In almost 40 years of dealing with CERCLA liability claims, we have learned a thing or two. In November of last year, A.M. Best opined that environmental exposures were “97% funded” at $41 billion in reserves. This is good news compared to 2003, when A.M. Best viewed environmental losses as underfunded by 45% based on a projected ultimate loss of $56 billion.
But then, as now, there were warnings that a dwindling Superfund would result in increased pressure on Potentially Responsible Parties (PRPs) to clean up contaminated sites. Regardless of what happens with budget cuts at the EPA (or in Scott Pruitt’s soundproof booth, https:// tinyurl.com/yd8a22wc), insurers and reinsurers are managing significant losses related to contamination. Regardless of whether transaction costs for policyholder involvement at these sites are “defense” or “indemnity” (covered or not), litigation over liability, damages, and coverage is often counter-productive.
In last September’s EECMA and AIRROC joint Symposium on Mega-Superfund Sites, the participants heard from a wide range of panelists on the unique challenges facing insurers in handling these claims. The material was so thorough and wide-ranging that AIRROC’s editorial staff felt our usual Education Summaries could not do justice to the topics covered. This article focuses on one topic in the agenda that is particularly relevant for managing these complex exposures: “Challenging Issues in Allocation of Liability.” The author had an opportunity to interview Bill Hengemihle, Senior Managing Director at FTI Consulting, on how mediation is critical to this process and how a mediator adds value in containing costs. Bill is engaged by PRP groups to serve as an arbitrator or mediator of complex cost allocation disputes.
Connie O’Mara: It strikes me that a Superfund case is a little like an orchestra — you have many parties, some in groups, that can create a lot of chaotic noise if they are not properly organized. Do you feel like a conductor who has to get the group orchestrated?
Bill Hengemihle: Yes. But first you have to have all the necessary instruments grouped properly. So, the first key is to achieve broad membership in the PRP group as early as possible, when “entry costs” are low. While the EPA will issue notice letters to the most readily identifiable PRPs at a site, agency resources for the PRP search are often constrained and the enforcement team will prefer to avoid multiple rounds of liability notice letters to PRPs; thus, “once-and-done” is better. A mediator who understands the EPA criteria for PRP identification, and has credibility with the agency, can orchestrate an allocation process to include as many PRPs that meet the notice criteria as possible by developing “nexus packages” that the EPA can rely upon for newlyidentified PRPs. The outreach process to PRPs—in other words, asking them to join the group and participate in the allocation procedure—is the next critical step. PRPs should be aware that the EPA can contribute funds for this process by hiring a “convenor” to contact all EPA notice recipients and encourage their participation, often through a series of letters, calls, and meetings. Significantly, EPA involvement at the convening stage can elevate the level of urgency or importance that the invitees will associate with the process and influence them to become involved. This is good, as empty chairs are always a problem—whether for an orchestra or a PRP group.
For the full article, refer to page 17 in the Spring 2018 issue. https://www.airroc.org/assets/docs/matters/AIRROC_Matters_Spring_2018_Vol_14_No_1.pdf