Indemnification Agreements Under CERCLA Do Not Affect Liability to Entities That Are Not Parties to the Agreement

Section 107(e) of CERCLA provides that

No indemnification, hold harmless, or similar agreement or conveyance shall be effective to transfer from the owner or operator of any vessel or facility or from any person who may be liable for a release or threat of release under this section, to any other person the liability imposed under this section. Nothing in this subsection shall bar any agreement to insure, hold harmless, or indemnify a party to such agreement for any liability under this section.

It’s always been understood that the first sentence of § 107(e) means that one cannot contract away one’s CERCLA liability to the government. The second sentence has been understood to mean that private parties may still – as among themselves – allocate potential liability to third parties however they choose.

What’s not been so clear is the impact that private agreements have on liability to private plaintiffs seeking contribution or cost recovery. That question was recently answered in Cyprus Amax Minerals Company v. CBS Operations. In Cyprus the party liable for operating a smelter sought contribution from two potential successors of a neighboring smelter. One defendant, TCI, offered to stipulate that it was successor to the operator of the second smelter. Apparently, at some point, the other defendant, CBS Operations, had agreed to indemnify TCI against potential CERCLA liability, but CBS would not otherwise, by operation of corporate law principles, be seen as a successor to the smelter operator.

Cyprus argued that the agreement between TCI and CBS Operations meant that they should both be considered operators, based on the language in the second sentence of §107(e). The Court was having none of it.

Whatever liability CBS Ops. may have assumed as TCI’s indemnitor, the underlying CERCLA liability could not have been transferred from [TCI] to CBS Ops. by way of the [indemnification agreement].

The short version is that, as they say, privity of contract matters. The second sentence of § 107(e) of CERCLA only preserves the rights of parties to contract among themselves; it does not affect any third party – government or private – asserting a contribution claim. Those claims are determined purely by reference to the liability provisions of § 107(a) of CERCLA.

The result may seem obvious, and it certainly seems right to me. However, prior cases had really only addressed whether the indemnitee could avoid CERCLA liability by contractually transferring away the liability. The answer to that question was obviously no. I had not previously seen a case in which a plaintiff sought to impose CERCLA liability on the indemnitor. Given CERCLA’s wide liability sweep, and the tendency of some courts to impose liability on anybody left standing with respect to old industrial sites, I could have imagined a court holding both the indemnitee and the indemnitor liable under CERCLA. However, it is appropriate, under the guidance of Bestfoods, in recognition that CERCLA does not eliminate traditional corporate law principles, to limit the effect of such private indemnification agreements to the parties to those agreements.

(For those of you practicing in Massachusetts, it is worth noting that the result might be different under our Superfund law, Chapter 21E. As my Massachusetts colleagues know, Chapter 21E has a catchall liability provision which also imposes liability on “any person who otherwise caused or is legally responsible for a release….” Since an indemnitor is “legally responsible” for a release, the indemnitor has arguably agreed, not just to private liability, but also to liability under Chapter 21E.)

2 thoughts on “Indemnification Agreements Under CERCLA Do Not Affect Liability to Entities That Are Not Parties to the Agreement

  1. Seth: Your comment at the end on c. 21E, Sec. 5(a)(5) suggests that a person agreeing to indemnify another may be “legally responsible” for costs associated with a release and if the Cyprus case were brought under c. 21E, CBS might, as TCI’s indemnitor, be “legally responsible” for the release under Sec. 5(a)(5). Don’t think so. Based on the wording and limited case law on Sec. 5(a)(5), I have always understood that Sec. 5(a)(5) “legal responsibility” arises only where a party has responsibility – by way of contact or regulation (i.e. the “legal” part) – for releases when they occur (e.g. a lease that imposes a duty to maintain USTs or comply with laws to prevent releases); not where a party contracts to assume responsibility after the fact or for the risk that releases may have occurred. In Cyprus, the indemnity was made by a successor entity after the release occurred – so there was no legally responsibly in the sense of a legal duty to prevent a release. If such post-release indemnifications or contracts were to trigger Sec. 5(a)(5) liability, would not all P&S agreements with indemnities for environmental conditions subject Seller/Buyer, and insurance agreements subject carriers, to statutory liability to DEP and 3rd parties? Don’t think that was the plan. Your thoughts. Bob

    • Bob:

      Thoughtful comment. I think on reflection that you have a strong argument that at least ex post indemnification agreements do serve to create liability under section 5(a)(5), but I don’t think I’d bet the house on it.

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