Zombie Corporations and CERCLA Liability: Identifying, Reviving and Pursuing Zombie PRPs Today’s faculty features: 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific The audio portion of the conference may be accessed via the telephone or by using your computer's speakers. Please refer to the instructions emailed to registrants for additional information. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 1. TUESDAY, APRIL 3, 2018 Presenting a live 90-minute webinar with interactive Q&A David Ashton, Assistant General Counsel, Port of Portland, Portland, Ore. Loren R. Dunn, Principal, Beveridge & Diamond, Seattle Christopher A. Rycewicz, Northwest Resource Law, Portland, Ore.
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marshalling and distribution and cleanup cost recovery on
pre 1986 insurance policies
– First: what it takes to revive the corporation
– Second: what it takes to tap into their insurance
– Third: Practical issues important to success
– Wrap up: Q&A
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By: Loren R. Dunn
Zombie Corporations and CERCLA Liability:
Identifying, Reviving and Pursuing Zombie PRPs
Strafford Webinars April 3, 2018
How Do Corporations Die?
• Orderly process of dissolution
− File articles of dissolution with state
− Give notice to creditors
− Distribute remaining assets
• Administrative dissolution
− Company fails to make annual registration with state
− No notice to claimants
− Essentially, everyone walks away
• Bankruptcy?
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Dead? Or Dead and Buried?
• Dead = dissolved, but assets not completely (or formally) distributed.
• Dead and buried = dissolved, and assets apparently distributed.
− But, not quite!
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Why Revive a Corporation?
• Recover assets!
− Property either late-discovered or not ever transferred
− Property wrongfully distributed
◦ Seek to recover from distributees
◦ Not very commonly pursued in environmental matters
◦ Often difficult to accomplish
− Property not transferrable / “contingent assets”
◦ Insurance assets
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Why Revive a Corporation?
• To provide an orderly process for recovering assets
• To cause the corporation to secure non-transferrable or contingent assets:
− Insurance proceeds
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How to Awaken the Dead?
• File litigation!
• Serve the defendant
− Last agent
− By publication
• Notify the (target) insurer(s)
• Seek appointment of a Trustee
− Petition to court
− Trustee to provide formal notice to insurer(s)
− Demand defense from insurer(s)
− Who pays the Trustee?
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Even Zombies Deserve Lawyers
• Who is the client?
− Past officers / shareholders?
− Insurer?
− Trustee!
• How to deal with insurer defenses and reservations of rights
• Purpose of defense – settle and terminate zombie
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Who May Be Interested in Zombies?
• Parties performing cleanups who are in search of assets / contributions
• Insurers looking to share the defense / settlement with other insurers
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Places to Look for Zombie Opportunities
• Property lease / rental records
• Vessel records
• Contractor records
• Port records
• State lands aquatic records
• Historical archives
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Limitations
• State laws often limit the period for claims to brought following dissolution
− Can be challenging to overcome time limits to recover assets that were properly distributed pursuant to formal dissolution
• However, time limits are often not applicable if statutory dissolution process not followed
• Courts often allow late claims for contingent assets
Privileged & Confidential | Attorney-Client Communication 16
Settlements: Expectable Best Practices
• Court approval / consent to settlement
• Provides for proper dissolution of entity
• Exhausts insurance claims / proceeds
Privileged & Confidential | Attorney-Client Communication 17
Zombie Corporations
and CERCLA Liability:
Identifying, Reviving
and Pursuing Zombie
PRPs
CHRISTOPHER RYCEWICZ
TUESDAY, APRIL 3, 2018
Determining Historical Coverage • Review Insured’s History of Buying Liability
Insurance Focus on Pre-1986 Comprehensive
General Liability Policies Primary v. Excess/Umbrella Coverage Locating 20+ Year Old Policies is often
challenging
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Determining Historical Coverage • Finding Lost Policies • Interview Key Former Employees • Review Financial Records • Check with Insured’s Current and Historic
Insurance Brokers • Research Claims History • Contact Former Legal Counsel • Hire an Insurance Archaeologist
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Determining Historical Coverage • Request Coverage History from Known
Insurers • Insurer's Statutory Obligations • Specimen Policies • Guidance Provided by Oregon Statute • Proving Terms of Lost Policies • Secondary Evidence of Coverage • Initial Burden on Insured
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Additional Insured Opportunities • An additional insured (AI) is an entity that is
named as an insured on the insurance policy issued to a separate entity.
• Being named as an AI is usually the result of a contractual requirement, such as a Port requiring that its subcontractors operating on the Port’s premises name the Port as an AI.
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Additional Insured Opportunities • An AI usually results from a policy endorsement that will
either name the AI by specific name or by a general description in a blanket AI endorsement.
• To determine the extent of coverage provided, you need to examine the specific language of the policy or AI endorsement. Often, a dispute will revolve around whether the AI provision covers the AI’s independent actions, as opposed to potential liability arising from the ongoing operations of the named insured. This language was used in the mid-80’s in a standard ISO form.
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Additional Insured Opportunities • WHO IS AN INSURED (Section II) is amended
to include as an insured the person or organization shown in the Schedule, but only with respect to liability arising out of “your work” for that insured by or for you.”
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Triggering a Defense for Zombies • Someone needs to pay for the defense. • Defending pollution claims is expensive. • A zombie often has no incentive to put up a defense
to CERCLA claims. • CGL policies impose two primary obligations on an
insurer: the obligation to defend and the obligation to pay damages.
• Requiring an insurer to provide a defense raises the possibility that the insurer will be motivated to pay damages.
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Zombies and Lost Policy Claims • What is a lost policy? • Who brings the claim? • How to prove the existence, terms, and conditions
of coverage?
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Scope of Coverage • Key Policy Language • The insurer will pay on behalf of the insured “all
sums which the insured shall become legally obligated to pay as damages by reason of bodily injury or property damage arising out of an occurrence.”
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Scope of Coverage • “All Sums”
• Relates to Allocation • Difference between Oregon and Washington
• Washington – Joint and Several • Oregon – Pro Rata
• “Legally Obligated to Pay” • Statutory Obligation • Applies to “Voluntary” Cleanup Actions
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Scope of Coverage • “Property Damage”
• Third Party Property (e.g., adjacent property, groundwater)
• Threat of Damage to Third Party Property Triggers Duty to Defend
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Scope of Coverage • “Occurrence”
• During Policy Period • Neither Expected Nor Intended • Continuous Trigger Generally Applied in
Environmental Context • Multiple Occurrences Affect Calculation of
Coverage Available
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Applicable Exclusions • Pollution Exclusion
• Qualified Pollution Exclusion (Pre-1986) • “Sudden and Accidental” • Subjective Intent of the Insured
• Absolute Pollution Exclusion (Post-1986)
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Applicable Exclusions • Owned Property Exclusion
• No coverage if damage is limited to Insured’s property
• Groundwater considered Third Party Property • Recovery of Soil Cleanup Costs
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The Insured’s Duties • Notice
• Early and Often • Effects of Late Notice
• Proving Terms of Coverage • Initial burden on Insured
• Extent of the Coverage • Policy Limits • Policy Period
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The Insured’s Duties • Proving Terms of Coverage (cont’d)
• Applicability of Exclusions are Insurer's Burden • Cooperation in Investigation of Claim
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The Insured’s Duties • Duty to Defend
• Triggered by a “Suit” • Complaint • PRP Letter • Other?
• Scope of the Duty to Defend • Allegations in Complaint/PRP Letter • Applies even where no Duty to Indemnify