Morris Manning & Martin, LLP

Avoiding Environmental Liability

The development of the federal and state environmental regulatory scheme over the past decade has profoundly changed how all businesses are run, including the construction industry. This is particularly true with the recent passage of the new Superfund legislation, and the result has been a net of liability waiting to snare the unwary contractor.

To the fullest extent possible contractors need to take precautions before each project to avoid this net of liability. The only way to do so is by being aware of the potential risks and pitfalls.

The two principal federal statutes which regulate hazardous substances and hazardous wastes are the Resource Conservation and Recovery Act of 1976 ("RCRA:') and the Comprehensive Environmental Response Compensation and Liability Act of 1980 ("CERCLA" or the "Superfund Act").

CERCLA regulates a broad category of substances known as hazardous substances, although it is significant to note that petroleum products were exempted from CERCLA’s definition of hazardous substances. CERCLA’s primary focus is the clean-up of abandoned or uncontrolled sites. RCRA, which is known as the "cradle to grave" statute for dealing with hazardous wastes, regulates the management of hazardous wastes at active facilities.

Definitions and detailed lists of hazardous substances and hazardous wastes are contained in the statutory provisions and regulatory enactments under both CERCLA and RCRA, and engineering input is recommended to determine whether the substances or materials encountered are "hazardous substances" or "hazardous wastes." Determining whether materials involved are hazardous wastes or hazardous substances is the starting point for determining whether your construction work falls within the regulatory framework.

An overview of CERCLA

CERCLA imposes liability for clean-up costs and other response and/ or remediation costs upon owners or operators of facilities and sites from which a release of hazardous substances has occurred. All of these terms are defined in CERCLA. The key factor, in addition to determining whether there has been a release of a "hazardous substance," is whether you fall within the category of so-called "potentially responsible parties" who are held liable for clean-up costs.

The central concept to keep in mind in understanding the scope of liability imposed by CERCLA is the concept of strict liability for clean-up costs. Strict liability means that liability is imposed in the absence of fault, knowledge, intent, negligence, breach of contract, or any other direct or indirect wrongdoing by the person held responsible.

CERCLA imposes strict liability upon defined categories of potentially responsible parties. Liability under CERCLA is totally a function of status, not culpable activity. If a person or entity falls within the categories of potentially responsible parties defined by CERCLA, he will be held strictly liable for all clean-up costs, response costs and other costs associated with a release of hazardous substances.

Congress elected to impose strict liability in order to insure that there will always be a responsible party to hold liable for clean-up costs. The importance of insuring that there always will be someone to hold responsible for clean-up costs was deemed to outweigh traditional concepts of fairness and justice. This concept of strict liability involves a drastic change from ordinary concepts of liability, nearly all of which are tied to the concept of fault.

Who are potentially responsible parties? They may include the following:

(a) the present owner of a facility from which there has been a release of a hazardous substance;

(b) the present operator of a facility;

(c) the owner of the facility at the time of disposal or release;

(d) the operator of the facility at the time of disposal or release;

(e) anyone who arranges for the disposal or treatment of hazardous substances or who arranges with a transporter for disposal of hazardous substances;

(f) any transporter of hazardous substances; and

(g) an owner of a facility with knowledge of a spill or release of hazardous substances who sells or transfers without disclosing.

If you fall into one of these categories, you are a potentially responsible party who is strictly liable for all clean-up, remediation and response costs.

The categories of concern to contractors are (d), (e) and (f), for the courts have held that simply moving contaminated subtances encountered at a construction site subjects contractors to liability as a potentially responsible party.

As discussed above, the concept of strict liability bears no logical relationship to concepts of fairness, reasonableness or justice. For example, a contractor encountering hazardous materials during grading operations, even though he did not dump them there in the first place, may be held fully responsible for clean-up simply because of his status as an "operator" at the site.

Not only are potentially responsible parties held strictly liable for the damages resulting from the contamination, any one potentially responsible party can be held jointly and severally liable for the entire cost of clean-up. CERCLA actually encompasses a legal double whammy. In our example, the contractor is not only strictly liable for contamination which he did not cause, but the government or a private individual can also sue and recover the entire cost of clean-up from him without suing anyone else. The financial ramifications of this can be and often are devastating.

Any potentially responsible party who gets sued, or against whom costs are recovered, has a right of contribution against any other potentially responsible parties. In our example, the contractor would have a right of contribution against the property owner or developer or the party who did the dumping. This may be of little practical value because the other potentially responsible parties may be judgment-proof or have no assets.

Potentially responsible parties are liable for response or remediation costs incurred as a result of a spill or release of hazardous substances. These costs can be recovered against the potentially responsible parties by the government or by a private party. These damages include environmental engineering costs, site assessment and testing costs, clean-up costs, attorneys fees and interest, and costs can be astromonical. These damages are in addition to fines, penalties and criminal liability which can be imposed under certain circumstances. Private litigants may also recover damages for property damage, personal injury and other economic losses under traditional common law theories such as waste, negligence, nuisance, continuing nuisance and trespass.

To avoid these dire consequences, any potential environmental issue or exposure should be carefully investigated and assessed before entering into the contract, and appropriate disclaimer and indemnity language should be included.

An overview of RCRA

RCRA is known as the "cradle to grave" statute for the regulation of hazardous wastes. RCRA regulates the generation, handling, storage, treatment, transportation and disposal of the category of substances identified as hazardous wastes. Underground storage tanks are regulated under RCRA along with petroleum products.

Contractors who encounter hazardous wastes at construction sites must avoid becoming generators, because if they do then they will be subject to extensive regulatory requirements and possible fines and penalties. A generator is defined as "any person by site whose act or process produces hazardous waste or whose act first causes a hazardous waste to become subject to regulation." RCRA requires generators of hazardous wastes to determine whether the waste they generate is hazardous and, if so, to manage it in accordance with the regulations. Generators must track the hazardous waste from the time it leaves the site or facility until it reaches the ultimate disposal site by use of a manifest system. All transporters are subject to RCRA regulation as well. Hazardous wastes can only be disposed of at properly permitted treatment or disposal facilities.

RCRA provides for both civil and criminal penalties. Private citizens may bring suit for handling or disposal of hazardous wastes that result in actual danger to the environment or a substantial threat thereto. Generators and transporters are subject to criminal penalties as well. Criminal penalties can be imposed on those who fail to file the reports required by RCRA, ship hazardous waste materials without a manifest, ship hazardous waste materials to a disposal facility with no permit or violate any other state or federal standards.

RCRA's regulatory umbrella is vast. Any contractor involved in any way in the handling, treatment, storage, transportation, disposal or generation of hazardous waste is subject to regulation under RCRA. As with CERCLA, the consequences for violating the regulatory requirements are severe and can be financially devastating.

Wetlands

Section 404 of the Clean Water Act requires that anyone depositing dredge or fill material into a federally protected wetlands must first apply for and receive a permit for this activity. Activities in wetlands areas for which permits are required include the following:

• Placement of fill materials;

• Ditching activities;

• Levy and dike construction;

• Land clearing involving relocation of soil materials;

• Land leveling;

• Road construction;

• Dam construction.

Wetland issues are quite commonly encountered in water and wastewater treatment facility construction, given the location of such sites in low lying areas normally in proximity to rivers and major streams. It is important for contractors to disclaim all responsibilities for determining whether any of the site is in federally protected wetlands, as well as for any restoration activities which may be required by the Corps of Engineers if proper permits are not obtained before the start of construction. However, the existence of any disclaimers in the contractor's construction contract with the owner, or indemnity provisions requiring the owner to indemnify the contractor from wetlands violations, does not stop the government from proceeding against the contractor or requiring the contractor to take restoration measures.

Dixie Contractor, August 17, 1992