October 5.1987

Mr. Larry R. Soward Executive Director Texas Water Commission P. 0. BOX 13087 Austin, Texas 78711 Opinion No. JM-806
Re: Whether a corporate guarantee given by the operator of a hazardouswaste facility as a'mechanism for demonstration of financial responsibility can be enforced if the owner or operator of a subsidiary corporation has signed settlement agreement dis: claiming liability
Dear Mr. Soward:
You seek clarificationof Attorney General Opinion JM-653 (1987). Opinion JM-653 addressed federal rules that allow the use of a parent corporate guarantee as an alternative to liability insuranceto comply with federal liability requirements forhazardouswaste facilities. In Opinion JM-653, this office determined:

A corporate guarantee which is executed to comply with the third party liability requirements forhazardouswaste facilities and which tracks the language of the corporate guarantee set forth in section 264.151(h)(2)of Title 40 of the Code of FederalRegulations creates a third party 'creditor'beneficiary contractwhich can be enforced in Texas. Establishina a oartitular third oartv claim uoon the ouarantee devends uoon an initial determination of liability against the hazardous waste facilitv in ouestion and upon the performance of all of the basic elements necessary to create a contract. (Emphasis added.)
Because the corpprateguarantee is to be interpreted and enforced in accordwith the laws of the state inwhich

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the guarantor is incorporated,the federal rules require a written statement from the Attorney General attesting that the corporate guarantee required by the rules is legally enforceable. m 40 C.F.R. 5264.147(g)(2). You indicate that the United States Environmental Protection Agency expressed concern that the statement,underscored above, in Opinion JM-653 could be read to preclude enforcement of a corporate guarantee when the hazardouswaste facility enters into a settlement agreement that disclaims liability. The Environmental Protection Agency stated that most settlement agreements contain a disclaimer of liabilityby the hazardouswaste facility in question. We believe that these concerns are unfounded.
As indicated in Attorney General Opinion JM-653, enforcing the corporate guarantee in question depends on an "initialdetermination of liability." This liability may take the form of contractual liability imposedby a settlement agreement. Most settlementagreementsdisclaim tort liability and fix a specificamount as settlement of a third party's claim. This establishes contractual liability for the amount of the settlement agreement. Attorney General OpinionJM-653 does not indicate that it necessary to have court determination of tort iyabilitybefore the corp:rateguaranteemay be enforced.
The corporateguarantee set forth in the federal code and quoted in Opinion JM-653 expressly recognizes that the contractual liability imposedby a settlement agreement can form the basis for the enforcement of the corporate guarantee. Section 3 of the guaranteeprovides:

For value received from [owneror operator], guarantor guarantees to any and all third parties who have sustained or may sustain bodily injury or property damage caused by [suddenand/or nonsudden]accidental occurrences arising from operations of the facility(ies)coveredby 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 damage to thirdparties caused by [sudden and/or nonsudden] accidental occurrences,arising from the operation of the above-named facilities,w an amount aareed to in settlement of a claim arisina from or allesed to arise from such 3niur-Vor damaae, the guarantorwill satisfy

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such judgment(s), award(s), or settlement aareement(s_l

up to the limits of coverage identifiedabove. (Emphasisadded.) This type of corporateguarantee is enforceable in See Attorney General OpinionJM-653.
SUMMARY
A corporate guarantee based on contractual liability imposed by a settlement agreementmay be legally enforced in Texas. Texas.

JIM MATTOX Attorney General of Texas
MARY KELLER ExecutiveAssistantAttorney General
JUDGE ZOLLIE STEAKLEY SpecialAssistantAttorney General
RICK GILPIN Chairman, Opinion Committee Prepared by Jennifer Riggs AssistantAttorney General

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