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Ninth Circuit Court Limits Insurer’s Ability to seek Subrogation for Environmental Cleanup Costs und

A recent decision by the Ninth Circuit Court of Appeals in Chubb Custom Ins. Co. v. Space Systems/Lorel, limits an insurer’s ability to bring a subrogation claim against other Potentially Responsible Parties (PRPs) under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), the Federal Superfund. A Petition for Review by the U.S. Supreme Court was rejected so the case is binding precedent in federal courts in the Ninth Circuit, which includes Washington State, Oregon and California.

In Chubb, Chubb, a PRP’s insurer, had reimbursed its insured PRP millions of dollars of cleanup costs. As a result, Chubb brought a subrogation claim for these remedial costs under sections 107 and 112(c) of CERCLA. Concerning section 107, the court ruled that a subrogation claim cannot lie under section 107 because an insurer is not a CERCLA responsible party who paid response costs and thus it is not eligible to seek contribution from other liable parties under section 107. The court held that Chubb could bring a subrogation claim under section 112(c) if its insured first demanded contribution from other responsible parties at the Superfund site. Here, Chubb had not done that so the Ninth Circuit affirmed the lower federal district court’s dismissal of the subrogation claim based on CERCLA.

Chubb had also asserted subrogation based in California law since the Superfund site was located there. However, this state law did not provide a basis for subrogation because the statutes of limitation had expired on these claims and thus the lower court had dismissed them. Consequently, Chubb was left without any ability to seek subrogation for this insured at this Superfund site.

The bottom one for insurers at Federal Superfund sites is that they expect to prosecute successful subrogation c claims under CERCLA, and then they should be sure that their insured has made a demand for contribution against the PRPs who they want to name in a lawsuit. This step is necessary now under Chubb for an insurer to prosecute a CERCLA subrogation action under section 112(c). It is possible that insurers in the Ninth Circuit states will raise premiums for environmental insurance policies in the wake of the Chubb decision, though it is uncertain at this time.

An insurer seeking subrogation at a Washington State superfund site under the Model Toxics Control Act (MTCA) does not have to take this step. Washington courts do not look to CERCLA provisions, such as section 112(c) as guidance if MTCA does not contain the provision. MTCA does not address subrogation claims though the cost recovery section of MTCA is written broadly and thus would allow for such claims to be prosecuted under MTCA.

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