March 24. 1987 

Mr. Larry R. Soward 

Executive Director 

Texas Water Com.iaafoa 

P. 0. Box 13087 

Austin, Texas 78711 

Opinion No. JM-653 

Re: Whether the Texas Water Comaiaaion may adopt a federal rule which 

would permit the use of a corporate 

guarantor for liability coverage of 

au owner or operator of a hazardous 

waste, treatment. storage and disposal facility 

Dear Mr. 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 difficulty in 

obtaining the liability insurance necessary to comply with federal and 

state liability coverage requirements for hazardous waste facilities. 

The new federal rule allows the use of a parent corporate guarantee as 

an alternative 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). The corporate guaranteemust 

track the language specified in the federal regulations. See 40 

C.F.R. 1264.151(h)(2). 

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You indicate that the Texas Water Commission has adopted most of 

the relevant federal regulations by reference as part of the Texas 

Industrial Solid Waste Rules. You would like to utilize the provision 

which authorizes the use of corporate guarantees. Because the 

corporate guarantee is to be interpreted and enforced in accord vlth 

the lava of the state in which the guarantor is incorporated, the new 

rule requires a written statement from each state’s Attorney General 

or Insurance Commission attesting that the corporate guarantee 

required by the rule Is a legally 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 

must be provided by a parent 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 a8 guarantor. Consequently, 

such a corporate guarantee would not constitute an unauthorized 

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Mr. Larry R. Soward - Page 2 (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. See V.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 

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C.F.R. 9264.151(h)(2). This proviaiou requires: 

corporate guarantee, apecff led in 

I26:.147(g) or 1265.147(g) of t&r Chapter, must 

be worded as follows, except that instructions in 

brackets are to be replaced with the relevant 

iuforsation and the brackets deleted: 

CORPORATE GUARANTEE FOR LIASILITT COVERAGE 

Guarantee sade this [date] by [name of guaranteeing entity], a business corporation organized 

under the laws of the State of [insert name of 

State], herein referred to as guarantor, on behalf 

of our subsidiary [owner or operator] of [business 

address]. to any and all third parties who have 

sustained or say sustain bodily injury or propaste 

damage caused by [sudden and/or nonsuddenl accidental occurrences arising from operation of the 

facflitp(ies) covered by this guarantee. @mphasia 

added). 

Recitals. 

1. Guarantor meets or exceeds the financial test 

criteria and agrees to comply vlth the 

report iug requirements for guarantors as 

specified in 40 CFR 264.147(g) and 265.147(g). 

2. [Owner or operator] owns or operates the 

f ollowiug hazardous vast8 management 

facility(ies) izovered by this guarantee: 

[List for each facility: EPA Identification 

Number, name, and address. ] This corporate 

guarantee satisfies RCRA third-party liability 

requirasenta for [insert “sudden” or “nousudden” or “both sudden and nonsudden”] 

accidental occurrences in above-named owner or 

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 

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Mr. 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 [owner or operator] fails to 

satisfy a judgment or award based on a 

determination of liability for bodily injury 

or property damage to 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 

f iacal year before termination of this 

guarantee, the guarantor falls to meet the 

financial test criteria, guarantor shall send 

within 90 days. 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 CPR 264.147 and 

265.147. as applicable, in the name of [owner 

or operator I. Within 120 days after the end 

of such fiscal year, the guarantor shall 

establish such liability coverage unless 

[owner or operator] has done 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 EPA Regional 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 name of [owner or 

operator], unless [owner or operator] has done 

so. 

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

7. 

8. 

9. 

Guarantor resemes the right to modify this 

agreement to take into account amendment or 

modification of the liabflity requirements set 

by 40 CPR 264.147 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 the modification. 

Guarantor agrees to remain bound under ehia 

guarantee for so long as [ovner or operator] 

must comply with the applicable requirements 

of 40 CPR 264.147 and 265.147 for the abovelisted facility(ies), except as provided in 

paragraph 9 of this agreement. 

Guarantor may terminate this guarantee by 

sending notice by certified nail to the EPA 

Regional Administrator(s) for the Region(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, and the 

EPA Regional Administrator(a) approve(a) 

alternate liability coverage complying with 40 

CFR 264.147 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 by any party. 

I hereby certify that the wording of this 

guarantee is identical to the vordlng specified in 

40 CPR 264.151(h)(2). 

Effective date: 

[Name of guarantor] 

[Authorized signature for guarantor] 

[Name of person signing] 

[Title of person signing] 

Signature of witness or notary: 

The corporate guarantee required by the federal regulations la a 

contract between the owner or operator of a hazardous waste facility 

and the parent corporation of the owner or operator guaranteeing that 

the parent till pay claims by third parties for bodily injury or 

property damage arising from accidental occurrences at the owner or 

operator’s hazardous waste facility. Such third party beneficiary 

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Mr. Larry R. Soward - Page 3 (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, 626 S.W.2d 789, 793 (Tax. Civ. App. - 

San Antonio 1981, no writ); Sun 011 Co. v. Employers Casualty Co., 330 

S.W.2d 348, 349 (Tax. Civ. App. - Dallas 1977, uo writ). The general 

duty of care owed to the public is govsmsd by tort law. sink0 v. 

City of San Antonio, 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 a degree of contractual liability 

ou a party who might 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 

Bank 6 Trust v. Smith, 323 S.W.Zd 301. 303-04 (Ter1973). Whether 

the contracting parties intend to benefit a third party is a matter 

to be determined from the contract as a whole, in light of the 

cfrcumatancea under which the contract is made. Citizens National 

Bank in Abilenc v. Texas 6 P. Railway Co. , 130 S.W.2d 1003, 1006 (Tex. 

1941). If the provisions of a contract are not ambiguous. the 

question of whether the contract benefits a third party is a question 

of law to be determined from the contract alone. Standard Accident 

Insurance Co. v. Blythe, 107 S.W.2d 880. 883 (Tax. 1937); see also Sun 

Oil Co. v. Employers Casualty Co., 330 S.W.2d at 349 (right of th= 

party beneficiary to enforce contract is questlon of substantive law). 

A corporate guarantee contract which tracks this quoted language 

can be deemed, as a matter of law. to intend to benefit a third party. 

The quoted language expressly benefits 

any and all third parties who have 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. A contract 

which benefits a third party need not expressly name the third party 

so long as the third party is sufficiently designated or described. 

See Knox v. 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. 233 S.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. Sun Oil Co. v. 

Employers Casualty Co., 330 S.W.Zd at 349. If performance of a 

promise would satisfy a duty owed by the promiaee co the third party, 

the third party Is a creditor beneficiary. Id. 

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The purpose for the 

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I4r. 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. The owners 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 a third party “creditor” beneficiary contract which 

can be enforced in Texas. It should be noted, however, that eatabliahing a particular third party claim upon such a guarantee 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 a particular corporate guarantee contract may be 

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 and upon the 

performance of all of the basic elements necessary 

to create a contract. 

Very truly your tl A /h 

JIM MATTOX 

Attorney General of Texas 

JACK EIGETOWER 

First Assistant Attorney General 

MARY’RRLLER 

Executive Assistant Attorney General 

RICK GILPIN 

Chairman, Opinion Committee 

Prepared by Jennifer Riggs 

Assistant Attorney General 

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