Plews Shadley Racher & Braun Advances Brownfields Redevelopment through Recent Decisions, While the U.S. Supreme Court Deals a Blow to Private Cost-Recovery Actions
Several recent decisions affect cost recovery efforts to pay for environmental liabilities. The news from Indiana is good. The City of South Bend, committed to remediating and returning to productive use the former Studebaker manufacturing facility, sought funding for the project from Studebaker’s liability insurers and its corporate successor. Plews Shadley Racher & Braun sought insurance coverage for South Bend under the general liability policies issued to Studebaker and brought an action for damages against McGraw- Edison, the corporate successor to Studebaker, under the Indiana Environmental Legal Action ("ELA") statue (Ind. Code§13-30-9-1 et seq.) and various state tort law claims. Both Studebaker’s insurers and McGraw-Edison resisted South Bend’s efforts to require them to fund the cleanup of the contamination Studebaker left behind. Studebaker’s insurers argued that South Bend’s claim amounted to an impermissible "direct action." The "direct action" rule bars an injured person from suing a defendant’s insurer directly. McGraw-Edison in turn argued that it was not the successor to the liabilities of Studebaker and that South Bend’s claims were time-barred or otherwise flawed.
South Bend prevailed. In City of South Bend v. Century Indem. Co., 821 N.E.2d 5 (Ind. Ct. App. 2005) the Indiana Court of Appeals found that the City’s lawsuit against Studebaker’s insurers was not a direct action because the City was not directly seeking payment from the insurers, but rather only a declaration of coverage. The Indiana Supreme Court recently put the issue to rest by denying the insurer’s request for transfer.
In a parallel trial court decision dated August 8, 2005, City of South Bend v. Century Indem. Co., Cause No. 49F12- 0303-PL-000752, Judge Michael Keele of the Marion County Superior Court held that McGraw-Edison is the successor to Studebaker’s liabilities and that South Bend’s claims against McGraw- Edison were not precluded by the six-year statute of limitations for injury to real property. Judge Keele also determined that South Bend could maintain its ELA claim as well as its common law claims of nuisance, trespass, and negligence against McGraw-Edison.
These decisions will allow other Indiana cities and owners of brownfield sites to remediate abandoned industrial facilities and to seek cost recovery from the successors and liability insurers of their former tenants.
The news from the U.S. Supreme Court is less helpful. On December 13, 2004, the Court issued a decision in Cooper Industries v. Aviall Services, Inc.,125 S.Ct. 577 (2004). The primary issue before the Supreme Court in Aviall was whether a private party can bring a cost recovery action—an action for contribution under CERCLA Section 113(f)(1), 42 USC§9613(f)(1)—in the absence of a CERCLA Section 106 action (42 USC§9606) or Section 107 action (42 USC§9607). The Court held that a private party cannot maintain an action-to-recover response costs under §113(f)(1) without first being sued under CERCLA§106 or §107(a). In other words, a citizen must wait to be sued before it can sue others responsible for the cleanup. The Court’s restrictive construction of CERCLA will curtail voluntary clean up of hazardous waste sites and result in prolonged and more expensive cost recovery litigation.
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