Insurer’s Environmental Subrogation Claims Under CERCLA §107(a) Dismissed

Chartis Specialty Ins. Co. v. United States Of America
(U.S.D.C. Northern District of California, July 19, 2013)

This environmental coverage action arises from a dispute as to whether an insurer can maintain an action under CERCLA’s subrogation provisions against the United States government where it is alleged the government is responsible for environmental contamination at a site in which the plaintiffs have been paying clean-up costs.  Specifically, the plaintiffs, Whittaker Corporation, and its insurer, Chartis, brought claims under §107(a) of CERCLA seeking to recover all past, present, and future remediation costs.  The plaintiffs further asserted a claim under §112(c) which provides a cause of action for persons who have subrogation rights as a result of paying claimants for the costs of remediation.

The underlying CERCLA action arose out of environmental clean up efforts at a property located in Hollister, California.  From 1957 to 1980, the site was used for manufacturing and testing military munitions under contracts with the United States.  The plaintiffs alleged that the United States, in its contracts with Whittaker and its predecessors, provided detailed specifications for the manufacturing of munitions, including requiring the use of certain hazardous materials, and requiring certain procedures for handling and disposing of those materials.  As such, the plaintiffs contended that the United States was an owner and arranger of the Site within the meaning of CERCLA, and that it is thus liable for the clean up of hazardous materials at the site.

In response, the government sought to dismiss Chartis’ claim under §107(a), arguing that insurance companies must bring their claims under the section governing subrogation rights.  The government also sought to dismiss the plaintiffs’ §112(c) claim, arguing that plaintiffs have failed to state a cause of action under § 112(c), and that any such claim is time barred in any case. Lastly, the government argued that the plaintiffs’ allegation that the United States is jointly and severally liable must be dismissed because as another potentially responsible party, Whittaker can recover only a proportional share of remediation costs from the United States.

In deciding these claims, the court noted that the question of whether Chartis may properly bring a claim under §107(a) turns on the question of when a party can be said to have “incurred” the necessary costs of remediation.  The government, relying on Chubb Custom Ins. Co. v. Space Sys./Loral, Inc., 710 F.3d 946 (9th Cir. 2013) argued that Chartis’ claim under §107(a) must be dismissed because an insurer may only recover sums paid on behalf of its insured through §112(c)(2) subrogation claims, and not through § 107(a) claims for cost recovery.  There the court held that an insurer who had not itself incurred remediation costs was limited to bringing suit under the subrogation provision in §112(c).

Thus, under the Chubb rule, the court concluded that the portion of Chartis’ §107(a) claim that is based on subrogated claims (i.e., where Chartis is seeking funds that it reimbursed to Whittaker) must be dismissed.  Chartis sought to distinguish Chubb in arguing that, here, Chartis paid some of the costs of remediation directly to the relevant contractors, rather than simply reimbursing Whittaker for costs Whittaker incurred. The court noted that Chubb did not directly address the question of an insurer who directly pays the costs of remediation rather than simply reimbursing its insured, and different parts of the opinion contain contradictory indications regarding whether an insurer who does so would be limited to bringing suit under § 112(c).

Nonetheless, the court found the plaintiffs’ attempts to distinguish Chubb unpersuasive, and concluded its holding applied in this instance, as well.  Specifically, the court noted that “though the decision in Chubb has some language suggesting that the rule it articulates is dependent on the fact that the insurer in that case had merely reimbursed the insured, the court’s core holding is that an insurer has not “incurred” costs within the meaning of §107(a) because it is not liable under CERCLA for remediation costs.”  Thus, it was held that under this rule, the holding in Chubb applied with equal force to insurers who pay costs directly. The court further held that the general understanding of subrogation rights does not appear to distinguish between direct payments to third parties and payments to reimburse an insured, and this court saw no reason why such a distinction should be read into the treatment of subrogation rights under CERCLA.

The court also held that the statute of limitations on Chartis’ claims under CERCLA §112(c) run separately for each payment made in the course of remediation efforts such that since Chartis alleged that it made some payments within the last three years, it claims are not entirely bared by the statue of limitations.  However, the government’s motion to dismiss was granted to as to all payment made by Chartis more than three years prior to the filing of its amended complaint.