Subrogation Under CERCLA Goes To The Ninth Circuit

When can an insurer pursue subrogation under CERCLA? This important issue is about to be addressed by the Ninth Circuit Court of Appeals, and may significantly impact how insurance carriers manage their environmental claims. Last year, the U.S. District Court for the Northern District of California ruled that an insurer cannot bring a subrogation action under CERCLA’s Section 107(a) cost recovery mechanism and is limited to bringing subrogation actions through Section 112(c)(2) – CERCLA’s express subrogation provision. Chubb Custom Ins. Co. v. Space Systems/Loral Inc., No. 09-cv-044485 (April 20, 2011). A copy of the district court opinion is available here. If affirmed, insurance carriers will not be able to use CERCLA’s Section 107(a)(2) cost recovery provision under the theory that insurance money was used to pay necessary “response costs.” Rather, carriers would have to employ Section 112(c)(2) and establish that the underlying policyholder was a “claimant” against a party responsible for the release.

In Chubb, the district court ruled that insurance payments made pursuant to a policy are not "response costs" under CERCLA, and therefore Section 107(a) is unavailable to the subrogated insurer. The court ruled that an insurer can only utilize Section 112(c)(2), which limits subrogation claims to payments of compensation made to any “claimant.” In Chubb, the court ruled that an insured’s claim submittal to the insurer did not qualify the insurer as a “claimant.” Rather, the only way that an insurer can bring an action for subrogation under CERCLA is if the insured was a “claimant,” which means that the insured had to have pursued a claim against a PRP or the Superfund before receiving policy benefits from the insurer. In Chubb, the insured simply paid for the costs of remediation (with reimbursement from the insurer) without seeking recovery from PRPs or the Superfund. As a result, the court ruled that Chubb could not pursue a claim under Section 112(c)(2).

Depending upon how the Ninth Circuit rules on this issue, insurance companies relying on potential reimbursement under CERCLA may need to revisit their claim handling practices as well as the language of their environmental and liability insurance policies. Moreover, this decision highlights the need for insurers to analyze whether adequate state subrogation remedies exist when considering stepping into the shoes of the insured.