Environmental Insurance, State Liability Shields Can Help Mitigate Non-Statutory Tort Risk

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Brownfield redevelopers have a number of practical strategies to mitigate exposure to common law liabilities that may exist at contaminated sites.

Such options include environmental insurance, state liability shields, transactional mechanisms and “continuing obligation plans,” provided they are properly understood and timely addressed, lawyers said Sept. 2 during a panel discussion at the 2015 National Brownfields Conference in Chicago, co-sponsored by the Environmental Protection Agency and International City/County Management Association.

A ‘Common Misconception'

Many developers and local governments may believe they are fully covered under any one of several statutory defenses available under the Comprehensive Environmental Response, Compensation, and Liability Act.

“Not true,” said Michael Goldstein, managing partner of the Goldstein Environmental Law Firm in Miami.

“Unfortunately, this is a common misconception that can lead to significant claims for property damage and bodily injury that haven’t been properly accounted for by project principals and stakeholders,” he said.

In fact, there are no statutory defenses under CERCLA for non-statutory common law liability; this means no bona fide prospective purchaser defense and no innocent landowner defense.

Goldstein made his comments at a panel on protection against toxic tort claim liability. The panel was moderated by Logan Hollers, a legal editor for Bloomberg BNA's Environmental Due Diligence Guide.

Goldstein discussed some of the most common, and often most effective, potential solutions to this lack of a statutory defense.

Securing some form of environmental insurance is one option. Another, Goldstein said, is the use of liability shields in state brownfield agreements.

However, he said, not all states give protection against third-party claims. Goldstein cited Florida as an example of a state that does offer increased liability protection for brownfield redevelopers.

There are two key questions of concern for the brownfields developer, Goldstein said: “Does the common law cause of action get ‘reset' when title transfers, and are toxic tort claims ‘evergreen'?”

No Clear Answer in Case Law

Goldstein went on to briefly review some of the relevant cases that have dealt with these questions, remarking that “Unfortunately, there's not really a clear answer in the case law.”

He cautioned, “If you buy the property, you buy the problem.”

Goldstein delved into New York v. Shore Realty Corp., 795 F.2d 1032, 22 ERC 1625 (2nd Cir. 1985), a case from 30 years ago involving a developer who purchased for residential redevelopment a site containing more than 700,000 gallons of liquid hazardous waste under various conditions of release and threatened release.

Under New York law, the landowner, Shore Realty, was subject to liability for a nuisance on its property upon learning of the waste and having a reasonable opportunity to abate it.

According to the Restatement (Second) of Torts §839 comment d (1979), liability of a possessor of land is based not on responsibility for the creation of the condition but on the fact that the possessor has exclusive control over the land and “should have the responsibility of taking reasonable measures to remedy conditions on it that are a source of harm to others.”

“It is immaterial, therefore, that other parties placed the chemicals on this site,” Goldstein said. “Shore purchased it with knowledge of its condition—and indeed of the approximate cost of cleaning it up—and had an opportunity to clean up the site.”

Shore failed to do so, and thus was liable under the common law tort claim.

Amy Edwards, a partner and co-chair for the National Environmental Team at the law firm Holland & Knight, said “this concern over non-statutory liability is driving many of our deals.”

Buyers and redevelopers need to consider multiple issues when reviewing a property, she said. “Is vapor intrusion a concern? What do you do when engineering controls were not installed at a previously contaminated site?”

Buyers of brownfield sites may be liable for previous contamination at the sites even if they had no role in contaminating them, Edwards said.

Vapor Intrusion

When considering non-statutory environmental risk, Edwards reiterated that developers should consider vapor intrusion and the migration of volatile organic chemicals in soil and groundwater into overlying or nearby buildings.

If there is no relevant state law in their own jurisdiction, redevelopers should look at what other states have done with vapor intrusion and consult the EPA's guidance, Edwards said.

“Don't ignore this issue just because there's not a state standard,” she said.

Edwards counseled parties involved in redevelopment to ask, “What do we know about vapor intrusion [at the site] and what are we doing to address it?” If excess risk is associated with the site, developers may decide not to go forward, she said.

Edwards also focused on transactional mechanisms that can be used to mitigate exposure to common law liabilities at redevelopment sites.

“Indemnifications and escrow accounts are both options that need to be explored when dealing with the transfer of contaminated property,” she said.

Edwards and Goldstein are both members of Bloomberg BNA's Environmental Due Diligence Guide advisory board. Edwards can be contacted at Amy.Edwards@hklaw.com. Goldstein can be contacted at mgoldstein@goldsteinenvlaw.com.