Phillips Law Firm Blog

Your father and mother were the owners of Trusted Plating. Trusted Plating has been operating as a plating company since the 1940's. Trusted Plating has never been a major company, but it has provided your parents with a comfortable living, and it put you through business school. After graduation, you went to work for a national bank, and have been very successful at your chosen career.

Twenty-five years ago, your father died, and as the businessman of the family, you were the executor of your father's estate. Your father and mother, as part of an estate-planning program, set up trusts for the purpose of avoiding estate taxes. Upon your father's death, your father's estate was put into a trust for the befit of your mother. You were named the trustee under the trust, and you are now responsible for managing the assets that were put into the trust for your mother's benefit. The assets placed into the trust included the family business, Trusted Plating, and the real estate on which it operates. The trust that your father created provided that money from the trust was to be given to your mother as needed, but the trust assets were to be administered by you, the trustee. You turn out to be an amazing businessman. You converted six hundred thousand dollars in assets into over eight million dollars in assets. Everything is going smoothly, until yesterday.

Yesterday, you were notified that high levels of chromium and arsenic were detected in the public drinking water wells approximately one mile from your facility. U.S. EPA wanted to meet with you regarding past activities on the Trusted Plating property. You agree to a meeting with U.S. EPA, and a tour of the facility is undertaken. While touring the facility, you advise U.S. EPA that to save money on disposal costs, you authorized the burial of sludge on the property during 1974, 1975 and part of 1976. You explain to U.S. EPA representatives that as soon as this type of disposal became illegal under the Resource Conservation and Recovery Act (RCRA) 42 U.S.C. § 6901, et seq., you stopped the sludge disposal immediately. U.S. EPA then requests access to the site for purposes of determining the extent of any remediation necessary to eliminate the source of the groundwater contamination. You agree to provide the access requested, and U.S. EPA begins testing with the understanding that the cost of testing will be reimbursed from the trust assets.

Six months later, you meet with U.S. EPA again. At the meeting, U.S. EPA explains that the remediation necessary to protect human health and the environment will be extensive and costly. The total cost of the remediation required by U.S. EPA will be in the neighborhood of twelve million dollars. You explain to U.S. EPA that there is no way the assets of the business could fund such a remediation. U.S. EPA asks you to list the assets held in trust. You provide a detailed listing of the trust assets to U.S. EPA. You explain to U.S. EPA that you have administered the trust for your mother during the last ten years, and that you took a very small company and turned it into over eight million dollars in assets. However, you realize that the assets are gone now, and you thank goodness that your father separated the company from the rest of your mother's assets by putting it into a trust upon his death. U.S. EPA asks how you were able to grow the company to eight million dollars in trust assets. You proudly explain that as trustee, you personally were involved in the administration of the trust and the operation of the business. U.S. EPA then announces that you will personally have to pay for any amounts not covered by the trust for the remediation. You explain to U.S. EPA that you are not about to pay personally for the cleanup with your own money. U.S. EPA suggests otherwise, and you suggest that it is time to get the lawyers involved.

You contact an environmental attorney, explain that you are the trustee of the assets in a trust, and that U.S. EPA wants you to pay for cleaning up property where your only interest was to be the trustee. You explain to your environmental attorney that you have never taken a dime out of the company or out of the trust. You do not see how U.S. EPA could expect you to use your personal assets to remediate the trust property. You ask your environmental attorney to explain how you could possibly be held responsible for a remediation when you were only the trustee of the property.

Your environmental attorney explains that trustees face possible liability under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), 42 U.S.C. §§ 9601-9675, because, as holders of legal title to property, they may be "owners" or "operators" of CERCLA facilities, 42 U.S.C § 9607(a)(1), (2). You ask your attorney to explain how you could be considered an "owner" or "operator" when you were simply the trustee.

Your attorney explains that a trust is used for ownership of property in which the legal and beneficial interests in the property are separated: The trustee holds legal title to the property for the benefit of the beneficiary. Your mother, who is the beneficiary of the trust property, has no legal ownership of the trust property. This is why separating an estate avoids certain estate taxes, but that is not what is important to U.S. EPA. What is important to U.S. EPA is who is the "owner" or "operator" of the trust assets for CERCLA purposes. Trustees are liable for obligations incurred in the administration of a trust to the same extent as if the property were held free of trust. Restatement (Second) Of Trusts § 261 (1959). Consistent with this, trustees may be held personally responsible for liabilities committed in the administration of a trust. Id. § 264. The rationale for holding trustees liable is essentially that because the trustee is acting as the representative of the trust, the trustee is responsible for his or her conduct with respect to the administration of the trust. The trustee's liability attaches regardless of the fault or lack of fault of the trustee.

You give the environmental attorney a copy of the document that created the trust and ask him if the provision in the trust agreement regarding indemnification would protect you. Your environmental attorney explains that although ordinarily the trustee may obtain indemnification from trust assets for acts within his or her official capacity, if the assets of the trust are insufficient, the trustee's personal assets can still be attached to pay for the liability.

Your environmental attorney explains that if the trustee merely held title to the trust assets, the trust assets only would be used for purposes of paying for the remediation. However, when the trustee has power under the particular trust instrument to control the uses of the trust property, and the trustee allowed disposal of hazardous substances, he or she is more than a mere titleholder and the trustee's liability extends beyond the trust assets. Thus, your environmental attorney explains that since you were responsible for administering the trust, which included overseeing the operation of Trusted Plating during 1974, 1975, and 1976 when the disposal occurred, U.S. EPA can legally require you to pay personally to remediate the property.

You are astounded. You ask your environmental attorney if it would be possible to make U.S. EPA get the money from your eighty-six year old mother. After all, she received all the income from the trust; you were only the trustee because your father wanted you to take care of the business to provide for your mother. Your attorney explains that since your mother neither owned nor operated the trust during the time when disposal occurred, your mother will not have any liability, even though millions of dollars were given to her out of the trust.

You look at your environmental attorney, and with a tear in your eye, you tell him how your father never hurt you when he was alive. Who ever thought that twenty five years after he died, something he did would hurt you so much?

There is very little case law regarding what action U.S. EPA will take with respect to CERCLA liability of a trustee. However, most of the case law holds a trustee individually liable as an "operator" if the trustee takes an active role in administering trust assets during disposal activities. Therefore, with respect to CERCLA liability, the crucial question for trustees is: Do you have the authority to control the use of the trust property, or do you merely hold title? The difference in the answers to this question could represent a significant difference in potential liability.

As with any legal matter, you should always consult with your attorney. The above information, while deemed accurate by the author, should not be relied upon. Each set of facts and circumstances will be different and may lead to a different legal conclusion.

Mike Murphy - PLEASE NOTE: As a follow-up to last month's article, the following might be inserted as a sidebar/follow up. You decide.

The Supreme Court in Steel Company, Aka Chicago Steel And Pick- Ling Company, Petitioner V. Citizens For A Better Environment (Case No. 96-643), decided March 4, 1998 confirmed and upheld last month's article on EPCRA violations and citizen suits. The Supreme Court ruled that wholly past violations of EPCRA do not subject the violator to citizen suit liability. The opinion stated, "[W]e must conclude that respondent lacks standing to maintain this suit, and that we and the lower courts lack jurisdiction to entertain it. However desirable prompt resolution of the merits EPCRA question may be, it is not as important as observing the constitutional limits set upon courts in our system of separated powers. EPCRA will have to await another day. Justice Stevens, in a well-written concurring opinion stated "[B]ecause EPCRA, properly construed, does not confer jurisdiction over citizen suits for wholly past violations, the Court should leave the constitutional question for another day."

In 1975, your company, Wishful Platers, Inc. bought a two hundred acre parcel of industrial property on which you hoped to place a new factory someday. In 1985, Wishful Platers sold the property to Anchor Corporation. Although you had hoped to develop the property, in fact you never did anything except pay taxes on the land.

Beginning in 1989, Anchor had the property tested to determine whether hazardous chemicals contaminated the property. Those tests indicated that the property was contaminated, principally by a degreasing agent known as perchloroethylene (PCE). Under the Comprehensive Environmental Response Compensation and Liability Act (CERCLA), PCE is a listed hazardous substance. See 40 C.F.R. § 302.4. In 1992, U.S. EPA forced the current owner of the property, Anchor, to begin an extensive cleanup of the site.

Since Anchor did not contaminate the site, Anchor researched the property's prior ownership and control and determined the following: (1) prior to 1964, the property was undeveloped farm land; (2) from 1961 to April 1964, the property was developed and owned by Outta Business, Inc.; (2) from April 1964 to August 1974, the property was owned, operated and contaminated by Gonfor Good Industries, Inc.; (3) from August 1974 until July 1975, the property was held by a trustee of the Bankruptcy Court; and (4) in July 1975, your company purchased the property from the bankruptcy proceedings of Gonfor Good Industries. Gonfor Good Industries and Outta Business are no longer in existence.

Yesterday, Anchor sued your company, Wishful Platers, alleging that your company is partially liable for the costs that Anchor had incurred and would incur to assess and cleanup the site under CERCLA. You called your environmental attorney and explained to him that your company had been sued. You meet with your attorney and explain to him that your company never released, spilled, disposed or otherwise caused any hazardous substances to be released onto the property while Wishful Platers held title to the property. Your company only owned the property -- the same thing that Anchor did with the property. The only difference is that the contamination was discovered while Anchor owned the property. You tell your lawyer that since your company is in the same position as Anchor, you know that you are liable for part of the cost of the remediation and that you simply want to negotiate a quick and inexpensive settlement. You immediately tell your attorney to offer to pay for one half of the cost of the cleanup.

Your attorney advises you not to be so quick to spend your money. Your attorney advises you that you have a very viable defense to any lawsuit brought by Anchor against your company. You ask your attorney to explain how Anchor could be liable under CERCLA for the cost of the cleanup and your company would not. Neither Company disposed of the wastes on the site, both companies owned the property after it was contaminated, and U.S. EPA has already found that Anchor had to perform a cleanup.

Your attorney explains that under CERCLA 's liability section, 42 U.S.C. § 9607(a), a plaintiff makes a prima facie case by establishing that (1) the defendant is an owner or operator of the property, and thus, a responsible party under section 9607(a), (2) the site is a "facility" as defined in section 9601(9), (3) there has been a release or there is a threatened release of hazardous substances, (4) the plaintiff has incurred costs in response to the release or threatened release, and (5) the response costs conform to the national contingency plan. B.F. Goodrich v. Betkoski, 99F.3d 505, 514 (2d Cir. 1996). Your attorney explains that Anchor has proven every element of a prima facie case against your company with the exception of one. The only element at issue here is the first, whether Wishful Platers is a responsible party.

Under section 9607(a)(2) of CERCLA, a prior owner or operator is a responsible party if it controlled the site "at the time of disposal" of a hazardous substance. 42 U.S.C. § 9607(a)(2). CERCLA section 9601(29) adopts the definition of "disposal" from the Solid Waste Disposal Act, 42 U.S.C. § 6903(3), which states, in pertinent part, "[t]he term 'disposal' means the discharge, deposit, injection, dumping, spilling, leaking, or placing of any . . . hazardous waste into or on any land or water so that such . . .hazardous waste . . . may enter the environment." Accordingly, to make out a prima facie case, Anchor must establish that a spill, discharge, leak, etc., occurred at the time Wishful Platers controlled the site.

Anchor asserts that the hazardous chemicals found on the property continued to gradually spread underground (passive migration) while Wishful Platers owned and controlled the site. According to this theory of passive migration release of hazardous substances, Anchor argues that your company is liable for passive migration under CERCLA. Your attorney explains that while many companies have been found responsible under CERCLA because the company "owned" contaminated property at the time of a "release" of a "hazardous substance," recent court decisions have held that acquiring the property after the hazardous substances were released on the property, but before the hazardous substances are discovered on the property, will not impose liability under CERCLA.

The Third Circuit recently considered this same question, and after considering CERCLA's language, structure and purposes, the court held that prior owners are not liable under CERCLA for passive migration. United States v. CDMG Realty Co., 96 F.3d 706, 712-18 (3d Cir. 1996); see also Joslyn Mfg. Co. v. Koppers Co., 40 F.3d 750, 761-63 (5th Cir. 1994).

The third circuit reasoned that disposal is defined as "the discharge, deposit, injection, dumping, spilling, leaking, or placing" of hazardous chemicals so that they may enter the environment. 42 U.S.C. § 6903(3). The court concluded that none of these terms is commonly used to refer to the gradual spreading of hazardous chemicals already in the ground. CDMG Realty Co., 96 F.3d at 714.

Furthermore, the third circuit reasoned that current owners are liable if there has ever been a "release" of hazardous substances. 42 U.S.C. § 9607(a). Unlike the definition of disposal, release is defined to include "leaching,"(42 U.S.C. § 9601(22)), which is commonly used to describe passive migration, see CDMG Realty Co., 96 F.3d at 715 & n.4 (quoting several law journals and cases). The court held that since Congress used the term leaching in the definition of release demonstrates that Congress knew that passive migration occurred but decided that prior owners are not liable provided a release of "hazardous substances" did not occur during the ownership. Id.

In addition, the third circuit court reasoned that CERCLA provides an "innocent owner" defense. See 42 U.S.C. §§ 9607(b)(3), 9601(35); Westwood Pharmaceuticals v. National Fuel Gas Dist. Corp., 964 F.2d 85, 89-91 (2d Cir. 1992). To qualify for that defense, a defendant must establish that it acquired the site "after the disposal" of hazardous chemicals. 42 U.S.C. § 9601(35)(A). The third circuit court reasoned that if "disposal" included the gradual spreading of hazardous chemicals spilled before the defendant acquired the site, the innocent owner defense would hardly ever be available since spilled chemical rarely ever just stay in one place once released into the environment. CDMG Realty Co., 96 F.3d at 716. Congress would not intentionally create a useless defense. Thus, the third circuit interpreted the word "disposal" as limited to spilling, discharging, leaking, etc., and not to passive migration. Id.

The third circuit court in CDMG Realty Co. also relied on its conclusion that the innocent owner defense appeared to be unavailable to prior owners. See CDMG Realty Co., 96 F.3d at 716-17 (quoting 42 U.S.C. § 9601(35)(C), which provides the innocent owner defense and states: "[n]othing in this paragraph . . . shall diminish the liability of any previous owner"). The court reasoned: "if prior owners were liable because waste spread during their tenure . . . , prior owners would be in a significantly worse position than current owners: they would be liable for passive migration of waste" in circumstances where current owners could establish the innocent owner defense. Id. The court concluded that this fact indicated that disposal does not include passive migration. Id.

Finally, the CDMG Realty Co. Court reasoned that its interpretation was consistent with CERCLA policy. One of CERCLA's goals is "to force polluters to pay the cost associated with their pollution." CDMG Realty Co., 96 F.3d at 717; see also B.F. Goodrich, 99 F.3d at 514 (CERCLA's purposes include "assuring that those responsible for any damage, environmental harm, or injury from chemical poisons bear the costs of their actions"). If a person merely controlled a site on which hazardous chemicals have spread without that person's fault, that person is not a polluter and is not one upon whom CERCLA aims to impose liability.

You are amazed. You tell your attorney to defend Wishful Platers based upon the recent decisions out of the third circuit. Naturally, your attorney is pleased to comply.

Recent cases coming out of the circuit courts are more forgiving to prior owners and operators of a contaminated site for mere passive migration. I encourage past owners or past operators to be more aggressive in defending the passive migration case. The chain of title alone should not be connected to the Anchor that sinks your company.

You are the owner and founder of Clean Platers, Inc. You recently moved the company location to a twelve-acre parcel of ground that you purchased in 1993. You formerly operated the company on an eight-acre parcel of land purchased from a company called Tower Oil Company. Tower Oil Company was a local distributor of gasoline from your former location from 1951 through 1973. Tower Oil Company operated exclusively on your company's former location. Tower Oil Company would purchase refined petroleum products from other oil companies, store the refined petroleum products in above ground bulk storage tanks on site, and distribute the products to service stations in its service area.

Eventually, Tower Oil Company's share of the market declined to the point that the owner of Tower Oil Company decided to cease operations in 1973. In 1973, Tower Oil Company dismantled the tanks located on the property it owned, liquidated all of its other assets, and sold your company the real estate on which the tanks were formerly located. In 1993, your company expanded and needed a larger facility. It sold the eight-acre location where Tower Oil Company was formerly located to Stucko Industries, Inc. and purchased its current twelve-acre location two miles away.

In 1994, the local town of Clean Water detected high levels of benzene, toluene, ethyl benzene and xylene in the city water wells. The city of Clean Water performed a groundwater study and traced the contamination as coming from the former Tower Oil Company Property two miles away. Stucko Industries, Inc., the new owner of the former Tower Oil Company property, put a groundwater monitoring well on the property and found that a two-foot thick layer of gasoline is floating on top of the shallow groundwater under the property. Investigations revealed that the groundwater contamination is from your former property, but is unrelated to your former business. Investigations further reveal that your former location is heavily contaminated with gasoline from Tower Oil Company's operations and will require extensive efforts to remove the gasoline from the property and to protect the City of Clean Water's drinking water wells. Apparently, the source of the gasoline was the above ground bulk storage tanks used by Tower Oil Company during its twenty-two year ownership and operation of the property. Current estimates are that over three million gallons of gasoline are floating on the groundwater beneath your former location.

Stucko Industries, Inc. and the City of Clean Water approach you and demand that you pay for the cost of removing the gasoline contamination from the site. As the former owner and operator of the property, the City of Clean Water and the owner of Stucko Industries, Inc. demand that you pay for the cost of the removal. Since Tower Oil Company is out of business, and since you were on the property from 1973 until 1997, and since Stucko Industries, Inc. has only been on the site for a few months, the City of Clean Water and the owner of Stucko Industries, Inc. demand that you pay the entire cost of removal. However, in an attempt to be amicable, the owner of Stucko Industries, Inc. offers to pay five percent of the cost of removal and the City of Clean Water offers to pay five percent of the cost of removal. According to Stucko Industries, Inc. and the City of Clean Water, they are being generous.

Being in a cash flow crisis from your recent expansion, you decline the offer to pay for ninety percent of the cleanup, and the next thing you know, Stucko and the City of Clean Water are suing you. You were served yesterday with a complaint that names your company as a potentially responsible party under the Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C. § § 9601, et seq.). Now you think that maybe you should have accepted the offer to pay only ninety percent of the cost of removing the gasoline from the property. You expect to pay more than ninety percent of the cost of removal plus legal expenses that go along with any lawsuit. Regardless, you decide to turn the defense over to an environmental attorney.

The environmental attorney that you contact asks you to bring in your documents and information on the property. You truthfully tell your attorney that you had no idea the property was contaminated with gasoline prior to selling it to Stucko, and you provide him with copies of all documentation showing what chemicals you kept on the property, and what information you had regarding the environmental condition of the property. Nothing indicates that you knew or should have known of the property's contaminated condition. You ask your attorney if there is any way to shift more of the liability to either Stucko or the City of Clean Water since you simply do not have the money to pay for such an extensive removal effort.

Your attorney asks you what percentage of the removal cost you would be willing to pay and still be happy. You explain that you would be happy if you could keep your company's share of the responsibility to less than one-third of the cost of the removal. Your attorney smiles sheepishly and says that you should be ecstatic then, because you will not have to pay for any of the cost of the removal. You are puzzled and ask for an explanation.

Your attorney explains that Stucko and the City of Clean Water are suing you under CERCLA due to releases of "hazardous substances" into the environment thereby entitling Stucko and the City of Clean Water to relief under the liability provisions of CERCLA § 107, 42 U.S.C. § 9607. However, in order for liability to exist under CERCLA, a "hazardous substance" or a "pollutant or contaminant" as defined in the statute must have been released. Section 9601(14) of 42 U.S.C. defines the term "hazardous substance." The term "hazardous substance" means:

1. any substance designated pursuant to section 311(b)(2)(A) of the Federal Water Pollution Control Act [33 USCS § 1321(b)(2)(A)],
2. any element, compound, mixture, solution, or substance designated pursuant to section 102 of this Act [42 USCS § 9602],
3. any hazardous waste having the characteristics identified under or listed pursuant to section 3001 of the Solid Waste Disposal Act [42 USCS § 6921] (but not including any waste the regulation of which under the Solid Waste Disposal Act [42 USCS § § 6901 et seq.] has been suspended by Act of Congress),
4. any toxic pollutant listed under section 307(a) of the Federal Water Pollution Control Act [33 USCS § 1317(a)],
5. any hazardous air pollutant listed under section 112 of the Clean Air Act [42 USCS § 7412], and
6. any imminently hazardous chemical substance or mixture with respect to which the Administrator has taken action pursuant to section 7 of the Toxic Substances Control Act [15 USCS § 2606].

The term does not include petroleum, including crude oil or any fraction thereof which is not otherwise specifically listed or designated as a hazardous substance under subparagraphs (A) through (F) of this paragraph, and the term does not include natural gas, natural gas liquids, liquefied natural gas, or synthetic gas usable for fuel (or mixtures of natural gas and such synthetic gas). (Emphasis added).

42 U.S.C. § 9601(14).

Section 9601(33) of 42 U.S.C. defines the term "pollutant or contaminant." The term "pollutant or contaminant" means:

. . . any element, substance, compound, or mixture, including disease-causing agents, which after release into the environment and upon exposure, ingestion, inhalation, or assimilation into any organism, either directly from the environment or indirectly by ingestion through food chains, will or may reasonably be anticipated to cause death, disease, behavioral abnormalities, cancer, genetic mutation, physiological malfunctions (including malfunctions in reproduction) or physical deformations, in such organisms or their offspring; except that the term "pollutant or contaminant" shall not include petroleum, including crude oil or any fraction thereof which is not otherwise specifically listed or designated as a hazardous substance under subparagraphs (A) through (F) of paragraph (14) and shall not include natural gas, liquefied natural gas, or synthetic gas of pipeline quality (or mixtures of natural gas and such synthetic gas). (Emphasis added).

42 U.S.C. § 9601(33).

Your attorney explains that the underlined portions of the above definitions are more commonly referred to as CERCLA's "Petroleum Exclusion." According to your attorney, the above-cited definitions unequivocally show Congress' intent to exclude petroleum products from the liability provisions of CERCLA. "What Congress means, and what the Courts hold are two different things," you tell your attorney. You ask, "How have the Court's interpreted the statute?"

Your attorney explains that in Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984), the Supreme Court of the United States proclaimed, "If the intent of Congress is clear, that is the end of the matter; for the court . . . must give effect to the unambiguously expressed intent of Congress." Id. at 842-843. On this premise the lead case on the petroleum exclusion was Wilshire Westwood Associates v. Atlantic Richfield Company, 881 F.2d 801 (9^th Cir. 1989). In Wilshire, the Ninth Circuit Court of Appeals faced the issue of whether the presence of benzene, toluene, ethyl benzene, and xylene in the groundwater, all individually listed hazardous substances under CERCLA and components of gasoline, could be considered eligible for the Petroleum Exclusion under CERCLA.

The Wilshire court noted that petroleum was a mixture of other chemicals, which if not a part of a petroleum product, would individually be considered "hazardous substances" or "pollutants or contaminants" under CERCLA. For example, the Wilshire court noted that benzene, toluene, ethyl benzene and xylene are all indigenous of crude oil. Id. At 803. The Wilshire court further recognized that if the petroleum exclusion was to have meaning, all of the "fractions" of petroleum, including these individual chemicals which would otherwise cause CERCLA liability to be imposed, must be excluded under CERCLA's petroleum exclusion.

You ask your attorney if U.S. EPA agrees with the court's interpretation of the petroleum exclusion. Your attorney explains that much of what the court in Wilshire relied upon in reaching its conclusion was based upon U.S. EPA documentation and interpretation. For example, U.S. EPA has stated that "EPA interprets the petroleum exclusion to apply to materials such as crude oil, petroleum feedstocks, and refined petroleum products, even if a specifically listed or designated hazardous substance is present in such products." 50 Fed. Reg. 13460 (April 4, 1985).

You are amazed. You ask your attorney what will happen next. Your attorney states that he will file a motion with the court to have you dismissed as a party from the lawsuit since a) you no longer own the property where the spill exists, b) there is no dispute that the gasoline was released by someone else, and c) gasoline is not a "hazardous substance" or "pollutant or contaminant" under CERCLA subjecting a former land owner to liability because of the petroleum exclusion found in the statute. You are amazed that the petroleum exclusion in CERCLA exists, and it actually prevented you from incurring liability.

Whenever a party faces CERCLA liability, it is important to understand what CERCLA covers and does not cover. The above facts were taken from a case that I personally handled several years ago. In that case, the defendant avoided CERCLA liability by proving that the chemicals released at the site were from petroleum products. Furthermore, since the releases were not attributable to my client who had already sold the property, no liability attached, except for legal fees - which were gladly paid under the circumstances.

Prior to 1986, your company, Southern Platers, Incorporated (Southern) operated a chrome plating facility in Tampa, Florida. You used tetrachloroethylene, commonly referred to as perchlorethylene or "perc" as a solvent to degrease parts at your facility before switching to unchlorinated solvents. The main perc supply at the site was held in a one thousand gallon above ground storage tank. The perc at the site would be transferred to 55-gallon drums on site, which were moved around at the site using forklifts.

In early 1988, your local environmental enforcement agency found large levels of PERC contamination in the site's groundwater. You immediately hired an environmental engineering company to test for contamination. Tests coupled with a review of records and further investigation revealed that four PERC releases had occurred at the site: in September 1978, a truck backed into and ruptured a 55-gallon drum of perc on a loading dock. This incident caused about 30 gallons of perc to be released into the soil at the plant. In August 1982, a 55-gallon drum of perc was pierced with the fork on a fork lift and approximately twenty gallons of perc spilled into the soil. In July of 1983, a transfer hose ruptured while filling a 55-gallon drum from the above ground storage tank spilling about ten gallons of perc. Then came the release that caused your company to stop using perc altogether. In May of 1985, while transfering a 55-gallon drum of perc from the storage tank, a forklift operator pierced the side of the perc storage tank just four inches from the bottom. Nearly eight hundred gallons of perc spilled into the soil. It is estimated that your company recovered less than half of the spilled perc.

After the initial determination that a large amount of perc had to be remediated from the soil and groundwater, your company entered into a consent order with the Florida Department of Environmental Regulation in August 1994 to remediate the perc contaminated soil and groundwater. However, the cost of the remediation is expected to cost millions. You would like to shift the cost over to your insurance carriers, if possible, but you are unsure of whether or not your insurance companies are required to provide coverage under these circumstances.

After weeks and months of searching through old boxes of records, your company finally locates two insurance policies that were applicable to your business at the time of the perc spills. At the time of the spills, your company held comprehensive general liability ("CGL") insurance under Old Hampshire Insurance Company, and occurrence-based umbrella liability insurance under Total Insurance Company ("Total"). You notified Old Hampshire of the environmental situation and asked that each accept responsibility for the environmental contamination. Both insurance companies refused to defend or indemnify your company. You expected that there was nothing that could be done. "If the insurance company won't pay, the insurance company won't pay," you said to your self.

However, just to be certain, you decided to ask your attorney if there exists any right to appeal an insurance company holding on this case. Your attorney reviews your old insurance policies that you fortunately found in your files and advises you that no coverage was provided for pollution unless the pollution was "sudden and accidental." However, your attorney advises you that the area of insurance coverage for environmental liability is still an unsettled area of the law. After reviewing the facts behind the four perc releases at your facility, and after reviewing your insurance policies in detail, your attorney advises you that the four identified perc releases were "sudden and accidental" under your policy. As a "sudden and accidental" occurrence, your company is entitled to collect its damages from the insurance company. You ask your attorney to explain.

Your attorney explains that your insurance companies define the term "occurrence," "sudden and accidental" and "pollution exclusion" as follows:

This "occurrence-based" policy defines the term "occurrence as:

an accident which takes place during the policy period, or that portion within the policy period of a continuous or repeated exposure to conditions, which causes personal injury, property damage ... neither expected nor intended by the insured.

The policy's pollution exclusion clause provides:

It is agreed that this policy does not apply to ... property damage arising out of the discharge, dispersal, release or escape of smoke, vapors ... toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land ...; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental.

Your attorney advises you that your insurance company does not deny that the four identified releases were sudden and accidental. However, the insurance company denies liability for the ongoing release of perc into the soil and groundwater that occurred for years after the sudden and accidental release. According to the insurance company's philosophy, the ongoing release, which of course caused most of the environmental harm, is not a covered event since the on going release lost its character as "sudden and accidental."

However, it is your attorney's opinion that since the four identified releases at your company were separate and distinct events which were not the result of day-to-day operations, the insurance company must provide coverage. Your attorney advises you that under Florida law, specifically Dimmitt Chevrolet, Inc. v. Southeastern Fidelity Insurance Corp., 636 So.2d 700 (Fla.1993), he believes that the discharge must be sudden and accidental, not the resulting environmental damage. Accordingly, your attorney believes that the insurance company must pay. You ask your attorney to explain his conclusion.

Your attorney explains that in Dimmitt, the Supreme Court of Florida construed a policy containing a similar pollution exclusion clause to mean that:

(1) basic coverage arises from the occurrence of unintended damages, but (2) such damages as arise from discharge of various pollutants are excluded from the basic coverage, except that (3) damages arising from the discharge of these pollutants will fall within the coverage of the policy where such discharge is sudden and accidental.

Dimmitt, 636 So.2d at 705 (emphasis added); see also St. Paul Fire and Marine Insurance v. Warwick Dyeing, 26 F.3d 1195, 1203 (1st Cir.1994) (pollution exclusion plainly refers to the discharge and not to the environmental damages themselves); Hartford Accident & Indemnity Co. v. United States Fidelity & Guaranty Co., 962 F.2d 1484, 1491 (10th Cir.1992) (the discharge must be sudden and accidental to qualify for coverage, not the pollution damage). Based on the holding in Dimmitt and the unambiguous terms in the policy issued by your insurance company, your attorney concludes that it is clear that the actual discharge, not the resulting damages or contamination, must be sudden and accidental in order to fall within the exception to the pollution exclusion clause.

You instruct your attorney to file suit against your insurance companies for breach of contract. Your attorney smiles and informs you that it would be his pleasure, especially when the laws of some states allow the attorneys to recover attorney fees from insurance companies for failing to provide legally required insurance coverage.

I always advise clients never to throw away old insurance policies. Often the most difficult part of claiming insurance coverage is showing that coverage ever existed. Occasionally, if coverage can be proven, without the policy, the exclusions cannot be determined. Insurance companies do not maintain a copy of old policies, and the burden of proving that coverage existed is on the person or company making the claim for coverage -- not with the insurance company. In the above example, only because the policies were discovered, and the exclusions were written in such a manner that "sudden and accidental" releases were covered could the company recover its remediation costs -- a savings to the company of millions of dollars. Without the policy, coverage could be impossible to prove, and the company would pay for the entire cost of the multimillion dollar remediation.