Currently, only California has established a victim compensation fund. For the purpose of this paper, I would like to use the California fund¹ and the 301(e) Report² as a foil for considering the range of options available for structuring a fund and the trade-offs and policy choices that are made in the alternatives. I will focus on eleven key issues that comprise any such compensation fund.

At the outset I would like to make something clear. I have sensed throughout most of the discussion today a commingling of two issues: the proposed structure of an administrative victim compensation fund and proposed changes in the tort law that would alter the ways in which one obtains recoveries under the law. These two issues are distinct. There is concern, to be sure, that whatever changes are made with respect to causation in the administrative scheme may sooner or later change toxic tort law. Whether that is good or bad I think is irrelevant because society does evolve and better solutions are discovered through that evolution. It is important to separate the two issues and not to worry whether there will be eventual changes in tort law when examining the costs and benefits of alternative victim compensation funds.

Access to the Fund

The first feature that must be resolved in designing a compensation fund is access. In California, in theory, a claimant must satisfy one of two conditions.³ First, the source of [14 ELR 10111] the release of the hazardous substance or the identity of the party liable for damages or responsible for the costs of removal of the hazardous substance must be unknown or undeterminable even with reasonable diligence. Or, second, the loss must not be compensable pursuant to law because there is no liable party, or the judgment can not be satisfied in whole or in part against the party determined to be liable for the release of the hazardous substance.

In legal terms one could read that sectionn of California law to say that before victims can make a claim upon the California compensation fund, they must exhaust entirely their common law remedies. Unlike what you may have thought, California adopted an extreme solution: the state enacted a law that arguably is designed to provide very little if any compensation to anyone, largely due to strong industry opposition to a victim compensation fund.

As I read it, the California law is quite narrow, but the compensation board has discretion in interpreting it. What may occur in California is that the compensation fund may, in fact, provide relief to more claimants than supporters of the legislation intended. The form that one must fill out for making a claim does not ask the claimant who the claimant has sued, nor whether the claimant has looked for a responsible party. It asks for the basis of the claim, as if there were no access hurdle. It will be interesting to see how the California victim compensation fund develops.In fact, the evolution of a law through agency interpretation is an interesting issue for evaluating any feature in the design of a compensation fund.

The alternative to restricted access is free access: people with injuries simply file claims. Then the system that was created to decide their claims begins to operate. The 301(e) Study basically recommended free access.⁴ Those who suffer injuries fill out the forms, and the agency responsible for compensating injured people must process those claims and make a decision.

Exclusiveness of the Remedy

The liberality of the access provision impinges on the next key issue, that is, how exclusive the remedy must be. It is important to note an undercurrent in the debate on victim compensation. It is about economics: how much money can society afford to provide these victims, and how should society allocate the sum of money to be provided? People see different limits, although everyone envisions some maximum limit. In general, tort law is not concerned about a maximum limit on recovery although burdens of proof and other factors establish very high hurdles which tend to establish limits on the total sums awarded without necessarily limiting the maximum amount that might be awarded in a given case. For a victim compensation fund, limiting mechanisms are necessary.

In California, the compensation fund remedy can be seen as quite exclusive, a last resort measure. The 301(e) Report, however, suggests establishing a non-exclusive remedy.⁵ Commentators expressed concern about establishing a compensation fund that provides both free access and a non-exclusive remedy because they began to see costs escalating rapidly. In part in response to this concern, the drafters of the 301(e) Report created two methods to cut back on the costs of the compensation fund. First, the 301(e) Report added a condition that if a victim does not recover at least 25 percent more in her plenary tort action than she received in the compensation proceeding, then she may be subject to an assessment of court and expert witness costs.⁶ A second limiting mechanism developed by the Report is that a victim would receive increased compensation from the fund to cover difficult to quantify losses, such as disfigurement or the loss of ability to procreate, in exchange for granting greater discretion for judges to bar the victim from seeking relief under a plenary court action.⁷

Coverage of Hazardous Substances

The third factor to be considered is how comprehensive the coverage of hazardous substances should be. The range of possibilities includes all substances, Superfund substances, or some other list of substances, or the compensation fund could cover situations rather than substances. Limiting coverage may simply be viewed as another way of limiting access, and in turn, of limiting costs.

In California, all hazardous substances are covered, no matter how released, with one exception.⁸ The exception is for injuries suffered as a result of exposure to long-term, ambient concentrations in the air. The 301(e) Report provides a remedy only for injuries caused by incidents that are covered under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA),⁹ that is, where exposure results from disposal, transportation, or management of hazardous wastes that the subject to CERCLA.¹⁰

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In considering victim compensation funds, a typical exception is for coverage of hazardous substances injuries caused by workplace exposure to hazardous substances. Two factors are at work here. The first is that workers' compensation schemes have been in place for some time and should not be changed. The second factor is the notion of implied assumption of risk. Many workers, however, do not really have free choice of employment.

If injuries due to workplace exposures are excluded from the general victim compensation fund, the government is, in effect, telling workers that their maximum compensation will come from the workers' compensation scheme and not from victim compensation funds. This is relevant because victim compensation funds generally propose greater recovery than is available under workers' compensation. It is important to pay attention to any exceptions and exclusions incorporated in victim compensation fund schemes because these exclusions convey relevant information about important social policy decisions that are being made.

Another interesting issue is whether to exclude from compensation fund coverage injuries that result from releases that are permitted by federal, state, or local governments. It is not clear that the federal government knows that the permitted level of release will not cause harm. In practice, these permitted releases reflect compromises which, in part, are related to economic concerns, such as the costs associated with achieving various pollution control levels. To exclude injuries caused by releases that are permitted by governmental entities is another way to limit the costs of a compensation fund.

Compensation Levels

The fourth issue is compensation levels. The trade-offs here are particularly relevant in a society that values creativity and personal freedom. Relevant factors for determining the level of compensation to be provided from a compensation fund are considerations of justice, equity, and reasonableness; the ability of society to pay; the extent to which additional compensation may be available from a plenary tort action; the type of injury; and theories about what induces risk reduction behavior by individuals, firms, and society.

In California, the compensation level was set at a rather modest level: one hundred percent of uninsured, out-of-pocket, medical expenses for up to three years and eighty percent of uninsured actual lost wages or business income up to $15,000 per year for up to three years. The 301(e) Report suggested full recovery of all reasonable medical costs, no matter how long they might last,¹¹ and two-thirds of all earnings lost, up to $2,000 a month.¹² Thus, the 301(e) Report would provide an earnings recovery equivalent to a salary of about $36,000 before taxes, reaching well intothe middle class.¹³

Treatment of Collateral Sources of Income

How to deal with collateral sources of income, such as public or private insurance or workers' compensation, is a fifth concern. This concern raises the question of how to deal with independent individual decisions for reducing the adverse effects of unlikely events. The issue is that if people privately insure, or do something else to protect themselves, should they then be denied the benefits of that individual decision by having such insurance proceeds deducted from their compensation fund awards?

California decided that anybody who receives compensation from the fund must reimburse the fund for any compensation received from any other source. The 301(e) Report, on the other hand, wished to reward the foresight of those who privately insured, and thus decided that an individual who received any compensation from private insurance sources should not have such compensation deducted from any recovery the person might receive from a compensation fund. But the 301(e) Report provided that a compensation fund award is to be reduced by any compensation received from public sources.

Discovery Rule and Date of Claim; Retroactivity

The sixth factor concerns the discovery rule and retroactivity. The latency periods for most of the diseases caused by a release of hazardous substances often stretch over two to four decades. The question is, will the compensation fund compensate a victim who was exposed to the causes of his injury long ago, or will compensation be awarded only for exposures that occur from this time forward? Both California and the 301(e) Report adopted the basic discovery rule, which does not consider time of exposure, but, rather, is based on the time of the discovery of the injury.California's statute of limitations is three years from the time of discovery, without defining "discovery." The 301(e) Report recommended a statute of limitations of three years from the point of discovery of the injury or from the time when the injury should have been discovered. The discovery rule reflects a concern that in dealing with a problem that has recently surfaced, the government should not ignore those victims whose injuries were probably caused by exposures that occurred long ago but became known only recently.

Method of Filing Claim

The next factor is the method of filing claims. The California filing requirements¹⁴ request information about the level of compensation that the victims would receive if their claims were to be decided favorably. The law neither requires nor specifically authorizes a hearing, although it does not specifically preclude the compensation board from holing a hearing. The law does not appear to contemplate involvement or appearances by third parties. It is possible, however, that the board might wish to hear medical testimony.

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Because the requirements of proof under the 301(e) Report appear to be more stringent than the California requirements, the proceedings may be more elaborate and the information submitted more extensive and detailed.¹⁵ The 301(e) Report does not appear to contemplate contested proceedings. One could, however, envision a contested proceeding because of the next factor — causation.

Proof of Elements of Claim, Including Causation

Causation is probably the most controversial and hotly debated issue in the victim compensation fund area because it is the principal factor in tort law that poses a significant hurdle for those seeking recovery. For an administrative compensation scheme, a decision is necessary on how much of a showing of causation is required. By defining the class of people to be compensated and the maximum amount of any compensation award, proof of causation may become a lesser concern, however, because total costs will have been effectively controlled by these other determinants. An example is a workers' compensation scheme.

In California, the legislature sidestepped the issue of proof of causation. The compensation board has been delegated the authority to set rules on the necessary proof of causation,¹⁶ but it has yet to develop any formal guidance.

The 301(e) Report, on the other hand, was much more concerned about causation and recommended the use of rebuttable presumptions.¹⁷ The claimant must prove: that the source of the hazardous substance that allegedly caused the injury was, at the time of exposure, engaged in handling hazardous waste; that the claimant was exposed to the substance; and that the claimant suffered injury of a type known to result from such exposure.¹⁸ It is clear why there has been such controversy; each of these requirements is not very difficult to prove.

Subrogation

The next issue that arises in the creation of a compensation fund is subrogation. The extent to which a fund is subrogated to the rights of the victim serves two functions. First, the extent of subrogation tends to determine how much the fund can expect to be replenished from other sources; second, the extent of subrogation raises the retroactivity question discussed earlier.

The 301(e) Report recommended no subrogation for injuries resulting from exposures that occurred prior to the enactment of the compensation fund, although the fund should pay those claims.¹⁹ The Report did not want to subrogate all claims because of concerns regarding the constitutionality of applying a standard of strict liability retroactively and an interest in providing potentially liable parties an opportunity to acquire insurance coverage.²⁰

California, on the other hand, provides the right of full subrogation.²¹ Moreover, because of the limited compensation that a claimant can receive from the compensation fund, the state has the possibility of recouping more money than it pays out. Recall, however, that it is difficult to obtain access to the fund in the first place because access is, in part, based on the inability to identify the responsible party. If you think the State is better able to identify responsible parties, then to some extent California has established a system where it could potentially reimburse the fund through subrogation.

Source of Funds

The source of funds is another key element of a compensation scheme. There are three basic alternatives. One is to finance the compensation fund from general revenues; another is to levy fees upon those who are taxed under Superfund; and a third is to levy fees on the generators of hazardous wastes. Of course, variations exist on each of those schemes. Little interest has been shown in relying on general revenues to fund compensation funds, even though using general revenues might be the proper way to approach [14 ELR 10114] compensation with respect to the problems of causation. At a time when those in power are trying to reduce the size of government, there is little political value in proposing a general tax increase.

I think the 301(e) Report proposed obtaining funds for the compensation fund from Superfund contributors²² out of convenience because the Superfund legislation is already in place: simply amending CERCLA to add a compensation fund is far easier than starting the legislative process from scratch. California has chosen to impose the tax on the generators of hazardous waste.²³ It seems to me that among the three choices set out above this is the best, because it provides economic incentives to companies — who generate the wastes that cause the injuries to be compensated — to change their behavior to reduce the generation of wastes and thus reduce risks to society.

Right of Judicial Review

The last issue is hardly worth discussion: it is the right of judicial review. Social justice requires such a provision, and it is also true that lawyers drafting these statutes are inevitably going to provide for judicial review.²⁴

1. California Health & Safety Code §§ 25370-25382 (Deering 1983 Supp.), ELR, STATE SUPERFUND STATUTES 1984 at 8 (1983).

2. S. Comm on Environment and Public Works, "Injuries and Damages from Hazardous Wastes — Analysis and Improvement of Legal Remedies," A Report to Congress in Compliance with Section 301(3) of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (P.L. 96-510), by the "Superfund Section 301(e) Group," Serial No. 97-12 (Sept. 1982) (2 vols.) (hereinafter cited as "The 301(e) Report").

3. The California Code, § 25372, provides:

Any person may apply to the board, pursuant to Section 25373, for compensation of a loss caused by the release, in California, of a hazardous substance if any of the following conditions are met:

(a) The source of the release of the hazardous substance, or the identity of the party liable for damages in connection therewith, or responsible for the costs of removal of the hazardous substance, is unknown or cannot, with reasonable diligence, be determined.

(b) The loss was not compensable pursuant to law, including Chapter 6.5 (commencing with Section 25100), because there is no liable party or the judgment could not be satisfied, in whole or in part, against the party determined to be liable for the release of the hazardous substance.

4. Victims can seek relief from the fund without a showing of fault whether or not the victim has a viable common law tort claim. The 301(e) Report at 197-198.

5. The victim could still seek recovery in plenary court action. The 301(e) Report at 197-198.

6. The 301(e) Study Group reached its decision on nonexclusivity primarily on the basis that it did not want to compel a person to give up his or her right to plenary tort action because of an "immediate and pressing need for compensation." Id. at 201-202.

7. Id. at 204. The 301(e) Study Group was seriously concerned with the possible high expense and potential infeasibility of permitting a victim to obtain compensation from the fund and to seek full recovery through a plenary tort action.

8. Recovery is available for any injury caused by a "release" in California of a "hazardous substance," which is defined as:

any hazardous or extremely hazardous waste as defined by California law (California Health & Safety Code § 25316(g) (Deering 1983 Supp.), ELR, STATE SUPERFUND STATUTES 1984 at 3 (1983). (This definition brings within its meaning a broader range of substances than are within the meaning of "hazardous waste" under federal law.)

any substance designated under § 311(b)(2)(A) of the Clean Water Act, 33 U.S.C. § 1321(b)(2)(A), ELR STAT. 42133

any toxic pollutant listed under § 307(a) of the Clean Water Act, 33 U.S.C. § 1317(a), ELR STAT. 42129

any element, compound, mixture, solution or substance designated under § 102 of the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. § 9602, ELR STAT. 41944

anyhazardous waste having characteristics identified or listed under § 3001 of the Resource Conservation and Recovery Act, 42 U.S.C. § 6921, ELR STAT. 41908, but not including any waste the regulation of which under the Solid Waste Disposal Act has been suspended by Congress

any imminently hazardous chemical substance or mixture with respect to which the EPA Administrator has taken action under § 7 of the Toxic Substance Control Act, 15 U.S.C. § 2606, ELR STAT. 41343.

9. 42 U.S.C. § 9601 et seq., ELR STAT. 41941 et seq.

10. The 301(e) Report at 207.

11. Justification for recovery of all medical expenses was based on the view that these expenses are readily ascertainable and are appropriate for full compensation. The Study Group also wanted consideration given to compensating victims for injuries such as genetic change which are not compensable under present tort law.

The Study Group proposal provides for more compensation than workers' compensation for two reasons: workers' compensation is far behind inflation and the Group wanted to provide a more favorable trade-off between the right to bring a tort action for unlimited damages and the right to a compensation award. Id. Implicit in this concept, however, is a notion of exclusive remedies. The Study Group proposal permits reopening of compensation proceeding at a later time because the effects of some diseases may not be known until much later. Id. at 239.

12. Id. at 234.

13. Id. at 237.

14. The board shall prescribe appropriate forms and procedures for claims filed pursuant to this article, which shall include, as a minimum, all of the following:

(a) A provision requiring the claimant to make a sworn verification of the claim to the best of his or her knowledge

(b) A full description, supported by appropriate evidence from government agencies of the release of the hazardous substance claimed to be the cause of the physical injury or illness or loss of income.

(c) Certification by the claimant of dates and places of residence for the five years preceding the date of the claim

(d) Certification of the medical history of the claimant for the five years preceding the date of the claim, along with certification of the alleged physical injury or illness and expenses for such physical injury or illness. Such certification shall be made by hospitals, physicians, or other qualified medical authorities

(e) The claimant's income as reported on the claimant's federal income tax return for the preceding three years in order to compute lost wages or income.

California Health & Safety Code § 25373 (Deering 1983 Supp.), ELR, STATE SUPERFUND STATUTES 1984 at 8 (1983).

15. The 301(e) Report contemplates the presentation of testimony by third parties, such as medical experts; however, the Report contemplates making a determination "without … participation in the proceeding" of the party against whom the state or federal government may subsequently file a claim for reimbursement. The 301(e) Report at 246.

16. The Board shall adopt, and revise when appropriate, all rules and regulations necessary to implement the provisions of this article, including methods that provide for establishing that a claimant has exercised reasonable diligence in satisfying the conditions specified in Sections 25372 and 25373 and regulations that specify the proof necessary to establish a loss compensable pursuant to this article.

California Health & Safety Code § 25381 (Deering 1983 Supp.), ELR, STATE SUPERFUND STATUTES 1984 at 8 (1983).

17. The 301(e) Report at 212.

18. Id. at 213-214. If such proof is shown, then the following rebuttable presumptions arise: (i) that the exposure contributed to the injury, and (ii) that the source was responsible for the injury. Id. at 214. To aid in establishing that a certain injury is "known to result" from a certain exposure to hazardous substances, the 301(e) Report recommends the development of Toxic Substance Documents through generic rulemakings; the documents could be relied on to establish rebuttable presumptions, such as, that certain types of injury are known to result from the particular exposure in question.Id. at 213-217.

19. Id. at 245-246.

20. Id. at 250. It should be noted that an analysis of the constitutionality issue prepared for the Study Group concluded that "[i]t is likely, based on prior holdings, that both the retroactive application of the discovery rule, and the retroactive application of strict liability to owners/operators of hazardous waste disposal sites will meet the standards of constitutional due process." Id. in Vol. 2, at L-4. The 301(e) Report recommended that a subrogation claim should be based on liability without fault and not require proof that the owner/manager of the site, transporter, or generator knew or should have known of the hazard. Id. at 247.

21. California Health & Safety Code § 25380 (Deering 1983 Supp.), ELR, STATE SUPERFUND STATUTES 1984 at 8 (1983).

22. The basic sources under the 301(e) Report are those who are subject to the tax under CERCLA, i.e., certain chemical and oil producers. The 301(e) Report at 245. But the Study Group also recommended collecting revenues from disposers of hazardous waste, Id. at 247-248. The Study Group was concerned with the potential impact of such a fund on the international competitiveness of the affected industry sources, and, therefore, indicated an interest in general revenue funding.

23. Compensation is provided by the Hazardous Substance Compensation Account, which is generated primarily by a tax imposed on generators of hazardous waste based on the amount and type (degree of hazard) of wastes that they dispose of in California; the tax will keep the total Hazardous Substance Account (HSA) fund at a $10 million level; the HSA fund pays for cleanup and related remedial actions; the total amount of money in the Compensation fund, which is drawn from the Hazardous Substance Account, may not exceed $2 million at any one time.

California Health & Safety Code §§ 25371, 25381(a) & (b) (Deering 1983 Supp.), ELR, STATE SUPERFUND STATUTES 1984 at 8 (1983).

24. California provides for judicial review of compensation decision; the state does not provide discussion of the standards that govern review. Id. § 25374, ELR, STATE SUPERFUND STATUTES 1984 at 8 (1983). The 301(e) Report provides for judicial review in the same manner that is provided for awards of workers' compensation or similar awards. The 301(e) Report at 253.

An additional issue of interest is the evidentiary status of compensation proceedings.

The California stature provides as follows —

No compensation or decision under this chapter shall be admissible as eidence of any issue of fact or law in any proceeding brought under any other sectionn of this division or under any other provision of law. In addition, no settlement reached pursuant to this chapter shall be admissible as evidence in any such proceeding.

California Health & Safety Code § 25379 (Deering 1983 Supp.), ELR, STATE SUPERFUND STATUTES 1984 at 8 (1983).

The 301(e) Report provides that a compensation award "should not give rise to any collateral estoppel in the later plenary court action. The reference in such court action to the earlier compensation proceeding should be regarded as improper and grounds for the declaration of a mistrial." The 301(e) Report at 203.

14 ELR 10110 | Environmental Law Reporter | copyright © 1984 | All rights reserved