Riker Danzig Environmental UPDATE May 2019

Riker Danzig Environmental UPDATE May 2019
Riker Danzig Environmental UPDATE May 2019

Obtaining Environmental Insurance: Three Areas for Negotiation

The environmental insurance marketplace has evolved over the decades it has been in existence. Our experience over the last few years shows that the market is active, with carriers willing to be innovative in order to remain competitive. Because environmental policies are written on a manuscript basis, meaning the policy is written on a custom basis to include coverage or conditions not included in a standard policy, policyholders have an opportunity through negotiation to obtain the best policy possible to suit their needs. The following are three areas where we are seeing flexibility and creativity in the carrier’s underwriting that address our client’s specific needs.

Known Pollution Conditions – Pollution policies generally do not cover cleanup costs for conditions known at the time the policy is issued. How these known conditions are defined in the policy is critical to the scope of coverage provided. Accordingly, working with the underwriter so that the policy defines known conditions as narrowly as possible is worth the effort. Toward this end, providing the underwriter with a detailed summary or chart outlining each known condition, its location on the property, the media impacted (e.g., soil or groundwater) and the specific contaminants identified is particularly helpful in negotiating this aspect of the policy.

Coverage for Conditions Discovered During Redevelopment – Many environmental insurance policies contain an exclusion for contamination discovered when demolishing existing structures or during the course of capital improvements. Thus, for clients who are purchasing (or selling) property for redevelopment, this exclusion may effectively operate to bar coverage. While subject to more underwriting scrutiny, we have had success in limiting the exclusion to contaminants found in building materials rather than a broad exclusion for any contamination discovered during redevelopment. Carriers also are willing to entertain providing coverage for contamination discovered during redevelopment if such a claim is subject to a deductible or self-insured retention that is higher than for other coverages afforded by the policy.

Named Insureds and Additional Insureds – Insurance is often purchased in order to allocate risk between parties to a real estate transaction. These transactions involve multiple parties, each with their own interests (e.g., the buyer and the seller and their affiliates, as well as even potential future owners of a property that is being redeveloped). These parties all generally want to have the benefits of coverage under the policy. Not all parties, however, should have or are entitled to the same coverage. Accordingly, it is important to carefully consider which entities receive the broadest rights under the policies (typically referred to as a “named insured”) and which parties have other insured status (typical referred to as an “additional insured”). This issue is further complicated by the fact that not all policies define a “named insured” and an “additional insured” in the same way. Accordingly, it is important to understand the rights, duties and privileges provided by the policy to each category of defined insureds to ensure proper coverage is extended to the appropriate parties. This may involve discussions with the underwriter about the interests of each party.

Procuring appropriate insurance can make the difference in whether a deal is done. Accordingly, best practice includes consulting with professionals experienced in procuring coverage (including both brokers and attorneys) to identify which carriers have an appetite and are willing to be creative in their underwriting to meet the needs of the deal as well as to negotiate with the carrier to develop policy terms that cover the risks for which the insurance is purchased.

For more information, please contact the author Alexa Richman-La Londe at alalonde@riker.com or any attorney in our Environmental Practice Group.

Recent Third Circuit Decisions Help Define Contours of CERCLA Liability

The United States Court of Appeals for the Third Circuit recently handed down two noteworthy decisions on environmental liability under the Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”). One involves the appropriate methodology for allocation of cleanup costs between two responsible parties based on equitable factors; the other involves whether a new owner of contaminated property is responsible for governmental response costs incurred prior to its purchase of the relevant property. Both set new precedent that should be of interest to the regulated community.

Equitable Allocation Methodology

In a relatively rare occurrence, the Third Circuit issued an opinion on allocation of environmental liability between successive landowners pursuant to CERCLA, and, even more surprising, the Third Circuit rejected the allocation methodology used by the District Court. Trinity Industries, Inc. v. Greenlease Holding Co., 903 F.3d 333 (3d Cir. 2018). The Third Circuit’s decision provides important guidance on the proper methodologies for equitable cost allocation. According to the decision, while precise calculations are not required, allocation methodology cannot be speculative. Further, the Third Circuit’s decision disfavors a strict volumetric approach to allocation except in straightforward cases where, for example, there is only one contaminant being addressed using one remedial technique.

Trinity Industries, Inc. (“Trinity”) brought a contribution action against the prior owner and operator of a railcar manufacturing plant, Greenlease Holding Co. (“Greenlease”), for approximately $9,000,000 in remediation costs Trinity incurred at the property. Both parties used the parcel for painting railcars with lead paint and other toxic chemicals. Greenlease owned and operated the parcel from 1910 until 1986, when Trinity purchased the parcel. Trinity operated until 2000.

After a bench trial regarding the equitable allocation of remediation costs, the District Court rejected both parties’ asserted allocations (Trinity’s expert allocated 99% of the costs to Greenlease and Greenlease’s expert allocated 88% to Trinity) and conducted its own analysis. The District Court devised a formula to attribute the remediation costs by multiplying the percentage of responsibility allocated to each party by either the square footage or cubic yardage for each remediation activity undertaken at 45 different “impact areas.” The District Court then added the results and divided by the total square footage or cubic yardage for all remediation activities to find that Greenlease’s overall cost allocation percentage was 83%. The District Court then reduced this number relying on three equitable factors: 1) that Trinity did not account for a subsequent purchaser’s actions, which allegedly caused contamination; 2) that, in their contract of sale, Trinity and Greenlease intended to shift some liability to Trinity; and 3) that remediation increased the value of the property. As a result, the District Court reduced Greenlease’s liability to 62% of the remediation costs. Both parties appealed.

Finding the District Court’s methodology “arbitrary” and “speculative,” the Third Circuit found the District Court abused its discretion in allocating responsibility based upon the quantities of contaminants in each impact area without regard for the actual costs each party was responsible for causing. Failing to account for the costs associated with different remedial activities employed (e.g., placing asphalt caps vs. placing topsoil) or different contaminants at issue “leads to an allocation that is inequitable because it is divorced from the record evidence and analytically unsound.” Compounding the initial error, when determining the quantities of contamination attributable to each party, the District Court erroneously treated square feet (units of area) as equivalent to cubic yards (units of volume). Rather, under the Third Circuit’s guidance an appropriate methodology should use volumetric and cost data specific to each remediation activity to determine how much of that activity each party is responsible for. Once a determination is made for each remediation activity, the respective shares can be added together to calculate an overall percentage.

While the Third Circuit has not adopted a standard allocation methodology appropriate for all facts and circumstances, its decision provides sound considerations and guideposts for parties who will be putting forth allocation arguments in their own cases.

Owner Liability for Pre-Ownership Response Costs

In a second recent decision, the Third Circuit again overturned the District Court in determining the costs a current owner is liable for under CERCLA. Pennsylvania Department of Environmental Protection v. Trainer Custom Chemical, LLC, 906 F.3d 85 (3d Cir. 2018). Trainer Custom Chemical, LLC (“Trainer”) purchased a former chemical manufacturing site at a tax sale for $20,000. The property, however, had been contaminated and, while the remedial action was essentially complete at the time Trainer purchased the property, the prior owner had defaulted on its environmental obligations, causing the Pennsylvania Department of Environmental Protection (“PADEP”) to have spent over $800,000 in remediation costs at the property prior to the tax sale. After the transfer of the property, Trainer was alleged to have caused new contamination at the property, again requiring the PADEP to incur costs. PADEP sued Trainer seeking recovery of all of its pre- and post-acquisition remediation costs.

The District Court drew a temporal line and ruled that Trainer was only liable for response costs PADEP incurred after Trainer became the owner of the property. In reaching its holding, the District Court relied on a Ninth Circuit decision that found that whether a party is an “owner” under Section 107 of CERCLA is measured at the time of cleanup. The Third Circuit, however, looked to the statutory language of CERCLA that holds a current property owner liable for “all costs” incurred to remediate property. Accordingly, the Third Circuit found that CERCLA does not draw a temporal line and that “all costs” means “all” costs regardless of the timing of property ownership.

This decision highlights the need for pre-acquisition due diligence not only to determine the potential responsibility to remediate contamination caused by prior owners, but also whether the government has unreimbursed costs for which a new owner may become responsible. Further, while Trainer did not assert the innocent or bona fide purchaser defense, these defenses as well as divisibility and apportionment may limit a current owner’s liability for “all costs” including pre-acquisition response costs. 

For more information, please contact the author Alexa Richman-La Londe at alalonde@riker.com or any attorney in our Environmental Practice Group.

New Jersey Takes Aim at PFAS and Chemical Manufacturers

In a move that has assuredly grabbed the attention of the regulated community, the New Jersey Department of Environmental Protection (“NJDEP”) recently commenced two major initiatives in an effort to further address the emerging, hot-button issue of poly- and perfluoroalkyl substances (“PFAS”) contamination in the state. Specifically, on March 13th, the NJDEP established new interim specific groundwater quality standards for two particular PFAS compounds, perfluorooctanoic acid (“PFOA”) and perfluorooctanesulfonic acid (“PFOS”), which became effective immediately. Then on March 25th, the NJDEP issued a directive to five chemical manufacturing companies that it believes are the primary source of widespread PFAS contamination in New Jersey. The directive requires these companies to provide a detailed accounting of their historical use and discharge of PFAS and notifies them that the State will hold them financially responsible for costs associated with the investigation and remediation of PFAS contamination for which they are responsible. A few days later on March 27th, the NJDEP filed a suit against certain of these chemical companies seeking cleanup and removal costs and damages for injuries to natural resources. With these new initiatives, New Jersey continues to be one of the states at the forefront of investigating and regulating PFAS chemicals. (To see how New York is handling PFAS, see our March 4, 2019 Blog Article New York Expands Requirement To Investigate Emerging Contaminants.)

Significantly, in conjunction with establishing the new interim specific groundwater standards for PFOA and PFOS, both set at 0.01 micrograms per liter (ug/L) or 10 parts per trillion (ppt), the NJDEP issued a guidance document mandating that all remediating parties are required to evaluate the potential for, and if warranted investigate and remediate, PFOA/PFOS contamination at their sites. The guidance document also makes clear that this requirement applies to all active site remediation cases, including those subject to upcoming regulatory and mandatory timeframes as well as those cases that received a limited restricted or restricted use response action outcome (in which case the evaluation must be performed prior to and reported in the next biennial protectiveness certification). In making this clarification, the NJDEP recommends that if a remediating party cannot complete the evaluation and any required investigation and remediation by its applicable timeframes, it should apply for an extension. Notably, however, if PFOA or PFOS is identified, a remediating party has the option to report the discharge and create a new case specifically for the PFOA/PFOS contamination that, going forward, will be subject to separate timeframes for completion of the remedial investigation and remedial action.

This new requirement to evaluate and address PFOA/PFOS is likely to have significant impacts on site remediation cases as well as parties involved in, or performing due diligence associated with, property and other business transactions. Parties that may be at the end of their investigation or remediation may now be forced to go back and address these contaminants at significant unanticipated cost. While some may question or, in the right case, may even challenge the enforceability of NJDEP guidance since it was not promulgated through the Administrative Procedures Act process, it is clear that the NJDEP is intent on making responsible parties evaluate, and if warranted, address PFAS contamination at their contaminated sites. 

For more information, please contact the author Jaan M. Haus at jhaus@riker.com or any attorney in our Environmental Practice Group.

Environmental Justice Initiatives Soon May Impact Permitting and Other Regulatory Actions

Since taking office last year, New Jersey Governor Phil Murphy has sought to place concerns about environmental justice in the foreground of New Jersey’s regulatory decision-making process. Advocates and policymakers long have maintained that locally undesirable or polluting land uses disproportionately are located in low-income, typically urban communities that lack political influence or sufficient resources to protect their interests. Environmental justice efforts attempt to respond to this imbalance and, as the NJDEP defines the concept, aspires that “no one group of people will have a disproportionate share of negative environmental consequences stemming from industrial, governmental and commercial operations or policies.” Recently, both the executive and legislative branches have taken steps to implement new environmental justice policies. Last year, Governor Murphy issued an Executive Order and NJDEP distributed a draft guidance document that instruct State agencies to account for environmental justice concerns in their decision-making processes. In addition, S1700, a bill imposing additional environmental permitting requirements in certain “burdened communities,” was unanimously reported out of the Senate Environment and Energy Committee in February.

The Murphy administration took its first steps toward addressing environmental justice concerns with Executive Order 23, issued in April 2018, which directed NJDEP to develop a guidance document providing direction for all executive agencies to take environmental justice into account in their decision-making. NJDEP published its draft guidance in December 2018 in response to the E.O. 23 directive. In its current form, the draft guidance directs fifteen State agencies to prepare Environmental Justice Action Plans that would focus on internal training of agency employees and provide the public with greater opportunities to participate in agency decisions that impact environmental justice communities. A new interagency working group would develop solutions to the exposure of underprivileged communities to lead in paint and drinking water and would study ways in which those communities are vulnerable to climate change. In short, the environmental justice draft guidance is heavy on interagency cooperation and public participation, but does not impose new requirements on regulated entities.

On the other hand, S1700, the environmental justice bill currently before the legislature, if passed, would impose stringent requirements on some regulated entities. This bill has been introduced in several successive Legislative sessions in the last decade, but always died in committee; however, the current administration, as noted, has put its influence behind environmental justice efforts. As modified in the Senate Energy and Environment Committee before being reported to the Senate Budget and Appropriations Committee on January 24th, S1700 requires NJDEP to designate census tracts ranked in the bottom third of tracts in the state for household median income as “burdened communities.” Before NJDEP could issue a permit to build or expand certain facilities located in burdened communities, including electric generating facilities, sewage treatment plants, solid waste transfer stations or recycling centers, or landfills, S1700 would erect several new procedural barriers: (1) the applicant must prepare an environmental impact statement and hold a public hearing in the burdened community; (2) NJDEP can deny a permit application that otherwise meets all other requirements if the cumulative health and environmental effects of the permitted activity, combined with existing environmental conditions, would constitute an “unreasonable risk” to the burdened community; and (3) NJDEP must consider the community support for or opposition to the project before issuing the permit. However, the Senate Energy and Environment Committee made the bill less burdensome than the initial draft; for example, the committee limited the types of facilities to which S1700 would apply, and it removed a requirement that the municipal governing body separately approve permits for facilities in burdened communities.  

Notwithstanding these committee changes, S1700 still would make siting or expanding covered facilities more onerous than it is under existing law. An existing facility located in an area designated as a burdened community could find that its ability to expand is severely constrained. The somewhat vague term “unreasonable risk” (to be further defined by NJDEP through promulgation of rules and guidance) also invites litigation over NJDEP’s permit decisions in burdened communities. It should be noted, however, that the bill’s permissive language—NJDEP “may deny a permit application”—could make it difficult to challenge NJDEP’s exercise of discretion to deny a permit on environmental justice grounds or to grant a permit despite environmental justice concerns. The scope of NJDEP’s obligation to “consider” community support or opposition to the permit is unclear. Would the agency have acted in error if it “considers” near unanimous community opposition to a permit, but grants the permit nonetheless?

Interested parties should closely follow and consider participating in these ongoing efforts to implement environmental justice principles. The Legislature’s effort to inject environmental justice principles—usually reserved for the rarefied precincts of inter-agency discussion groups—into the everyday work of issuing permits for facilities could change the course of development in New Jersey.

For more information, please contact the author Michael Kettler at mkettler@riker.com or any attorney in our Environmental Practice Group.

New York Expands Requirement to Investigate Emerging Contaminants

New York began last year to require remediating parties to investigate whether groundwater at their sites was contaminated with the emerging contaminants 1,4-dioxane and PFAS (i.e., per- and polyfluoroalkyl substances). (See our May 29, 2018 Blog Article NYSDEC Requiring Site Owners To Investigate Emerging Contaminants.) Now, the New York State Department of Environmental Conservation is broadening this requirement by mandating investigation of the presence of these contaminants in all environmental media, not just groundwater. This represents a significant and costly expansion of the obligations of remediating parties in New York, the scope of which is not yet clear.

The new requirements are embodied in a February 2019 guidance document titled Sampling for 1,4-Dioxane and Per- and Polyfluoroalkyl Substances Under DEC’s Part 375 Remedial Programs. The guidance specifically requires any new site brought into one of New York’s remedial programs (e.g., the State Superfund Program and New York Brownfield Cleanup Program) to incorporate sampling for 1,4-dioxane and PFAS into its investigation of soil, groundwater, surface water, sediment, and, in certain instances, animals and plants. However, it is not clear whether this new requirement will be applied to sites already undergoing remediation. It also is not clear what remediation will be required if emerging contaminants are identified at a site because New York does not yet have cleanup objectives for many of the environmental media that now must be sampled. As a result, and until cleanup objectives are established, the extent of remedial activities required to address emerging contaminants will be addressed on a case-by-case basis.

The guidance further requires that any soil imported to a site in one of New York’s remedial programs must be tested for 1,4-dioxane and PFAS. This includes soil imported for use as part of a cap or as backfill. In other words, soil imported as part of remediation must be tested for emerging contaminants even if the soil comes from another site that is not otherwise required to conduct such sampling (e.g., from a site in another state that doesn’t require investigation of these emerging contaminants). The risk of finding emerging contaminants at a site that is not otherwise required to sample for them may dissuade such sites from sending fill to remediation projects in New York and may make it difficult for New York projects to obtain necessary fill.

With this new initiative, New York continues to be at the forefront of the regulation of emerging contaminants. While the initiative is an aggressive attempt to protect human health and the environment from the risks of emerging contaminants, it is likely to have a significant impact on remediation projects within New York, whether or not such projects involve emerging contaminants. 

For more information, please contact the author Matthew A. Karmel at mkarmel@riker.com  or any attorney in our Environmental Practice Group.

WOTUS Proposal Would Reduce Waters Subject to Federal Regulation

The newly proposed definition of the Waters of the United States (“WOTUS”) may clarify what water features are federally regulated under the Clean Water Act, but, if adopted, it is sure to spark further litigation. On December 11, 2018, the United States Environmental Protection Agency (“EPA”) and the Army Corps of Engineers (“Army Corps”) proposed the much-anticipated revised definition of WOTUS, which establishes the jurisdictional reach of the Clean Water Act. The current definition of WOTUS, adopted during the Obama Administration, is far-reaching and includes areas such as mudflats, sandflats, isolated wetlands and ephemeral and intermittent streams. To the satisfaction of many in the commercial, industrial and farming communities, the new proposal limits the extent of WOTUS to six identified categories of water features. But environmental groups believe these limitations will result in less protection for the Country’s wetlands and water resources and, in fact, have referred to the revised definition as the “dirty water rule.”

According to the EPA and the Army Corps, the proposed WOTUS definition is “simple, understandable and implementable” and was drafted to provide clarity to the regulators and the regulated community. Much of the uncertainty in the current WOTUS rule results from the “significant nexus” provision that allows federal regulators to determine, on a fact specific basis, whether a particular water feature is a WOTUS. This provision provides the EPA and Army Corps with the ability to use a “know it when they see it” inquiry to determine whether a water feature is subject to federal regulation. It also encompasses nebulous areas such as ponds that are only filled during rainfall events and isolated wetlands. The new proposal eliminates the “significant nexus” provision and encompasses only relatively permanent flowing waterbodies that are either traditionally navigable or have a connection to a traditionally navigable waterway. It also limits federal protection to those wetlands that either abut or have a direct hydrologic surface connection to navigable waters. The reach of the Clean Water Act under the revised definition is unquestionably reduced.

The proposed WOTUS definition sets forth six exclusive categories of waters that fall within the jurisdiction of the federal Clean Water Act. The revised definition initially identifies WOTUS as waters that are used, or were used in the past, or may be susceptible to use, in interstate or foreign commerce (“navigable waters”). The remaining WOTUS categories are contingent upon this first enumerated category. For example, tributaries are included if they are tributaries of navigable waters. Most importantly wetlands and impoundments are federally regulated only if they are adjacent or connected to navigable waters. To add clarity, the EPA and Army Corps specifically set forth waters that are not WOTUS, including certain ditches, prior converted cropland, artificially irrigated areas, artificial lakes and ponds and groundwater.

The newly proposed WOTUS rule attempts to reduce the uncertainty of the current rule by identifying specific categories of WOTUS. Although certain language in the proposal, such as waters that “were used in the past or may be susceptible to use” in commerce, continues to create some ambiguity, the regulated community appears pleased with the increased clarity the proposed definition provides. Environmentalists, however, are concerned that the lack of a “significant nexus” test and the elimination of certain categories of water features in the proposed rule will reduce protection for important US waters as required by the Clean Water Act. As such, it is anticipated that the adoption of the proposed WOTUS rule will spark additional litigation. Moreover, the ability of the rule to provide clarity and increased certainty to regulators and the regulated community will only be known with the passage of time. For now, the WOTUS saga continues. 

For more information, please contact the author Laurie J. Sands at lsands@riker.com or any attorney in our Environmental Practice Group.

Storm(y) Waters on the Horizon: Changes Coming to Regulation of Stormwater in New Jersey

Regulation of stormwater in New Jersey is undergoing a shakeup that may have significant consequences for redevelopers and property owners. In fact, New Jersey recently enacted legislation that allows municipalities to create stormwater utilities. This legislation, which has been called a “rain tax,” authorizes these utilities to impose fees and take other actions to control stormwater. The NJDEP also recently proposed changes to the regulations governing stormwater management in connection with certain construction projects. The newly proposed requirements include minimizing the use of impervious materials and promoting green stormwater infrastructure. While conservationists argue that these proposed rules do not go far enough to address environmental issues relating to stormwater, if adopted the proposed changes would impose more burdensome requirements on construction projects. In any event, redevelopers and property owners should carefully consider these new developments, as they will have an impact on existing and planned projects.

As noted, a major change in the regulation of stormwater in New Jersey results from the passage of legislation that allows municipalities to create stormwater utilities. A key component in the legislation is the ability for these utilities to impose fees on a property owner based on “a fair and equitable approximation” of how much runoff is generated from its property, but property owners can obtain fee reductions through certain stormwater management activities. The “fair and equitable” standard is vague and may be subject to challenge, if and when local governments begin to form stormwater utilities. The new legislation is permissive, not mandatory, and it is not yet clear how many local governments will decide to set up stormwater utilities. The new legislation also contains other provisions relating to stormwater management, including procedures and standards for the dedication of a stormwater management system to a municipality. Redevelopers and property owners should monitor the creation of stormwater utilities within their municipalities.

The proposed changes to the stormwater regulations are more technical in nature and include:

While there has been some praise for certain of these proposed changes from environmentalists—such as the focus on requiring green infrastructure to better manage stormwater— if these additional changes are adopted, which seems likely, they could raise costs for new developments and construction projects.

For more information, please contact the author Jason M. Boyle at jboyle@riker.com or any attorney in our Environmental Practice Group.

New Jersey Legislative Update

Recently Enacted Environmental Laws

P.L. 2019, c.42: Authorizes municipalities, counties, and certain authorities to establish stormwater utilities.

Recently Introduced Environmental Bills

A4867/S3274: Establishes statewide targets to reduce disposal of organic waste in landfills; requires NJDEP to adopt regulations to achieve targets. Status: Introduced in the Assembly, Referred to Assembly Environment and Solid Waste Committee. Introduced in the Senate, Referred to Senate Environment and Energy Committee.

A5033/S3277: Authorizes NJDEP rulemaking to prevent backsliding of certain State environmental regulations due to changes in federal law or regulation. Status: Introduced in the Assembly, Reported from Assembly Environment and Solid Waste Committee, and Referred to Assembly Appropriations Committee. Introduced in the Senate, Referred to Senate Environment and Energy Committee. 


Riker Danzig’s Environmental Practice has again been honored with a Band One ranking in the Chambers USA Guide this year. Our group has been consistently ranked in the top tiers of Chambers USA since the publication’s inception and in Band One since 2010. Seven of our environmental attorneys are individually recognized by Chambers USA, more than any other New Jersey law firm. Partners Dennis Krumholz, Samuel Moulthrop and Steven Senior received Band One rankings for 2019. Marilynn Greenberg, Jaan Haus, Alexa Richman-La Londe and Jeffrey Wagenbach are also recognized in the Guide.

Following are highlights from the editorial commentary, as published in Chambers USA.

Riker Danzig’s Environment Practice (Band 1):

A Chambers source notes: “Riker has a really nice practice. I have a lot of respect for their people. They are heavily engaged in environmental matters.”

Other quotes from Chambers regarding Riker Danzig’s Environmental Practice:

Many of Riker Danzig’s other practice areas and attorneys have also been ranked in the prestigious guide. Full rankings, commentary, and methodology are available at Chambers.com.

See Riker Danzig Awards and Honors Methodology.

No aspect of this communication has been approved by the Supreme Court of New Jersey.