El Toro Contamination: Developer, Insure Thyself

My firm represents more than a dozen communities that are dealing with the closing of military bases. I’ve spent nearly a decade working with the U.S. Navy and environmental regulators to investigate hazardous materials at the former Marine Corps Air Station at El Toro.

At this point, the Navy plans to sell 3,000 acres of the base for homes, playgrounds and schools as part of the Heritage Fields development. Developers would invest hundreds of millions of dollars.

There is a general misconception that the Navy has tested, or taken samples of, the soil across the entire base to identify possible contamination. This is not true. The great majority of land being sold as clean has never been tested or sampled. The Navy’s characterization of El Toro as safe for development is based largely on historical records. But the community already has discovered contamination on base land that is not documented by the Navy.

Initially, the Navy contended that no radioactive materials were ever used at El Toro. But diligent work by the late Charles Bennett, a member of the base Restoration Advisory Board overseeing cleanup of the land, prompted the Navy to conduct a survey that determined that radioactive material indeed had been used at the base and was disposed of in base landfills.

And when I was elected to chair the Restoration Advisory Board, I was told that the Navy would not test for perchlorates, which are a byproduct of solid fuels and munitions. The Navy recently found evidence of perchlorates on the base.

A study commissioned last year by Orange County identified 56 new areas of potential contamination that the Navy had overlooked. For example, the study identified 16 additional transformers that contain PCBs. Apparently the Navy’s investigation failed to identify these transformers even though some of them had a yellow placard indicating that they contained PCBs.

The Navy’s response has been to assert that the military will take responsibility for cleaning up any hazardous materials discovered. While the Navy is required by law to clean up the base and indemnify the community, there are substantial limitations to these obligations:

For starters, the Navy is not offering immunity from environmental claims. That means future owners and developers of this property still face liability. Because of existing contamination, the Navy will transfer portions of El Toro with restrictions. Any violation of these restrictions, whether intentional or accidental, can result in a waiver of the Navy’s obligations. During past reviews of transfer documents for bases that have been closed, I often found that the Navy required potential tenants to indemnify and defend the Navy if the tenant’s development disturbed contamination.

The Navy is not required to follow a timetable when it removes contamination. So treatment of unexpected discoveries of contaminated materials may have to wait until Congress provides funds. And the Navy is not obligated to reimburse developers for the costs they incur if contamination delays construction.

Several years ago I appeared on a panel with Navy representatives to discuss environmental insurance at bases that were being closed. The Navy warmly embraced the idea of developers buying this type of insurance to protect themselves from the costs and delays arising from unexpected contamination. Many communities have decided they need to buy these policies to protect themselves from the gaps in the Navy’s obligations.

So is it safe for the Navy to auction off this property for homes and parks? Surprisingly, the answer is yes.

What the Navy is doing is transferring the costs and responsibility for completing the investigation of contamination to private-sector bidders. The developers who will be participating in the auction are sophisticated companies. They have too much to lose by simply accepting the Navy’s representation that the base property is clean.

Many of them have lived through the nightmare of contamination lawsuits. They know that their liability under these environmental laws is without limit. They know that by taking title to contaminated property, even if they dedicate the property for parks, they can be hit by lawsuits.

These bidders recognize that the Navy’s generic promise that government will be responsible for all cleanup does not mean that they won’t be sued by upset homeowners. They realize that they have the burden of proving that any contamination they find is the Navy’s responsibility. These companies understand the appropriations process and know that the Navy cannot promise immediate funding for contingencies like unexpected contamination.

In other words, these are companies that will decide, like those in many other communities faced with closing bases, that they need to conduct their own investigations and buy environmental insurance to protect themselves.

Ultimately, I believe that these developers will do a better job of ensuring this property is safe than the Navy could. Their future depends on it.