Ninth Circuit Denies Insurer’s CERCLA Subrogation Claims

Chubb Custom Ins. Co. v. Space Systems/Loral, Inc.
(9th Cir., March 15, 2013)

This environmental coverage/subrogation action arises from CERCLA clean-up of a contaminated site owned by Chubb’s insured, but formerly operated by Ford Aerospace, among others, resulting in volatile organic soil and groundwater contamination.  Chubb issued an environmental insurance policy to its insured, Taube-Koret covering remediation costs related to the former pollution releases at the property. Eventually, Chubb paid its insured $2.4 million as reimbursement of the cleanup costs.

Thereafter in 2009, Chubb filed suit against the defendants and PRPs seeking to bring subrogated claims under both sections 107(a) and 112(c) of CERLCA. Specifically, Chubb alleged a section 107(a) claim as the equitable and contractual subrogee of Taube-Koret. Chubb also brought a claim for statutory subrogation under section 112(c). The district court dismissed Chubb’s section 107(a) claim for lack of standing because it determined that an insurance payment is not included within the meaning of “costs of response,” as required under the statute, and because permitting a subrogation action under that provision would render section 112(c) a nullity. The district court further dismissed Chubb’s section 112(c) claim because Chubb did not allege that Taube-Koret was a “claimant” pursuant to 42 U.S.C. § 9612(c)(2). Chubb timely appealed, arguing that it may bring a section 107(a) claim in subrogation and that the insured need not be a claimant, as defined by CERCLA, for the insurer to bring a subrogated action under section 112(c).

Upon analyzing statutory language and extensive case precedent the appellate court held the district court properly dismissed the insurer’s § 112(c) claim because the insurer failed to allege that its insured made a written demand for payment for its response costs from potentially liable parties or the Superfund. Specifically, the appeals court found that a “claimant” under that section is an entity that demands compensation for damages or costs from the Superfund or a liable party resulting from a CERLCA violation, which here, claimant did not assert.  Rather, “Chubb only alleges that Taube-Koret has made an insurance claim to Chubb. There is no indication that section 112(c) contemplates this meaning of claimant.”

As to the impact of this holding, the appellate court stated, “[o]urdecision here does not mean that insurers cannot bring subrogation claims in environmental matters. On the contrary, insurers’ subrogation rights remain intact under CERCLA section 112(c) and relevant state law provisions.”  The court further noted that the right to subrogation under CERLCA section 112(c), however, is not an unbridled right and it may be circumscribed by Congress through certain requirements, including the assertion of a claim by the subrogor-insured.  Thus, after reviewing the statutory language, remedial scheme, and purpose of CERCLA, the court held that an insured must first make a claim to either the Superfund or a potentially liable party before an insurer can bring a subrogation action under section 112(c).

The court also held that the insurer lacked standing to sue under § 107(a) because it had not itself become statutorily liable for response costs under CERCLA.  Specifically the court held, that section 107(a) of CERCLA does not authorize an insurer to assert a subrogation claim under that provision to recover insurance payments when it did not directly incur environmental response costs. The plain statutory language of section 107(a) and its interaction with section 112(c), which directly speaks to the issue of subrogation, indicated that Congress did not contemplate equitable subrogation under section 107(a).  The court noted that permitting subrogation suits through an expansive reading of section 107(a) and 112(c) would thwart, not promote, CERCLA’s purpose and the interests of public, stating:

“CERCLA was not enacted to benefit insurance companies; rather, it was enacted to promote the timely cleanup of contaminated waste sites, impose liability on those responsible for polluting the environment, and to encourage settlement through a complex statutory scheme. An expansive application of subrogation to sections 107(a) and 112(c) is inconsonant with those overall goals.”

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