Outside the court house in Virginia City, Nev., stands a reminder of what justice was like in that part of the Old West. It's a statue of a woman holding the scales of justice. But there is no blindfold on the woman and the scales of justice are tipped. Anyone who entered the courthouse had been duly warned about Virginia City "justice." In many ways, environmental law isn't much different. It's not "blind justice" and the scales aren't necessarily balanced.
Enacted in 1980 and amended in 1986, the Comprehensive Environmental Response Compensation and Liability Act (CERCLA) is the main body of law used to determine liability in regard to environmental problems.
There are a number of disturbing aspects of CERCLA where businesses are concerned. Here are some:
1) Joint-and-several liability. This means you only may be responsible for 1 percent of the problem but called on to pay all damages if other responsible parties are unable to do so. If you see the term "joint-and-several" liability in any contract you're asked to sign, run—don't walk—to your attorney.
2) Strict liability. According to CERCLA, if you are an owner, it doesn't matter that you didn't know a tenant was polluting your land or did everything in your power to prevent it from happening. Nor does it make any difference that your actions were consistent with industry standards prevailing at the time.
3) Retroactive liability, which means responsible parties are held liable for damages caused in years prior to the passage of CERCLA or other environmental laws. If it can be proven that you benefited economically from the harm, liability can be attached.
4) Owner liability. A current property owner can be made to pay for environmental damage caused by previous owners. Previous owners also are responsible for damages if they were owners at the time of disposal of wastes. The liability does not ever go away and it is joint-and-several in nature.
Another unsettling aspect of CERCLA is the possibility that liability, fines and jail time may attach to corporate officers, managers, shareholders and lenders depending on the particular circumstances.
If the extent of possible liability is disconcerting, the fact that a general liability insurance policy will not cover such risks can be even more disturbing.
Prior to 1973, a "standard" insurance policy probably afforded some environmental coverage because its wording failed to provide specific exclusions.
However, insurers gradually learned how to exclude most environmental coverage from their policies.
To enjoy some protection from environmental liabilities, it's possible to obtain indemnification and releases from other parties.
But it is important to remember that joint-and-several liability still pertains. Thus the financial capabilities of the indemnitor is critical.
Another way to obtain protection is to purchase specific environmental insurance. There are a number of substantial insurers in the environmental arena with a multitude of creative insurance products to provide some protection and stability to otherwise unpredictable and worrisome situations.
Their policies can be tailored to meet specific situations. While the premiums aren't cheap, they can be surprisingly reasonable compared to five or 10 years ago.
It can be worthwhile to locate an agent who specializes in this line of insurance. The policies are very different from "regular" insurance policies and an agent who understands the issues involved can tailor coverage to meet your particular exposure needs.
If you're likely to face the "frontier-type justice" of CERCLA, it makes sense to be properly protected. The issues are too serious to ignore and can remain with you indefinitely.
Mr. Ross is vice president of Raleigh, Schwarz & Powell Inc., an insurance brokerage firm in Seattle, Wash.