I’m often surprised to find that some environmental consultants fail to include warranties as a part of their scopes of work, contracts, and final reports.
Why is this important?
The majority of states follow a principle of law that only paying clients can rely on your professional opinions and representations and sue you for malpractice when your professional opinions and representations are wrong.
Some states, however, have adopted the principle of law called negligent misrepresentation. Under that theory, a stranger – someone who is not your paying client – can rely on your professional opinions and representations if you are aware that the stranger is relying on your work, the reliance is reasonable, your work turns out to be incorrect, and the end result is that the stranger has suffered damages proximately caused by or resulting from your incorrect statements.
You want to control who can rely on your professional opinions and representations. Here is a good warranty statement, slightly modified, that you might consider including with your scopes of work, contracts, and reports filed with agencies. Of course, I am not providing you legal advice and you should review this with your lawyer familiar with your state’s law before using this or similar language.
LIMITATIONS OF WARRANTY
Engineer’s services, data, opinions, and recommendations described in this report are for Client’s sole and exclusive use, and any unauthorized use of or reliance on the data, opinions, or recommendations expressed herein by anyone other than Engineer’s Client is prohibited without Engineer’s express written consent. The services described herein are limited to the specific project, property, and dates of Engineer’s work. No part of Engineer’s report shall be relied upon by anyone to represent conditions at other times or properties. Engineer will accept no responsibility for any damages suffered by anyone other than the Client as a result of reliance upon the data, opinions, or recommendations in this report.
Engineer’s services are subject to all limitations, qualifications, and indemnifications enumerated in the Client’s contract and terms and conditions governing the work. Engineer’s findings, interpretations, opinions, and recommendations are probabilities based on Engineer’s professional judgment of site conditions as discernable from the limited, and often indirect, information provided by others, information available to Engineer at the time the work was performed, or information observed or developed by Engineer using the methods specified in the scope of work. Engineer does not warrant the accuracy, completeness, or validity of information and independent opinions, conclusions, and recommendations provided or developed by others, nor does Engineer assume any responsibility for documenting or reporting conditions detectable with methods or techniques not specified in the scope of work. Maps and drawings in this report are included only to aid the reader and should not be considered surveys or engineering studies. The investigation described in this report was also conducted within the context of agency rules, regulations, action levels, and enforcement policies in effect at the time Engineer performed its work. Later changes in agency rules, regulations, action levels, or policies may result in different findings, interpretations, opinions, and/or conclusions than those expressed in this report.
Engineer has striven to perform the services in a manner consistent with that level of care and skill ordinarily exercised by other environmental consultants practicing in the same locality and under similar conditions existing at the time Engineer’s services were performed. No other warranty is either expressed or implied in this report or any other document generated in the course of performing Engineer’s services.
 Hat tip to Don Neeley of Astbury Environmental Engineering, Inc. for allowing me to use part of Astbury’s warranty provision.
Justice Alito called EPA’s position “outrageous.” This was one of the many barbs aimed at EPA during oral argument in Sackett v. EPA, a case where property owners seek pre-enforcement judicial review of an EPA administrative order.
See, the Sacketts wanted to build a home on a small lot (0.63 acres) in a built-up residential subdivision along a lake. After they graded the lot, EPA issued an administrative order against them claiming the Sacketts filled in jurisdictional wetlands without a permit in violation of Section 404 of the Clean Water Act (CWA). When the Sacketts asked to be heard on the administrative order, EPA refused. This left the Sacketts with two unattractive options:
First, even though they believed they were innocent of the accusations, they could comply with the order and remove the fill and replace any lost vegetation (estimated to cost collectively $27,000), monitor the fenced-off site for three years, provide documentation to EPA, and allow it access to inspect the site at will.
Or, second, they could stand on their innocence and choose not to comply with the order, but, if proven wrong, face the threat of potential civil fines of up to $75,000 per day, that is $37,500 per day for having violated the CWA, plus an additional $37,500 per day for having failed to comply with an administrative order, all as meted out by a district court judge.
The Sacketts tried a third alternative and filed a lawsuit in federal court seeking to have a judge review EPA’s administrative order. Instead, the trial court judge dismissed the case for lack of jurisdiction, and the Ninth Circuit Court of Appeals affirmed. They both found that the property owners were not entitled to judicial review unless and until EPA filed a lawsuit to enforce the order. This is because of an implied jurisdictional bar that prevents pre-enforcement review of agency orders.
The Sacketts appealed the case to the Supreme Court, which framed the questions for appeal as whether the Sacketts could seek pre-enforcement judicial review of an administrative compliance order pursuant to the Administrative Procedure Act, and, if not, would the inability to seek pre-enforcement judicial review of an administrative compliance order violate their rights under the Due Process Clause of the Constitution?
After a four-year journey that could be described as slogging through quicksand, it would be fair to say that the Sacketts saw a glimmer of hope when Justice Alito told the Government’s lawyer:
… if you related the facts of this case as they come to us to an ordinary homeowner, don’t you think most ordinary homeowners would say this kind of thing can’t happen in the United States? … you buy property to build a house. You think maybe there is a little drainage problem in part of your lot, so you start to build the house and then you get an order from the EPA which says: You have filled in wetlands, so you can’t build your house; remove the fill, put in all kinds of plants; and now you have to let us on your property whenever we want to. You have to turn over to us all sorts of documents, and for every day that you don’t do all this you are accumulating a potential fine of $75,000. And by the way, there is no way you can go to court to challenge the determination that this is a wetlands until such time as we chose to sue you.
In the end, this is not to say that the Sacketts did or did not fill in wetlands, only that they want due process along the way to be heard on the issue to limit their potential liability for fines if they're wrong. Many environmental lawyers believe the Sacketts’ case presents the best opportunity for the Supreme Court to hold that the Sacketts and other aggrieved property owners can obtain pre-enforcement judicial review of EPA administrative orders. Time will tell as the Supreme Court’s decision is expected later this summer.
 Supreme Court Docket No. 10-1062. Oral argument was heard on Jan. 9. 2011.
Some property buyers believe environmental due diligence means simply asking the seller’s real estate agent whether the property has ever been contaminated and, if so, whether the contamination has been remediated.
These buyers believe that if the statements turn out to be wrong, they can sue the agents for damages. Depending on their state’s laws, this may or may not be true.
Even in those states that allow buyers to sue a seller’s real estate agent for misrepresentations, the agents often argue that despite their misrepresentations, the buyers bear some responsibility for their own damages because of the buyers' negligence in failing to conduct proper environmental due diligence.
Here is a blog post on a recent case from the Michigan Court of Appeals that affirmed a jury’s decision that, even though the seller’s real estate agent engaged in a negligent misrepresentation as to whether the property has been properly remediated, the buyers were 35% at fault for their own damages because they failed to conduct proper environmental due diligence before they bought the property.
When is an environmental consultant engaged in the unauthorized practice of law?
The Supreme Court in each state determines what constitutes the practice of law, and conversely what constitutes the unauthorized practice of law. The latter is fact intensive and not always easily ascertainable. Courts generally have not attempted to provide a comprehensive definition of what constitutes the unauthorized practice of law because of the infinite variety of fact situations that can arise. But, here are some points, like those on a compass, to guide you.
In Tennessee Environmental Council, Inc. v. Tennessee Water Quality Control Board, 254 S.W.3d 396 (Tenn. Ct. App. 2007), the court held that a non-attorney’s preparation and signing of a petition for declaratory judgment on behalf of a corporation to challenge a decision of the Water Quality Control Board constituted the unauthorized practice of law.
Functionally the practice of law relates to rendition of services for others that call for the professional judgment of a lawyer. The essence of the professional judgment of the lawyer is his educated ability to relate the generally body and philosophy of law to a specific legal problem of a client; and thus, the public interest will be better served if only lawyers are permitted to act in matters involving professional judgment. Where this professional judgment is not involved, non-lawyers, such as court clerks, police officers, abstracters, and many government employees, may engage in occupations that require a special knowledge of law in certain areas. But the services of a lawyer are essential in the public interest whenever the exercise of professional legal judgment is required.
In reaching its ruling, the Tennessee Court of Appeals held that a non-lawyer representative of a corporation may participate in administrative hearings provided the non-lawyer’s participation does not constitute the practice of law. Contested hearings before the Water Quality Control Board, however, are formal, adversarial proceedings where rules of evidence and civil procedure are enforced, pleadings and briefs are filed, and witnesses are examined and cross-examined, and clearly require the skills of a lawyer. Less formal informational gathering proceedings, on the other hand, many not need a licensed attorney. In this case, the Court of Appeals dismissed the petition because it was filed by a non-attorney pretending to practice law.
In L.W. Linder v. Insurance Claim Consultants, Inc., 560 S.E.2d 612 (S.C. 2002), the South Carolina Supreme Court held that the following activities by public adjusters amounted to the unauthorized practice of law:
The Court held that interpreting and advising clients on insurance policies and negotiating with insurers on coverage disputes required legal knowledge and skill.
Likewise, in Nuzzo v. Horvath, 2011 WL 3795035, a decision from the New Jersey Superior Court Appellate Division, stated that: “A title insurer who attempted to describe a condition or its significance, rather than leaving that responsibility to a lawyer, would arguably be engaging in the unauthorized practice of law.”
So given this precedent, what are some examples of when an environmental consultant may engage in the unauthorized practice of law?
All of these inquiries involve applying the law to a set of facts to determine their legal consequence, and arguably fall on the side of constituting the unauthorized practice of law.
So what happens when you practice law without a license? Among other things, you can be sued by your state supreme court or state bar association to enjoin you from the unauthorized practice of law, you can be required to disgorge all fees you charged relating to the legal services you provided, and your insurance company will not be responsible for your actions as most policies exclude professional services rendered outside the scope of your profession. When in doubt, speak with your lawyer before you act.
A federal district court was recently presented several government standards to use in determining whether indoor air contamination from vapor intrusion created an imminent and substantial endangerment to human health or the environment to support a citizen suit claim asserted under the Resource Conservation and Recovery Act (RCRA), 49 U.S.C. § 6972(a)(1)(B).
In Tilot Oil LLC v. BP Products North America Inc.¸ Case No. 9-CV-210 (E.D. Wisc. 1/17/12), Tilot claimed that petroleum contamination migrated onto its property from an adjoining property owned by BP, which contaminated its groundwater. Tilot further claimed that when the water table rose above the elevation of the floor in its basement, petroleum-impacted groundwater entered the basement and threatened the health and safety of its employees.
One building in particular, Building D, had the highest concentration of benzene in indoor air. Benzene was detected in Building D’s basement in March of 2008 at a concentration of 5,700 ug/m3. This equals a concentration of 1,800 parts per billion by volume, or 1.8 parts per million. Except for the 1.8 ppm result in March of 2008, none of the other 14 sampling events in Tilot’s buildings ever showed a concentration exceeding the OSHA Permissible Exposure Level (OSHA PEL) of 1.0 ppm.
Tilot claimed that as a result of the benzene contamination, it had to seal off the basement stairs in Building D to reduce employee exposure to vapors rising from the basement level to the main floor. In January 2010, Tilot also developed a benzene compliance program restricting employee activity in the basement of Building D.
BP responded to Tilot’s claims and an investigation by the Wisconsin Department of Natural Resources (WDNR). In particular, since 2008, BP has, in part: (1) installed monitoring wells on the Tilot site; (2) installed thirty fluid recovery wells on the BP site; (3) removed product and water from the basement of Building D; (4) collected groundwater sampling from monitoring wells and submitted them to WDNR on a quarterly basis; and (5) conducted enhanced fluid recovery at the BP and Tilot sites.
In addition, in June 2008, BP and WDNR began to discuss a remediation system for the basement of Building D. On June 8, 2010, BP, Tilot, and WDNR reached an agreement on a vapor intrusion remediation system. The system was constructed and started on May 31, 2011, and it remains in operation today. WDNR approved the system and determined that no additional remediation was necessary pending an evaluation of the system.
Tilot filed a lawsuit against BP alleging a citizen suit under RCRA, likely to have a basis to recover attorney fees, in addition to common law claims for negligence, trespass, and nuisance. To establish a prima facie claim under RCRA’s citizen suit provision, Tilot was required to establish: (1) that BP has generated solid or hazardous waste; (2) that BP is contributing to or has contributed to the handling of this waste; and (3) that this waste may present an imminent and substantial danger to health or the environment. BP did not dispute that it was a generator of solid or hazardous waste or that it contributed to the handling of the waste in question. Instead, BP challenged only the existence of a possible “imminent and substantial danger to health or the environment.”
Both Tilot and BP presented several government standards to the court to aid in its determination of whether an imminent and substantial endangerment to human health or the environment existed, including the following:
Occupational Safety and Health Administration permissible exposure level (OSHA PEL)
1.0 ppm TWA
National Institute for Occupational Safety and Health’s recommended exposure limit (NIOSH REL)
United States Environmental Protection Agency’s Region III Industrial Indoor Air Screening Level (EPA IIASL)
Wisconsin Department of Natural Resources vapor action level (WDNR VAL)
The district court held that the test results for Building D, combined with the ongoing remediation by BP, foreclosed a conclusion that any threat of harm is currently serious or necessitates action beyond what was already taking place. In essence, the court dismissed the RCRA citizen suit claim, but allowed Tilot to continue with its common law tort claims.
The combination of the fact that Tilot has never really used the basement for any activity in the first instance, that BP is currently engaged in remedial activities, and the lack of any relevant exceedances while the ventilation fan is running places the threat of harm outside that sufficient for a RCRA violation. Given the apparent effectiveness of the fan, in combination with BP’s ongoing efforts, overseen by the state under threat of enforcement action, any threat of harm is currently minor and no remedy is necessary beyond that already occurring. It might be different were Tilot simply forced to run a fan while BP did nothing else to clean the contamination, but that is not the case.
The interesting part of the decision though was the court’s handling of the different government standards because the mere presence of benzene, even though it is classified as a human carcinogen, was not enough to support the RCRA claim.
By the same token, the court disagrees with BP that the OSHA PELs are the only relevant standard. RCRA does not incorporate or otherwise rely solely on reference to regulatory standards, let along any specific standard. Thus, OSHA PELs, used to assess danger to employees, provide useful insight into whether employees are faced with harm or threat of harm. As to other standards, the court agrees with BP that the EPA screening level sheds little insight on whether a possible imminent and substantial endangerment exists because screening levels are developed solely for the purpose of setting a level at which further investigation is required; they are not a determination of actual danger. . . . similar to EPA screening levels, VALs are used to determine whether further action is required. . . . exceedance of Wisconsin’s VALs tells the court only that something should be done, not that the current remediation is insufficient to abate a threat of substantial harm. On the other hand, NIOSH recommendations, while not legally binding, are recommendations made to OSHA and based on scientific study. . . . Lacking the force of law does not mean such recommendations lack the force of science as pertains to what constitutes a risk to health or the environment.
The court dismissed the relevance of the VALs saying “To the extent VALs have been exceeded even while the fan was running, that standard simply does not speak to the presence or level of threat after remediation has begun.”
 Time weighted average.
Can a court find that an environmental consultant engaged in malpractice for failing to conduct a proper Phase I Environmental Site Assessment (“Phase I ESA”) even if the consultant’s report complies with ASTM standards?
The answer depends on several factors.
All Appropriate Inquiries (“AAI”) is the process of conducting environmental due diligence or a Phase I ESA to determine prior uses and ownership of a property and assess conditions at the property that may be indicative of releases or threatened releases of hazardous substances at, on, in, or to the property. As I explained in a prior post, U.S. EPA’s regulations do not prohibit using a standard other than ASTM standards to comply with AAI. Although, U.S. EPA has explicitly recognized compliance with two ASTM International Standards as compliant with the AAI requirements: ASTM E1527-05 “Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process” and E2247-08 “Standard Practice for Environmental Site Assessments: Phase I Environmental Site Assessment Process for Forestland or Rural Property.”
While U.S. EPA and certain states recognize compliance with ASTM Standards as compliant with the AAI requirements, mere compliance with ASTM standards may not automatically absolve an environmental consultant of liability in connection with a malpractice claim. The legal decisions that address ASTM standards specifically suggest that courts do not have to limit their focus to whether the consultant complied with just ASTM standards because other applicable standards may also be relevant to the court’s determination. In fact, ASTM E1527-05 states: “[u]sers are cautioned that federal, state, and local laws may impose environmental assessment obligations that are beyond the scope of this practice.” Section 1.1.4. Further, as ASTM E1527-05 states: “[t]his ASTM standard is not intended to represent or replace the standard of care by which the adequacy of a given professional service must be judged, nor should this document be applied without consideration of a project’s many unique aspects.” Section 1.6.
This is because professionals are typically judged by the standard of care required of their profession. Many states have adopted the “same or similar community” standard of care with respect to professional malpractice lawsuits. That is, unless a consultant represents that he or she has a greater or lesser skill or knowledge, the consultant’s services will be measured against a reasonable consultant who exercises the ordinary skill and knowledge normally possessed by members of that profession in good standing in similar communities.
If the “reasonable consultant” would have used the ASTM standard, the consultant’s services will be measured against this mark. Some states, on the other hand, by law specifically incorporate ASTM standards as the standard of conduct for performing Phase I environmental site assessments. Those states remove any ambiguity as to the standard of conduct.
An instructive case is WATCO v. Pickering Environmental Consultants, Inc., 2007 WL 1610093 (Tenn. Ct. App. 2007). In WATCO, a buyer conditionally agreed to purchase real estate from a trustee bank if the bank first obtained a satisfactory Phase I ESA of the property. The consultant performed the assessment and prepared a written report stating that it had conformed with the applicable professional standard in its assessment, that it had not detected any hazardous materials or environmental concerns at the subject property due to current or past uses of the property, that it had not identified any significant environmental concerns in the surrounding area of the subject property, and that it did not recommend further environmental review. The buyer purchased the property in 1995. During residential development of the property in 2004, the buyer discovered the remains of a municipal garbage dump on the adjacent property that extended under a portion of the subject property and sued the consultant for negligent misrepresentation and professional malpractice.
The consultant’s letter agreement stated that the scope of work was in conformance with the scope of ASTM E1527-94, but the court did not confine the inquiry to just whether the consultant solely breached ASTM E1527-94. Instead, the court looked to whether the consultant breached the standard of care in actual practice by environmental professionals in conducting Phase I assessments in Shelby County, Tennessee or similar communities in 1995, and whether that standard of care required more efforts than simply complying with the ASTM standard. For environmental consultants, as with other professionals, the standard of care is often defined as the exercise of skill or knowledge normally possessed by members of that profession in good standing in a similar community. Thus, in deciding whether the consultant has breached the duty of care owed to a client or to a third party, a court will determine what the “reasonable consultant” would consider to be an appropriate course of action under similar circumstances. Several courts have interpreted the “reasonable consultant standard” as requiring environmental consultants to take advantage of new techniques and methods available within the profession. For consultants performing environmental site assessments, one standard of care is that specifically defined by ASTM.
As the Court of Appeals stated in Watco, whether or not an environmental consultant complied with relevant industry standards and applicable regulations provides some evidence as to whether the consultant’s conduct was negligent or constituted professional malpractice, but is not necessarily outcome determinative. Nor does compliance with regulations or other standards establish that the consultant was not negligent.
The WATCO court was ultimately persuaded by each sides' expert witnesses who agreed that the ASTM standard “was a guideline to be used, but was not exclusive.” One expert testified that as ASTM standard practice by definition includes flexibility in the way the practice is applied to any given situation. Consequently, application of the standard practice will vary between consultants practicing in different areas at different times. Further, the court looked to a 2000 study of approximately 150 Phase 1 reports by the Association of Soil and Foundation Engineers. The ASFE study found that while 73% of the proposals states that they would conform to the ASTM standard E1527, not a single report actually was in strict conformity with the standard, indicating that the relevant standard of care and the ASTM E1527 standard practice were not equivalent at the time of the investigation in 1995. In the end, the court found that the ASTM Standard and the standard of care for judging professional malpractice lawsuits were not equivalent at the time of the Phase I assessment when conducted in 1995. (Nevertheless, the Tennessee Court of Appeals upheld the trial court finding that Pickering had not committed malpractice.)
Also, in Bonnieview Homeowners Association, LLC v. Woodmont Builders, LLC, 2006 WL 1982882 (D.N.J. 2006), a federal district court considered whether an environmental consulting firm (PBS &J) was negligent in the performance of an environmental assessment when the firm’s report failed to inform the plaintiffs of contamination. Although the major issue before the court was whether PBS & J owed a duty to the plaintiffs, the Court concluded that PBS & J provided substantial evidence that it was not negligent when PBS& J proved that it complied with ASTM Standard E1527-97 and environmental standards established by the New Jersey Department of Environmental Protection’s Technical Requirements for Site Remediation.
In summary, compliance with ASTM standards is only one of many factors a court will consider in determining whether an environmental consultant was negligent. Though industry standards weigh heavily in persuading the court that a consultant fulfilled his or her duty, those standards are not necessarily conclusive or determinative. Furthermore, in some instances, consultants may be required to exceed the ASTM requirements to fulfill their duty.
 WATCO, 2007 WL 1610093, at *22; Tyree Org. Ltd. v. Cashin Assoc., P.C., 2007 WL 171906, at *7 (N.Y. Sup. 2007).
 Tyree Org., 2007 WL 171906 at *5, citing Santiago v. 1370 Broadway Assoc., 264 A.D.2d 624, 695 N.Y.S.2d 326 (1st Dept. 1999). See, Mercogliano v. Sears, Roebuck and Co., 303 A.D.2d 566, 756 N.Y.S.2d 472 (2nd Dept. 2003).
A common question these days is when do you recommend that a buyer or lender have a vapor intrusion assessment performed?
For me, the answer is often. But, I believe it is important to raise the issue and have a discussion about vapor intrusion with every client.
This conversation typically involves explaining to the client what vapor intrusion is, explaining the downside risks if vapor contamination exists above regulatory levels, and explaining the type of factors that weigh strongly in favor of having an investigation performed.
Ultimately, however, it’s the client’s money and his or her decision of what to do; akin to the old saying that you can lead a horse to water, but you can’t make it drink.
Remember though, if you recommend a vapor intrusion assessment and the client rejects it, you have to fully document your recommendation and the client’s rejection for your own protection from a malpractice lawsuit should contamination be discovered later.
And, I don’t just mean a lawsuit from your client. Maybe your client gives your report to a buyer with whom you have no contractual relationship. If contamination is discovered later, the buyer may say he or she was given your report by the seller, he or she relied on your report to buy the property, and you dropped the ball by failing to recommend a vapor intrusion assessment. If you have a discussion about whether to have a vapor intrusion assessment with every client, you can reduce your risk of getting sued in the future.
So below is a very brief summary of my discussion points. You may have other points to emphasize and I would enjoy hearing about them.
1. What is vapor intrusion? Simply put, vapor intrusion is the migration of underground chemical contamination into the indoor air of buildings. Since the early to mid-2000s, it has been a hot button for U.S. EPA and state agencies. This is because medical doctors and toxicologists have become more concerned with long-term exposure to hazardous substances, even at low levels.
2. What are the risks if vapor intrusion exists? If indoor air contamination exists above regulatory levels, the risks include an agency enforcement action, lawsuits, and taking up two of your most precious resources - time and money.
3. What factors weigh strongly in favor of having a vapor intrusion assessment performed? One primary factor to look in deciding whether to have a vapor intrusion assessment performed is to examine the existing and past uses of the property and surrounding properties. Was the property or any surrounding properties used as gas stations, dry cleaners, or for manufacturing? Would it be reasonable to suspect that any of those businesses used petroleum products or hazardous substances that could result in vapor intrusion? If so, how far away are those surrounding properties?
The Indiana Department of Environmental Management (IDEM), for example, just released its draft Remediation Closure Guide. There, IDEM reported that petroleum plumes are generally known to migrate no further than 750 feet from a given source, but note the caveat “generally”. IDEM also reported that persistent chemicals, like Perc and TCE, have been known to migrate for more than one mile from the source.
Remember, it was routine industry practice between the 1940s through the 1970s, maybe even through the early 1980s, for manufacturers to dispose of spent solvents by pouring them onto the ground and allowing them to evaporate. Just look at old Material Safety Data Sheets for proof. In fact, in 1972, the American Insurance Association was advised through the Special and Chemical Hazards Committee in a Chemical Hazards Bulletin that the safe disposal of chlorinated hydrocarbon waste was to have the waste “removed to a safe location (away from inhabited areas, highways, buildings, or combustible structures) and poured onto dry sand, earth, or ashes, then cautiously ignited” or placed in such isolated areas and “simply allow the liquid waste to evaporate.” If such businesses operated near the property you are considering to purchase, you may want to conduct a more thorough investigation.
In conclusion, the decision whether to have a vapor intrusion assessment performed is a lot like the decision of whether to have a home inspection before buying a home. Ultimately, you should raise the issue with your client and let your client decide what to do. If the client is risk averse, having a vapor intrusion assessment performed can allow your client to sleep at night.
A federal district court recently dismissed a defendant’s apportionment defense, asserted pursuant to Burlington Northern and Santa Fe Railway Company v. United States (“BNSF”), 556 U.S. 599 (2009), because the defendant failed to address the entirety of the harm resulting from the contamination.
In Pakootas v. Teck Cominco Metals, Ltd., 2012 WL 1133656 (E.D.Wash. Apr. 4, 2012), the plaintiffs moved to dismiss, and for partial summary judgment against, defendant Teck’s affirmative defense seeking to apportion the harm resulting from the alleged release or threatened release of hazardous substances from the Upper Columbia River Site (the “Site”), which the plaintiffs, The Confederate Tribes of The Colville Reservation (the “Tribes”) and the State of Washington (the “State”), claimed to cause the Tribes and the State to incur response costs and natural resource damages.
Under BNSF, CERCLA liability is generally joint and several unless the responsible party meets its burden to prove the harm is divisible and capable of apportionment. Teck argued that it could not be responsible for the release or threatened release of hazardous substances from the Site because one of its experts opined that there was no detectable release of hazardous substances from Teck’s barren slag deposited at the Site and there was no evidence that dissolved metals from historical liquid effluent releases were located in the Upper Columbia River. Teck’s expert focused on the seven metals attributable to the slag, of which six were specifically listed in the complaint, i.e., arsenic, cadmium, copper, mercury, lead, and zinc, and antimony. The expert's alternative theory was that Teck's liability should be apportioned, at the most, to a 0.05 percent share for releases or threatened releases of zinc because zinc was the only metal to even theoretically be released from the slag.
The district court began its analysis noting that in a cost recovery action under CERCLA § 107, CERCLA’s strict liability scheme “precludes the need to prove causation in the traditional sense.”
In the case of an actual release, the plaintiff need only prove that the defendant’s hazardous materials were deposited at the site, that there was a release at the site, and that the release caused it to incur response costs. The plaintiff “need not show that defendant’s waste was the source of the release at the site or that the defendant’s waste caused it to incur response costs.”
Next, the court discussed apportionment under BNSF, stating that the apportionment inquiry is a two-step process.
The first question is whether the harm is “theoretically capable of apportionment.” This is a question of law. Before evidence can support a reasonable basis for apportioning the harm (which is the second, factual question), the harm must be “theoretically capable of apportionment.”
The district court held that Teck’s “fatal flaw” was that none of its apportionment theories addressed the entirety of the contamination. Teck only addressed the metals that could have been released from its slag and/or liquid effluent and whether the same metals were released from other sources. Teck failed to address the relevant harm, which as “all of the harm” at the Site, which an expert for the State claimed included approximately 199 contaminants of concern that were being investigated by US EPA.
To drive another nail in Teck’s argument, the district court held that even if Teck had accounted for the entire harm at the Site, it still failed to offer evidence allowing the court to conclude that the harm was divisible in terms of degree. The court reasoned as follows:
… there is no evidence showing Teck’s relative contribution to the total contamination at the UCR Site. The volume of slag deposited at the UCR Site does not establish its relative contribution to the single harm at the Site. There is no evidence this volume of slag is truly proportional to the harm potentially caused by it, particularly so when Teck’s experts failed to address possible synergistic effects of commingled contaminants of various types (metals and non-metals).
Finally, the district court dismissed as moot Teck’s motions challenging the plaintiffs’ expert testimony on apportionment and found that the plaintiffs’ experts would no longer have to testify on this issue since Teck was precluded from presenting evidence at trial on this defense.
The case is scheduled for a bench trial before the judge in September 2012 to decide whether plaintiffs' response costs that were both “necessary” and “not inconsistent” with the National Contingency Plan, 42 U.S.C. Section 9607(a)(4) and (a)(4)(B), the topic of a prior post attached here.
Good lawyers can deal with bad facts, but clients should not make the representation more difficult by destroying documents, like what was recently alleged to have occurred following the Deepwater Horizon rig explosion.
On April 23, 2012, the U.S. Department of Justice (“DOJ”) filed a criminal complaint against Kurt Mix, a former BP engineer, who allegedly deleted a string of over 200 text messages with a supervisor and deleted over 100 text messages with a contractor, all related to the effort to “top kill” the Macondo well.
According to the affidavit filed in support of the charges, the timeline of events was as follows.
Mix was charged with two counts of obstruction of justice under 18 U.S.C. § 1512(c)(1), which states:
Whoever corruptly alters, destroys, mutilates, or conceals a record, document, or other object, or attempt to do so, with the intent to impair the object’s integrity or availability for use in an official proceeding … shall be fined … and imprisoned for not more than 20 years, or both.
The fact that DOJ charged Mix with obstruction of justice under 18 U.S.C. § 1512(c) is significant in several respects. First, this section of the statute was enacted as part of the post-Enron Sarbanes-Oxley legislation following the Arthur Andersen debacle. Second, this section of the statute carries a 20-year sentence, whereas a typical charge of obstructing justice (think Martha Stewart) only carries a sentence of up to five years. And, in the federal system, 20 years means 20 years as there is no day-for-day credit, which can oftentimes reduce a sentence for a state crime. Third, the Marine Board investigation likely triggered the duty to not destroy documents as it constituted an “official proceeding.” See United States v. Binette, 2011 WL 6123473 (D.Mass. Dec. 8, 2011).
The lessons from this prosecution are many, including that people should not believe that their email, text, and voice mail messages to others can ever be truly deleted and that people should never knowingly and intentionally delete evidence once they have been put on notice of a pending lawsuit, or agency or criminal investigation.
 Image from Activerain.com.
Businesses and property owners can often have their own insurance companies pay for the costs to investigate and clean up environmental contamination on their own property under old liability insurance policies, such as commercial general liability (or CGL) policies. Many older policies either do not have pollution exclusions or have pollution exclusions that courts have decided are unenforceable because they are too broad and ambiguous. It often comes down to how your state law treats a particular policy’s pollution exclusion. For instance, since 1996, Indiana courts have consistently held that pollution exclusions in various insurance policies are ambiguous and, therefore, do not exclude coverage for claims related to past environmental contamination.
While there are many nuances to pursuing insurance companies to pay for environmental claims, once an insurance company has agreed or been ordered to defend a claim, you and your lawyer may want to monitor how the insurance company allocates funds spent for the environmental consultant’s work to investigate and respond to the contamination. You’ll want to do this because many, but not all, insurance policies have two buckets for coverage: a bucket for “costs of defense” and another bucket for “indemnification” costs. An insurer’s duty to defend its insured is broader than the duty to indemnify. Often, insurance policies do not set an upper limit on costs of defense, whereas indemnification costs are limited to the “policy limits”. Because the costs of defending a claim can often far exceed the amount of a settlement or judgment, the insurer’s duty to defend the insured is one of the most significant rights the insured has under a CGL policy.
Here is an example of how such costs would be allocated in a simple car accident case. If you were in a car accident, “costs of defense” would include the cost to pay for a lawyer to defend you from a lawsuit and the costs of an accident reconstruction expert to determine who caused the accident. Indemnification costs would only be triggered after you were found at fault for the accident. Indemnification costs would include the cost to pay for the repairs to the other driver’s car and any other damages up to the policy limits.
In the context of environmental claims, there are some insurance companies that wrongly take the position that all costs spent for an environmental consultant are indemnification costs. Some insurers do this because they don’t appreciate the need to allocate the costs between the two buckets. Other less scrupulous insurers do this to try to allocate all of the environmental consultant’s fees to indemnification costs to quickly burn through the policy limits to try to prematurely end their duty to defend the insured.
One of the seminal cases on how these costs should be allocated is Aerojet-General Corp. v. Transport Indem. Co., 948 P.2d 909 (Cal. 1997). In Aerojet, the California Supreme Court held that to fulfill the duty to defend, the insurer “must take reasonable and necessary efforts to avoid or at least minimize liability.” Id. at 922. “To defend meaningfully, the insurer must defend immediately. To defend immediately, it must defend entirely.” Id. at 921.
Just as an accident reconstruction expert tries to determine the cause of a car accident, an environmental consultant is often tasked with trying to determine the nature and extent of soil, groundwater, and vapor intrusion (or indoor air) contamination in order to avoid or at least minimize liability. This may include installing a network of groundwater monitoring wells to determine how the contamination is migrating and whether the contamination is impacted by fluctuations in the groundwater table. It may also include conducting a Remedial Investigation / Feasibility Study (“RI/FS”), which is an in-depth study conducted to determine detailed site characteristics and define the extent and magnitude of contamination at a site, to evaluate potential impacts to human health and the environment and to establish cleanup criteria, and to evaluate cleanup alternatives.
Just as the accident reconstruction expert’s work is in defense of the insured, so to is much of the work performed by an environmental consultant. To that end, the Aerojet Court explained:
It follows that the insured’s site investigation expenses constitute defense costs that the insurer must incur in fulfilling its duty to defend if, and only if, the following requirements are satisfied. First, the site investigation must be conducted within the temporal limits of the insurer’s duty to defend, i.e., between tender of the defense and conclusion of the action. Second, the site investigation must amount to a reasonably and necessary effort to avoid or at least minimize liability. Third and final, the site investigation expenses must be reasonable and necessary for that purpose.
In Aerojet, the California Supreme Court held that the lower court of appeals erred by adopting an approach that the feasibility study of RI/FS was rebuttably not defense costs. Id. at 927. In light of its analysis, the Supreme Court held that an approach that assumed feasibility studies were indemnification costs was unsound and too “simplistic”. Id.
In addition, the California Supreme Court rejected the insurers’ argument that site investigation expenses cannot be defense costs if requested by the government. The Supreme Court was clear that simply because the government ordered a RI/FS did not result in the cost being precluded from being considered a defense cost. This is because “[i]t is well known that, by conducting the study itself, the insured may be able to avoid or at least minimize liability—both for the costs of the study and for any costs subsequent thereto.” Id. at 924.
The federal District Court of Idaho arrived at the same conclusion last year in Wells Cargo, Inc. v. Transport Ins. Co., 2011 WL 5080143 (D. Idaho Oct. 26, 2011). There, the district court granted the insured summary judgment finding that RI/FS costs are generally defense costs and decided it would need to hold an evidentiary hearing to make specific findings on allocating the costs between costs of defense versus indemnification costs. Thereafter, the insurance company moved to have the issue of costs of defense versus indemnification decided by the Idaho Supreme Court or Ninth Circuit Court of Appeals. The district court recently rejected the insurance company’s request finding that “There is also no substantial ground for difference of opinion concerning the Court’s determination that RI/FS costs are generally defense costs.” Wells Cargo, Inc. v. Transport Ins. Co., 2012 WL 465479, *3 (D.Idaho Feb. 13, 2012).
I’ve helped many businesses and property owners pursue these types of insurance recoveries. And, you can read more about the allocation of costs of defense versus indemnity costs in a prior post.
 See American States Ins. Co. v. Kiger, 662 N.E.2d 945, 947-49 (Ind. 1996); Seymour Mfg. Co. v. Commercial Union Ins. Co., 665 N.E.2d 891, 892 (Ind. 1996); Freidline v. Shelby Ins. Co., 774 N.E.2d 37, 40 (Ind. 2002), summarily affirming 739 N.E.2d 178, 184 (Ind. Ct. App. 2000); The Travelers Indem. Co. v. Summit Corp. of America, 715 N.E.2d 926, 934-35 (Ind. Ct. App. 1999).
 Some policies have eroding coverage where the costs of defense erode the policy’s indemnification limits.
 Some courts have held that an insurance company cannot walk away from the duty to defend after policy limits are exhausted. Chicago Ins. Co. v. Abstract & Title Guar. Co., Inc., 2004 WL 692051 (S.D. Ind. March 31, 2004) (An insurer’s duty is both to defend actions and to pay judgments obtained against that insured. Otherwise, where the damages exceed the policy coverage, the insurer could walk into court, toss the amount of the policy on the table, and blithely inform the insured that the rest was up to him. This would obviously constitute a breach of the insurer’s contract to defend actions against the insured, for which premiums had been paid, and should not be tolerated by the courts.)
 The district court based its holding on persuasive authority from Michigan entitled Hi-Mil Mfg. Co. v. Aetna Cas. & Sur. Co., 884 F.Supp. 1109 (E.D. Mich. 1995), which held that that an RI/FS study for the sole purpose of minimizing or absolving itself of liability was done in defense of the underlying CERCLA action.