Type: Law Bulletins
Date: 07/10/2014

Subrogation and CERCLA Cost Recovery: 7th Circuit Court Refuses to Adopt 9th Circuit Ruling in Chubb

Subrogation has been defined as "the substitution of one person in the place of another with reference to a lawful claim, demand or right, so that he who is substituted succeeds to the rights of the other in relation to the debt or claim, and its rights, remedies, or securities." Farm Bureau Ins. Co. v. Allstate Ins. Co., 765 N.E.2d 651, (Ind. Ct. App. 2002). Stated differently, the equitable principle of subrogation allows one person to stand in the shoes of another and assert that person’s rights against a third party. U.S. Airways, Inc. v. McCuthchen, 133 S.Ct. 1537, 1546 n. 5 (2013). A typical example of a subrogation action involves an auto accident where a driver gets struck by another motorist. The driver submits a claim to its auto insurer to cover the costs of repairing the driver's car or to cover the driver's hospital bills. The auto insurer pays the claim and then sues the other motorist (or the motorist’s insurer) to recover the costs it has paid. Over the course of the last year or so, two federal courts have rendered different decisions on the issue of whether an insurer who pays claims based on costs incurred to remediate environmental contamination may maintain a subrogation action against other potential responsible parties under the federal Comprehensive Environmental Response, Compensation and Liability Act (“CERCLA” or “Superfund”).  

In 2013, the United States Supreme Court refused to review a 9th U.S. Circuit Court of Appeals decision that barred an insurer’s attempt to seek recovery of insurance payments made to a policy holder in a Superfund cost recovery action. Chubb Custom Ins. Co. v. Space Sys./Loral LLC, U.S., cert. denied 1/13/14. In that case, Chubb Custom Insurance Company (“Chubb”) filed a subrogation suit against defendants seeking recovery of insurance payments it made to its insured for environmental cleanup costs. Chubb Custom Ins. Co. v. Space Sys./Loral LLC, 710 F. 3d. 946 (9th Cir. 2013). Chubb asserted part of its claim under Section 107(a) of CERCLA. The 9th Circuit held that Chubb had no standing to file suit under Section 107(a) because it did not incur any response costs.

The 9th Circuit examined the language in Section 107(a) and determined that it did not allow for a subrogation claim. The section states that potentially responsible parties are liable for “necessary costs of response incurred.” 42 U.S.C. § 9607(a). Response means “remove, removal, remedy, and remedial action,” and all of these terms mean the “cleanup or removal of hazardous substances.” 42 U.S.C. § 9601(25)(23). Noting that “incur” is not defined under the statute, the 9th Circuit applied the dictionary meaning of “to acquire or come into” or “become liable or subject to as a result of one’s action,” or “to bring upon oneself.” Chubb, 710 F.3d 946, 961. Applying these definitions, the 9th Circuit concluded that section 107(a) applies to a person who meets the following criteria:

Through his or her own actions becomes statutorily liable for, or is subject to, the costs related to the cleanup of hazardous substances or the permanent remediation of a release or threatened release of hazardous substances into the environment in a manner consistent with the national contingency plan.

Id. at 961-62. Based on this criteria, Chubb was never liable for response costs under CERCLA. The 9th Circuit also determined that even if a party offers reimbursement for cleanup costs, it is still not statutorily liable for response costs as required under CERCLA and therefore cannot itself incur response costs. Id. at 962.

Recently, the U.S. District Court for the Southern District of Illinois ignored this decision from the 9th Circuit and found that Section 107(a) does create a right to subrogation. In Blue Tee Corp. v. Xtra Intermodel, Inc. No. 13-0830-DRH, 2014 WL 2061590 (S.D. Ill. May 16, 2014), Blue Tee Corp. (“Blue Tee”) initially filed suit against all parties that were potentially responsible for contaminating property that Blue Tee owned at that time. Blue Tee partially sought recovery of payments made for environmental cleanup costs under Section 107 of CERCLA. Gold Fields Mining LLC (“Gold Fields”) paid the costs Blue Tee incurred for remediation and later joined the suit to recover those costs pursuant to its subrogation rights under CERCLA, Illinois law and contract law because it could sue in Blue Tee’s name as stated in their contract. The defendants filed a motion to dismiss.

A relatively small portion of the defendants’ argument for dismissal centered on the claim that Gold Fields had not alleged that it incurred any response costs. Relying on the 9th Circuit’s decision in Chubb, the defendants argued that Gold Fields could not bring a claim under Section 107. However, the district court was not swayed. Instead, it looked to the Chubb dissent, noting that a subrogee could file a Section 107 claim on behalf of a subrogor because the lack of a remedy would delay cleanup. The court further reasoned that because Section 112 recognizes that a payor is subrogated to all rights and causes of actions that a claimant has and because Blue Tee has a Section 107 claim, then Gold Fields should be allowed to bring a 107 claim as well. Therefore, the court denied the defendants’ motion to dismiss under this argument.

Unlike in the 9th Circuit, this decision by a trial court in the 7th Circuit demonstrates that a payor or insurer is able to bring a subrogation claim to recoup payments even if the payor or insurer did not directly incur environmental response costs. In turn, it will be easier for the payor or insurer to collect recovery costs. 

The parties in Blue Tee Corp. continue to litigate the matter, and trial is set to take place in July 2015. It is rare for the 7th U.S. Circuit Court of Appeals to hear an interlocutory appeal. As such, it may be a while before the appellate court weighs in on the issue.

Taft’s Environmental group has significant experience in Superfund cost recovery actions and all matters concerning CERCLA. For more information, please contact Tammara D. Porter or any other member of Taft’s Environmental group.

In This Article

You May Also Like