Businesses Near Superfund Site Should Re-Read Old Policies

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Originally published in Portland Business Journal, Sept. 4, 2009.

Since 2000 the Oregon Department of Environmental Quality and the U.S. Environmental Protection agencies have required dozens of Portland businesses and property owners to carry out investigations and cleanups of property, particularly in the Portland Harbor and Columbia Slough.

In 2008 the EPA sent so-called 104(e) requests for information to several hundred area businesses, in large part to identify others with potential liability for environmental cleanup in the Portland Harbor. Once the responses are processed, many additional businesses will likely be required to carry out or fund soil, groundwater and sediment investigations and cleanups. Cleaning up historical contamination has become and will continue to be a very significant financial burden.

Oregon businesses and landowners faced with potential environmental liability should look to their old commercial general liability policies — particularly those written before 1986. These policies were typically written on an "occurrence" basis. That means they provide coverage for the policyholder's liability in connection with spills or releases that occurred during the policy period, even if the contamination is not discovered until years later.

Oregon case law and the landmark Oregon Environmental Cleanup Assistance Act — the Oregon Cleanup Act for short — that was passed in 1999 and expanded in 2003 provides a powerful basis for requiring insurance companies that issued general liability policies before 1986 to pay some or all of the legal, consulting and cleanup costs associated with studying and remediating contamination in and around the Portland Harbor and Columbia Slough, as well as many other riparian and upland sites around the state.

The 2003 legislation is particularly powerful for three reasons. First, it adopts the so-called "all-sums" rule, which allows policyholders with "all-sums" coverage from multiple insurers to choose to recover from a single insurer or from several insurers, and forces the chosen insurer(s) to collect from the remaining insurers. Second, it requires insurance companies to search for and give policyholders copies of policies and any other information they have regarding lost or missing policies, and makes coverage available if evidence shows it is more likely than not that a policy was issued. Third, it clarifies that site investigation costs are defense costs covered by commercial general liability policies and generally not subject to indemnity limits.

The most fertile ground for seeking recovery will be under pre-1986 policies. Those issued prior to 1971 are best since they typically do not contain any pollution exclusions. Policies issued between 1971 and 1986 generally provide coverage for most environmental claims. Policies issued after 1986 typically include an absolute pollution exclusion.

To obtain coverage under any of these policies, the policyholder must show that a spill or release caused property damage to a third party's property. This includes groundwater contamination and off-site soil, surface water or sediment contamination (like in the Portland Harbor or Columbia Slough). Because these are "occurrence" policies, the policyholder must also show that some property damage occurred during a particular policy period.

The standard pre-1986 general liability policy imposes on the insurance company a duty to defend and a duty to indemnify. The duty to indemnify is the duty to pay damages at the end of the day. The duty to defend is broader and arises as soon as a suit is filed or a claim is made by the government against the policyholder.

Importantly, defense costs are generally not counted as part of the typical policy's limits of liability.

Under Oregon law a letter designating a business as a potentially responsible party at a site or a formal information request in connection with a contaminated site triggers the duty to defend because the policyholder is compelled to respond in order to avoid or limit liability. Under the Oregon Cleanup Act the duty to defend also arises when a cleanup is performed under a DEQ or EPA order or pursuant to a voluntary agreement with DEQ. This means that the costs of paying consultants or lawyers and the agency oversight costs necessary to limit or avoid liability are covered.

Failing to notify an insurance company before preparing a 104(e) response or performing a remedial investigation or cleanup does not necessarily prevent coverage.

In a recent Oregon appellate decision, the court held that an insured will be prevented from obtaining insurance only if the timing of the notice actually prejudices the insurer by preventing it from investigating and determining whether the insured caused the contamination.

Although each policyholder's claim gives rise to its own unique set of factual and insurance coverage issues, one thing is clear. All Oregon businesses and landowners facing environmental liability should search their old file cabinets and pull out their dusty, pre-1986 general liability policies. Chances are good that the policies will provide coverage for environmental cleanup costs, and the sooner the claims are made the better.

Key Contributors

Christopher R. Hermann
Joan P. Snyder
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