Key Takeaways

  • CERCLA imposes strict, joint and several liability on multiple categories of parties, including current and past owners, operators, generators, and transporters.
  • Only limited defenses apply under CERCLA (act of God, act of war, or certain third-party actions).
  • Recoverable costs include government cleanup expenses, private response costs, and natural resource damages.
  • RCRA allows EPA to compel cleanup of hazardous waste releases, even from prior operators.
  • The Oil Pollution Act covers liability for oil discharges into navigable waters, including removal costs and economic losses.
  • Companies must demonstrate financial responsibility (insurance, bonds, or self-insurance) to cover potential liabilities.
  • States impose additional cleanup obligations and penalties, often with strict liability standards.
  • Courts have held lenders, parent companies, and corporate officers liable under certain circumstances.
  • Phase I and II Environmental Site Assessments play a key role in avoiding liability and establishing defenses.
  • Contractual risk allocation tools (indemnities, warranties, escrow accounts) are widely used in transactions involving contaminated property.

Liability Under CERCLA

CERCLA imposes joint and several liability for cleaning up contamination caused by hazardous substances on four categories of responsible parties:

  1. The current owner or operator of a vessel or a facility;
  2. The owner or operator of a vessel or facility at the time of disposal of any hazardous substance;
  3. The generators of any hazardous substances located on the site; and
  4. Any transporter of hazardous substances to a site the transporter selected. 42 U.S.C. sec. 9607(a)(1)- (4).

Although agreements can be made to apportion liability between responsible parties, no agreement will shield any responsible party from CERCLA liability. CERCLA also imposed liability retroactively to contamination predating the act's passage in 1980.

Lender and Parent Company Liability

Beyond direct owners and operators, courts have expanded CERCLA liability to reach lenders, parent companies, and even shareholders in specific cases. Lenders can be liable if they participate in the management of a facility beyond mere financial oversight. Similarly, parent corporations may be held responsible when they exercise substantial control over a subsidiary’s operations that cause contamination. These extensions of liability emphasize the importance for financial institutions and corporate parents to carefully evaluate their involvement in operations connected to hazardous substances.

Defenses to Liability Under CERCLA

CERCLA is a strict liability statute. The only defenses allowed are: act of god, act of war, or, in some limited circumstances, an act of a third party. 42 U.S.C. sec. 9607(b). The third party defense includes protection for innocent landowners, provided they had no reason to know of the existence of hazardous substances and made all "appropriate inquiry into the previous owner and uses of the property consistent with good commercial or customary practice." 42 U.S.C. sec. 9601(35).

Role of Environmental Site Assessments

Conducting proper due diligence is critical in limiting exposure to lectl liability for environmental contamination. A Phase I Environmental Site Assessment (ESA), which involves a records review and site inspection, helps identify potential contamination. If concerns are found, a Phase II ESA involving soil and groundwater testing may follow. These assessments are not only industry best practices but also form part of the “innocent landowner” defense under CERCLA. Buyers who can demonstrate they made “all appropriate inquiries” into a property’s condition may avoid liability for pre-existing contamination.

Recoverable Costs Under CERCLA

Responsible parties under CERCLA are liable for: all cleanup costs incurred by federal, state or tribal governments that are not inconsistent with the NCP; any other necessary response cost incurred by any other person consistent with the NCP; natural resource damages; and the costs of any health assessment or health effects study. To recover response costs under CERCLA, the response activities must be conducted consistent with the NCP. See 42 U.S.C. sec. 9605; 33 U.S.C. sec. 1321(c); 40 C.F.R. pt. 300. Response costs may be recovered from other parties or from the Superfund. See Section 13.2: Response and Cleanup Requirements and Authorities.

Contractual Allocation of Environmental Liability

In transactions involving real estate or corporate assets, parties frequently use contractual provisions to allocate environmental risks. Common tools include:

  • Indemnity Clauses – One party agrees to compensate the other for specific cleanup liabilities.
  • Representations and Warranties – Sellers may guarantee the absence of contamination or disclose known issues.
  • Escrow Accounts – Funds are set aside to cover potential remediation costs.
  • Environmental Insurance – Policies that cover cleanup costs and third-party claims.

While these agreements do not shield a party from government enforcement under CERCLA, they determine who ultimately bears the financial burden as between private parties.

RCRA Cleanup Authorities

Under RCRA, EPA can require an owner or operator of any facility that has a release of hazardous wastes to cleanup the release and any solid waste management unit on the facility, even if the unit was used by a prior operator and contains no hazardous wastes. 42 U.S.C. sec. 6924(u). See also Section 12.2: Hazardous Wastes.

Corporate Officer and Manager Liability

Courts have also imposed environmental liability on individual corporate officers and managers who directly participate in decisions leading to contamination. Liability can arise under both federal statutes and state laws when decision-makers fail to implement compliance programs, ignore reporting obligations, or knowingly allow hazardous releases. This underscores the importance of environmental compliance training, internal audits, and active oversight at the managerial level.

The Oil Pollution Act of 1990

The OPA establishes a comprehensive liability scheme similar to CERCLA but applicable to discharges of oil. Any owner or operator (or other responsible party) of a vessel or facility from which oil is discharged, or which poses the substantial threat of a discharge of oil, into or upon navigable waters adjoining shorelines or the exclusive economic zone is liable up to a certain limit for certain specified removal costs and damages. 33 U.S.C. sec. 2702(a). "Removal costs" mean any costs incurred by the federal, tribal, or state government under the CWA's oil spill response provisions, 33 U.S.C. sec. 1321, or under state law; and any removal costs incurred by any person consistent with the NCP. "Damages" include: damages to natural resources, economic losses to real or personal property, loss of subsistence use of natural resources, the net loss of taxes, royalties or fees, loss of profits, and any increased costs of providing public services. 33 U.S.C. sec. 2702(b)(2). Any third party found to be the sole cause of a discharge can be held liable as a responsible party. 33 U.S.C. 2702(d). There are specific statutory limits on liability, depending on the size and nature of the vessel or facility. 33 U.S.C. sec. 2704.

Financial Responsibility Requirements

Financial assurance requirements are part of the liability systems under CERCLA, RCRA, and the OPA. EPA requires owners or operators of production facilities and certain vessels to have evidence of financial responsibility for covering CERCLA liability. 42 U.S.C. sec. 9608(a)(1). Typically, the financial responsibility requirements can be met with an insurance guarantee, surety bond, or qualification as a self-insurer. Owners or operators of facilities that treat, store, or dispose of RCRA hazardous wastes must also demonstrate financial responsibility for the estimated costs of cleanup at their facility. All owners or operators of vessels over 300 gross tons, offshore facilities, or deepwater ports must establish evidence of financial responsibility equal to the limits of liability to which they could be subjected for a discharge of oil. Financial responsibility may be established by evidence of insurance, surety bond, guarantee, letter of credit, qualification as a self- insurer, or other evidence of financial responsibility. Failure to meet the financial responsibility requirements can result in a $25,000 per day civil penalty. 42 U.S.C. sec. 9609(a)(1)(C).

State Cleanup Laws

Most state cleanup statutes hold responsible parties strictly liable; that is, the states do not require proof of negligence or deliberate misconduct in holding a responsible party liable for cleanup costs. More than half of the states impose both strict liability and joint and several liability. A few impose joint and several liability, but not strict liability. All but a few states can impose civil penalty provisions for failure to comply with their cleanup statutes. Fines and penalties under these statutes generally range from $10,000 to $50,000 per day. Punitive damages, typically double or triple the state's response costs, are available in approximately half of the states. Under state common law, actions based on nuisance, negligence or strict liability could also form the basis for liability. See Section 4.2: General Environmental Rights or Responsibilities.

From Summary of Environmental Law in the United States - CEC

Emerging Trends in Environmental Liability

Recent years have seen increased enforcement of state and federal cleanup laws for contaminants like PFAS (“forever chemicals”), vapor intrusion, and groundwater contamination. Regulators are expanding liability to cover a broader set of hazardous substances, even those not historically listed under CERCLA. Additionally, states are strengthening financial assurance rules to ensure companies can fund cleanups without shifting costs to taxpayers. Businesses must stay informed on evolving standards to reduce the risk of unexpected liability.

Frequently Asked Questions

  1. Who can be held liable for environmental contamination?
    Current and past owners, operators, generators, transporters, lenders, parent companies, and in some cases, corporate officers can all be held liable.
  2. What defenses are available under CERCLA?
    CERCLA allows only limited defenses, such as acts of God, acts of war, or contamination caused solely by unrelated third parties, including certain innocent landowner protections.
  3. How can businesses limit liability when buying contaminated property?
    Conducting Phase I and Phase II ESAs, negotiating indemnity clauses, and purchasing environmental insurance are key strategies.
  4. Can lenders be liable for contamination?
    Yes, lenders may face liability if they exercise control over facility operations beyond traditional financial oversight.
  5. What costs are recoverable under environmental liability laws?
    Recoverable costs include cleanup and response expenses, natural resource damages, third-party claims, and in some states, punitive damages.

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