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DEFENSE COMMUNITIES 360

Appeals Court Finds Environmental Liability Statute Has Broad Application

  • January 21, 2013
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LRAs and developers may finally be able to breathe a sigh of relief that they can rely on a federal statute to protect them from liability for undiscovered contamination at BRAC sites, following a federal appeals court ruling earlier this month concluding that regulatory actions carried out by environmental agencies are covered under the law.

The decision by the Federal Circuit — which reverses the finding of the U.S. Court of Federal Claims in a case brought by Indian Harbor Insurance to recover costs to remove soil contamination at the former Marine Corps Air Station (MCAS) Tustin, Calif. — settles for now the question of how broadly the federal courts will interpret Section 330 of the 1993 defense authorization act.

Before the Jan. 11 decision, the Court of Federal Claims had issued conflicting interpretations of the statute in three separate cases, all hinging on a determination of whether the actions of a state regulatory authority qualify as a covered claim under Section 330. The statute requires the Defense Department to indemnify owners of former military base property “from and against any suit, claim, demand or action, liability, judgment, cost or other fee arising out of any claim for personal injury or property damage.”

In the MCAS Tustin case, the trial court judge in July 2011 ruled that section 330 requires a third party to bring an action against the property owner for personal injury or property damages it has suffered. Orders and oversight by state environmental agencies, Judge Eric Bruggink argued, cannot be considered third party claims for personal injury or property damage.

“In short, we do not believe any possible reading of Section 330′s requirement of a ‘claim for personal injury or property damage’ can encompass a state’s exercise of its police power through environmental regulation,” Bruggink’s opinion stated. His ruling denied the claim of Indian Harbor to recover its costs to remove petroleum contamination at MCAS Tustin.

The appeals court disagreed, though, with Bruggink’s interpretation. “Nothing in section 330, however, requires that the claimant itself suffer personal injury or own the damaged property,” according to the three-judge panel.

In turn, the remediation expenditures incurred by a developer in response to a state regulatory agency’s cleanup order can trigger the statute’s indemnification provision, the decision concluded. The Federal Circuit ruling reinstates Indian Harbor’s suit against the federal government.

Ruling Resolves Split over Section 330

The decision brings to an end, for now, the confusion over what type of action is needed to qualify for protection under section 330. The appeals court’s reasoning partially relied on a 2007 decision by the Court of Federal Claims in a case with very similar facts. In that case, the judge concluded that the compliance advisories issued by state regulators were sufficient to obtain indemnification in a suit brought by five homebuilders at the former Lowry Air Force Base, Colo.

In a 2008 decision in a case with slightly different circumstances, though, the Court of Federal Claims ruled against an insurance company trying to recover cleanup costs at the former Naval Air Station Alameda, Calif. The judge in that case concluded that a letter from California regulators requiring the LRA to remove any leftover chlordane did not meet the requirement for a third party claim. This month’s decision, though, trumps that lower court ruling.

“Absent anything unusual or unexpected, this issue is resolved,” said Barry Steinberg, a partner in the Washington, D.C., office of law firm Kutak Rock.

“This should once and for all after 20 years tell the Defense Department what its obligations are,” said Steinberg, who as the attorney for the city of Tustin was not a party to this case, but helped the city purchase the insurance policy from Indian Harbor that later covered the developer involved.

Indian Harbor’s suit to recover the developer’s cleanup costs at MCAS Tustin will go back to the trial court unless the federal government asks the Federal Circuit to reconsider its opinion or to hear the case en banc — by the court’s entire bench of judges. The federal government’s other option is to appeal the case to the Supreme Court.

Contamination Found in 2007

The case involving MCAS Tustin stems from the August 2007 discovery of petroleum contamination in the soil at the former air station on a parcel the city of Tustin conveyed to Tustin Legacy Community Partners (TLCP). The developer subsequently entered into a voluntary cleanup agreement with the California Department of Toxic Substances Control, which called for the agency to oversee removal efforts at the site.

Responding to the same discovery of contamination, the California Regional Water Quality Control Board in 2008 informed TLCP that “enforcement action can be taken for failure to cleanup and abate waste discharges” and that “contamination at the site must be fully characterized, and appropriate remedial action must be taken.” Because of the agreement already in place, the board said it would defer oversight to the Department of Toxic Substances Control.

During the period spent cleaning up the soil contamination, TLCP was reimbursed $5.3 million under the policy Indian Harbor issued to the city. Indian Harbor is the company XL Insurance uses to issue its environmental policies. Indian Harbor filed a suit against the federal government in October 2010 after DOD twice denied its request to recover its costs under Section 330.

The decision can be found on the Federal Circuit’s website.

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