March24. 1987



### Mr.Larry R. Soward Executive 

### Director Texas WaterCom.iaafoa P. 0. Box 13087 Austin, Texas 78711 Opinion No. JM-653
Re: WhethertheTexasWaterComaiaaion mayadopt afederal rule which would permit the use of a corporate guarantor for liability coverage of au owner or operator of ahazardous waste, treatment. storage and disposal facility
DearMr. Soward:
The United States Environmental Protection Agency recently promulgated an interim final rule which amends the financial responsibility requirements for liability coverage for ovners and operators of hazardous waste treatment, storage, and disposal facilities. See 40 C.F.R. 5264.151(h) (2) (1986). Owners and operators of hazardous waste facilities have encountered difficultyin obtaining the liability insurance necessary to complywith federal and state liability coverage requirements for hazardous waste facilities. Thenewfederal rule allows the use of aparent corporate guarantee as analternative to liability insurance to comply with third party liability requirements for hazardous waste facilities. See 40 C.F.R. 54264.147(g). 265.147(g) (1986). Thecorporate guaranteemust track the language specified in the federal regulations. See 40 C.F.R. 1264.151(h)(2). -

Youindicate that the Texas Water Commission has adopted most of the relevant federal regulations by reference as part of the Texas Industrial Solid WasteRules. Youwould like 

### toutilize the provision which authorizes the use of corporate guarantees. Because the corporate guarantee is to be interpreted andenforced in accord vlth the lava of the state inwhich the guarantor is incorporated, the new rule requires awrittenstatement from each state’s Attorney General or Insurance Commission attesting that the corporate guarantee required by the rule Is alegally valid and enforceable obligation. See 40 C.F.R. 1264.147(g)(2). The Texas Insurance Commission indicated that it lacks statutory authority to respond to your request. Additionally, because the corporate guarantee at issue here mustbe provided by aparent corporation of the owner or operator of the covered hazardous waste facility, in the usual case the guarantor vi11 not be “in the business” of acting a8guarantor. Consequently, such a corporate guarantee would not constitute an unauthorized

p.2971Mr.Larry R. Soward- Page2 (JM-653)

insurance business. See Tex. Ins. Code art. 1.14-1, 52(a)(2). The Texas Attorney Generama authorized to provide written legal advice to the heads of state agencies. SeeV.T.C.S. art. 4399. Accordingly, you ask vhether the corporate guarantee required by the federal regulations is legally enforceable in Texas.
As indicated. the corporate guarantee about vhich you inquire must track the language specified in the federal regulations. See 40 - C.F.R. 9264.151(h)(2). This proviaiou requires:

corporate guarantee, apecffled in I26:.147(g) or 1265.147(g) of t&r Chapter, must beworded as follows, except that instructions in brackets are to be replaced with the relevant iuforsation andthe brackets deleted:
CORPORATE

GUARANTEE

FORLIASILITTCOVERAGE
Guarantee sade this [date] by [nameof guaranteeing entity], a business corporation organized under the laws of the State of [insert nameof State], herein referred to as guarantor, onbehalf of our subsidiary [owner or operator] of [business address]. to any and all third parties whohave sustained or say sustain bodily injury or propaste damagecaused by [sudden and/or nonsuddenl accidental occurrences arising from operation of the facflitp(ies) covered bythis guarantee. @mphasia added).
Recitals.
1. Guarantor meets or exceeds the financial test criteria and agrees to comply vlth the reportiug requirements for guarantors as specified in 40CFR264.147(g) and265.147(g).
2. [Owner or operator] owns or operates the followiug hazardous vast8 management facility(ies) izovered by this guarantee: [List for each facility: EPAIdentification **Number,** name, and address. ] This corporate guarantee satisfies RCRAthird-party liability requirasenta for [insert “sudden” or “nousudden” or “both sudden and nonsudden”] accidental occurrences in above-named owneror operator facilities for [insert dollar amount] of coverage.
3. For value received from [owner or operator], guarantor guarantees to any and all third parties vho have sustained or xay sustain

p. 2972 LMr.Larry R. Sovard - Page 3 (Jn-653)

4. bodily injury or property damage caused by [sudden and/or nonsudden] accidental occurrences arising from operations of the facility(ier) covered by this guarantee that in the event that [owneror operator] fails to satisfy a judgment or award based on a determination of liability for bodily injury or property damageto third parties caused by [sudden and/or nonsudden] accidental occurrences, arising from the operation of the above-named facilities, or fails to pay an amount agreed to in settlement of a claim arising from or alleged to arise from such injury or damage, the guarantor will satisfy such judgment(8)
, award(r), or settlement agreement(a) up to the limits of coveraga identified above.
Guarantor agrees that if, at the end of any fiacal year before termination of this guarantee, the guarantor falls to meet the financial test criteria, guarantor shall send within 90days. by certified mail, notice to the EPA Regional Admtnistrator(a) for the Region(s) in which the facility(ies) la (are) located and to [owner or operator] that he intends to provide alternate liability coverage as specified in 40 CPR264.147 and 265.147. as applicable, in the nameof [owner or operator I. Within 120days after the end of such fiscal year, the guarantor shall establish such liability coverage unless [owneror operator] hasdone so.
5. The guarantor agrees to notify the EPA Regional Administrator by certified mail of a voluntary or involuntary proceeding under Title 11 (Bankruptcy), U.S. Code, naming guarantor as debtor, within 10 days after cowaencement of the proceeding.
6. Guarantor agrees that within 30 days after being notified by an EPARegional Administrator of a determination that guarantor no longer meets the financial teat criteria or that he is disallowed from continuing as a guarantor, he shall establish alternate liability coverage as specified in 40 CPR 264.147 or 265.147 in the nameof [owner or operator], unless [owner or operator] has done so.

p. 2973Mr.Larry R. Soward- Page 4 m4-653)

7.

8.

9. Guarantor resemes the right to modify this agreement **to** take into account amendmentor modification of the liabflity requirements set by 40CPR264.147 and 265.147, provided that such modification shall **become** effective only if a Regional Administrator does not disapprove the modification vithin 30 days of receipt of notification of themodification.
Guarantor agrees to remain bound under ehia guarantee for so long as [ovner or operator] must comply with the applicable requirements of 40CPR264.147 and 265.147 for the abovelisted facility(ies), except as provided in paragraph 9of this agreement.
Guarantor may terminate this guarantee by sending notice by certified nail to the EPA Regional Administrator(s) for theRegion(s) in which the facility(iea) is (are) located and to [owner or operator], provided that this guarantee nay not be terminated unless and until [the ouner or operator] obtains, andthe EPA Regional Administrator(a) approve(a) alternate liability coverage complying with 40 CFR264.147 and/or 265.147.
10. This guarantee is to be interpreted and enforced in accordance with the laws of [State of incorporation of guarantor].
11. Guarantor hereby expressly waives notice of acceptance of this guarantee byanyparty.
I hereby certify that the wording of this guarantee is identical to thevordlng specified in 40CPR264.151(h)(2).
Effective date: [Nameof guarantor] [Authorized signature for guarantor] [Nameof person signing] [Title of person signing] Signature of witness **or** notary: Thecorporate guarantee required by the federal regulations la a contract between the owneror operator of ahazardous waste facility andthe parent corporation of the owneror operator guaranteeing that the parent till pay claims by third parties for bodily injury or property damagearising from accidental occurrences at the owner or operator’s hazardous waste facility. Such third party beneficiary

p. 2974Mr.Larry R. Soward- Page3 (Jn-633)

contracts do not ordinarily change the degree of care that the law imposes. See Stafford v. Thornton. 420 S.W.2d 133, 138 (Tax. Civ. APP. - ml10 1967, writ ref ’d n.r.8.); see also Clearwater Constructors, Inc. v. Gutierrez, 626S.W.2d 789, 793 (Tax. Civ. App. - SanAntonio 1981, nowrit); Sun011Co.v. Employers Casualty Co., 330 S.W.2d 348, 349 (Tax. Civ. App. - Dallas 1977, uowrit). Thegeneral duty of care owed to the public is govsmsd by tort law. sink0 v. City of SanAntonio, 702 S.W.2d 201, 208 (Tax. App. - San Ahtonio 1983, no writ). A corporate guarantee such as the one required by section 264.131(h)(2) simply imposes adegree of contractual liability
ouaparty whomight not otherwise be liable.
As a general rule, privity of contract must be established to recover on a contract action. A third party can, however, recover under a contract with a showing that the contract is made for the third party’s benefit, &, that the parties to the contract intend that the third party benefit from the contract. See Corpus Christ1 Bank6Trust v. Smith, 323 S.W.Zd 301. 303-04 (Ter1973). Whether the contracting parties intend to benefit a third party is amatter tobe determined from the contract as a whole, **in** light of the cfrcumatancea under which the contract is made. Citizens National BankinAbilenc v. Texas 6P. Railway Co., 130S.W.2d 1003, 1006 (Tex. 1941). If the provisions of a contract are not ambiguous. the question of whether the contract benefits athird party is aquestion of law to be determined from the contract alone. Standard Accident Insurance Co. v. Blythe, 107S.W.2d 880. 883 (Tax. 1937); see also Sun Oil Co. v. Employers Casualty Co., 330S.W.2d at 349 (right of th= party beneficiary to enforce contract is questlon of substantive law).
Acorporate guarantee contract which tracks this quoted language canbedeemed, asamatter of law. to intend tobenefit athird party. Thequoted language expressly benefits

any and all third parties whohave sustained or may sustain bodily injury or property damage caused by

. . . accidental occurrences arising from operation of the facility(les) covered by this guarantee.

40 C.F.R. 5264.131(h)(2). This language is not ambiguous. Acontract which benefits a third party need not expressly namethe third party so long as the third party is sufficiently designated or described. See Knoxv. Ball. 191 S.W.2d 17. 23 (Tex. 1943); see also James E&art h Co. v. Law. 228 S.W.2d 601. 603 (Tex. Civ. App. -Waco 1930). aff

’d. 233S.W.2d 338 (Tex. 1950). Establishing third-party beneficiary status also depends on whether the claiming party is either a “donee” or “creditor” beneficiary rather than an“incidental” beneficiary. SunOil Co. v. Employers Casualty Co., 330 S.W.Zd at 349. If performance of a promise would satisfy aduty owedbythe promiaee co the third party, the third party Is acreditor beneficiary. Id.
- Thepurpose for the

p. 2973I4r.Larry R. Sovard - Page 6 (JIi-653) ’

financial responsibility requirements for hazardous waste facilities is to provide a method for the payment of claima of liability for bodily injury or property damage caused by accidental occurrences arising from operation of hazardous waste facilities. Theowners and operators of hazardous waste facilities ova a duty of care not to cause bodily injury and property damage through the operation of hazardous waste facilities. Consequently, this form of corporate guarantee creates athird party “creditor” beneficiary contract which can be enforced in Texas. It should be noted, however, that eatabliahing aparticular third party claim uponsuch aguarantee depends upon an initial determination of liability in a particular case against the ovuar or operator of the hazardous waste facility in question. See Sun Oil Co. v. Employers Casualty Co., supra. Additionally, baforc aparticular corporate guarantee contract maybe enforced, all of the elements necessary to create a contract must exist.
SUMMARY

A corporate guarantee which is executed to comply with the third party liability requirements for hazardous waste facilities and vhich tracks the language of the corporate guarantee set forth in section 264.131(h)(2) of Title 40 of the Code of Federal Regulations creates a third party

“creditor” beneficiary contract which can be enforced in Texas. Establishing a particular third party claim upon the guarantee depends upon an initial determination of liability against the hazardous waste facility in question andupon the performance of all of the basic elements necessary to create acontract. Verytruly your 

# tl/h

A JIM MATTOX Attorney General of Texas
JACKEIGETOWER First Assistant Attorney General
MARY’RRLLER Executive Assistant Attorney General
RICKGILPIN Chairman, Opinion Committee Prepared byJennifer Riggs Assistant Attorney General

p. 2976