Businesses associated with the release
of contaminants into the environment
are at risk of liability under state and
federal statutory laws, as well as from toxic
tort actions of private citizens, says David L.
Guevara, J.D., Ph.D., a member of the
Environmental Law and Litigation Practice
Groups at Taft Stettinius & Hollister LLP.
Smart Business asked Guevara what
companies can do to protect themselves.
What types of businesses confront environmental liability exposure?
Businesses of many types confront environmental liability exposure. For instance,
the Comprehensive Environmental Response, Compensation and Liability Act —
or CERCLA — identifies four categories of
parties who, regardless of fault, must pay to
clean up sites contaminated with hazardous
substances: (1) current owners or operators
of a site where a hazardous substance has
been released; (2) past owners or operators
of a site at the time hazardous substances
were released; (3) any person who arranged
for the disposal, transport or treatment of
hazardous substances released at a site; and
(4) any person who transports a hazardous
substance to a site from which there has
been a release.
Case law interpreting CERCLA has
enlarged this list of liable parties to include
successor corporations, lessees of current
and former owners, corporate officers who
were active in site operations, active shareholders, parent corporations, lenders and
trustees. As a consequence of this broad
classification of the liable parties under
CERCLA, most any type of business can
find itself potentially responsible for the
costs of cleaning up contaminated property,
which can amount to hundreds of thousands and even millions of dollars.
What is commercial general liability insurance?
First, commercial lines of insurance are
those written specifically for businesses.
Commercial insurance is an important
investment for any business because it can
protect against losses due to, for example,
property damage, liability or worker injury.
Second, commercial general liability is a
form of casualty insurance, which means it
provides coverage for that liability exposure
of a business due to accidents not otherwise
excluded by the policy. Third, all commercial general liability policies are composed
of four basic parts: the declarations, conditions, insuring agreement and exclusions.
While each of these parts is important, it is
the insuring agreement that states what is
covered. In a commercial general liability
policy, the insuring agreement generally
states that the insurer will pay all sums the
insured becomes legally liable to pay
because of bodily injury or property damage
to which the insurance applies and that the
insurer has the right and duty to defend any
suit against the insured seeking damages
due to such bodily injury or property damage. Accordingly, commercial general liability insurance imposes two primary duties
on the insurer — a duty to defend the
insured in the event that it is sued for damages due to covered bodily injury or property damage, and a separate and distinct duty
to indemnify the insured in the event that
settlement of the suit is reached or a judgment is rendered.
Explain the insurer’s duty to defend.
The insurer’s duty to defend is much broader than its duty to indemnify and is triggered
by the mere potential for coverage. Once the
duty arises, it continues until the insurer is
able to demonstrate the potential for coverage no longer exists. Accordingly, the insurer’s defense obligation does not depend upon
a conclusive demonstration that the insurer
must indemnify the insured. Rather, the
insurer’s defense obligation centers on
whether any of the facts asserted against the
insured fall within the policy’s area of coverage. Only when the insurer can demonstrate
that the facts underlying a claim show that
the claim is clearly outside of the risk covered by the policy may the insurer properly
refuse to provide the insured a defense.
Because the costs of defending a suit seeking
damages for environmental liability can often
far exceed the amount of a settlement or
judgment, the insurer’s duty to defend the
insured is one of the most significant rights
the insured has under a commercial general
liability insurance policy.
What should a business do if it discovers
contamination?
The ‘conditions’ section of a commercial
general liability insurance policy enumerates
the requirements the insured must meet in
order to obtain coverage. For instance, policies require an insured to provide prompt
notice to the insurer of any accident potentially resulting in damages. An insured is also
required to promptly provide notice to the
insurer of any claims or suits made against
the insured. Accordingly, if a business discovers or otherwise becomes aware of contamination for which it may be liable, it must
promptly provide notice to its insurance carrier and follow all other conditions enumerated in its policy. Commercial general liability insurance can be an enormous asset to a
business confronting a claim against it for
environmental liability. The business, however, must cautiously study the full policy,
including the ‘exclusions,’ and meet the policy’s terms in order to gain coverage.
DAVID GUEVARA is a graduate of the University of Notre Dame Law School and a member of Taft Stettinius & Hollister’s Environmental
Law and Litigation Practice Groups. Reach him at (317) 713-3500 or [email protected].
