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Bracing for Pollution-Damage Claims

An upcoming blizzard of DEP enforcement actions will put companies and carriers to the testFocus | Insurance

The January 1, 2006 deadline for the state to file a host of pollution-damage claims is gettting closer. This means two things for business: the Department of Environmental Protection is about to launch a blizzard of lawsuits, and losing companies will turn to their insurers to pick up the tab.
?We?re already involved in litigation concerning more than 50 Natural Resource Damage (NRD)-related cases, and are in negotiations with more than 100 others,? says Bradley M. Campbell, commissioner of the state Department of Environmental Protection (DEP). ?Our efforts with the state attorney general?s office have netted more than $30 million in the past three years, more than twice as much as was collected in nearly 30 years.?
This blitz spans the state, involving firms like ExxonMobil in Bayonne, AT&T in Whippany and General Electric in Hamilton. The Passaic and Raritan rivers are getting special attention.
One recent case involved International Matex Tank Terminals, a New Orleans-based company that handles bulk storage and shipping of chemicals, fuels and other dangerous liquids. On April 29 the DEP announced a $3 million settlement with Matex that covered ground- and surface-water contamination at the company?s Bayonne fuel and chemical storage and shipment site. The agency also filed a lawsuit against ExxonMobil for its past operations at the Bayonne Industries Terminal, which is now owned by Matex.
Kevin Bruno, a partner at the Newark law firm of Robertson, Freilich, Bruno & Cohen, says that if the DEP steps up the pace of its efforts, the number of companies filing insurance claims is certain to spike.
Or turn into a flood: Campbell has told NJBIZ that he expects to launch up to 1,000 more cases by the end of this year. ?We?re bringing in outside counsel to speed the process,? he adds. These lawyers will be compensated on a contingent-fee basis.
The flood hasn?t hit yet, says Robert D. Chesler, chair of the insurance law practice group at Newark-based Lowenstein Sandler, but he warns that companies counting on backing from their insurers for big settlements may be disappointed.
?In 1986 many insurance companies began writing in an exclusion clause that was intended to eliminate coverage associated with pollution-related events,? he says. ?Depending on the timing of the alleged acts cited by the DEP, the absolute pollution exclusion may mean that the company is not covered by its policy.?
What?s worse, a firm may find itself being dunned for pollution left by a previous owner of a dirty site?even if it was blameless. In that case, says Chesler, the company may only be able to collect on its policy if the initial contamination occurred before the mid-1980s, when most insurers tacked on the exclusions.
?The challenge there is to prove that you had insurance coverage for a decades-old period,? he advises. ?What if the initial pollution occurred in the 1970s? Will your company still have evidence like insurance certificates, correspondence or claim files??
Bruno characterizes the state?s NRD effort as ?the next black hole? of environmental liability. ?It?s almost like double jeopardy,? he says. ?A company that has already settled with the state and completed cleanup efforts may now be hit with additional NRD penalties.?
There may be some hope for businesspeople who aren?t sure what lurks in the soil beneath their facilities: Campbell?s plan to step up the volume of NDR filing has stoked friction between the DEP and the state attorney general?s office.
?The attorney general [Peter Harvey] was not pleased with the DEP?s strategy of hiring outside counsel,? says William H. Hyatt Jr., a partner in the Newark office of Kirkpatrick & Lockhart Nicholson Graham. His firm represents companies caught in the current NRD sweep. ?The attorney general has to approve certain DEP expenditures,? he notes. ?In some cases the AG?s office has refused to sign off on the outside lawyers? requests,? potentially putting the brakes on Campbell?s efforts.
Asked about the disagreements, Campbell said there were no ?significant issues? between his office and the attorney general. ?The DEP is a demanding client and we pressed hard to balance our efforts with the attorney general?s interest in maintaining oversight of outside counsel.? A spokesman for the attorney general?s office says, ?We don?t discuss conversations with the DEP and other client agencies.?
For now, Campbell says he?s continuing his anti-pollution campaign. ?We?re using a carrot-and-stick approach,? he explains. ?If companies voluntarily settle, we?re happy to negotiate remediation and other efforts. If they don?t, we?ll see them in court.? Maybe the defendants should save an extra trip and just bring their insurers along.
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