In Kentucky, the duty to defend a policyholder is separate and distinct from an obligation to pay a claim.  James Graham Brown Found., Inc. v. St. Paul Fire & Marine Ins. Co., 814 S.W.2d 273, 280 (Ky. 1991). An insurer has a duty to defend if there is an allegation that potentially, possibly or might come within the coverage terms of the policy. Aetna Cas. & Sur. Co., 179 S.W.3d at 841 (citation omitted).

The determination of whether a defense is required must be made at the outset of the litigation by reference to the complaint and known facts. Lenning v. Commercial Union Ins. Co., 260 F.3d 574, 581 (6th Cir. 2001)(applying Kentucky law)(citing Brown Found., 814 S.W.2d at 279).

Know your rights against an insurance company when it comes to policy disputes. Call us if you receive a reservation of rights letter identifying a coverage dispute. 859-781-4556.

In Kentucky, the duty to defend a policyholder is separate and distinct from an obligation to pay a claim.  James Graham Brown Found., Inc. v. St. Paul Fire & Marine Ins. Co., 814 S.W.2d 273, 280 (Ky. 1991). An insurer has a duty to defend if there is an allegation that potentially, possibly or might come within the coverage terms of the policy. Aetna Cas. & Sur. Co., 179 S.W.3d at 841 (citation omitted).

The determination of whether a defense is required must be made at the outset of the litigation by reference to the complaint and known facts. Lenning v. Commercial Union Ins. Co., 260 F.3d 574, 581 (6th Cir. 2001)(applying Kentucky law)(citing Brown Found., 814 S.W.2d at 279).

Know your rights against an insurance company when it comes to policy disputes. Call us if you receive a reservation of rights letter identifying a coverage dispute. 859-781-4556.

Did you know that a Kentucky court must look at the policy as a whole and give every provision its full meaning and operative effect. Kemper Nat’l Ins. Cos. v. Heaven Hill Distilleries, 82 S.W.3d 869, 875-76 (Ky. 2002). The plain and ordinary meaning of the policy language governs if it is clear and unambiguous. Nationwide Mut. Ins. Co. v. Nolan, 10 S.W.3d 129, 131, 46 15 Ky. L. Summary 19 (Ky. 1999). Because the insurance carrier typically drafts the policy, where policy language is ambiguous, that language must be construed in the light most favorable to the insured. Kentucky Farm Bureau Mut. Ins. Co. v. McKinney, 831 S.W.2d 164, 166 (Ky. 1992)(internal citations omitted)?

Got questions about a reservation of rights letter from your insurance carrier? Call us if you need help. We are actively prosecuting bad faith claims against insurance companies for their misconduct in wrongly denying claims and unreasonably delaying payment of claims covered under the policy.

Coal production is the  amount of coal that is mined and sent to market. In 2010, the amount of coal produced at U.S. coal mines was 1,085.3 million short tons. Coal is mined in  26 states. Wyoming mines the most coal,  followed by West Virginia, Kentucky,  Pennsylvania, and Montana. Kentucky ranks third in the Nation in coal production. It accounts for about one-tenth of U.S. coal production and nearly one-fourth of U.S. production east of the Mississippi River.

Amid historically low natural gas prices and the warmest March ever recorded in much of the United States, coal’s share of total net generation dropped to 34%—the lowest level since at least January 1973. 

 

In March 2011, the HHS Office of Inspector General (OIG) released its findings from a survey of 260 nursing facilities randomly selected from among the nation’s 15,728 Medicare certified nursing facilities.  The survey sought to determine whether individuals employed by those nursing facilities on June 1, 2009 had ever been convicted of any type of crime.  Shockingly the findings of the survey show that:

  • 92.3% had at least one employee with a criminal conviction
  • 47.8% had at least five employees with criminal convictions
  • 16% of all employees had convictions after their date of employment
  • 73% of post-employment convictions occurred after the first year of employment

The survey found that 43.6% of convictions were crimes against property, 20.3% DUI, 16.2% drug-related, 11.9% driving-related other than DUI, 13.1% crimes against persons, and 26.4% other. Medicare regulations bar employment of persons convicted of abusing, neglecting or mistreating nursing facility residents or misappropriating their property. However, the survey did not attempt to determine whether the victims of the person and property related crimes were residents of nursing facilities.

Hello Washington, we have a problem!

The Chicago-based Environmental Law and Policy Center has identified 169 companies in Ohio as suppliers to the wind power and solar energy markets.  To view the survey, go to www.elpc.org/Alternative Energy Suppliers in Ohio.

Jeffrey M. Sanders PLLC has more than 20 years experience in environmental law matters. We work with a number of other outside law firms representing lenders, borrowers, real estate developers, corporations, and insurance companies on a variety of environmental law issues. The legal issues range from regulatory compliance, risk evaluation, risk avoidance, and enforcement issues.  It is a highly complex and specialized area of the law that demands a high degree of legal expertise and experience.

Did you know that on Saturday, February 12, 2011, the Newport Southgate House will hold a benefit concert on all three of its stages to raise funds to fight mountaintop removal in Appalachia? In conjunction with the live concerts, “Music for the Mountains”, a compilation CD of music by artists from Ohio, Kentucky, Tennessee, Indiana, and Alabama, will be sold to raise money. 

This CD features a combination of songs specially written for this project and other previously unreleased tracks not available on any other album. Doors open at 7:30 pm and show begins around 8:30 pm.

Mountaintop removal is a type of coal mining that uses explosives to blast away the top of mountains so that coal companies can easily access coal veins. Soil and rocks are pushed over the side of the mountain, and bury streams, plants and trees. Mountaintop removal permanently destroys the landscape, and may ruin the drinking water supply for local residents.  Mountaintop removal is used in eastern Kentucky, West Virginia and east Tennessee.

No one is suggesting that coal mining be stopped in Appalachia. However, there are many alternative means of mining coal without completely removing the mountains. The other methods may require more workers and more machinery.

Coal ash is a combustion by-product generated by burning coal to create electricity.  America power plants generate enormous amounts of coal ash each year. Normally, coal ash is dumped into large ponds that are located adjacent to the power plant. Water in the ponds keeps coal ash wet so the ash will not blow in the wind.

Because coal ash contains a lot of heavy metals, which are toxic to humans, U.S. EPA is currently considering whether to regulate coal ash as a special hazardous waste or, whether to manage it as a nonhazardous waste.   EPA published two different proposed rules last year.

When EPA prepared a cost-benefit analysis to estimate the financial impact of the two different rules, the agency apparently overestimated the benefits of recycling coal ash and underestimated the benefits of safe disposal. Three environmental groups are now charging that EPA skewed the numbers to favor a more liberal disposal rule for coal ash, as a non-hazardous waste. 

Here is the groups’ analysis of the regulatory impacts of the two rules [pdf] by the nonprofit Environmental Integrity Project, Earthjustice and the Stockholm Environment Institute’s U.S. Center at Tufts University.  

Jeffrey M. Sanders PLLC has more than 20 years experience in environmental law matters. We work with a number of other outside law firms representing lenders, borrowers, real estate developers, corporations, and insurance companies on a variety of environmental law issues. The legal issues range from regulatory compliance, risk evaluation, risk avoidance, and enforcement issues.  It is a highly complex and specialized area of the law that demands a high degree of legal expertise and experience.

Whenever a business considers purchasing a piece of real property with pre-existing soil and groundwater pollution, there must be a great deal of preparation and thought at the beginning.  The normal enticements of such a sale are greatly reduced purchase costs, an established location, and often generous tax breaks. A smart business person can take full advantage of purchasing a prime Brownfield location and avoid Superfund liability, if he or she does their homework before signing the purchase contract and taking possession of the property.

If not, the transaction may incur unforeseen and unwanted environmental costs, such as legal fees, engineering fees, civil penalties, cleanup costs, and disposal costs.  Such incidental and unexpected costs may be far more than the original purchase price of the property.  Thus, a potential purchaser must understand that the federal Superfund program imposes strict and joint liability on past and present owners, operators, generators and transporters for the disposal of hazardous substances.

This broad liability scheme explains why most businesses want to purchase and develop virgin farmland for new industrial and manufacturing plants rather than re-use existing facilities. Still in terms of real estate, almost nothing entices a potential purchaser as a prime piece of industrial property located near established connections to transportation routes, low cost, plentiful electrical and water supplies, and inexpensive labor costs.  Recognizing the legal obstacles to re-use and re-development of existing industrial properties, Congress passed the Small Business Liability Relief and Brownfields Revitalization Act (the “Act”) in 2002. The Act was intended to help governmental entities and third parties clean up and revitalize real property with low levels of pollution. 

The Act provided a new legal defense to CERCLA liability for a purchaser that does not contribute to or otherwise aggravate pre-existing contamination at a Brownfield site. Again, all improper disposal of hazardous substances at the site must have occurred before the purchaser’s acquisition of the property.

As Ronald Reagan said, “The nine most terrifying words in the English language are: ‘I’m from the government and I’m here to help.” Thus, the Act and its regulations have caused a great deal of confusion and disagreement over what does and does not meet the duty of reasonable care in purchasing a Brownfield property.

While the Act has several key provisions, let’s focus on the exemptions to federal Superfund liability given to Bona Fide Prospective Purchasers (“BFPP”) of contaminated property.  A BFPP is a party, or tenant of that party, who acquires ownership of a Brownfield after January 11, 2002, the enactment date of the Act. The BFPP defense is nullified if the purchaser pollutes the property after taking ownership or otherwise fails to comply with the BFPP regulations.

Until recently there was no reported judicial interpreting the BFPP defense. Now, a federal judge in South Carolina has written a memorandum opinion on what must be proven by a purchaser of contaminated property in court to establish the BFPP defense and avoid CERCLA liability. The case is Ashley II of Charleston, LLC v. PCS Nitrogen, Inc., No. 2:05-cv2782-MBS, 2010 WL 4025885 (D.S.C. Oct. 13, 2010).[1] It is noteworthy that Ashley is a sophisticated and well-funded Brownfield developer, and therefore should have been able to establish the BPFF defense by a preponderance of the evidence. Unfortunately, that did not happen and the court allocated Ashley 5% liability for the $8 million cleanup.

The logic and standards in the district court’s opinion will probably be followed by other federal courts in this area of the country that look at the BFPP defense.  Thus, it is worthwhile for every potential purchaser of a Brownfield site to read the opinion before signing a sale contract.

In Ashley II, the district court looked at the requirements of the BFPP defense found in U.S. EPA’s regulations and then determined via the evidence whether the actions taken by the prospective purchaser met the regulatory requirements.  Below are the requirements of the BFPP defense and a summary of the evidence that the South Carolina district court used to make its ruling that the defense was not available to the purchaser of the contaminated property:  

  1. BFPP undertook “all appropriate inquiry” (AAI) before acquiring title to the property. 

The district court said, “What is important is that [the new owner] acted reasonably; it hired an expert to conduct an AAI and relied on that expert to perform its job properly.” 

The bottom line is that a prospective purchaser must hire an experienced, qualified environmental professional to perform an AAI using the most current standards accepted by U.S. EPA.  As an aside, the greater the potential environmental liabilities found at a brownfield site, the higher level of expertise that a BFPP needs in an environmental professional.

  1. BFPP provided all legally required notices with respect to the hazardous substances found on the facility. 

The district court did not discuss this element of the BFPP defense in its ruling, as there were no legally required notices related to the brownsfield property.

The bottom line is that a BFPP must document all newly discovered hazardous substances found on the property and timely report them to the appropriate regulatory agency in writing.

  1. BFPP exercised appropriate care by taking reasonable steps to stop any continuing release, prevent any threatened future release, and prevent or limit human, environmental, or natural resource exposure to previously released hazardous substances.

The district court looked at U.S. EPA’s Interim Guidance on BFPP Status, which provides that the AAI will most likely inform the BFPP as to the nature and extent of contamination on the property and what might be considered reasonable steps regarding the contamination, i.e., how to stop continuing releases, prevent threatened future releases, and prevent or limit human, environmental and natural resource exposures.

The bottom line is that a BFPP must take reasonable action to abate an actual or threatened release of a hazardous substance at the site.  Just as important, a BPFF cannot abandon or lessen such efforts, once undertaken.

  1. BFPP gave full cooperation, assistance, and access to persons authorized to conduct a response action or natural resource restoration.

The bottom line is that a BFPP must be able to prove it provided full cooperation, assistance, and access to U.S. EPA and remediation contractors working at the site.

  1. BFPP complied with all land-use restrictions and does not impede the effectiveness of any institutional controls at the facility.

The new owner’s environmental engineer testified at trial that there were no land use restrictions or unusual institutional controls in place at the site and that the new owner was in compliance with any controls in place, and his testimony was not contradicted. That testimony satisfied the court that the new owner complied with this element of the BFPP defense.

The bottom line is that a BFPP must honor land-use restrictions at the site imposed by U.S. EPA or other regulatory agency and cannot impede institutional controls instituted at the Brownfield site.

  1. Complies with information requests and administrative subpoenas under CERCLA.

The new owner’s environmental engineer testified that the new owner had complied with all EPA information requests and subpoenas, and an example of the new owner’s response to a U.S. EPA information request was introduced at trial. That testimony and evidence satisfied the court that the new owner complied with this element of the BFPP defense.

The bottom line is that a BFPP must comply with U.S. EPA’s requests and cannot ignore them. This task may sound simple, but it is usually one of the most burdensome tasks known to mankind and is often times impossible for a company to complete on time.

  1. BFPP must establishes that it is not potentially liable for response costs; is not affiliated with a potentially responsible party (PRP) through a family, contractual, corporate, or financial relationship; and, is not the result of a reorganization of a business entity that was potentially liable.

The court hammered the new owner because it had granted contractual releases and environmental indemnity agreements in favor of the sellers.  The district court found that the new owner had released and indemnified the sellers at the time of disposal from environmental liability for contamination at the site and had “attempted to persuade EPA not to take enforcement action to recover for any harm at the Site caused by [the indemnitees].”   

The district court concluded that by indemnifying the sellers, the new owner had contractually accepted the risk that the sellers might be liable for payment of response costs. The district court further reasoned that the new owner’s “efforts to discourage EPA from recovering response costs covered by the indemnification reveals just the sort of affiliation Congress intended to discourage.” As a result, the new owner’s affiliation with the past owner of the contaminated property nullified the BFPP defense.  Without the BFPP defense, the new owner was stuck with the Superfund liabilities caused by the sellers. 

The bottom line is that a BFPP must prove that is not affiliated with a PRP, as per U.S. EPA’s regulation.  That task may be difficult to prove by a preponderance of the evidence in a sophisticated transaction among multiple parties that are redeveloping or re-using a Brownfield property.  Almost every single entity involved in such a transaction wants contractual indemnification provisions placed in every transactional document.  A district court will closely scrutinize each of these provisions when the new owner raises a BFPP defense to Superfund liability.

Conclusion

Purchasing a Brownfield property has many advantages over building a new plant in a green space. What happens after sale acquisition and the re-use of the property is critically important to establishing and holding the BFPP defense.  It makes no sense to put such a sophisticated deal together without making sure that the BFPP defense does not evaporate into thin air when exposed to the light of judicial examination and inquiry.

Jeffrey M. Sanders PLLC has more than 20 years experience in environmental law matters. We work with a number of other outside law firms representing lenders, borrowers, real estate developers, corporations, and insurance companies on a variety of environmental law issues. The legal issues range from regulatory compliance, risk evaluation, risk avoidance, and enforcement issues.  It is a highly complex and specialized area of the law that demands a high degree of legal expertise and experience.


[1] In the cost recovery case, Judge Seymour of the federal district court for the District of South Carolina resolved a complicated dispute among multiple parties. A lessee was held liable under Superfund, as an operator, even though the lessee was not an owner of the property. The district court rejected multiple possible theories of divisibility and held that Superfund liability at the site was joint and several. The current owner was apportioned a small percentage of liability, but had entered into broad indemnification agreements with other parties that were effective.

Posted by: Lawyer Sanders | January 5, 2011

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