The Eastern District of California recently examined the sufficiency of an insurer’s complaint for subrogation against two potentially responsible parties (“PRPs”) for cleanup costs paid by the insurer. The PRPs argued that the insurer’s complaint failed to state a claim because it did not contain an allegation stating that its insured made a “formal” claim against the PRPs. The court rejected the PRPs’ argument and clarified what an insurer (and its insured) must do to preserve subrogation rights under CERCLA Section 112(c).

In Carolina Casualty Ins. Co. v. Oahu Air Conditioning Service, Inc., et al., Civ. No. 2:13-1378 WBS AC (E.D. Cal. January 28, 2014), the plaintiff insurance company sued two defendants it alleged were PRPs for a hazardous waste spill. The dispute stemmed from the delivery of a trailer containing hazardous refrigerant waste oil to a disposal site in Sacramento, Calif. The trailer later caught fire and released hazardous vapors and contaminated water runoff into the environment.  

As a result of the incident, a number of claimants issued notices of violation against the company that transported the trailer and demanded payment for cleanup of the hazardous waste spill. Pursuant to the transportation company’s insurance policy, the plaintiff insurance company settled and paid several of the claims.  

The plaintiff insurance company then sought reimbursement from two PRPs that it alleged supplied, packed and transported the refrigerant waste oil. Specifically, the insurance company sought: (1) subrogation pursuant to CERCLA Section 112(c); (2) contribution pursuant to CERCLA Section 113(f); and (3) contribution, indemnity, allocation and apportionment under California state laws. The defendants sought to dismiss the CERCLA Section 112(c) claims because the insurer had not alleged in its complaint that its insured had made a “formal” claim against the PRPs.

In evaluating the sufficiency of the insurer’s complaint, the court first discussed the availability of subrogation under CERCLA Section 112(c)(2), which provides:

Any person […] who pays compensation pursuant to this chapter to any claimant for damages or costs resulting from the release of a hazardous substance shall be subrogated to all rights, claims, and causes of action for such damages and costs of removal that the claimant has under this chapter or any other law.  

The court noted that precedential case law from the Ninth Circuit Court of Appeals restricts the availability of CERCLA Section 112(c) subrogation to situations where the insured has already made a claim against the PRP against whom its insurer seeks subrogation. See e.g., Chubb Custom Ins. Co. v. Space Systems, 710 F. 3d 946 (9th Cir. 2013) (denying plaintiff insurance company’s Section 112(c) subrogation claim because its insured failed to submit a claim for reimbursement to the PRPs and was therefore not a “claimant” under CERCLA). The court went on to explain the rationale for the claim requirement by citing to Chubb and noting that the requirement furthers two key policy goals of CERCLA: (1) it prevents the insured from obtaining a double recovery from both the insurance company and PRPs; and (2) it identifies PRPs so that they, rather than insurance companies, bear the cost of environmental cleanup.  

However, the court distinguished the facts of Chubb by noting that the present plaintiff had alleged in its complaint that its insured “made demand and claim upon and against” the PRPs. The PRP defendants argued that this allegation was insufficient as a matter of law and that the insurer’s complaint needed more detailed allegations confirming that a “formal” claim had been submitted against them. The court disagreed and noted that neither Chubb nor CERCLA Section 112(c) specified the precise form that a written claim for reimbursement must take.  

The court further held that 40 CFR § 307.30(a) (detailing the minimum information that must be included in requests for payment from a PRP) was inapplicable because it applies only to written requests to PRPs for reimbursement before filing a claim against the Hazardous Substance Superfund and did not apply to written requests for reimbursement before filing a civil action for subrogation under CERCLA Section 112(c). Accordingly, the court denied the defendants’ motion to dismiss plaintiff’s CERCLA Section 112(c) claim.

The holdings in Carolina Casualty Ins. Co. and Chubb are important illustrations of how critical it is for insurers to make certain that their insured take the steps necessary to preserve the insurer’s subrogation rights. While the Carolina Casualty Ins. Co. case indicates insurers have some leeway in the degree of detail they must allege regarding their insured submitting a claim against PRPs, the safer course is to make sure any complaint for CERCLA Section 112(c) subrogation contains sufficient detail to avoid the need to litigate a motion to dismiss.