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@example.com.