Ninth Circuit Affirms Dismissal of Subrogated Claims Brought Under CERCLA Sections 107(a) and 112(c), as well as State Law Theories

Posted by in CERCLA, Cost Recovery, Emerging Issues, Environmental Litigation, Insurance & Liability on March 28, 2013

By Tiffany Hedgpeth and Michael Einhorn

On March 15, 2013, the Ninth Circuit held in Chubb Custom Ins. Co. v. Space Systems/Loral, Inc., Case No. 11-16272, 2013 U.S. App. LEXIS 5198 (9th Cir., March 15, 2013), that the insurer Chubb Custom Insurance Company (“Chubb”) could not maintain its Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA”) and state law subrogation claims against various potentially responsible parties (“PRPs”) because (1) the insured was not a “claimant” under CERCLA § 112(c) since it had not made a written demand to the Superfund or another PRP; (2) Chubb did not itself incur “response costs” by reimbursing the insured and therefore lacked standing to bring a CERCLA § 107(a) cost recovery action; and (3) the subrogated state law claims were time barred because the period of limitations commenced running when the insured knew or should have known of contamination on its property, not on the date Chubb made its payment to the insured.

Background Facts

Chubb issued Taube-Koret Campus for Jewish Life (“Taube-Koret”) a policy for Environmental Site Liability Insurance (“Policy”) for two parcels of property.  After Taube-Koret acquired the properties, the California Regional Water Quality Control Board (“Water Board”) issued orders requiring Taube-Koret to investigate and remediate volatile organic compounds (“VOCs”) found on the properties.  Taube-Koret complied with the orders and performed the required work.  Pursuant to the Policy, Chubb paid Taube-Koret $2.4 million to make it whole for its remediation costs. The Policy contained a statement that said “If the insured has rights to recover all or part of any payment we have made under this insurance, those rights are transferred to us.”  Chubb filed suit against various defendants who formerly owned or operated the properties or adjacent properties at the time alleged releases of hazardous substances occurred.  Chubb’s action asserted claims under CERCLA Sections 107(a) and 112(c) and state law.  The district court dismissed Chubb’s initial complaint and two amended complaints, each with leave to amend.  The district court dismissed Chubb’s third amended complaint with prejudice, holding Chubb failed to allege Taube-Koret was a claimant under CERCLA § 112(c), that Chubb lacked standing under CERCLA § 107(a), and that the state law claims were time barred. Chubb appealed.

Chubb’s CERCLA § 112(c) Claim

The Ninth Circuit reasoned that Section 112(c) permits an insurer to file a subrogation action for reimbursement of costs from PRPs, so long as the insurer complies with the statutory requirements.  One such requirement is that the insured party must be a “claimant” as defined in the statute.  Section 112(c) provides that “[a]ny person, including the Fund, who pays compensation pursuant to this chapter to any claimant for damages or costs resulting from a release of hazardous substance shall be subrogated . . .”  42 USC § 9612(c)(2).  Therefore, Section 112(c) limits subrogation claims to compensation paid to any “claimant.”  A “claimant” is defined as any person who presents a claim for compensation, and a “claim” is defined as a demand in writing for a sum certain.  42 USC § 9601(4)-(5).  While CERCLA does not define or explain to whom this “claim” should be made, the Ninth Circuit stated that it has consistently held that the statute refers to a demand for reimbursement from either (i) the Superfund or (ii) a PRP.  See, e.g., Idaho v. Howmet Turbine, 814 F.2d 1376, 1380 (9th Cir. 1987).

Because Chubb did not allege that its insured, Taube-Koret, had made a demand to defendants, the Superfund, or any PRP, it could not maintain its CERCLA § 112(c) cause of action.  The Ninth Circuit rejected the argument that a claim to an insurer qualifies the insured as a claimant, stating “[t]here is no indication that section 112(c)(2) contemplates this meaning of claimant,” as Congress did not use the broader term “person” but instead used the term “claimant.”  Chubb v. Space Systems/Loral, at *22-23.

Chubb’s CERCLA § 107(a) Claim

The Ninth Circuit noted that the issue of whether CERCLA § 107(a) authorizes a subrogated cost recovery action was a matter of first impression, noting a lack of controlling or persuasive authority on the issue.  The Court engaged in a lengthy discussion that included an analysis of the text of Section 107(a), the statute as a whole, legislative history, and public policy.  The Ninth Circuit concludes that “an insurer that is only obligated to reimburse the insured for cleanup costs does not itself incur response costs,” and therefore it cannot bring a Section 107(a) cost recovery action.  In reaching this conclusion, the Court stated that Chubb could not bring a Section 107(a) action because it had no statutory liability: “Chubb lacks standing to sue under section 107(a) because it has not itself become statutorily liable for response costs under CERCLA.”  Chubb v. Space Systems/Loral, at *30.  The Ninth Circuit also held that permitting insurers to bring Section 107(a) actions would render Section 112(c) a nullity, which would violate rules of statutory interpretation, and that public policy favored disallowing subrogation claims to be brought pursuant to CERCLA § 107(a).

State Law Claims

The Ninth Circuit also affirmed the district court’s dismissal of Chubb’s subrogated state law claims (Cal. Health & Safety Code, negligence per se, and strict liability) as time-barred under California Code of Civil Procedure (“CCP”) § 338(b).  Under California law, the three-year period of limitation under CCP § 338 commences to run when a plaintiff knows, or reasonably should have known, of the wrongful conduct at issue.

Chubb challenged the district court’s dismissal by arguing that the statute of limitations did not commence until Chubb’s payment of the claim.  But the Ninth Circuit found that the cases cited by Chubb apply only to third-party subrogation actions, where an insurer asserts an equitable indemnity claim arising from a payment by an insurer to a third party on behalf of the insured.  Chubb’s claims were based on first-party losses by the insured – – Chubb reimbursed Taube-Koret directly for its costs of cleaning up contamination, and did not make a settlement payment to a third party.

Since Chubb asserted the claims of Taube-Koret in subrogation, the Ninth Circuit agreed with the district court and held that the statute of limitations period began to run when Taube-Koret knew, or should have known, of the release of hazardous substances on its properties.

Conclusion

The Ninth Circuit has made clear that CERCLA permits subrogation under Section 112(c) only when insurance payments are made to a “claimant” (i.e., parties who have submitted demands to the Superfund or other PRPs).  The court also made clear that Chubb lacked standing to bring a CERCLA § 107(a) claim because it was not itself a PRP.  Finally, the Court has made clear that in property contamination cases, insurers seeking subrogation under state law will be held to the same statute of limitations commencement trigger as is applicable to the insured.

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