On the morning of Dec. 25, the News Analysis on page A1 of the New York Times led off with this cheery holiday thought: “Sometime in the last couple of months, predictions of a major economic downturn or recession in 2019 went from being a crank view to the conventional wisdom.” At the front end of the Great Recession, we offered some ways in which businesses and others could protect themselves against environmental liabilities flowing from bad economic times. SeeAnticipating Environmental Issues in an Economic Downturn,” Natural Resources & Environment, Vol. 24, No. 1 at 33 (Summer 2009). Many of those observations still hold.

Primarily, entities have often managed their environmental liabilities to clean up historic contamination or to maintain current compliance through agreements. Some may be direct: one party agrees to indemnify another party. Others may be indirect: the regulator agrees to seek compliance from one party first and the other party only as a backup. See “Managing Environmental Obligations: Tracking ‘Environmental Debtors,’” 35 Pa. L. Weekly 196 (Feb. 28, 2012), posted on this blog here.

Those arrangements collapse if the party with the environmental obligation cannot or will not perform due to other financial stress. The problem can be as simple as the new owner failing to pay the electric bill to power the pumps on a groundwater pumping system or allowing its housekeeping to lapse.

Now may be a time to inventory the environmental “debts” one is owed. If the debtor seems fragile, one may want to consider one’s options.

One option that is more common now is excess of indemnity insurance coverage. Rather than insist that that new owner somehow secure its obligations, you can insure against its default. It is a tool in the box if not new, then more commonly used, since 2009. Excess of indemnity approaches can insure over first-party performance obligations or more conventional third-party claims such as bodily injury and property damage causes of action. In cases where responsible parties have assumed cleanup obligations under a consent decree or administrative order on consent, the insurance can safeguard a prospective purchaser or lender from the risks associated with the responsible party’s default.

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Photo of David Mandelbaum David Mandelbaum

David G. Mandelbaum represents clients facing problems under environmental laws. He regularly represents clients in lawsuits and also has helped clients achieve satisfactory outcomes through regulatory negotiation or private transactions. A Fellow of the American College of Environmental Lawyers, David teaches Superfund, and…

David G. Mandelbaum represents clients facing problems under environmental laws. He regularly represents clients in lawsuits and also has helped clients achieve satisfactory outcomes through regulatory negotiation or private transactions. A Fellow of the American College of Environmental Lawyers, David teaches Superfund, and Oil and Gas Law in rotation at the Temple University Beasley School of Law as well as an environmental litigation course at Suffolk (Boston) Law School.

Since United States v. Atlas Minerals, the first multi-generator Superfund contribution case to go to trial in 1993, Mr. Mandelbaum has been engaged in matters involving allocation of costs among responsible parties, especially under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA).  He has tried large cases and resolved others as lead counsel.  He has written, spoken, and taught extensively on the subject.  More recently he also has been engaged to assist lead counsel from this firm and others:

  • to develop cost allocation methodologies;
  • to craft expert testimony in support of a favored methodology (given a definition of “fairness,” why one methodology better tracks it than another);
  • to develop efficient case management approaches; and to assist private allocation as part of the neutral team.

Concentrations

  • Air, water and waste regulation
  • Superfund and contamination
  • Climate change
  • Oil and gas development
  • Water rights