Tort and Insurance Issues

Michael J. Last

Michael J. Last is a partner with Gaston Snow and Ely Bartlett in Boston, Massachusetts.

Professor Prosser, in his treatise on torts, states that "the law of torts . . . is concerned with the allocation of losses arising out of human activities."¹ In the hazardous waste field, the potential for loss is very serious. Tort liability falls into two general areas. The first property damage associated with release of pollutants into the environment through ground and surface water, soil, and air transport. The second, victim compensation, has become the topic of considerable debate and study. When talking about the various tort theories, I must caution that property damage is more easily discovered and proven than personal injury. Even though property damage can often take as long to develop as injury to health, as with the gradual permeation of the soil by hazardous chemicals, it is far easier to establish. We will talk later of the specific barriers to victim compensation that arise under traditional tort theory.

Theories of tort liability applicable in the hazardous waste context include negligence, nuisance, trepass, and strict liability. We are all aware of the traditional elements of negligence theory. Failing to honor a standard of conduct (usually the care attributable to a reasonable person) must first be established. Then, it must be shown that as a result of this failure to live up to a reasonable standard of conduct, injury has resulted. In addition to the simple causal connection just described, proximate cause, or how the injury resulted from the failure to act, must also be proven. This is the most difficult element to satisfy in personal injury cases.

With the operation of hazardous waste facilities, it is far easier to establish the act of negligence than to establish the causal connection. The proof of the act of negligence is made simple because it is likely that the facility operator will be held to a heightened standard of care. The courts have held that where someone has special or superior knowledge, as is expected of hazardous waste facility operators, a higher standard of care must be met. As a result, where there has been a release, carelessness or the act of negligence is not as difficult to prove. In addition, most jurisdictions regard an unexcused violation of state statute or regulation as negligence per se. Because it is established by virtue of the violation, negligence need not be shown. Only the causal element must be argued: whether the negligent act actually caused the injury claimed.

Causation has become the topic of heated debate in negligence and other tort theory. As Dr. Melius mentioned, most injury from exposure to hazardous waste involves a long latency period. The time between the exposure and the manifestation of disease or illness may be 30 years, making it difficult to trace a clear line of causation. During that period of latency, other environmental factors may affect the character and extent of the disease. Moreover, medical knowledge of the diseases caused by different exposures to different wastes is in its infancy. It is therefore argued by some, including the 301(e) Study Group,² that victim compensation for exposure to hazardous waste should not necessarily be based on traditional proofs of causation.

A second tort theory alleged in hazardous waste litigation is nuisance. Nuisance actions are very complex because of distinctions between private and public nuisance and the question of whether a facility is inherently a nuisance or whether it becomes one only after an accidental release. Also, if a single release is established, is the whole facility then a nuisance? What if there is a history of problems?

Private nuisance is the use of one's own property — in our example a hazardous waste facility — in such a manner as to cause injury to property of another, such as an abutting landowner. In nuisance, an injury can be indirect or consequential so long as it results from using the property.³ Public nuisance involves activities that affect the public generally and cannot be conveniently localized to affect one or a few.Private nuisance is actionable in a private lawsuit, whereas public nuisance is generally redressable only through action by public officials charged with the authority to do so.In those instances where unique harm to one or more individuals can be shown, private parties may sue under a theory of public nuisance either to enjoin or to obtain damages.

Nuisance theory requires proof of threat of harm which, for a hazardous waste facility, can be envisioned in two settings. It is possible, but unlikely, to enjoin the operation of a facility from its outset. Plaintiffs can argue that the facility is so inherently dangerous and the certainty of risk is so great that the facility can never operate safely without imposing unreasonable risks on the surrounding population. If the court agrees, an injunction against the construction of the facility would be the proper remedy. Given the current status of nuisance theory, however, it would be unlikely to succeed at that stage. Nuisance theory requires a balancing of the risks inherent in the facility operation, in the ability to control those risks, and in the public utility associated with the facility. Proof that a facility is a state-of-the-art design with a low degree of risk when maintained in accordance with acceptable operating procedures should be sufficient to overxome a pre-construction nuisance action.

A more serious nuisance claim against facility operators can be sustained after a problem develops — after a release [15 ELR 10253] of hazardous material from the facility. Even though it might be difficult to establish causation to support a negligence claim, ample authority can be produced to justify judicial intervention preventing generalized exposure to hazardous material. A nuisance action seeking to enjoin the conduct that created the hazard and to award damages is most appropriate here. It can be argued that the potential for future harm has been established by the release, and the facility has shown itself to be sufficiently dangerous and the controls against risk sufficiently tenuous to justify a permanent injunction against future operation.I believe that if the facility had a history of hazardous releases and poor operation, the court would apply the balancing test just described and either enjoin, or impose strict controls on, further operation. If the release was an isolated occurrence, quickly controlled, and with a low probability of recurrence, the balancing test might well result in a different finding. Facility operators should be aware that, even if victim compensation under negligence is unlikely, the nuisance action provides a significant incentive for safe and proper operation.

Trespass theory involves a physical imposition on property. In the case of a hazardous waste facility, trespass would be brought when pollutants escaping from a facility were transported by air, water or through the soil onto someone else's property. The old rule of trespass liability states that, once trespass is established, absolute liability for foreseeable consequences will be imposed. Unfortunately for plaintiffs, the old rule is no longer followed in the majority of the jurisdictions. In order to establish liability for trespass now, intentional or negligent conduct, or conduct associated with an abnormally dangerous activity must be shown. A hazardous waste facility is certainly a potentially dangerous activity; it might even satisfy the test of inherently and abnormally dangerous. A court, however, would most likely apply a balancing test to determine liability when the nature of an activity as being abnormally dangerous is alleged. In deciding whether an activity is abnormally dangerous, its inherent character is not the only factor evaluated. Rather, the particular circumstances of its operation — its location, the method of operation, and its social utility — are considered. The traditional rules of trespass also require that some appreciable "mass" for the trespassing object exist. Human beings were the original and exclusive appreciable mass. Later, trespass against things that could be measured, like ground water, where contaminating particles could be readily identified and quantified, was accepted by the courts. Some courts refused to extend the trespass action to gaseous materials, and found that fumes crossing property were not adequate to establish a trespass. From the plaintiff's perspective, this notion is being liberalized. Many courts now hold that an entryon property by fumes or gaseous material is a trespass and actionable as such.

Strict liability theory and notions of absolute liability are stimulating the most discussion and are being heavily tested under CERCLA. The 301(e) Study Group has released the best strict liability characterization that I've seen. They examine four doctrines, three of which are directly relevant to our discussion. The first developed under the old English case of Rylands v. Fletcher.⁴ There, the court held that when a dangerous instrumentality is brought onto the land (dammed up water under the Rylands facts), the owner is strictly liable for the consequences of its escape, regardless of fault or negligence. Rylands has not been interpreted to mean that people are strictly liable for the conduct of any dangerous activity. The activity must be looked at in the broader context of where it is conducted. Therefore, operating a hazardous waste disposal site in downtown Boston might be deemed inherently dangerous, whereas in a more remote location like Last Chance, Colordo, it might not. A dual determination of the nature of the activity and how and where it is conducted is necessary.

The Restatement Second of Torts approach requires a more complicated balancing test than the old Rylands doctrine. The Restatement provides that one who carries on an abnormally dangerous activity is strictly liable to a person who is harmed by the activity.⁵ In defining what is abnormally dangerous, the Restatement looks to the magnitude of the risk associated with the activity, its location and manner of operation, and its social utility or value to society. If the activity is deemed essential, the court will consider that in favor of finding the activity to be not abnormally dangerous.

The final strict liability doctrine is the "Magnitude of the Risk." Under this approach, if the risks inherent in the operation are substantial enough — and it is easily argued that with hazardous waste disposal and treatment facilities they are — there is sufficient basis for imposing absolute liability.

The more general policy issue of whether the risks associated with hazardous waste facilities should be internalized and spread throughout society instead of being concentrated on the surrounding population group is currently the subject of considerable debate. Risks can be more broadly distributed in at least two ways. First, by imposing strict liability regardless of fault, the environmental risks are internalized into the cost of the goods, which an economist might argue would lead to an improved and more efficient allocation of resources. Second, others contend that the facility should insure against risks and spread them through the insurance mechanism across a broader base. By internalizing the cost of insurance premiums, the primary burden of risk of loss is removed from the surrounding population. Both arguments have emotional and logical appeal.

A third, more cautious view is expressed however: that traditional tort law remedies are adequate for the majority of those injured through the operation of hazardous waste facilities, so that new theories of relief like strict or absolute liability need not be developed. Moreover, serious economic dislocations will be created for those facilities already in operation, because costs associated with strict liability exposure traditionally have not been priced into products and services. If new exposure to potential tort liability is created, existing facilities will have to be protected from bankruptcy.

Counter-arguments adduced by those supporting a strict liability standard argue that there are significant barriers to tort recovery under traditional tort doctrine.One such barrier is the statute of limitations. A minority of jurisdictions now apply an "exposure statute," under which the statute [15 ELR 10254] runs from the time of exposure, regardless of when the disease or injury has been discovered. Given long latency periods, the manifestations of injury may well exceed the statutory limitation. The majority of jurisdictions now apply a "discovery rule," providing that the statute of limitations runs from the time the injury was or should have been discovered. Some argue that even this formulation is too restrictive, because of the possible time between the onset of illness and the actual association of the illness with the exposure. Thus, the most liberal formulations provide that the statute will begin to run when the illness is discovered and can reasonably be associated with the cause.

In order to facilitate recovery under traditional tort doctrine, the 301(e) Study Group has recommended that more liberal joinder rules be instituted, so that party plaintiffs can join together in a single action to reduce costs and avoid duplicative actions. Joint and several liability imposed on defendants was also suggested, so that the burden of allocating damage contribution would be imposed upon the defendants rather than on the plaintiffs.

The 301(e) Study Report also recommenda a two-tiered system of victim compensation. In the first tier, an administrative structure allocates compensation on a no-fault basis for medical costs and some loss of earnings. The second tier includes traditional tort remedies liberalized as suggested in the foregoing discussion. Duplicative recoveries wouldn't occur because costs recovered as administrative compensation would reduce recovery in a later tort claim.

The tort theories I have described, and those now being proposed, should induce the cautious owner/operator to procure quickly abundant liability insurance. Several years ago, the Comprehensive General Liability (CGL) insurance typically used to insure against third party property damage and personal injury was regarded as ineffective in covering environmentally caused losses because of the pollution exclusion clause inserted into most policies. As a result, operators rushed to buy Environmental Impairment Liability (EIL) insurance, which had been developed specifically in response to the pollution exclusion clause in order to cover pollution-related losses. More and more recoveries and claims are now being made under CGL policies, however, and payments under CGL policies may well exceed those under EIL at a number of Superfund sites.

Comprehensive General Liability Insurance deals with property damage and personal injury arising from "an occurrence." An occurrence must be accidental, so that intentional activities or activities from which injury can be reasonably expected are excluded. Since 1973, CGL policies have barred recovery for pollution-caused injury except when "sudden and accidental" in character. Most insurers felt fairly confident that gradual releases, e.g., releases of leachate or a gradual underground leak permeating the soil — would be excluded from coverage because they were not "sudden and accidental"; they were slow and gradual. The courts have not agreed with the industry's interpretation, however. Beginning with cases from New York,⁶ New Jersey,⁷ and Maine,⁸ the courts have held that "sudden" means unanticipated, unforeseen, and unprepared for. "Sudden" is not merely limited to instantaneous, explosive, or catastrophic. Gradual releases from underground storage tanks or above-ground releases that percolate through the soil and into the ground water are treated as sudden if they are unanticipated or unexpected. In an unreported case from the First Circuit involving Great Lake Container Company in New Hampshire, the court read the "sudden" clause more strictly than other courts in denying relief. That case is distinguishable on its facts, however, because Great Lakes Container was washing out drums they knew had contained hazardous material. When material from these drums was knowingly washed onto the ground to seep into the soil, contamination was not unexpected but predictable. The holding in Great Lakes Container is actually consistent, then, with those decisions defining "sudden" as unforeseen and unanticipated.

More and more insurers are now defending Superfund claims under CGL policies. Although a number of insurers are paying on claims, to my knowledge none of them has admitted general indemnity. We recently negotiated a settlement between the Commonwealth of Massachusetts and a number of generators whose insurance companies paid directly on behalf of their clients under CGL policies.

While Comprehensive General Liability coverage is paying on more environmental risks, Environmental Impairment Liability insurance continues to decline in usefulness. Environmental impairment insurance is written on a claims-made basis, rather than on an occurrence basis. With occurrence basis coverage, if an incident takes place during the policy period, but the injury arises at a significantly later date, a claim may still be made because the incident giving rise to the injury occurred during the policy period. Many claims go back ten years or more. Although more specifically designed for the hazardous waste facility, if a claim for loss under an EIL policy is not made while the insurance is in force, it will not be paid.The claim is limited to the duration of the policy. This claims-made feature was designed specifically to restrict an insurance company's exposure to liability.

EIL insurance has had another interesting practical effect. Operators are frequently reluctant to make claims under their EIL policies because they are afraid that, if they do so, the policy will be terminated. EIL coverage is required under RCRA, and if cancelled, operators often can't obtain another policy. Operators are caught in a classic Catch 22: their EIL policies are required, but as soon as a claim is made, the policy is terminated. Also, many claims ripen or are discovered after the policy has expired, so the insurer will not respond.A final blow to EIL coverage was struck when the London Group, one of the major carriers of EIL insurance, announced that, because of unacceptable risks, they were no longer providing the coverage. They pioneered the EIL plan in 1973, but recently informed all of their clients that their policies were unlikely to be renewed.

Consequently, I think that the hopes of the 301(e) Study Group and others that insurance would assume a significant portion of the risk-spreading function may not be realistic. Developments in the insurance area should be monitored carefully in the future. As with flood insurance, a federal solution may be necessary.

I would like to close by adding my thoughts to those already expressed on the IT Corporation's project in [15 ELR 10255] Warren, Massachusetts. As legal counsel for the Warren Local Assessment Committee, I found the Warren siting process to be very interesting. The Local Assessment Committee is funded through state technical assistance grants, and the first thing they did after the town was selected as the project location was to hire the best consultants available: attorneys, an engineering consultant, economic consultants, and a group of medical experts. We have worked with the town to create bargaining parity between the town and the developer. Until recently, IT had virtually abdicated the siting process to the state, acting almost like a silent partner. IT because pro-active in the process late, and very wisely hired an environmental consulting firm to assist them. By that time, however, the community had prepared and submitted its own version of the Environmental Impact Report and Socio-Economic Appendix Scopes. The state adopted the community's proposal in almost every respect, resulting in a parity of bargaining power. Negotiations have not actually begun because IT has not encouraged them. They have internal planning reasons for doing so, but the delay has nothing to do with community resistance. If IT decides to continue in the process, I believe that effective negotiations and a siting agreement are possible. As John McGlennon pointed out, the feasibility of the project will depend on the up-front costs. The impact reports and earnest bargaining toward a siting agreement will cost at least $2 million. Whether the Massachusetts process is the best available is, of course, open to debate.⁹

Discussion

MCGLENNON: Warren has recently held elections. Are the new community representatives really more opposed to the facility than is the Local Assessment Committee?

LAST: Yes.

PARTICIPANT: As a lawyer, you are bound to represent the Warren Community as best you can. What is the role of the lawyer when the elient's motives and direction change drastically? Has the role of the representative changed, now that the complexion of the Local Assessment Committee has changed? Do you still feel, in light of the recent election, that legitimate negotiations and a siting agreement are likely?

LAST: The Local Assessment Committee will be reconstituted substantially as a result of the town's elections. Seven or eight of the thirteen members of the committee will be new. The local opposition group,STOP IT, has without a doubt swept the town politically. STOP IT is itself represented by counsel, but their numerous suits to block the siting have not been successful. Most of the community and the leadership of STOP IT realize that an attempt to turn the Local Assessment Committee into an arm of the opposition group would be counterproductive. The Local Assessment Committee will therefore probably remain an integral and viable body. I cannot guarantee this, though, and our representation of the committee will of course depend upon what they tell us to do. We are bound by the siting process, however, and view our responsibilities quite seriously.

1. W. Prosser, HANDBOOK ON THE LAW OF TORTS, 6 (1964).

2. Established under the authority of § 301(e) of the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), 42 U.S.C. § 9651(e), ELR STAT. 41954, § 960 et. seq. (1980), the 301(e) Study Group has investigated and reported on the prospects of victim compensation under that section, and recommended alternatives and amendments to CERCLA and traditional remedies to increase the availability of relief.

3. Trespass, for instance, imposes a more difficult standard of direct physical infringement on the property of another.

4. In the Exchequer, 1865. 3 H.&C. 774; In the Exchequer Chamber, 1866. L.R. 1 Ex.265; In the House of Lords, 1868. L.R. 3 H.L. 330.

5. RESTATEMENT OF TORTS (SECOND) § 520 (1955).

6. Allstate Ins. Co. v. Klock Oil Co., 426 N.Y.S.2d 603 (1980).

7. Lansco, Inc. v. Dept. of Environmental Protection, 138 N.J. Super. 275, 350 A.2d 520 (1975), aff'd 145 N.J. Super. 433, 368 A.2d 363, 6 ELR 20247 (1976).

8. Traveler's Indem. Co. v. Dingwell, 414 A.2d 220, 12 ELR 21072 (Me. 1980).

9. See discussion in note 4 of Bingham text, see also June 22, 1984 [Current Developents] ENV'T. REP. (BNA) at 303.