Riker Danzig Environmental UPDATE October 2016

Riker Danzig Environmental UPDATE October 2016

Appellate Division Revives Environmental Rights Act Claims to Compel Cleanup of Contaminated Sites—For Now
NY and NJ Courts Split on Whether Policyholders Should Share in Allocation When Insurance Is Not Available
NJ Court Finds Another Piece of the Insurance Allocation Puzzle
It’s About Time: Reforming the Regulation of Chemical Substances Under TSCA
Regulatory Update
Legislative Update

Appellate Division Revives Environmental Rights Act Claims to Compel Cleanup of Contaminated Sites—For Now

On August 15th, the Appellate Division permitted the owner of contaminated property to assert a claim under the Environmental Rights Act (“ERA”), N.J.S.A.2A:35A-1 et seq., to compel prior owners that allegedly discharged hazardous substances to remediate the contamination.  Bradley v. Kovelesky, Docket No. A-0423-14 (App. Div. Aug. 15, 2016).  The ERA allows private parties to seek injunctive relief for violations of New Jersey environmental statutes in the face of government inaction, but the ERA has not been used successfully to compel remediation of wholly past discharges of hazardous substances.  The New Jersey Supreme Court currently is considering a similar issue in another case.  See Dalton v. Shanna Lynn Corp., Docket No. A-4846-12 (App. Div. Nov. 6, 2015), certif. granted, 223 N.J. 406 (2015), and our earlier entry on the Dalton case.  If the Supreme Court adopts or does not disturb Bradley’s approach to the ERA, owners of contaminated property and parties cleaning up contaminated sites may obtain broader relief against dischargers than previously has been available to them through the Spill Compensation and Control Act, N.J.S.A. 58:10-23.11 et seq. (“Spill Act”).

In Bradley, the plaintiffs were executors of an estate whose decedent owned property contaminated by asphalt dumping.  After discovering the contamination, the plaintiffs brought Spill Act and common law tort claims against a construction company that formerly owned the site.  The plaintiffs later sought to amend their complaint to add an ERA claim seeking to compel the defendants to remediate plaintiffs’ property.  The trial court granted summary judgment for the defendants on all counts.  The trial court held that the proposed ERA amendment was futile, finding that the defendants’ past discharges could not satisfy the ERA requirement that the violation of environmental law likely will recur in the future.  N.J.S.A.2A:35A-4(a).

On appeal, however, the Appellate Division reinstated the ERA claim. The appellate court disagreed that the ERA claim was futile, noting plaintiffs alleged that defendants’ failure to remediate the property is a continuing violation of the Brownfield and Contaminated Site Remediation Act (“BCSRA”) that would likely recur in the future.  An amendment to the BCSRA passed with the 2009 Site Remediation Reform Act imposes an affirmative obligation to remediate contamination:  a discharger or person in any way responsible for a hazardous substance under the Spill Act “shall remediate the discharge of a hazardous substance.”  N.J.S.A. 58:10B-1.3(a).  Before Bradley recognized the continuing obligation created by the 2009 amendment, courts uniformly rejected ERA claims against predecessor landowners, as these owners’ past discharges would not recur.  E.g.Bowen Eng’g v. Estate of Reeve, 799 F. Supp. 467, 479 (D.N.J. 1992); In re Flintkote Co., 533 B.R. 887, 892 (D. Del. 2015), aff’d, 2016 WL 3997217 (3d Cir. July 26, 2016).  Parties already have begun to take notice of the Appellate Division’s holding in Bradley.  For instance, the appellant in Flintkote has asked the Third Circuit to reconsider its July 2016 opinion dismissing its ERA claim.

The ERA provides two advantages that the Spill Act does not.  Under the ERA, a plaintiff can seek an injunction compelling other responsible parties to remediate before spending any of its own funds.  The Spill Act, on the other hand, permits contribution claims only after the plaintiff begins remediation.  Magic Petroleum Corp. v. Exxon Mobil Corp., 218 N.J. 390, 410 (2014).  In addition, the ERA allows a prevailing party to recover its attorneys’ fees, N.J.S.A. 2A:35A-10, whereas a prevailing Spill Act contribution plaintiff may not recover such fees.  See In re Thomas, 278 N.J. Super. 580, 586-87 (App. Div. 1995).   

The Supreme Court in Dalton ultimately may resolve this issue in the same way as the Bradley court or it may choose a different approach but, for now, an ERA claim seeking to compel remediation of a past discharge from the responsible party is viable.
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NJ Court Finds Another Piece of the Insurance Allocation Puzzle

Under New Jersey insurance law, many of the coverage issues arising under comprehensive general liability (“CGL”) policies related to long-tail environmental claims have been resolved, however, allocation issues, what percentage of the loss each carrier and/or the policyholder is responsible for, are hotly disputed.  In a recent decision, the Appellate Division considered what cost a policyholder should bear if it did not purchase insurance responsive to its claim and determined that a policyholder does not share in the allocation for the period that insurance is not reasonably available.  Continental Ins. Co. v. Honeywell International, Inc., Docket Nos. A-1071-13T1, A-1100-13T1 (App. Div. July 20, 2016).

Before explaining in more detail the relevant holding from the case, it is necessary to understand the basis on which courts will assign or allocate responsibility among multiple policies triggered by environmental or other long-tail claims, such as asbestos.  Under New Jersey Supreme Court precedent, a continuous trigger period is applied, meaning all policies in effect from the date contamination or injurious conditions began until the time they are discovered or manifested are triggered (i.e., called upon to respond to the claim).  See Owens-Illinois Inc. v. United Ins. Co., 138 N.J. 437 (1994).  All triggered policies are then assigned a portion of the risk on a pro-rata basis.  Id.  In many situations involving environmental claims, the continuous trigger period extends beyond 1986, which is the date when many carriers added the absolute pollution exclusion to their CGL policies thus excluding from coverage claims arising from environmental contamination.  The issue for allocation then becomes who bears responsibility for covering the period during the continuous trigger after the exclusion comes into effect?

In Continental Ins. Co. v. Honeywell International, Inc., policyholder Honeywell sought coverage from its primary and excess CGL insurers for asbestos personal injury claims resulting from exposure to asbestos in brake and clutch pads manufactured and sold by its predecessor Bendix Corp.  Honeywell had settled with all but two of its excess carriers (Travelers and St. Paul’s).  One issue appealed by the two excess carriers was the decision by the trial court that Honeywell did not have to share in the allocation as if it was self-insured after 1987.  The trial court had found that insurance for asbestos liabilities was not reasonably available after 1986 (for primary policies) and 1987 (for excess policies) because of asbestos exclusions that were added to the policies.  These asbestos exclusions are similar to the absolute pollution exclusion inserted into CGL policies around the same time and were intended to exclude from coverage all asbestos related claims.  

The Appellate Division noted that the “practical effect of this ruling means that Honeywell need not share in the allocation of insurance coverage as if it were self-insured for the period of time from 1987-2001.”  The Appellate Division analyzed the Supreme Court’s decision in Owens-Illinois and clarified that it distinguishes between situations where an insured consciously decides not to buy available insurance, as compared to a situation where “no insurance was reasonably available to purchase.”  The effect is that in the former situation the policyholder would be allocated responsibility for the uninsured period of time, whereas in the latter “no portion of liability would be allocated to the time period where insurance is not available to the insured.”

Because there may be many years in a trigger period where policies purchased during that time contain exclusions precluding coverage for the specific claims at issue, whether insurance in another form was reasonably available to cover those risks is a critical determination for both the policyholder and carrier.  
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NY and NJ Courts Split on Whether Policyholders Should Share in Allocation When Insurance Is Not Available

In the previous article, we reported on the New Jersey Appellate Division’s recent decision that policyholders do not share in the insurance allocation of long-tail environmental losses for periods when insurance was not reasonably available in the marketplace.  Continental ins. Co. v. Honeywell International, Inc., Docket Nos. A-1071-13T1, A-1100-13T1 (NJ App. Div. July 20, 2016).  In early September, the New York Appellate Division took the opposite position on this matter of first impression under New York law by finding that a policyholder, and not its insurers, should bear the cost in an insurance allocation for years in which the policyholder did not obtain coverage, even when such coverage was not available. Keyspan Gas East Corp. v. Munich Reinsurance America, Inc., et al. Case No. 604715/97 (NY App. Div. Sept. 1, 2016).  This is not the first time that courts of these neighboring states have differed on coverage matters.  These determinations highlight the importance that jurisdiction can play in the outcome of insurance coverage cases. 

Please see our earlier blog post for a discussion of the New Jersey court’s ruling that relied on New Jersey Supreme Court precedent for assigning responsibility in a pro rata insurance allocation.  This post will focus on the New York decision.  In Keyspan, the insured sought coverage for costs associated with the investigation and remediation of contamination emanating from two former manufactured gas plants in Queens and Hempstead, New York.  The insured’s claim for indemnification included not only a 16-year period that certain general liability insurance policies were in effect, but also periods of time, both before 1953 and after 1969, when insurance that would cover this risk could not be purchased in the marketplace.  Century Indemnity Company, the only insurer remaining in the case, argued that it should not be responsible to indemnify the insured for property damage that did not occur “during the policy period,” contending that damage that occurred during the period that insurance was not available should be allocated to the insured.  While the trial court disagreed and allocated to the carrier damages that occurred during the periods when insurance was not available, the Appellate Division reversed that decision on appeal.

The Appellate Division noted that while this was a matter of first impression for New York, courts in other jurisdictions have come to a different conclusion on how these periods should be assigned in a pro rata allocation.  The Appellate Division distinguished its finding from those courts that have found in favor of the insured by placing significant emphasis on the particular language of the policies.  Here, the court determined that since the insurance policies only provide coverage for damages occurring “during the policy period,” it would not be fair to allocate damages to the insurer for other periods when insurance was not available in the marketplace.  Doing so would expose Century to risks beyond those contemplated when the policies were purchased and would thus provide free insurance to the insured.  The court reasoned that the insured and not the carrier should bear the burden of its actions affecting the environment.

Given the starkly different positions taken by the appellate courts in New Jersey and New York on this and other coverage issues, parties negotiating choice of law provisions in insurance policies and those seeking to litigate coverage should closely consider which jurisdiction’s law should apply.
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It’s About Time: Reforming the Regulation of Chemical Substances Under TSCA

The Toxic Substance Control Act (“TSCA”) was enacted in 1976 to regulate the manufacture and use of potentially harmful chemicals.  Although there are thousands of chemical substances manufactured in the United States each year, the United States Environmental Protection Agency (“USEPA”), under TSCA, has limited the manufacture or use of only a handful of these substances.  This may change with the first amendments to TSCA in 30 years.  The amendments provide the USEPA greater ability to control the manufacture and use of new chemicals and require it to conduct risk evaluations on existing chemicals.  These amendments were signed into law by President Obama on June 22, 2016.  The promise of the TSCA amendments is better management of the impacts of chemical substances on human health and the environment.  Only time will tell whether the amendments meet this goal or simply result in an additional regulatory burden for the chemical industry.    

Under the TSCA amendments, companies remain required to notify the USEPA when they are manufacturing a new chemical or they are proposing a significant new use for an existing chemical.  Within 90 days of receiving such notification, which time period may be extended for an additional 90 days, the amendments require the USEPA to review the notice and determine whether the chemical presents an unreasonable risk to health or the environment.  This evaluation cannot consider costs or other non-risk factors and must consider whether there is an unreasonable risk to a “potentially exposed or susceptible population” such as pregnant women or children.  If the USEPA determines that there is a risk, or that there is not enough information to determine whether there is a risk, it shall issue an order prohibiting or limiting the manufacturing or use of such chemical.  With respect to a chemical for which there is insufficient information to determine the risk, the USEPA can limit its manufacturing or use to the extent necessary to protect health and the environment while information is developed regarding its safety.  As before, TSCA requires that if the USEPA determines a chemical poses a risk, the USEPA must promulgate rules to regulate the manufacture, distribution or use of such chemical in order to address the risk.

In addition, the amendments require the USEPA to establish a risk-based screening process for existing chemicals that will prioritize chemicals based on, among other things, the chemical’s toxicity, persistence in the environment, bioaccumulation and potential exposure to susceptible populations. The USEPA has 6 months from the enactment of the amendments to begin risk evaluations on at least 10 chemical substances identified in the 2014 update of the TSCA Work Plan for Chemical Assessments.  The USEPA has 3 ½ years to begin risk evaluations on at least 20 chemical substances identified as “high priority” by the USEPA through its newly developed risk-based screening process.  This evaluation of existing chemicals is designed to ensure that the USEPA is appropriately identifying and addressing potential risks from such chemicals.

Given the void of chemical regulation by the USEPA, states have promulgated their own laws addressing certain chemical substances, which has resulted in an inconsistent regulatory approach across the country.  The TSCA amendments attempt to address this issue by pre-empting certain state regulation of chemical substances.  Any state regulation in place prior to the enactment of the amendments is not pre-empted.  Yet, states are prohibited from establishing or continuing to enforce laws or regulations that subject a chemical to the same notification requirements established in TSCA, require information from the manufacturer already required under TSCA, regulate a chemical that the USEPA determines does not present an unreasonable risk, or regulate a chemical that is addressed by the USEPA through a rule, order or consent agreement issued pursuant to TSCA.

The long wait for TSCA reform is over.  Whether the reform will meet the goal of properly regulating the impact of chemicals on human health and the environment will come to light over the next several years during its implementation. Even in an era fraught with legislative and regulatory gridlock, there is a bi-partisan view and expectation that the amendments are a positive step forward.
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Regulatory Update
New Jersey Department of Environmental Protection
NJDEP Commissioner Touts the Achievements of the Licensed Site Remediation Professional Program

On January 17, 2014, the Site Remediation Reform Act (“SRRA”) was amended to provide responsible parties that were statutorily required to complete their remedial investigation by May 2016 with a two-year extension to May 2016 in order to conclude the remedial investigation of their contaminated site.  Qualification for this extension required the responsible party to hire a Licensed Site Remediation Professional (“LSRP”) as well as remain in compliance with certain requirements, including the establishment of a remediation funding source.

Of the 1,149 extensions that were granted, 958 Remedial Investigation Reports were submitted by responsible parties on or before the May 7, 2016 deadline.  Commissioner Bob Martin stated that, “[t]his milestone demonstrates clearly that responsible parties are taking their obligations under the law seriously and are moving forward with cleanups that will create jobs and economic growth,” and went on to describe SRRA as, “…working…and has been a real game changer for getting sites cleaned up and improving quality of life throughout the state.”

The 191 sites that failed to meet the May 7, 2016 deadline are now under the Direct Oversight of the New Jersey Department of Environmental Protection (“DEP”), requiring the development of a public participation plan, the establishment of a remediation trust fund totaling the cost of the estimated remediation as well as conducting the remediation under the direction of the DEP.  

SRRA aimed to free up DEP staff in order to attend to more complex cases.  Following the establishment of the program in 2009, LSRP’s have submitted approximately 8,000 Response Action Outcomes, closing out approximately 5,000 cases which would have been part of the DEP’s backlog.

For more information please visit www.nj.gov/dep.

United States Environmental Protection Agency
New Jersey Institute of Technology to Receive $3 Million in Brownfields Funding

On May 5, 2016, the United States Environmental Protection Agency (“EPA”) announced the award of $11 million in grants for the cleanup of brownfields sites nationwide.

A $3 million grant was awarded to the New Jersey Institute of Technology (“NJIT”) in order to assist in brownfields cleanups on the east coast, excluding Region 2 areas, through mentoring, workshops, seminars and public meetings through their Technical Assistance to Brownfield Communities program.

EPA has estimated that there are approximately 450,000 contaminated sites in the United States that have been abandoned.  The brownfields program cleans up these sites which cause a threat to public health and the environment, aiming to encourage redevelopment and productive use in their respective communities.

Since its inception in 1995, the brownfields program has generated public and private investments of more than $21.6 billion, which in turn has contributed to approximately 113,000 jobs nationwide.

For more information please visit www.epa.gov/brownfields.
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New Jersey Legislative Update 

Recently Enacted Environmental Laws 

P.L.2016, c.14 (A3617)  Extends expiration date of certain permits for one year in Superstorm Sandy-impacted counties.

Recently Introduced Environmental Bills

A2416 / S2324:  Expands One-Call Damage Prevention System to include underground contamination with engineering or institutional controls.  Status: Out of Assembly Environment and Solid Waste Committee with Amendments, second reading in Assembly; pending in Senate Environment and Energy Committee.

A2688 / S909:  Exempts person who remediates property in environmental opportunity zone from remediation funding source requirement.  Status: Pending in Assembly Environment and Solid Waste Committee; passed by Senate.

A3397 / S2077:  Directs NJDEP to classify neonicotinoid pesticides as restricted use pesticides.  Status: Pending in Assembly Agriculture and Natural Resources Committee; pending in Senate Environment and Energy Committee.

A3398 / S2076:  Requires pesticide applicator to notify beekeeper when applying pesticide within three miles of registered honey or native beehive or beeyard.  Status: Pending in Assembly Agriculture and Natural Resources Committee; pending in Senate Environment and Energy Committee.

A3714:  Prohibits sale of municipally-owned sewer or water plant to private entity.  Status: Pending in Assembly Telecommunications and Utilities Committee.

A3889:  Expands applicability of cap on Spill Compensation and Control Act tax liability to all successors-in-interest of certain taxpayers.  Status: Pending in Assembly Environment and Solid Waste Committee.

A4010:  Prohibits inclusion of provision in agreements, contracts, or settlements related to pipeline siting or hydraulic fracturing, or fracking, that would restrict parties from disclosing information, statements, or assertions related to public health or safety.  Status: Pending in Assembly Environment and Solid Waste Committee.

ACR148:  Invalidates NJDEP rules and regulations that repealed NJDEP regulatory program concerning State participation in greenhouse gas cap and trade program.  Status: Pending in Assembly Regulatory Oversight and Reform and Federal Relations Committee.

ACR160 / SCR66:  Prohibits adoption of NJDEP’s proposed rules and regulations to revise its Flood Hazard Area Control Act Rules, Coastal Zone Management Rules, and Stormwater Management Rules.  Status: Passed by Assembly; out of Senate Environment and Energy Committee, second reading in Senate.

ACR186 / SCR103:  Strongly urges NJDEP to adopt standards for certain drinking water contaminants as recommended by NJ Drinking Water Quality Institute.  Status: Pending in Assembly Environment and Solid Waste Committee; pending in Senate Environment and Energy Committee.

AR99 / SR54:  Urges NJDEP to conduct a thorough and thoughtful review of any proposed interstate oil pipeline.  Status: Pending in Assembly Environment and Solid Waste Committee.

SCR113:  Proposes constitutional amendment to dedicate revenue collected from sales tax on paint for lead hazard remediation purposes.  Status: Pending in Senate Community and Urban Affairs Committee.

Recently Re-Introduced Environmental Bills

A1352 / S2306 (Last Session Bill Number: A1581):  Amends regulations pertaining to licensing of solid waste, hazardous waste, and recycling industries.  Status: Pending in Assembly Environment and Solid Waste Committee; pending in  Senate Environment and Energy Committee.

A1509 (Last Session Bill Number: A1779):  Clarifies that certain types of sewage and sewage sludge do not constitute hazardous substances under Spill Compensation and Control Act.  Status: Pending in Assembly Environment and Solid Waste Committee.

A2405 / S2028 (Last Session Bill Numbers: A3184 / S1497):  Establishes notification, signage, and monitoring requirements related to combined sewer overflows.  Status: Pending in Assembly Environment and Solid Waste Committee; pending in Senate Environment and Energy Committee.

A2681 / S1463 (Last Session Bill Numbers: A3880 / S444):  Notwithstanding any provision of the Spill Compensation and Control Act or any other law to the contrary, this Bill prohibits contribution action against local public entity for cleanup and removal costs or any other damages associated with discharge of hazardous substances.  Status: Pending in Assembly Environment and Solid Waste Committee; pending in Senate Environment and Energy Committee.

ACR127 / SCR39 (Last Session Bill Number: SCR163):  Amends Constitution to dedicate all State moneys received from settlements and awards in cases of environmental contamination for certain environmental purposes.  Status: Pending in Assembly Environment and Solid Waste Committee; pending in Senate Environment and Energy Committee.

S393 (Last Session Bill Number: S62):  Deletes CAFRA permit exemption for reconstruction activities in coastal area.  Status: Pending in Senate Environment and Energy Committee.
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