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Direct Actions in Environmental Insurance Litigation
By Jennifer L. de Lyon and Jeremy Hojnicki


In 1993, Peter Mounsey, Senior Counsel in the Environmental Enforcement Section of the U.S. Department of Justice, explored the procedural mechanisms for bringing an insurance direct action suit against an insured in Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA") cases.1 This idea was ahead of its time because it was the first realistic attempt made to reconcile the inherent difficulties in recovering response costs against an insolvent insured in an environmental litigation context. Mounsey recognized that assets in bankruptcy are often insufficient to pay for cleanup costs and claimants are left having to choose either between a partial recovery from the insured or to pay for an uncertain although potentially greater recovery from an insurer. Before anyone else, Mounsey addressed the direct action from a procedural rather than substantive standpoint, understanding that in order to delve into the heart of an insurance policy, one must often get through the doors of the court first. Mounsey noted that, "because CERCLA's direct action provision expressly preserves both underlying liability and coverage defenses to the insurer, the ability to bring a direct action is only one step towards ultimately prevailing on a coverage claim." 2 Mounsey concluded that unless regulations are enacted or Congress amends CERLCA to address bringing a direct action under the statute, this dilemma will remain unresolved.

As a continuation of Mounsey's prior observations, this article explores several unique cases that have been brought before the courts in the last two decades, shedding some light on how direct actions are currently being treated by the Congress, courts and state legislatures. This article discusses CERCLA's direct action provision and offers several alternatives that may serve to harmonize the tension between courts, government and the private sector. It also provides insight for both the insured and insurers, in terms of better predicting risk, developing litigation strategies and demonstrating how a change in the relative laws may create a clear standard for bringing and/or defending against a direct action suit in the future.

The Dilemma Of Bringing A Direct Action In CERCLA Litigation

Insurance liability policies are created in order to protect the insured, up to the policy limits, from having to pay the injured party for bodily injuries and property damages resulting from the insured's conduct.3 However, many companies purchase a Comprehensive General Liability Policy ("CGL") which, based upon its provisions and controlling state law, mayor may not provide coverage for environmental liability due to third party injury. This has resulted in a dramatic expansion of insurance law as companies and their insurers question who has the ultimate responsibility for third party liability that can reach billions of dollars.4 The crux of this debate stems from the generally recognized principle that an injured party may not bring a direct action against the liability insurer unless specifically permitted by a statute or policy provision.5 This situation intensifies when the insured is insolvent and the injured party has no recourse from which to recover money damages.6 Today, the battle between the insured and insurers over environmental liability coverage has become a large and costly area of civil litigation. 7

The reason for the general rule against direct actions is that courts and legislatures believe that it would be prejudicial to both the insurer as well as the insured, if the judge or jury responsible for determining the liability of an insured defendant, became aware that payment may be provided through an insured's liability policy.8 Specifically, the underlying concern is that the verdict may be influenced by information that is irrelevant to the determination of the insured's fault or the amount of the injured party's damages.9 Likewise, courts and legislatures are equally wary of allowing direct actions given the contractual nature of the relationship between the insured and the insurer and the lack of privity of contract between the insurance provider and an injured party.l0 To illustrate, if an insured negligently injures someone due to a toxic chemical exposure who is not in privity of the insurance contract, the third party cannot general1y maintain a contract claim under a liability insurance contract.11 Although Congress may have envisioned authorizing insurer liability under CERCLA, for the above reasons, a third party that incurs response costs may not necessarily sue the insurer, even if the insured is determined liable and is insolvent. 12

Ever since the enactment of CERCLA, parties such as businesses, individuals and the federal government have begun to employ a number of procedural methods in order to avoid the general rule precluding direct action against insurance providers. Courts have been left with the formidable task of striking an appropriate balance between the competing interests of the insured, their insurers and injured third parties. Moreover, the fact that these cases sometimes result in bankruptcy proceedings makes matters even more complex.

The difficulty in bringing direct actions under CERCLA not only allows some insolvent potentially responsible parties ("PRP") to escape from liability, it also continues to undermine the ability of the insurer to predict exposure, ultimately impacting the pricing and availability of insurance coverage. Only when a clear statutory directive is applied to CERCLA will insurers be able to better calculate risk and injured parties! al1eged polluters be able to better develop litigation strategies. In short, without clarification of the CERCLA provisions that create this tension, the direct action cases will continue to be a quagmire for all parties involved.13

The Statutory Background Of CERCLA Section 108

As the only express right of action against insurance carriers under CERCLA, Section 108 dictates that certain entities, including the government, can proceed directly against persons who provide evidence of financial responsibility for a facility. CERCLA Section 108(c) provides:

[a]ny claim authorized by Section [107] or [111] of this title may be asserted directly against any guarantor providing evidence of financial responsibility as required under this section. In defining such a claim, the guarantor may invoke all rights and defenses, which would be available to the owner or operator under this subchapter. The guarantor may also invoke the defense that the incident was caused by the willful misconduct of the owner or operator, but such guarantor may not invoke any other defense that such guarantor might have been entitled to invoke in a proceeding brought by the owner or operator against him.14

Specifically, the financial responsibility requirements of Section 108 are triggered when either a "release or threat of release" of a hazardous substance occurs from a facility and the person liable under CERCLA Section 107 is insolvent. Although the combination of a release or threat of release and an insolvent insured may trigger the financial requirements, it does not necessarily activate them. Under CERCLA Section 108(b), the President was required to identify the classes of facilities for which financial responsibility requirements will be developed and regulations were to be promulgated accordingly.15 However, at present the President has not identified the classes of facilities and U.S. EPA has not issued the financial responsibility regulations. Thus, until the statutory criteria are met, direct actions brought under CERCLA 1O8(c) should be dismissed.16 This position has been accorded strong weight especially because U.S. EPA, the agency responsible for administrating CERCLA, indicated in a guidance memo that a "clear federal right of action under CERCLA against insurance companies appears to be dependent upon the issuance of financial responsibility requirements."17

A further hindrance to bringing a direct action under CERCLA is also that the statute does not include an insurer under its list of qualifying PRP's under CERCLA Section 107. While the class of PRP under the statute is arguably broad, the fact that insurers are not included under this definition begs the question whether Congress actually intended to hold them directly liable. Without insurers specifically listed as a PRP in the statute, some courts have been reluctant to act in a quasi-legislative capacity and include them by judicial decree.

Judicial Treatment Of CERCLA Section 108

Through the years, courts have consistently ruled that CERCLA does not provide a right of action against insurers. This is evinced by the fact that to date, every court that has considered this issue has determined that Sections 107 and 113 of CERCLA do not allow for claims to be brought directly against the insurer of a potentially responsible party.

For example, in Port Allen Marine Services. v. Chotin, an action was brought directly against an insurer of a PRP to recover clean up costs under a CERCLA contribution claim as well several other claims under Louisiana's Direct Action Statute.18 Having granted the insurer's motion to dismiss for failure to state a claim, the court held that "insurers of an owner or operators are not included in the list of responsible parties set forth in Section 107 of CERCLA."19 The court further reasoned that CERCLA's direct action provision Section 108(c) "only provides [this right] against guarantors in limited circumstances" (emphasis in original).2O Because a guarantor is defined as "any person, other than the owner or operator, who provides evidence of financial responsibility for an owner or operator under this chapter,"21 the court ultimately concluded that insurers are not within the ambit of this definition.

Moreover, the court in Port Allen focused upon the language of CERCLA Section 113(f)(1), which provides that contribution claims "shall be governed by federal law" . . . and that "[a]ny person may seek contribution from any other person who is liable or potentially liable under Section 107(a) . . .." The court further explicated that "even if CERCLA allowed a direct action, the Louisiana Direct Action Statute would not apply to a CERCLA contribution claim.22 Additionally, the court reasoned that since the Lousiana's Direct Action Statute provides that injured persons have a right of direct action against the insurer and that a party seeking contribution is not an injured person, the injured party is not entitled to bring such action under CERCLA.23

After thoroughly reviewing CERCLA, the court in Port Allen came to the conclusion that the insurer could not be directly sued in that case. The court recognized the explicit limitations of bringing direct actions set forth in the language of CERCLA as well as the court's function to interpret the law and not to amend or supplement it.24 Specifically, the Port Allen decision provides that "no omission in CERCLA needs to be supplemented by state law in this area and to do so would be to perform a legislative and not a judicial function."25 Furthermore, the court determined that CERCLA does not represent total preemption of state law; it clearly preempts those areas which it does specifically address, i.e. contribution claims under CERCLA Section 113(f). The court also noted that "CERCLA provides federal rights and remedies which are complete without state law supplementation."26 The Port Allen decision also stands for the proposition that unless there is an across Congress amends or U.S. EPA promulgates regulations that would clarify the scope of direct actions under CERCLA, courts will adhere to the statutory limitations of the statute.

Following the logic of the Port Allen court, the First Circuit in American Policy Holder's Insurance Co. v. Nyacol Products, Inc. similarly held that "CERCLA itself does not provide a direct cause of action against a responsible party's liability insurer."27 In Nyacol, an insurer sued for declaratory judgment with respect to its obligation to defend and indemnify an insured against which CERCLA claims were made. 28 Initially, U.S. EPA sued Nyacol Products identifying that company as a responsible party for disposing such toxic waste on a thirty-five acre plot in Ashland, Massachusetts.29 Pursuant to Massachusetts law, which establishes that CERCLA lO4(e) notice letters are equivalent to law suits for the purpose of triggering an insurer's duty to defend, Nyacol then called upon its insurance carrier, American Policy Holder's, to provide a defense to the underlying action.30

In Nyacol, the court recognized that the authority for treating insurance coverage issues in CERCLA cases are matters of state law.31 The court applied the reasoning in Port Allen to establish that "case law aside, we doubt that Congress intended CERCLA to be the springboard for catapulting deferral courts into what has historically been a state-law preserve."32 The court in Nyacol further determined that "[n]othing in CERCLA suggests that Congress intended to deviate from this regimen."33 Ultimately, the case was vacated because as a creature of state law, American Policy Holder's declaratory judgment action cannot arise under federal law.34

The above-referenced cases represent early attempts at maintaining direct action suits against an insurer. The following section demonstrates the more inventive approaches that have been attempted by claimants in recent environmental cases.

Circumvention Of CERCLA's Dormant Direct Action Provision Through Assignment

Although U.S. EPA has not yet clarified the CERCLA financial responsibility requirements through issuance of regulations, parties may still employ alternative methods for seeking a direct action against an insurer. In a CERCLA enforcement action against a PRP, U.S. EPA uses its authority under Section lO4(e) of CERCLA to solicit information from the insured who caused the contamination as well as the injured third party.35 U.S. EPA normally sends CERCLA lO4(e) information requests to individuals in order to determine the extent of damage and who would be most financially capable to pay for environmental remediation effort. However, in recent times U.S. EPA has begun to request insurance policies directly from the issuing company with the stated goal of recovering federally expended response costs for the investigation and remediation of contaminated sites.36 This typically occurs when U.S. EPA has analyzed all of the gathered information and establishes that the insurer is the only party capable of fitting the multi-million dollar bill for reimbursement.

All of this information is then transferred to the U.S. Department of Justice ("DOJ"), who consistently requests that U.S. EPA provide insurance policies as a routine part of the case development report and referral package. U.S. EPA, in tandem with DOJ then attempts to ascertain the existence and scope of the insurance coverage in order to develop litigation theories using applicable common law with which they can proceed against the insurer. Despite the existence of environmental insurance polices such as an Environmental Impairment Liability ("ElL") that address environmental liability claims made by injured third parties, coverage for pollution-related damages under these policies is rare.37 At present, it is more likely that a potential U.S. EPA hazardous waste enforcement will deal exclusively with a CGL policy.

Once the government is able to obtain all the necessary information and has developed its litigation strategy, it can then attempt to prosecute direct action claims against the insurer through assignment. In the absence of a policy provision against assignment, the government can pursue a direct action after judgment via garnishment or applicable statutory provisions. Because most liability policies contain a provision prohibiting assignments (known as "no action" or "no joinder" provisions), this still does not limit the government from seeking a direct action after a loss has occurred. Generally, "a clause restricting assignment does not in any way limit the right of assignment after the loss has occurred and the rights of the parties become fixed thereby."38 Policy provisions against assignments can only prohibit such an action before the loss occurs and not once the claims arising thereunder have been made. One exception to this rule is that the government can take a direct action before a loss in the event that the carrier automatically denies coverage and refuses to defend.

In addition to the federal government, the private sector (business and/or individuals) can also bring direct action suits through assignment. With the similar intention of being reimbursed by the most able paying entity, private parties can go after insurers in direct action suits because they too have incurred millions of dollars in environmental clean up costs, bodily injuries and/or property damage. Given that in CERCLA litigation many PRP's are de minimus polluters, the private sector has as much stake in seeking reimbursement as does the government. Evidently, the private sector may catch up with the government in its ability to hold the insurer responsible for routine contamination despite policy clauses excluding liability for such events.

It is important to note that the government has an advantage over the private sector in obtaining information. As noted above, CERCLA Section 104(e) enables U.S. EPA not only to request information relating to a PRP's operations, but it can also request information about insurance policies pursuant to this authority. CERCLA Section 104(e)'s provisions do not apply to the private sector. What the private sector claimants can then do if they cannot obtain the requested documentation is to depose former managers or officers of the insured as to their recollection of the company's previous carriers and the years that each carrier provided coverage. This way, discovery mechanisms can then be directed to the identified insurers in an effort to acquire copies of the insured's policies or at least, some correspondence indicating the existence of a PRP's prior insurance coverage. Once the information is received, an injured private sector party can analyze the insurance policies, if any, and follow the same tactics as the government in attempting to hold the insurer liable for damaged created by the insured.

Recently, there has been an increase in the number of direct action suits through assignment in the area of methyl parathion contamination.39 From 1996 until the present, U.S. EPA has incurred millions of dollars in the investigation and remediation of contamination due to the misapplication of methyl parathion to thousands of residential and business establishments across the United States.40 In 1997, U.S. EPA sent CERCLA 104(e) requests to insurance companies who provided policies to residents and business people in Mississippi whose homes and businesses were sprayed with methyl parathion. According to the CERCLA 104(e) request letters, U.S. EPA was in the process of obtaining rights to the proceeds due under the policies in question and was prepared to assert these rights to the fullest extent.

Overall, it is important to realize that U.S. EPA continues to send CERCLA lO4(e) information requests in order to maximize its recovery against insurers. With the expectation that this trend will continue, U.S. EPA has even issued an interim guidance document advising the Agency staff personnel on ways in which to successfully pursue direct actions with regard to methyl parathion contamination. U.S. EPA notes that:

[s]ince 1994, there has been an emerging pattern involving the illegal diversion of restricted-use pesticides from agricultural use to inappropriate use in homes and businesses. . . [accordingly we]have developed the following 3-step strategy for the Regions as a method by which insurers can maximize insurance contributions and reduce Agency expenditures.41

This 3-step strategy is as follows: First, U.S. EPA advises that written or oral notice should be promptly provided to the insurer.42 Second, it further suggests that the Agency staff at U.S. EPA regional offices should request that the property owner sign an assignment form. Under this form, the owner should agree to assign insurance proceeds to U.S. EPA to cover the Agency's costs; assign to U.S. EPA the right to pursue claims under the insurance policy; sign the notice letter; and, provide to U.S. EPA a copy of the insurance policy and related materials. Moreover, it also advises that the U.S. EPA regional offices should not condition response work on the owner's agreement to file a claim, assign policy rights, and/or reimburse U.S. EPA from insurance proceeds paid.43 It therefore notes that U.S. EPA regional offices should proceed with relocation, decontamination and/or restoration work regardless of the owner's willingness to cooperate with U.S. EPA on insurance matters.44 Finally, U.S. EPA last advises that the regional offices, in conjunction with DOJ, should contact the insurers to facilitate coverage and/or work under the applicable policies, and should also request that the insurers promptly negotiate with both U.S. EPA and policyholders. 45

The CERCLA-RCRA Hybrid Approach

While the above-referenced attempts at maintaining a direct action under CERCLA have proven futile, this has not necessarily hindered claimants from employing even more creative ways to seek recovery through direct action suits. Recently, in the matter of Department of Health and Environmental Control, et al. v. Commerce & Industry Insurance Co., Jefferson Insurance Co., and South Carolina Property and Casualty Insurance Guarantee Association,"46 the plaintiffs (the State of South Carolina and several chemical companies, or "the Stoller claimants") brought a direct action suit against the named insurance companies to pay for the cleanup of toxic waste left at a site by a bankrupt former insured called Stoller.

The Stoller claimants first asserted a cause of action under CERCLA Section 107 and Section 113 directly against Stoller's liability insurers.47 However, the South Carolina District Court held that CERCLA's direct action provision controls the circumstances under which CERCLA claims could potentially be brought directly against an insurer.48 Furthermore, the court noted that since CERCLA does not allow claims for response costs to be asserted directly against a liable party's insurers, the CERCLA direct action suit could not be maintained in this case. In addition, the court concluded that any claims pursuant to Section 108, CERCLA's direct action provision, could only be asserted directly against guarantors who provided evidence of financial responsibility pursuant to CERCLA. 49 Given the court's recognition that insurance carriers are not "guarantors" under CERCLA Section 101(13), the court ultimately dismissed the case.

Conceding that their direct action claims were not allowed under CERCLA, the Stoller claimants further attempted to avoid CERCLA's prohibition of their direct action, asserting that their claims are being brought in accordance with the Resource Conservation and Recovery Act ("RCRA"). The Stoller claimants argued that RCRA's direct action provision contemplates direct actions concerning a far broader range of claims beyond those available under CERCLA. As support for their contention, the Stoller claimants maintained that RCRA allows direct actions 50 when jurisdiction cannot be had in state courts even though federal courts have exclusive jurisdiction over the limited injunctive relief claims available under RCRA.51 However, as noted in the brief for the appellees, the Stoller claimants cannot seek to "extract the procedural right of direct action granted under RCRA and meld it with a substantive right of recovery under CERCLA in order to create a remedy (recovery of environmental response costs directly from a liable party's insurers)."52 The appellees argued that the "Stoller claimants cannot alter [CERCLA] by combining it with a completely different statute [RCRA] to create legal rights that do not exist under either statute."53 The appellees also pointed out that the policy underlying CERCLA (cost recovery)and RCRA (injunctive relief)54 prevent the hybridizing of these two statutes because they were designed for completely different purposes.55

At present, this matter is pending appeal to the United States Court of Appeals for the Fourth Circuit and oral argument was heard on December 3, 2003. Regardless of the Fourth Circuit's ultimate decision, regulations promulgated by U.S. EPA or amendments to CERCLA by Congress are needed to clarify the issue of the CERCLA-RCRA hybrid approach to assert a direct action in environmental litigation.

Recommendations

Over the years, revisions to CERCLA have been attempted in several ways, including court actions, U.S. EPA orders and legislative efforts. Given the volume of bills pending before the 108th Congress, opportunity for addition reform continues to exist. As indicated by the Environmental and Public Works Committee, to date, no amendments to CERCLA have been proposed for the current Congress. As the money in the Superfund continues to diminish, it appears that several aspects of CERCLA are ripe for reexamination and revision.56

One way in which CERCLA can be amended is through clarifying its language to either specifically include or exclude insurers as potentially responsible parties. This would not only serve to clarify the ambiguities inherent in CERCLA, it would also create consistent case precedent across the country. Under this proposal, courts could determine directly from the statutory language of CERCLA whether an insurer can be held liable or not.

Another suggestion is for Congress to amend CERCLA in order to grant the harmed party (either government or the private sector) a first priority lien on all the property of the debtor that created the contamination.57 Presently, the Bankruptcy Code guarantees that secured creditors receive the value of their collateral while unsecured creditors are paid with the remaining assets.58 However, since neither CERCLA nor the Bankruptcy Code provide an express priority for environmental response costs, the courts have been left to grant exceptions for the government to obtain such treatment. Providing a first priority lien granted by statute may provide the best chance for full payment of environmental remedies during bankruptcy.59

Under this scheme, when a potentially responsible party becomes insolvent, U.S. EPA and other injured parties would be guaranteed to have priority over any other secured or unsecured creditor.60 This would ensure that the intent of CERCLA is furthered because it would force the party who caused the release into the environment to pay for the damage, would provide an expeditious cleanup of any environmental contamination and would immunize the insurance community from being held liable for potential damages. A last suggestion is to seek an amendment of the Bankruptcy Code where the Code's definition of a claim would include pollution. 61 This would enable the debtor to obtain a "fresh start" consistent with the intent of bankruptcy law, while at the same time, maintaining financial responsibility for the environmental damage.62

Overall, these proposals are not meant to be exclusive, nor are they perfect solutions to the direct action dilemma. The above recommendations offer a way in which future liability disputes between injured parties, insureds and insurance companies can be prevented.

The Minnesota Landfill Cleanup Act

Finally, direct action observers should be cognizant of the recent state law developments under the Minnesota Landfill Cleanup Act ("MLCA").63 This law could ultimately be a blueprint for other states that wish to implement direct action legislation to recover environmental response costs and as such, it should be on everyone's radar screens.

The MLCA,as amended in 1996, permits the State of Minnesota to bring a direct action against insurers to recover response costs addressing the release of hazardous substances into the environment. Under the MLCA, insurance carriers that provided coverage to businesses who owned, operated, transported waste, or used landfills for the disposal of waste are expected to contribute to the cost of cleaning up closed landfills. The MLCA "vas enacted with the legislative intent of encouraging insurers to settle with the state by offering carriers a broad release of liability for all cleanup cost claims for all known and unknown policyholders.

In State of Minnesota v. Employers Insurance of Wausau, the MLCA was recently submitted to judicial scrutiny.64 The Wausau case began when the State of Minnesota sued a number of insurers pursuant to the MLCA to recover response costs in cleaning up two landfills. The trial court found that the state's claims were time barred and granted the insurers' motion for summary judgment. On appeal, the court reversed the trial court's ruling and held that the state's claims were timely.65 More significantly, the appellate court addressed the insurers concerns about the constitutional validity of the MLCA.

First, the insurers argued that the MLCA represents an unreasonable impairment of the Contracts Clause in violation of the Minnesota and U.S. Constitution.66 The insurers contended that the MLCA destroys essential provisions of the insurance contracts, thereby impairing the ability of the insurers to contract with their policyholders. The court rejected the insurers argument since the Supreme Court of Minnesota requires that a party alleging a violation of the Contracts Clause must show that the state regulation has caused a serious economic harm. The court ruled that the MLCA provides an economic benefit to the insurers because under the statute an insurer is able to assert all its available defenses in a single action, rather than being required to assert liability defenses in one action brought by the state and coverage defenses in a second action by the policyholder.67

Additionally, the insurers claimed that MLCA is preempted by CERCLA and is therefore unconstitutional under the Supremacy Clause of the U.S. Constitution.68 The court rejected this argument ruling that because there is nothing in CERCLA that denies a state the right to create direct actions under its own law; rather, CERCLA even specifically provides that "nothing. . . shall be construed or interpreted as preempting any State from imposing any additional liability or requirements with respect to the release of hazardous substances within each State."69 Thus, the court held that the Supremacy Clause is not implicated and the MLCA is not preempted by CERCLA.

In Wausau, the insurers also argued that the MLCA violates the commerce clause of the Minnesota and U.S. Constitution by placing an undue burden on interstate commerce.70 The court rejected this argument as well. The court held that since the legislation pertains uniformly to settlements between PRP's and insurers regardless of where the insurance company is domiciled, it does not discriminate against out-of-state insurers in favor of in-state insurers.71

Lastly, the court analyzed whether a settlement, release and policy buy-back agreement between an insurer and a private company preclude the State of Minnesota's recovery from the insurer under the MLCA.72 The insurers argued that since it entered into a policy buy-back agreement, the state's claim should have been brought against the private company and not against the insurer. The court again disagreed with the insurers and ruled that under the MLCA's insurance recovery provisions and theories of equitable subrogation, the settlement agreement could not be executed without the state's consent.73 Therefore, all settlements, releases and policy buy-back agreements concerning environmental contamination in the State of Minnesota must first obtain the state's approval or a direct action can later be brought against the insurer by the state.

In short, the Wausau decision should serve to put the insurance industry on notice that state attempts to enact direct action legislation to recover environmental response costs will pass Constitutional muster.

Conclusion

Direct action claims in environmental litigation continue to be a point of contention among the insurance industry, insureds, and potential claimants, whether government or private entities. Legal counsel can playa vital role in helping the above parties understand their rights and obligations when faced with direct actions in state or federal environmental litigation. While these recommendations may provide temporary relief, until CERCLA is either amended by Congress or clarified by U.S. EPA, the final answer to these lingering questions will remain an open area of litigation.

Jennifer L. de Lyon is an associate in the Environmental practice at Wolff & Samson, PC, a 110-lawyer firm based in West Orange, New Jersey. Ms. de Lyon can be reached at: delyon@wolffsamson.com or phone number:(973)530-2171.



  1. See Peter R. Mounsey,The Direct Action Against Insurers in CERCLA Insolvency Cases: An Idea Whose Time has Come?, 19 WM. & Mary J. ENVTL 83, 83-84 (1993).

  2. Id. at 103.

  3. 1 HOLMES ET AL., HOLMES APPLEMAN ON INSURANCE LAW & PRACTICE § 142.1 (2d ed. 2003).

  4. Supra note 1, at 83-84.

  5. Id.

  6. Id.

  7. 2 JOHN A. APPLEMAN & JEAN APPLEMAN, APPLEMAN ON INSURANCE LAW & PRACTICE SUPP. TO § 4520 (1st ed. 2003).

  8. Supra note 1.

  9. 1 HOLMES ET AL., HOLMES APPLEMAN ON INSURANCE LAW & PRACTICE § 142.3 (2d ed. 2003).

  10. Supra note 1.

  11. HOLMES ET AL, HOLMES APPLEMAN ON INSURANCE LAW & PRACTICE § 3.3 (2d ed. 2003).

  12. Supra note 1, at 92.

  13. See Katherine T. Eubank, CERCLA Reauthorization 1994: Insuring the Cleanup of Hazardous Substance Pollution, 9 J. NAT. RESOURCES & ENVTL. L. 297 (1994).

  14. 42 U.S.C. § 9608(c).

  15. 42 U.S.C. § 9608(b).

  16. Memorandum from Courtney M. Price, Assistant Administrator for EPA Enforcement and Compliance Monitoring, to EPA Regional Administrators and Counsels, Procedural Guidance on Treatment of Insurer Under CERCLA, 1 (Nov. 21, 1985) available at http://www.epa.gov/Compliance/resources/policies/ cleanup/superfund/treat-insure-mem.pdf (last visited Jan 5, 2004).

  17. Id. at 35.

  18. Port Allen Marine Servs. v. Chotin, 765 F.Supp. 887, 888 (M.D. La 1991). The Louisiana Direct Action Statute is codified at La.R.S. 22:65.

  19. Id.

  20. Id. at 889.

  21. See also, City of New Orleans v. Kernan, 933 F.Supp. 565 (E.D. La. 1996).

  22. Port Allen, 765 F.Supp. at 890;New Orleans, 933 F. Supp. at 569.

  23. Port Allen, 765 F.supp. at 890.

  24. Id.

  25. Id.

  26. Id. at 889.

  27. American Policy Holder's Insurance Company v. Nyacol Products, Inc., 989 F.2d 1256, 1263 n.11 (1st Cir. 1993) (quoting supra note 17, at 889). See also, Hudson Insurance Co. v. American Electric Corp., 957 F.2d 826, 830 (11 Cir. 1992) (holding that there is no parallel federal cause of action for recovery of insurance proceeds for CERCLA-created liability).

  28. Nyacol, 989 F.2d at 1256.

  29. Id. at 1257.

  30. Id.

  31. Id. at 1263.

  32. Id.

  33. Id.

  34. Id. at 1264.

  35. See 42 U.S.C. § 9604(e). When pursuing direct actions under CERCLA, U.S. EPA also uses its authority under Section 9604 to request information however, private parties do not have this option.

  36. Mark R. Misiorowski & Kelly J. Pattison, USEPA Tells Insurers to Produce Insurance Policies Following Methyl Parathion Application in Mississippi: Could Your Company be Next?, 12-3 MEALEY'S LITIG. REP. INS. 9 (1997); See also, Connecticut Indemnity Co. v. Superior Court, 3 P.3d 868 (Cal.2002); Fireman's Fund Ins. Co. v. City of Lodi, 271 F.3d 911 (9th Cir. 2002), opinion withdrawn Fireman's Fund Ins. Co. v. Lodi, 287 F.3d 810 (9th Cir. 2002).

  37. Id. at 10. While it is known that an EIL ("claims made policy") covers bodily injury, property damage and clean up costs incurred by the insured, it is much more expensive than CGL's which cover bodily injury and property damage. See Id. at 4. See also Michael W. Peters, Insurance Coverage for Superfund Liability: A Plain Meaning Approach to the Pollution Exclusion Clause, 27 Washburn L.J. 161, 167 (1987)

  38. 2 JOHN A. APPLEMAN & JEAN APPLEMAN, APPLEMAN ON INSURANCE LAW & PRACTICE § 3458 (1st ed. 2003).

  39. Methyl parathion is an EPA restricted-use pesticide used on farms to kill pesticides on certain crops, especially cotton. AGENCY FOR TOXIC SUBSTANCES AND DISEASE REGISTRY, CENTER FOR DISEASE CONTROL, ToxFAQsTM FOR METHYL PARATHION, (2001), at http://www.atsdr.cdc.gov/tfacts48.html#bookmarkO2 (last visited Jan. 16, 2004).

  40. See also, Haman v. St. Paul Fire and Marine Insurance Co., 18 F.Supp. 2d 1306 (N.D.AK 1998); Terra Industries v. National Union Fire Insurance Co. of Pittsburg, No. C02-4003-MWB, 2003 (N.D.IA 2003).


  41. Memorandum from Barry Breen, Director of the Officer of Site Remediation Enforcement, to Environmental Protection Agency, Interim Guidance on Maximizing Insurers' Contributions to Responses at Residences Contaminated with Methyl Parathion, 1-2 (August 1, 1997) available at http://www.epa.gov/ Compliance/resources/policies/cleanup/superflmd/maxim-para-mem.pdf (last visited on Jan. 20, 2004).

  42. Id.

  43. Id. at 2.

  44. Id.

  45. Id. at 2-3.

  46. See Brief for Appellees, South Carolina Department of Health and Environmental Control, et al. v. Commerce and Industry Insurance Company, et al., (4th Cir. 2003)(No. 03-1329).

  47. Id. at 5.

  48. Id.

  49. Id. at 8.

  50. 42 U.S.C. § 6924 establishes that any claim arising from conduct for which evidence of financial responsibility must be provided under this section may be asserted directly against the guarantor providing such evidence of financial responsibility.

  51. Supra note 46, at 15.

  52. Id. at 4.

  53. Id. at 15.

  54. See, Lambs Road Assoc. v, Liberty Mutual Ins. Co., No. 99 CV 2866 (D.N.J.). Dec. 21, 2001) aff'd on other grounds (reasoning that the RCRA direct action statute could not be used As a vehicle to collect damages for cleanup).

  55. Supra note 46, at 12.

  56. Id.

  57. See Brian A. Cahalane, CERCLA and the Fresh Start: Quelling the Eternal Conflict, 4 AM. BANKR. L. INS. J. 265 (1996).

  58. Id. at 269.

  59. Id. at 286.

  60. Id.

  61. Id.

  62. Id.

  63. MINN. STAT. §§ 115B.39-115B.445.

  64. State of Minn. v. Employers Ins. of Wausau, 664 N.W.2d 820 (Minn. App. 2002).

  65. Id. at 826-31.

  66. Id. at 831-32.

  67. Id. at 832-34.

  68. Id. at 834.

  69. Id. at 835; See also, 42 U.S.C. § 9614(a).

  70. Id. at 836.

  71. Id. at 836-37.

  72. Id.

  73. Id. at 838.


    Reprinted with permission from Mealey's Litigation Report:Insurance, Vol.18, #14, February 10, 2004. @Copyright 2004 LexisNexis, Division of Reed Elsevier Inc., King of Prussia, PA. www.mealeys.com.



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