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March 2013

Court Limits Insurers' Ability to Seek Subrogation for Environmental Remediation Claims

On March 15, the U.S. Court of Appeals for the 9th Circuit issued a decision that will impact insurers’ ability to bring subrogation claims under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), 42 U.S.C. §9601. The decision signals yet again that carriers must retain knowledgeable litigation counsel early in the process to recoup expenditures made to an insured under an environmental policy. 

In Chubb Custom Ins. Co. v. Space Systems/ Loral, Inc., 2013 U.S. App. LEXIS 5198 (9th Cir. 2013), the court affirmed the dismissal of an insurance carrier’s complaint asserting subrogation claims under CERCLA and California state law. The carrier, Chubb, had made insurance payments to its insured, Taube-Koret Campus for Jewish Life, for $2.4 million in cleanup costs Taube-Koret incurred in remediating soil and groundwater contamination on its property.

After paying Taube-Koret’s claim under its environmental site liability insurance policy, Chubb filed an action for subrogation against several parties it contended were wholly or partly responsible for causing the pollution Taube-Koret had remediated. Chubb stated claims for cost recovery under CERCLA §107(a) and for subrogation under §112(c), and asserted state law claims for statutory indemnity, negligence per se, and strict liability under California law. The district court dismissed the action with prejudice for failure to state a claim under Federal Rule of Civil Procedure 12(b)(6).

In a divided opinion, the 9th Circuit affirmed.  The majority held that Chubb’s claim for cost recovery under CERCLA §107(a) failed because Chubb, the plaintiff, had not itself incurred “costs of response” related to the removal or remediation of a polluted site as required by §107(a). Rather, Taube-Koret had incurred costs of remediation, since it was the entity that paid for the actual cleanup; Chubb, as the insurer, merely reimbursed Taube-Koret but did not directly pay for the remediation. Thus, Chubb lacked standing to sue for cost recovery under §107(a).

Chubb also did not succeed in stating a claim for subrogation under CERCLA §112(c), which permits an insurer to state a subrogation for compensation paid to a “claimant,” the majority held. A “claimant” is defined under the statute as “a person who demands compensation for damages or costs from the Superfund or a liable party resulting from a CERCLA violation,” the court wrote. Because Chubb did not allege that Taube-Koret had demanded compensation from any of the defendants, Taube-Koret was not a “claimant” under the act, and Chubb could not satisfy this necessary element of a CERCLA subrogation claim.

Finally, the 9th Circuit affirmed the district court’s finding that Chubb’s subrogation claims under California state law were barred by the three-year statute of limitations under California Code of Civil Procedure §338(b). The court rejected Chubb’s argument that the statute was triggered by its payment to Taube-Koret. Instead, the subrogee insurer stands in the shoes of the insured, such that the statute of limitations began to run when Taube-Koret knew or should have known of the contamination to its property, which the court held occurred at least as of the date when remediation orders were issued to Taube-Koret more than three years before Chubb filed its subrogation action. 

Chubb Custom Ins. Co. is a significant decision because of the limitations it places on insurers’ ability to seek subrogation for environmental remediation claims. After this case, insurers seeking to recover payments to insureds will only be able to maintain subrogation claims under CERCLA pursuant to §112(c), not §107(a), and more importantly, they will only be able to maintain such suits where their insureds (or perhaps the insurers) have become a “claimant” by issuing a written demand for payment to the Superfund or to potentially responsible parties (PRPs). (It is not clear from the opinion why Chubb never attempted to cure this deficiency, although the district court’s reasons for dismissal were so multifaceted that it may have been difficult to anticipate on what grounds the 9th Circuit might affirm.) The majority struggled with the possibility that its holding would limit the success of future subrogation claims, but stated that one option available to insurers is to “write their policies in a way as to require reasonable cooperation from their insureds.” 

In the future, insurance companies wishing to perfect claims for subrogation environmental remediation payments under CERCLA §112(c) will need to ensure that their insured makes a timely claim for reimbursement from the Superfund or other PRPs. Doing so will allow such claims to survive the challenge that felled Chubb. Alternatively, it appears an insurer that arranges to pay remediation costs directly, if doing so is practicable, would maintain the option of pursuing cost recovery under CERCLA §107(a). 

Finally, any insurer hoping to preserve state law remedies will need to act quickly to determine the date when its insured knew, or should have known, of the pollution damage to its property, as such claims will become stale within three years of that date under California law — and in fact, may be on the eve of expiration at the time the policy is purchased.


Environmental/Toxic Tort