of the individuals suspected of committing wildlife offenses. However, the federal government decided to pursue civil enforcement actions in 11% of the cases that had been declined for criminal referral.

In 1997 the federal government filed 207 environmental civil actions and nearly all of these involved pollution. In 74 of the concluded cases, defendants paid an average fine of $2.5 million. In 1997 EPA also brought 3,427 environmental administrative actions. Private citizens brought 642 federal environmental lawsuits compared to 576 in 1994. State environmental agencies referred 379 matters to state courts in 1997.

EPA Reduces Penalties Under Audit Policy

Companies are continuing to use the EPA audit policy to obtain significant penalty reductions for failing to file Toxic Release Inventory (“TRI”) reports required under the Emergency Planning and Community Right to Know Act (“EPCRA”). For example, two companies recently obtained 100% penalty reductions. EPA waived a potential penalty of $424,000 against General Electric for TRI reporting violations at its Grove City, Pennsylvania facility and waived a penalty of $7,400 against Dura Bond for failing to file TRI reports for its Steelton, Pennsylvania facility.

Other companies have achieved substantial penalty reductions in exchange for agreeing to perform Supplemental Environmental Projects (“SEPs”). For example, the Troy Chemical Corporation agreed to pay a penalty of $90,7000 and make $180,000 worth of improvements to its Newark, New Jersey facility. The company had failed to file TRI reports for 16 chemicals it had imported in the fiscal year prior to December 23, 1994 and also failed to file TRI forms for cumene and xylene for reporting years 1992 and 1993. Under the SEP, the facility will reduce air emissions of methanol. Troy will also install low-emission valves to lower the amount of methanol and other volatile chemicals that are vented into the atmosphere. Troy has also agreed to make two upgrades to significantly increase the amount of methanol and MODSOL that it recycles. This will reduce and reduce the quantity of hazardous waste it generates, lower the volume of wastewater discharges to the sewer system and also reduce the amount of raw materials it must purchase.

Another company used the EPA Audit Policy to reduce Clean Air Act (“CAA”) violations. Adams Plating Co. agreed to pay a $6,250 penalty and perform a SEP estimated to cost $29,625 at the company's electroplating plant in Lansing, MI. Under the SEP, the company will install an upgraded blower system to cut emissions from its plating operations which will increase emissions control efficiency to 99.8 percent.

Companies Obtain Relief Under State Audit Policies

Nearly two dozen states have adopted voluntary disclosure policies like the EPA Audit Policy. Though the kinds of penalty reductions and the eligibility requirements of these state policies may differ from the federal policy, they can nevertheless be used by companies to achieve significant reductions for violations of environmental laws that are voluntarily disclosed.

For example, the Idaho Department of Environmental Quality waived a $15,000 fine assessed against a Boise company for improper disposal of disposal of hazardous chemicals into its septic system. In exchange for the penalty waiver, the company will investigate and remediate potential soil and groundwater contamination, and will also fund a SEP. The SEP will involve connecting the facility to the Boise City Sewer system at an estimated cost of approximately $24,000.

In Oregon, a paper mill that faced potential penalties of over $480,000 for water quality violations was able to reduce its penalty assessment by 80% by voluntarily disclosing the violations. This was the first time that the state Department of Environmental Quality has used its self-disclosure rule in an enforcement matter. The DEQ self-disclosure rule was adopted in 1998.

CERCLA Recycling Exemption Requires Due Diligence

On November 29, 1999, Congress enacted the Superfund Recycling Equity Act (“SREA”) which exempts parties recycling certain materials containing hazardous materials from generator liability. In prior issues we have reported that while SREA expressly provides that the exemption would not affect any judicial proceedings instituted by the United States prior to the enactment of the amendments, there has been some confusion whether SREA applies to pending private actions.

However, even if defendants in a private cost recovery or contribution action could assert the defense, these defendants would still have to overcome a significant hurdle that has received little attention since SREA was enacted. To qualify for the SREA liability exemption, recyclers must be able to show that they took “reasonable care” to determine if the companies they sold recycled materials to were in “substantive (not procedural or administrative) compliance with applicable federal, state or local environmental requirements”. SREA does not define “reasonable care” nor has EPA issued guidance interpreting the phrase. Thus, commercial recyclers, municipalities that run recycling centers and even non-profits that collect and sell recycled materials are unclear what level of inquiry they must perform in order to qualify for the liability exemption. Since SREA uses the “reasonable care” and not the phrase “appropriate inquiry” which appears in the CERCLA innocent purchaser’s defense, it is unclear if the kind investigation that would satisfy the innocent purchasers defense would be sufficient or is even necessary to assert the SREA defense. Thus, a party seeking to take advantage of the exemption does not currently know if it should perform a site inspection of the purchaser’s facility, have the buyer complete a questionnaire, conduct a data base search or simply have the buyer certify that it is compliance.

Moreover, it is unclear if scrap dealers would have to review all of the environmental laws affecting the buyer’s entire facility or simply determine if the buyer properly handled the scrap material. For example, should a company that sells scrap metal have to evaluate what the buyer did with the metal after it was melted or should a supplier of recycled paper have to determine if its customer is in compliance with the Clean Water Act after the used paper is broken down into a slurry? While EPA is considering issuing formal guidance to address these issues, it will probably only be helpful for future recycling transactions since it is quite doubtful that scarp recyclers performed any customer compliance inquiries in the past. Thus, it is quite possible that the defendants who are allowed to assert the defense will not be able to successfully establish the elements of the defense. As a result, this defense may become as illusory as the innocent purchaser’s defense.

Commentary: In our last issue, we reported that the district court for the eastern district of California ruled in California DTSC v. Interstate Non-Ferrous Corp that SREA applied retrospectively to pending state cost recovery actions. The court said SREA simply clarified that recyclers were not liable under CERCLA and did not alter the liability scheme of CERCLA. If the law had changed the pre-existing liability scheme, the court would have had to determine if Congress had clearly expressed intent to have the law apply retroactively. In Morton International Inc v. A.E. Staley Mgf. Co., the federal district for the district of New Jersey extended California decision to contribution actions. However, the court did express concern that SREA’s fee-shifting provision could have a retroactive effect since plaintiffs could be penalized for filing actions commenced prior to the enactment of SREA.

EPA Announces National Environmental Performance Track Program

Over the last several years, EPA has experimenting with new regulatory approaches designed to achieve high levels of environmental protection with greater efficiency while providing regulatory flexibility to facilities. Building on its experience with its Project XL and other similar programs, EPA has announced a new environmental performance program for facilities with superior environmental records.

The program will consist of two categories. The first track is the National Environmental Achievement track which will be designed for facilities that consistently meet their legal requirements, have implemented high-quality EMS, have made commitments to improve their performance and provide information to the public. The second tier known as the National Environmental Stewardship track is still under development and will be implemented in 2001. The Stewardship Track will be used to encourage higher levels of voluntary environmental performance than those expected under the Achievement Track. These may include improvement in several categories of environmental performance, product stewardship and even better public outreach. The Stewardship Track allows for participation by companies as well as individual facilities within a company.

In addition to receiving national recognition, EPA indicated program participants would be eligible for the following incentives:

  • Reduced Discharge Monitoring Reports (“DMRs”) requirements under EPA's 1996 DMR burden reduction guidance.

  • Greater flexibility for meeting Best Available Control Technology (“BACT”) requirements of the CAA such as extending the applicability period for starting construction through a simplified control technology review.

  • More advantageous terms under the State Revolving Funds (“SRF”) program of the Clean Water Act such as reduced interest rates and extended payback terms.

  • Expedited review of new reduced risk pesticide product registrations for all of a participants pesticides manufacturing facilities.

  • Reduced reporting requirements for facilities that achieve Maximum Achievable Control Technology (“MACT”) through pollution prevention methods such as process changes. EPA intends to accomplish this through a single generic rulemaking covering all MACT standards.

  • Streamlined monitoring, reporting, and other procedural requirements for Publicly-Owned Treatment Works (“POTWs”)

  • Consolidating reporting under various environmental statutes into a single report.

  • Allowing RCRA facilities to accumulate wastes for up to 180 days without triggering RCRA TSDF permitting requirements.

  • Expedited review for submitting TSCA Premanufacturing Notifications ("PMNs") where the applicant uses EPA's Pollution Prevention Framework when preparing the PMN submission.

  • EPA will allow participants to use the Audit Policy for violations discovered during on-site inspections conducted under the National Environmental Performance Track program if the facility could not reasonably be expected to have known about or identified the violation prior to the on-site visit. In the event the facility becomes subject to an enforcement action, EPA will consider the facility's participation in the program as an indication of the facility's good faith efforts to comply when calculating penalties.

To be eligible for the program, a facility must satisfy the following criteria:

  • Implementation of EMS- For purposes of the program, the EMS will include a written environmental policy that includes commitments to comply with both legal requirements and voluntary commitments, pollution prevention where source reduction is the first choice, continuous improvement in environmental performance including areas not subject to regulations and sharing information about environmental performance and the operation of the EMS with the community. The policy must establish measurable objectives and targets that meet policy commitments and legal requirements, reduce the facility's significant environmental impacts, and meet the performance commitments made by the facility to join the program. In setting objectives and targets, the facility should consider preventing non-compliance, preventing pollution at its source, minimizing cross-media pollutant transfers, and improving environmental performance. The facility should also establish procedures for achieving and maintaining compliance and performance objectives, communicating information regarding the EMS throughout the organization, provide appropriate incentives for personnel to meet the EMS requirements, and establish document controls including where EMS documents will be located and who will maintain them. There should also be general environmental training programs for all employees and specific training for those whose jobs and responsibilities involve environmental activities. The EMS should also provide for operation and maintenance programs for equipment and for other operations as well as an emergency preparedness program. There should also be an active program for assessing performance, preventing or detecting non-conformance (including an established compliance audit program and an EMS audit program) as well as a corrective action program for non-compliance with legal requirements and other EMS requirements. The EMS should also provide for management review of actual facility performance against the established objectives and targets of the EMS. EPA did recognize that the scope and level of formality of an EMS would vary depending on the nature, size, and complexity of the facility. EPA indicated that it believed that these EMS elements were within the capability of small facilities and could be met through a variety of approaches. To help small facilities implement an EMS, EPA will make guidance documents and assistance materials available.

  • Past performance and commitment to future improvements- The facility must have demonstrated environmental performance in certain categories. Three of the categories involve the use of resources (energy use, water use, and materials use) while four categories relate to negative effects of activities or processes (air emissions, waste generation, water discharges, and accidental releases). The final two categories relate to efforts to preserve or restore resources and to the environmental performance of products. Within each category, EPA has listed environmental aspects that a facility may choose from in reporting on its performance. A facility will be asked to select at least two environmental aspects from any of the categories and to describe the improvements in its performance during the current and preceding one-year. In making future performance commitments, facilities should select at least four environmental aspects, drawn from two or more categories.

EPA did recognize that a small facility might have fewer environmental aspects as well as more limited resources for measuring and committing to specific improvements in performance. Thus, small facilities will have the option of documenting improvement in one environmental aspect from any category.

In documenting past achievements and future improvements, a facility cannot rely on any actions taken to comply with existing legal requirements. However, facilities may use the results of its participation in EPA, state, and other partnership programs to document past achievements. EPA will not establish specific performance levels.

  • Commitment to public outreach - There is no standard set of outreach activities, beyond what is required in the Annual Performance Report. EPA expects that applicants will already have established a public outreach program. For example, participants in the Responsible Care program or endorsers of the CERES (“Coalition for Environmentally Responsible Economies”) principles typically have a community advisory panel, newsletters, performance reporting, sponsorship of community activities, and other outreach activities. In the application, each facility will be asked to describe its activities and plans in several areas including identifying and responding to community concerns regarding pollution, odors, traffic congestion, water discharges, and emergency warnings as well as reporting on the performance of its EMS and other performance commitments. The facility also will be asked to list any ongoing citizen suits against the facility.

EPA indicated that many small facilities have adopted lower-cost but effective outreach programs. At a minimum, a small facility should be able to document that it has designated a contact person and has adopted procedures for responding to questions from local residents. Other efforts could include a designated community liaison official, periodic public meetings or open houses. The level of public outreach would depend not only on the size of the facility, but also on the degree of community interest and the environmental effects of the facility's operations.

  • Compliance with environmental laws- Facilities must have a good environmental compliance record and be in compliance with all applicable environmental requirements at the time of application. A facility will not be eligible for the program if there have been related violations of criminal laws involving the corporation or a corporate officer within the past 5 years, if there has been a criminal conviction or plea of an employee at the same facility for environmentally-related violations of criminal laws within the past 5 years or there is an on-going criminal investigation/prosecution of the corporation, corporate officer, or employee at the same facility for violations of environmental law.

For civil enforcement, a facility will not be eligible to participate in the program if there has been three or more significant civil violations at the facility in the past 3 years, if the facility has Unresolved, Unaddressed Significant Non-compliance ("SNC") or Significant Violations ("SVE"), the facility will is subject to pending but not yet filed judicial or administrative actions, the facility is subject to ongoing EPA- or state-initiated litigation or is not in compliance with the schedule and terms of an order or decree. In addition, EPA may also consider whether there are significant problems or a pattern of non-compliance in an applicant's overall civil or criminal compliance history. In addition, the facility must remain in compliance while it participates in the program.

Pennsylvania To Make Land Use Part Of Environmental Permit Reviews

With concern growing over sprawl, the Pennsylvania Department of Environmental Protection (“DEP”) has become one of the first state environmental agencies to routinely consider land-use issues during permit reviews for land-development projects. Under Governor Tom Ridge’s “Growing Smarter” land-use initiative, all state agencies must implement plans that promote sound land use by November 1st.

Under the new program, applicants for nearly 80 types of environmental permits will have to answer questions to determine whether the project will conflict with comprehensive plans and zoning ordinances adopted by counties and local governments. Permit applications for construction of new buildings and structures and for infrastructure such as transportation, water, stormwater, energy and communication services are subject to the new requirements. The DEP intends to examine the positive benefits of projects such as whether the projects redevelop brownfields that save green space or restore the environment. In addition, DEP will review projects to determine if they support locally-designated growth areas, zoning ordinances adopted jointly by municipalities and farmland-protection programs. Applicants will be required to provide expanded notices of the application and specifically solicit comments on potential conflicts with local land-use plans and zoning ordinances.

DEP has the option of denying a permit application that conflicts with local land-use ordinances or attaching a special condition to the permit to minimize or overcome a conflict. DEP also can approve the permit where a conflict is considered minor or where other public needs may outweigh land-use concerns.

DEP has estimated that as many as 5,000 of the 25,000 permits it reviews each year will be affected by the new requirements. The initiative will apply to pending permit applications. If land-use concerns have been raised during public reviews or by local governments, DEP will ask permit applicants to provide the same land-use information as new applicants.

Conrail Agrees to Fund Community Environmental Projects As Part of Settlement

The Pennsylvania DEP also announced a $1.1 million agreement with Conrail to resolve environmental violations at the Hollidaysburg Car Shop and Reclamation Plant, the Juniata Locomotive Shop, and the East Bound Rail Yard facilities in Blair County. Half of the $1.1 million will fund community environmental projects (“CEP”) and the other half will go to the Solid Waste Abatement Fund. Pennsylvania sometimes accepts CEPs in exchange of reduced civil penalties when the proposed project has a substantial public health, safety or environmental benefit to the community. At the same time, the state attorney general announced that Conrail had agreed to pay a criminal penalty of $1.5 million for the Hollidaysburg site, including an additional $1.5 million CEPs.

Under the CEPs, Conrail has agreed to fund will include $275,000 for the creation of a Canal Basin Park in Hollidaysburg that will an interpretative history of the 19th century canal. $75,000 will be used to pay for sampling at the Altoona City sewerage treatment facility located on the Beavertown branch of the Juniata River, and $200,000 will be directed to the Neighborhood Water Quality Protection Grant program that provides environmental education, water-related research, surveys, monitoring and water-quality improvement in low-income and or minority communities.

Environmental Compliance Issues for Telecommunications Industry

Clients acquiring telecommunications companies often decline to perform environmental due diligence because they assume that these business do not have many environmental compliance issues. However, according to a recent issue of the EPA’s Enforcement Alert, telecommunication companies may have significant environmental requirements. These requirements can be triggered by the use of lead-acid or sulfuric acid batteries, valve-regulated or "gel cell" batteries as well as diesel, lead, halon, and propane. In addition, many facilities use diesel-powered backup generators that provide uninterrupted power to telecommunications facilities.

For example, telecommunications facilities (central offices, mobile telephone switching offices, and garages) storing fuel oil for back-up generators or vehicle fleets may have to prepare written Spill Prevention Control and Countermeasure Plans (“SPCC”) under Section 311 of the Clea Water Act.

Under the CAA, facilities constructing emission sources such as a backup generator must obtain permits before constructing or installing the emission source. The regulatory requirements for installing and operating backup generators vary among the states. Some states exempt smaller stationary sources such as backup generators from these permitting requirements. In Ohio, for example, generators with more than 50 horsepower, operate less than 500 hours per year and burn gasoline, natural gas, and low-sulfur distillate oil or liquid petroleum gas are exempted. This exemption is valid so long as the owner or operator maintains records for each exempt air contaminant source and retains these monthly records for at least five years. In addition, the CAA regulates refrigerants such as chlorofluorocarbons (“CFCs”) and hydrochlorofluorocarbons (“HCFCs”). These refrigerants may be found in air conditioning units used to cool electrical equipment. EPA recently fined a number of telecommunications company for allowing ozone-depleting substances to vent into the atmosphere from leaking equipment.

Telephone operations may also result in the generation of hazardous wastes and may also have regulated underground storage tanks (“USTs”) that may have leaked or may have to be upgraded to meet the 1998 UST standards. Also, telecommunications facilities that disposed of hazardous waste at off-site disposal facilities could become liable under CERCLA for the cleanup of contamination at those facilities.

Under its Audit Policy, EPA has reached settlements year with 17 telecommunications companies that voluntarily disclosed and promptly corrected more than 2,000 environmental violations that occurred at more than 600 of their facilities. The telecommunications companies received a 100% waiver of the gravity-based penalties totaling more than $6 million. These 17 companies combined paid only $178,727 in penalties which represented the amount of the economic benefit realized through delayed compliance. In exchange for the penalty waiver, the 17 telecommunications companies implemented SPCC plans for 156 facilities, and filed EPCRA TRI reports for more than 1,000,000 pounds of diesel fuel, 482,000 pounds of sulfuric acid, and 410,000 pounds of lead present at their facilities.

For example, earlier this year EPA entered into a settlement with MCI WorldCom, Inc for failing to submit TRI reports for sulfuric acid, diesel fuel and/or ethylene glycol at 47 facilities in 17 states, failing to obtain permits or submit late permit applications to construct or install standby generators at 67 facilities in seven states and not complying with SPCC requirements at 46 facilities in 25 states and the District of Columbia. The company agreed to conduct environmental compliance audits at its facilities and pay a penalty of $625,000 to resolve 216 violations of the EPCRA, CWA, and CAA at 153 of its facilities in 29 states and the District of Columbia. In addition, the company paid $50,000 in stipulated penalties for EPCRA Section 312 violations found at 100 out of 233 facilities audited. The company must still audit its WorldCom, Inc. facilities which merged with MCI in September 1998 and became known thereafter as "MCI WorldCom, Inc.

Commentary: Users of computer-related equipment can also incur environmental cleanup liability if the equipment is improperly disposed. Computers and computer screens have electronic components that contain hazardous constituents such as lead, mercury, and cadmium. According to a study by the National Safety Council, more than 20 million computers have become obsolete in this nation and that by 2005, 55 million computers a year could be discarded in landfills.

EPA is trying to encourage the development of Extended Producer Responsibility (“EPR”) programs where manufacturers will create products with less toxic content, greater recycled components and assume responsibility for taking back products at the end of their useful life.

Until EPR becomes more widespread, users of computers and other electronic equipment can turn to computer asset recovery facilities who recycle computer components. Computer asset recovery facilities have processed more than 120 million pounds of scrap material. More than 95% of those materials, by weight, have been reused or recycled. However, one of the more difficult components to recycle are the circuit boards where components worth hundreds of dollars apiece are soldered in place then further secured with a protective adhesive such as an epoxy compound. The epoxy compound is used to form a hermetic seal to isolate components and connections from the environment and prevent corrosion and contamination. It is also used as electrical insulator and can act as a shock absorber to protect components from stress. While the solder can be easily removed with heat the presence of nearly indestructible epoxy adhesives around the components and their soldered connections has made disassembly so difficult that an estimated 77 percent of printed wire circuit boards cannot be reused


Second Circuit Rules 1950s CGL Policy Applies to Gradual Pollution

Prior to the mid-1960s, the standard comprehensive general liability (“CGL”) policy provided coverage for damage to property that was caused by an “accident”. By the end of the 1960s, many insurers had changed the wording of the CGL policies so to provide coverage for such damages that were caused by an “occurance”. The policies typically defined occurance as “an accident, including continuous or repeated exposure to conditions” which occurred during the policy period resulting in property damage or bodily injury that was “neither expected nor intended from the standpoint of the insured.” Exactly what constitutes an occurance has spawned considerable litigation. Recently, the federal Second Circuit Court of Appeals ruled in Olin Corporation v. Insurance Company of North America that the term “accident” was not limited to sudden or abrupt events but could include gradual pollution that occurred over time.

In this case, Olin acquired a fertilizer plant located in Williamston, North Carolina in 1950. Olin manufacture pesticides at the site until 1967 when it leased the property. In 1968, Olin sold the property to Kerr-McGee Corporation who sold the property in 1983 to an individual who operated a weekend country-music dance hall in the old pesticide production warehouse. After a dance in June 1985, a patron complained about strong odors. Investigations by EPA and North Carolina detected high concentrations of pesticides. EPA then issued a number of CERCLA 106 orders requiring Olin to remove the contaminated soil, dismantle structures on the property that contained pesticides and to monitor the groundwater. At one excavation, water began flowing into the excavation. Olin collected the water in a 50,000-gallon pool and treated it with a carbon system. Both EPA and the state notified Olin in 1996 that no further cleanup activity was required at the site though Olin was expected to continue to monitor the groundwater. Olin spent approximately $3.7 million on soil cleanup and $362,000 on the groundwater work.

Olin had purchased CGL policies from Insurance Company of North America (“INA”) from 1956 to 1973. After INA denied coverage, Olin brought an action in the federal district court for the District of Columbia which was transferred to the Southern District Court of New York. In a series of opinions, the court ruled that the term "accident" was not limited to an abrupt, one-time event and a jury found that INA could only be required to indemnify Olin for liability resulting from accidental damage to property from 1956 through 1970. The jury also found that the injury to soil occurred from 1956 through 1971 but that only the injury caused in 1956 and 1957 was accidental. The jury also found that injury to groundwater occurred during the same time period and that all the groundwater contamination was accidental. In addition, the jury determined that no such injury to property took place from 1951 through 1955 and 1972 through 1985 when Olin had no CGL insurance. Finally, the jury concluded that the EPA orders requiring removal contaminated soil and buildings from the site also required groundwater to be remediate.

However, the district court ruled that EPA orders only required Olin to remediate the contaminated soil. Because the only accidental soil injuries were in 1956 and 1957, the court ruled that INA was only obligated to cover only the 1956 and 1957 portion of the soil cleanup costs. Next, the district court held that the $100,000 deductible was applicable to each year in which a policy was in effect. The court also decided that Olin had effectively decided to self-insure during the years that it did not purchase insurance. Therefore, the court allocated the cleanup costs for all the years that the jury determined damaged had taken place.

INA appealed, arguing the terms and structure of the relevant policies provided “accident” did not apply to gradual infliction of damage. INA pointed out that the policy covered injury to property "caused by accident," while providing personal injury coverage attributable to an "occurrence." Since the post-1968 policies related "occurrence" to gradual events, INA said this was evidence that the term “accident” in the pre-1968 policies did not include gradual injury.

However, the Second Circuit upheld all of the district court’s rulings. The court said that under New York law the key factor in determining if the environmental damage was caused by an “accident” hinged on whether the damage was intentionally done by the insured. The court also found there was nothing in the policies from 1956 to 1968 suggesting that the terms "accident" and "occurrence" should be distinguished on whether the injury occurred suddenly or gradually. The court also said that definitions contained in the post-1968 could not be used to interpret the earlier policies. Besides, the court observed, the post-1968 policy defined an” occurrence" as an "accident." The court said that an occurrence could not be both different from an accident and also defined by it.

Because the vast preponderance of the costs that Olin incurred had been for soil remediation which the jury had disallowed, Olin argued on appeal that a portion of the money it spent to remediate the site should be attributed to the covered groundwater damage. The company reasoned that the soil cleanup was necessary to prevent the groundwater from becoming contaminated. However, the Second Circuit agreed with the district court that neither the EPA nor the State imposed the soil cleanup on Olin because of injury to groundwater. The court said that the 106 order required Olin to remediate the soil. The order did not require Olin to remediate the groundwater. While one motivation of EPA may have been to protect the groundwater, the court said that Olin’s liability was to cleanup the soil.

Commentary: Between 1972 and 1985, CGL policies contained a “pollution exclusion”. However, exclusion contained an exception for pollution that was “sudden and accidental”. Courts have struggled with the meaning of the phrase “sudden and accidental” language. One line of cases holds that the phrase is ambiguous and should be interpreted to mean unintended and unexpected so that it is simply a restatement of the “occurrence” clause. Other courts, though, have held that the clause has a temporal meaning so that it excludes gradual pollution such as leaks from underground storage tanks. Beginning in 1986, CGL policies contained a “absolute” pollution exclusion. Most courts have held that the absolute pollution clause is unambiguous and precludes a broad range of environmentally-related claims.

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