The U.S. Supreme Court let stand the Ninth Circuit’s decision that the common law principle of subrogation does not apply to CERCLA section 107(a), requiring insurers to carefully meet statutory requirements for proceeding under either Section 107(a) or 112(c) to recover monies paid for environmental remediation.  Chubb Custom Insurance Company v. Space Systems/Loral, Inc., 710 F.3d 946 (9th Cir. 2013), cert. denied, 2014 U.S. LEXIS 327. 

Chubb Custom Insurance Company (Chubb) issued an environmental insurance policy to Taube-Koret Campus for Jewish Life (Taube-Koret) that included coverage for environmental remediation.  Pursuant to this policy, Chubb reimbursed Taube-Koret $2.4 million for cleanup costs Taube-Koret incurred in responding to contamination on its property.  Chubb then filed claims for cost recovery under CERCLA sections 107(a) and 112(c), asserting equitable and statutory rights of subrogation.  The district court dismissed Chubb’s claims, and the Ninth Circuit affirmed.

CERCLA section 112(c) provides that “any person…who pays compensation…to any claimant for damages or costs resulting from a release of a hazardous substance shall be subrogated to all rights…and costs of removal… that the claimant has under this chapter…” (emphasis added).  The Ninth Circuit held that a claimant is “a person who demands reimbursement of environmental cleanup costs from (i) the Superfund or (ii) a potentially liable party.”  Because Taube-Koret had not made a written demand for payment from either the Superfund or a PRP, Chubb did not meet the statutory requirements to bring a subrogated claim. Thus, under the Ninth Circuit’s decision, an insurer’s right of subrogation under section 112(c) vests when an insured makes a demand on the Superfund or a PRP, and not when an insured makes an insurance claim.

CERCLA section 107(a) imposes strict liability on PRPs for “necessary costs of response incurred by any other person…”  The Ninth Circuit held that section 107(a) does not authorize a subrogated cost-recovery action because section 107(a) only applies to a person who is statutorily liable for or subject to the costs of cleanup – i.e., those who directly respond to the cleanup and other PRPs.  Chubb’s insurance payment was made under the insurance policy it had issued to Taube-Koret – acontractual obligation – and it was therefore foreclosed from bringing a claim under section 107(a).  The Ninth Circuit’s decision means that the common law principle of subrogation does not apply to CERCLA section 107(a).  Insurers must instead proceed under section 112(c), being careful to meet the statutory requirements thereunder.