Jenner & Block: Insurer Unable To Step Into CERCLA Shoes Of Insured

A recent Ninth Circuit decision limited the ability of an insurer to seek CERCLA contribution and/or cost recovery from potentially responsible parties ("PRPs"). In Chubb Custom Insurance Company v. Space Systems/Loral et al., [enhanced version available to lexis.com subscribers], Chubb issued a pollution premises liability ("PPL") policy for a site in Palo Alto, California. Chubb's insured sought recovery from Chubb for site remediation costs pursuant to the PPL policy and after lengthy negotiations, Chubb reimbursed its insured the sum of $2.4M.

Chubb then proceeded to file CERCLA Section 107 [lexis.com subscribers], cost recovery claims against other site PRPs. Chubb also asserted a separate claim under CERCLA Section 112(c) [lexis.com subscribers], arguing that Chubb was subrogated to any rights its insured might have against the other site PRPs. The district court dismissed Chubb's complaint, finding that Chubb's claims were insufficient to satisfy the pleading standards articulated in Bell Atlantic Corp. v. Twombly [lexis.com subscribers] and Ashcroft v. Iqbal [lexis.com subscribers]. Chubb appealed the district court's dismissal.

The Ninth Circuit found that the insured's failure to make any written demand for response costs from other site PRPs was fatal to Chubb's subrogation claim under CERCLA Section 112(c)(2). With respect to Chubb's CERCLA Section 107(a) cost recover claim, the court found that a "subrogee-simply by stepping into the shoes of the insured via a reimbursement-cannot be liable for response costs under CERCLA, and thus cannot itself incur response costs." The Ninth Circuit therefore affirmed the district court's dismissal.

In his dissent, Justice Gould focused on the public policy implications of the majority's decision. Justice Gould was concerned that the majority opinion requires the insurer to foot the bill while other PRPs pay nothing. The dissent argued that the court's decision ignored CERCLA's polluter pays mandate and would result in increased insurance premiums.

Chubb has already expressed its intention to petition for rehearing en banc and if this is not successful, Chubb will likely seek review of the Ninth Circuit decision before the Supreme Court.

   Steven M. Siros, Partner, Jenner & Block

Read more at Corporate Environmental Lawyer Blog by Jenner & Block LLP.

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