Court Dismisses Insurer’s CERCLA’s Cost Recovery Subrogation Claims

Chubb Custom Ins. Co. v. Space Systems/Loral, Inc. et. al. (United States District Court, Northern District of California, July 13, 2010)

This CERCLA cost recovery action was initiated by the insurer seeking recovery of costs incurred on behalf of one of its insured. Chubb alleged that defendants were jointly and severally liable for clean-up costs incurred in response to releases of hazardous substances at location owned by Chubb’s insured. Specifically, the action involved five properties in Palo Alto, California. Chubb alleged that the site is part of a larger, forty-seven acre site that was owned and occupied by Ford Aerospace.

In August 2003, Chubb’s insured (Taube-Koret) was named as a discharger with respect to the site by the California Water Quality Control Board and was held strictly liable for complying with certain Cleanup Orders issued by the board. Taube-Koret made claims pursuant to an insurance policy issued by Chubb for response costs and attorney fees incurred in connection with the investigation and cleanup of Site. Pursuant to the terms of the insurance policy, Chubb paid $2,400,000 for its insured’s response costs. Thereafter, Chubb filed the instant action alleging defendants bear the responsibility for the cleanup and sought recovery of the cost on behalf of its insured. Defendant’s filed motions to dismiss the complaint on numerous procedural and substantive grounds, including challenges to Chubb’s subrogation claims under CERCLA §112(c).

Ford Motor first contended that Chubb lacked standing to bring a Section 112(c) claim because it did not allege that any payments Chubb made to its insured constitute "compensation pursuant to" CERCLA. It argued that an example of a party that would have standing is "an insurance company that settles and pays on behalf of a potentially responsible party ('PRP') with an insurance policy, claims made by the government in an action brought against the PRP under CERCLA Sections 106 or 107(a)." Moreover, Ford claimed that the complaint alleged only that Chubb made payments pursuant to an insurance policy and the policy obligated Chubb to pay money subject to terms that have nothing to do with CERCLA; noting the coverage provisions of the policy do not even mention CERCLA, much less restrict themselves to payments made "pursuant to the statute."

The court disagreed with Ford that that the plain language of the statute supports its interpretation. Rather, the court was persuaded by Chubb's argument that Section 113(f)(1) is evidence that Congress knew how to require a prior Section 106 or 107(a) claim with respect to contribution and could have done the same for Section 112(c) subrogation claims if it so intended. Notwithstanding this interpretation, the court found that Chubb failed to properly plead its standing. Specifically, the court noted that while a Section 112(c) plaintiff is not required to show that the compensation it paid relates to a CERCLA claim that already has been resolved through settlement or litigation, a plain reading of Section 112(a) requires plaintiffs to plead that the compensation was paid for damages or costs resulting from a CERCLA violation. The court further held that while the complaint comes close to doing so, "Chubb never explicitly sufficiently ‘connects the dots’ between its payments to its insured under the insurance policy, the costs its insured incurred, and the alleged CERCLA violations." As such, the court ruled that, Chubb had not pled standing to bring its CERCLA subrogation claim under Section 112(c).

The court further held that Chubb failed to meet the ripeness and statute of limitations requirements to support its CERCLA subrogation claims. Likewise, Chubb failed in asserting its Section 107(a) claims Ford and the remaining defendants. As such, the court granted defendants’ motions to dismiss with leave to amend the complaint within thirty days of the Order.

For a copy of the decision click here

Paul Steck and Tom Segalla

Case provided courtesy of Lexis

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