Source: https://corporate.findlaw.com/law-library/recovery-of-natural-resource-damages-under-comprehensive-general.html
Timestamp: 2019-04-24 23:54:20+00:00

Document:
It is apparent to even a casual observer of trends and developments in environmental law that Federal and State authorities have expressed renewed interest on Natural Resource Damage ("NRD") claims. As discussed in this article, there is a fundamental distinction between liability related to damages for the cleanup of environmental sites and liability for damage to natural resources. Indeed, environmental statutes, as well as the common law, draw a distinction between a company's liability for environmental cleanup response costs (e.g., the cost of investigation and remediation of site conditions), and liability for natural resource damages. Insureds, therefore, may have substantial, viable claims for insurance recoveries where such NRD claims are not specifically released or barred by prior coverage settlement agreements, or otherwise adjudicated and extinguished.
Under the Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C. § 9601, et seq. ("CERCLA"), and comparable federal and state laws, various governmental authorities are designated as trustees for natural resources and are authorized to sue allegedly responsible parties to collect damages for injury to such resources arising from the release of hazardous substances. Primarily, two environmental statutes provide the principal sources of federal authority over natural resource damages: CERCLA, 42 U.S.C. §§ 9607-9675, and the Oil Pollution Act (OPA), 33 U.S.C. §§ 2701-2761. See 33 U.S.C. § 1321 of the Clean Water Act. Although other federal statutes also address natural resource damages, CERCLA and the OPA are the most generally applicable and most frequently employed statutory authorities. In addition to these federal natural resource damages schemes, many states have enacted laws authorizing the recovery of natural resource damages from "responsible parties." See, e.g., the New Jersey Spill Compensation and Control Act, N.J.S.A. 58:10-23.11 g.a.
CERCLA and the OPA both establish liability for damages on account of injury to, destruction of, or loss of natural resources. In addition to establishing liability of certain parties (generally referred to as "responsible parties") for "costs of removal or remedial action," 42 U.S.C. § 9607(a)(4)(A), CERCLA provides, in pertinent part, that such parties shall also be liable for "damages for injury to, destruction of, and loss of natural resources." Liability for such natural resource damages is to the United States Government, to any State, for natural resources belonging to, managed by, controlled by, or appertaining to such State, and to any Indian tribe, for pertinent resources belonging to or held in trust for the benefit of such tribe. The President is authorized to designate federal governmental entities to act as trustees for natural resources, which trustees have explicit authority to assess and recover damages for injury to, destruction of or loss of use of natural resources. State governments are similarly authorized to designate State public authorities to act as trustees for natural resources within such State.
CERCLA imposes liability for natural resources damages upon the same parties that are subject to liability for response costs. Such "responsible parties" are the current owners and operators of a facility, owners and operators of a facility at the time hazardous substances were disposed of, persons arranging for disposal (or transport for disposal) of hazardous substances at a facility, and transporters of hazardous substances to a treatment or disposal facility. The statute defines "damages" in somewhat circular fashion to mean "damages for injury or loss of natural resources as set forth in section 9607(a)...."
The OPA creates liability for discharges of oil into navigable waters or adjoining shorelines or the exclusive economic zone of deep ocean waters. Parties liable under the OPA include the owners, operators or charterers of transport vessels, the owners or operators of onshore facilities, or pipelines, and the lessees of offshore facilities or deepwater ports. Public vessels and permitted discharges are excluded from OPA liability. The OPA contains a definition of "natural resources" that is substantially similar to the CERCLA definition.
Both CERCLA and the OPA establish a strict and joint and several liability scheme for acts that result in damage to natural resources. [See United States v. Monsanto Co., 858 F.2d 160, 171 (4th Cir. 1988), cert. denied, 490 U.S. 1106 (1989) (Upholding strict and joint and several liability under CERCLA).] CERCLA provides for few defenses to liability (e.g., Act of God), which defenses are of limited practical application. However, natural resource damages may only be recovered by the designated trustees, which include the United States Government, States, Indian tribes, and foreign governments for natural resources under their respective control.
CERCLA provides that the measure of natural resource damages shall not be limited by the amount required to restore, replace, or acquire the equivalent of, such natural resources. Thus, the trustee may also recover the value of the lost use of the damaged natural resources pending restoration or recovery to a "baseline" condition; i.e., the condition of the resource absent exposure to the hazardous substance. [43 C.F.R. § 11.14(e).] As the States enter the arena of assessing alleged damages to their own natural resource it is nearly certain that they will attempt to follow their own statutory and regulatory schemes and employ distinct economic models for quantifying damages.
Courts across the United States have routinely determined that CERCLA-imposed remediation costs are "damages," as such term is used in common CGL policies. As discussed below, the reasoning of these courts makes it abundantly clear that natural resource damages are also covered "damages." Indeed, in many of the cases addressing whether CERCLA-imposed cleanup costs are "damages" within the meaning of such policies, the insurers argued that, because CERCLA expressly distinguishes between response costs and natural resource damages, response costs should not be considered "damages" for purposes of insurance coverage. In so contending, the insurers have impliedly accepted the proposition that natural resource damages are covered under CGL policies. Moreover, even those few courts that have held that response costs are not recoverable "damages" under CGL policies have recognized that coverage is afforded under such policies for natural resource damages.
[Insurer] . . . agrees with the insured . . . in consideration of the payments of the premium and subject to the limits of liability, exclusions, conditions and other terms of this policy . . . to pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of injuries to or destruction of property, including the loss of use thereof.
an accident, event, happening, or continuing or repeated exposure to conditions which results in injury or damage during the policy period that is neither expected nor intended from the standpoint of the insured.
The common definition of "occurrence" also makes clear that, in order to establish that a policy in a given year has been triggered, an insured generally need only prove that injury or damage, and not the accident, event, happening or exposure, occurred in such year. Where property damage occurs in a particular year, including damage resulting from the progression or migration of contamination, many courts have held that the policy in force in such year is triggered, even if the accident, event, happening or exposure that first gave rise to the contamination – such as the operation of a plant or disposal activity at a landfill – may have occurred in an earlier year or years. Primary insurance policies also often obligate insurers to defend "any suit against the insured alleging . . . injury, sickness or disease, including death at any time resulting therefrom or injury to or destruction of property and seeking damages on account thereof, even if such suit is groundless, false or fraudulent . . .."
While a careful and considered reading of insurance policies is always required before a coverage determination can be made, in general a comparison with the terms of many standard form CGL policies with the language of CERCLA demonstrates beyond peradventure that such damages fall squarely within the insuring agreement of the general liability. The insuring agreement of many policies provide that the carrier must indemnify for "all sums" that insured is "legally obligated to pay" as "damages" because of "injury to or destruction of property," or "loss of use" thereof, resulting from an "occurrence." CERCLA, in turn, authorizes designated natural resource trustees to recover from responsible parties "damages" for "injury to, destruction of or loss of use of" natural resources resulting from a release of hazardous substances.
There can be no doubt that actions seeking natural resources damages are actions for "damages" because of injury to, destruction of, or loss of use of, property. Indeed, a natural resource damages claim is not unlike a claim brought by an adjoining property owner seeking damages resulting from releases of hazardous substances onto its property. Natural resource damage trustees stand in the shoes of a property owner advancing the public's property rights in natural resources.
Although insurers have, in the course of the environmental coverage litigation over the years, raised numerous issues and exclusions in order to avoid coverage, few insurers, if any, have ever even attempted to contend that claims for natural resource damages fall outside the coverage grant of CGL policies. This is likely due to the fact, as described above, that CERCLA and similar laws that impose liability for natural resource damages leave little room for argument that claims seeking such damages are claims for "damages," on account of "property damage," that fall within the purview of the insuring agreements of CGL policies.
Until recently, primary environmental initiatives and enforcement actions have focused on liability for cleanup of environmentally impaired sites. Thus, there are few published decisions in which courts have squarely addressed the issue of coverage for natural resource damages (and none holding that such damages are not covered). At the same time, however, courts around the country that have determined that costs to perform remediation of contaminated sites (or to reimburse governmental agencies for the same) are "damages," as such term is used in CGL policies, have made it clear in so holding that claims for natural resource damages are also covered. Moreover, those courts that have declined to hold that CERCLA-imposed cleanup costs are "damages" for purposes of CGL policies have, by relying upon the distinction drawn in CERCLA between such response costs and natural resource damages as a principal basis for their holdings, recognized that natural resource damages are covered under such policies.
In general terms, perhaps the leading case in the country with respect to the interpretation of the "as damages" language in CGL policies in relation to environmental coverage claims, is AIU Insurance Company v. FMC Corporation, 51 Cal. 3d 897, 274 Cal. Rptr. 820, 799 P. 2d 1253 (1990). In FMC, the Supreme Court of California addressed a claim by a group of insurers that CERCLA-imposed response costs were not "damages" and did so in a way that made it clear that both response costs and natural resource damages are "damages" for purposes of CGL policies.
[W]e do not believe, as the insurers contend and several courts have concluded . . . that CERCLA intended that reimbursement of 'response costs' be treated as definitionally or conceptually distinct from recovery of 'damages.' Congress clearly intended considerable overlap between the two forms of recovery.
In Hazen Paper Company v. United States Fidelity and Guaranty Company, 407 Mass. 689, 555 N.E. 2d 576 (1990), the Massachusetts Supreme Judicial Court held that remediation expenses incurred by an insured to address releases of hazardous substances into the environment are "damages," as such term was used in the CGL policies purchased by Hazen Paper. Although the court did not directly address the question of whether CGL policies afford coverage for natural resource damage claims, the court's holding makes it plain that, under Massachusetts law, natural resource damage assessments are also "damages" covered by such policies.
The principal ground for the court's decision that CERCLA-imposed cleanup costs are "damages" was the court's determination that a policyholder would reasonably expect that such costs would be covered. The court described the expectations of policyholders as to coverage for response costs in terms that would also encompass natural resource damages: "[A] reasonable policyholder reading the language would fairly expect that the policy covered amounts he must spend to correct pollution damage for which the law holds him responsible." [Hazen Paper at 689.] Natural resource damage payments, like response costs, are amounts an insured must pay to "correct pollution damage" for which the law holds the insured responsible.
In addition, analyzing the few cases that existed then in which courts had held that remediation expenses were not insured "damages," the Supreme Judicial Court pointed out that courts reaching such decisions "thought it significant, in denying coverage, that [CERCLA] makes a distinction between harm to natural resources (which the courts equate to 'damage') and cleanup costs." [Hazen Paper at 701.] The court rejected this line of reasoning, stating that "[i]f an environmental statute creates liability for the cost of cleaning up a polluted site, it makes no difference . . . that, in some instances, the government could seek to recover for damages to natural resources." [Id.] It follows perforce from the holding in Hazen Paper that the court also viewed natural resources damages to be encompassed by the policy term "damages."
The Supreme Court of Missouri came to the identical conclusion in Farmland Industries, Inc. v. Republic Insurance Co, 941 S.W. 2d 505 (Mo. 1997). There, the court reversed the judgment of the trial court that environmental response costs incurred pursuant to CERCLA and various state statutes were not "damages" within the meaning of the CGL policies issued to Farmland. Among the arguments advanced by the insurers to support the trial court's holding was a contention that response costs are not "damages" under the provisions of CERCLA itself. "Respondents [insurers] point out a difference in terminology used in CERCLA. In 42 U.S.C.A. section 9704(a)(4)(A), a person is liable for 'all costs of removal or remedial action . . .' In contrast, 42 U.S.C.A. § 9607(a)(4)(C) provides that a person is liable for 'damages for injury to, destruction of, or loss of natural resources. . . .' Respondents thus conclude that the language of the statute reflects an intent to differentiate between response costs and damages." [941 S.W. 2d at 511.] The Missouri Supreme Court, like the court FMC, rejected this contention out of hand, finding that, under the ordinary meaning of the term "damages," environmental response costs are covered. It follows, from the logic employed by the court in Farmland Industries, that the court also viewed natural resource damages as falling within the ambit of the policy language.
Reversing the judgment below, the Court of Appeals held first that the term "damages," as used in the CGL policies, affords coverage for the insured's cleanup costs. As to natural resource damages, the Court of Appeals determined that the term "damages," as used in 42 U.S.C. 9607(f)(1), refers to the "'monetary quantification stemming from an injury.'" [Pinlar Corp. at 1515.] As a result, the court concluded that a state may recover natural resource damages in circumstances in which the release and injury occurred prior to December 1980, so long as the "monetary quantification of damages" occurred after such date. Because such a claim could be asserted against the insured, the court determined that policies in force prior to 1980 could provide coverage for such natural resource damages claims. The court clearly could not and would not have reached this conclusion had it believed that natural resource damage claims do not fall within the coverage grant of CGL policies.
A few courts have held that coverage is not available for CERCLA-imposed response costs under standard forum CGL policies because such costs do not constitute "damages." However, even these courts have recognized that CGL policies must and do respond to natural resource damages claims.
In so holding, the court made it manifestly clear that a different result would have obtained if the government had asserted a claim against the insured for natural resource damages. The court pointed out that, although "some cases had overlooked" the difference under CERCLA "between recovery of cleanup costs and recovery of damages for injury to, destruction of, or loss of, natural resources, the distinction 'is not merely fortuitous' to either the insured as a CERCLA . . . defendant or to the insurer." As a result, "[w]hether the government seeks recovery of cleanup costs, damages for destruction or loss of natural resources, or both, may make little difference" to the insured as a CERCLA defendant, but "the type of relief sought is critical to the insured and the insurer, because under the CGL policies the insurer is liable only for legal damages, not for equitable monetary relief, such as cleanup costs." Because the government, in the case before the court, had sought recovery for cleanup costs pursuant to CERCLA § 107(a)(4)(A), and had not "sought recovery for 'damages to, destruction of, on loss of natural resources,' pursuant to CERCLA § 107(a)(4)(C)," the court held that insured was not entitled to coverage.
It is important to note that, several years later, the Supreme Court of Missouri, in Farmland Industries, supra, 941 S.W. 2d at 510, held that "[t]he NEPACCO court misconstrues and circumvents Missouri law." In Farmland Industries, the court held that, under Missouri law, CERCLA-imposed cleanup costs are "damages" covered by CGL policies. As a result, NEPACCO, insofar as it holds that cleanup costs are not "damages," is no longer good law. For present purposes, the point is not that NEPACCO is a valid precedent. It is not. Rather, NEPACCO demonstrates that, even those few courts that have held (incorrectly as it turned out in many cases) that CERCLA-imposed response costs are not "damages," have established by their holdings that CERCLA-imposed natural resource damages assessments are encompassed by the policy term "damages."
In City of Edgerton v. General Casualty Company of Wisconsin, 184 Wis. 2d 750, 517 N.W. 2d 463 (1993), the Wisconsin Supreme Court adopted the holding in NEPACCO as Wisconsin law and concluded that CERCLA response costs were not "damages." Here again, as in NEPACCO, the court cited "a congressional intent to differentiate between cleanup and response costs and damages for injury to, destruction of, or the loss of natural resources."
A review of the federal statutory framework related to natural resource damages, standard policy language, and the case law strongly supports the proposition that natural resource damage claims are covered under standard CGL policies. The majority of courts that have considered the issue have held that response costs, imposed under CERCLA and comparable laws, are "damages," and such courts have made it equally plain that liabilities for natural resource damage assessments are also covered "damages." In those (few and far between) jurisdictions where courts have barred coverage for cleanup costs, such courts have recognized that natural resource damages claims would receive different treatment.
A related issue is whether past insurance coverage settlement agreements release natural resource damages claims. In situations involving policy buy backs, this may be a moot point depending on the settlement terms. But in situations involving site specific or known claim settlements, it is quite possible that the scope of these releases are not as broad, or that carve outs exist, so that new coverage claims for these distinct natural resource damages claims remain viable. Similarly, in environmental coverage actions that did not involve underlying matters with natural resource damage claims, resulting orders and judgments may not encompass such claims. While general principles of claim preclusion must always be considered in such situations, it is possible that insurance claims for natural resource damages were not adjudicated and remain open for pursuit by insureds. Accordingly, it would be prudent for all those concerned to review their policies, settlements and judgements to determine if claims for natural resource damages remain viable and open for possible payment. Likewise, insureds and insurers should be aware of NRD claims when negotiating settlements so as to memorialize the intent of the parties.
This article previously appeared in a Mealey's publication.

References: § 9601
 § 1321
 § 9607
 v. 
 § 11
 v. 
 v. 
 v. 
 § 9607
 § 107
 § 107
 v.