The Real Cleanup : Insurers’ Superfund Focus: Hiring Lawyers

Nearly 90% of the billions of dollars insurance companies have spent on Superfund toxic waste sites has been sunk into legal battles--mostly with their own policyholders, according to a RAND Corp. study released Thursday.

The money spent in court is enough, according to the study, to clean up 15 Superfund sites a year.

In contrast, the big industrial firms in the study have mostly gone ahead and paid for cleanups without fighting them in court, spending an average of just 21% of their Superfund money on legal costs.

Critics of the Superfund law, which is up for reauthorization by 1994, say the study supports their call for drastic reform.

“The only people cleaning up in Superfund are the lawyers,” said Anne Ligon, assistant general counsel of the Superfund Action Coalition, a Washington lobbying group formed in January to represent companies faced with Superfund liabilities.

Insurers generally agreed.

“For the first time, we have hard data confirming that Superfund is . . . one of the most economically inefficient laws ever enacted,” said Joseph W. Brown Jr., chairman, president and chief executive of Crum & Forster, a major writer of general liability insurance.

But environmentalists, regulators and the RAND authors themselves found support for the current process in the study.

“It shows you the legal costs are not a big issue--except for the insurance companies,” said Doug Wolf, an attorney with the Natural Resources Defense Council. “And I don’t think we should let them dictate our policy for cleaning up abandoned waste sites.”

Under the Superfund system, companies and even municipalities connected historically to a waste site can be forced to pay to clean it up--often as the result of a lawsuit brought by the U.S. Environmental Protection Agency, which administers the program.

In many cases, the EPA uses federal funds to begin a cleanup while attempt ing to retrieve the costs from the companies or cities involved, the “potentially responsible parties.” These parties, in turn, typically try to recover some or all of their costs from their insurers.

The EPA spends about $1.5 billion a year in taxpayer dollars on Superfund cleanups. It has recovered $295 million from responsible parties since 1987 and is seeking $1 billion more.

While no one knows how much these parties have paid out for cleanups, their insurers are spending about $500 million annually in costs associated with the Superfund law.

The RAND researchers found that fully 88% of that $500 million is spent on lawsuits, with 47% of that sum being used to contest the claims of the insurance companies’ own customers. Another 42% goes to defending policyholders against the EPA or other parties.

“It’s clear from the study that the general posture of insurance companies is to contest claims rather than to pay claims,” said Bruce M. Diamond, director of the EPA’s office of waste programs enforcement.

The benchmark study used financial information from the mid- to late 1980s, supplied anonymously by four national insurance companies and five “very large” industrial firms. The insurers in the study have received more than 13,000 claims concerning hazardous waste sites, while the companies have been connected to about 700 sites.

The RAND authors and others predict that some legal expenditures are bound to occur as state case law, which controls many of the legal battles, is sorted out.

And they see some evidence that the system is creating incentives for private companies to undertake cleanups before being forced to by the EPA: The study estimates that fully 10% of all cleanups costing a company more than $100,000 are being done without government involvement.

The large companies “have been willing to step forward and pay remedial costs, which many had doubted at the beginning of the program,” noted Lloyd S. Dixon of RAND’s Institute for Civil Justice, one of the study’s authors.

Small companies, critics respond, are hit much harder in Superfund cases. Rand is planning a study to look at small and mid-sized firms.

The insurance companies and such groups as the Superfund Action Coalition want to replace the existing system with one using taxpayer funds to finance a public-works cleanup, much as billions of federal dollars have been spent in recent years to build new sewage treatment plants around the country.

“It’s clear as a bell that Superfund’s incredibly harsh and in-equitable liability scheme has created and is going to continue to create considerable controversies,” said Karl S. Lytz, an attorney at Latham & Watkins. He represents Montrose Chemical Corp. of California at one of the first Superfund sites listed in the nation--the Stringfellow acid pits in Riverside County.

Relations between companies such as Montrose and their insurers have grown “only more litigious over recent years,” Lytz said. “And that level of fighting will continue.”

But environmentalists, particularly, remain opposed to shifting to a public-works scheme.

“This report highlights (the insurance companies’) self-interest in that proposal,” said Wolf of the NRDC. “They would benefit more than anyone else.”