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 hazardous waste 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 clarification of 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 insurance to comply with federal 

liability requirements for hazardous waste facilities. In 

Opinion JM-653, this office determined: 

A corporate guarantee which is executed 

to comply with the third party liability 

requirements for hazardous waste 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 

Federal Regulations creates a third party 

'creditor' beneficiary contract which 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 corpprate guarantee is to be interpreted 

and enforced in accord with the laws of the state in which 

p. 3815 
Mr. Larry R. Soward - Page 2 (.X+806) 

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 hazardous waste facility 

enters into a settlement agreement that disclaims 

liability. The Environmental Protection Agency stated 

that most settlement agreements contain a disclaimer of 

liability by the hazardous waste 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 "initial determination of liability." This liability 

may take the form of contractual liability imposed by a 

settlement agreement. Most settlement agreements disclaim 

tort liability and fix a specific amount as settlement of 

a third party's claim. This establishes contractual 

liability for the amount of the settlement agreement. 

Attorney General Opinion JM-653 does not indicate that it 

necessary to have court determination of tort 

iyability before the corp:rate guarantee may be enforced. 

The corporate guarantee set forth in the federal code 

and quoted in Opinion JM-653 expressly recognizes that the 

contractual liability imposed by a settlement agreement 

can form the basis for the enforcement of the corporate 

guarantee. Section 3 of the guarantee provides: 

For value received from [owner or operator], 

guarantor guarantees to any and all third 

parties who have sustained or may sustain 

bodily injury or property damage caused by 

[sudden and/or nonsudden] accidental occurrences arising from operations of the 

facility(ies) 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, w 

an amount aareed to in settlement of a claim 

arisina from or allesed to arise from such 

3niur-V or damaae, the guarantor will satisfy 

p; 3816 
Mr. Larry R. Soward - Page 3 (~~-806) 

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

aareement(s_l up to the limits of coverage 

identified above. (Emphasis added.) 

This type of corporate guarantee is enforceable in 

See Attorney General Opinion JM-653. 

SUMMARY 

A corporate guarantee based on contractual liability imposed by a settlement 

agreement may be legally enforced in Texas. 

Texas. 

JIM MATTOX 

Attorney General of Texas 

MARY KELLER 

Executive Assistant Attorney General 

JUDGE ZOLLIE STEAKLEY 

Special Assistant Attorney General 

RICK GILPIN 

Chairman, Opinion Committee 

Prepared by Jennifer Riggs 

Assistant Attorney General 

p. 3817