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April 11, 2012
Christine Paulson
Department of Natural Resources, Air Quality Bureau
7900 Hickman Road, Suite 1
Windsor Heights, Iowa 50324
Re: Notice of Intended Action ARC 0051C, Chapter 17 of Iowa Administrative Code 567
Dear Ms. Paulson:
I am filing these comments on my own behalf as an environmental litigation attorney with BrownWinick Law Firm. These comments pertain to the proposed addition of a new Chapter 17 to the Iowa Department of Natural Resources’ rules. My comment is generally that the proposed rule, as currently drafted, does not appear to address the constitutional issues raised in the United States Supreme Court’s recent unanimous ruling in Sackett v. Environmental Protection Agency (2012) which was decided on March 21, 2012, the same day that the proposed rule was published for comment.
It might be helpful to provide some background of the Sackett case. The Sacketts owned .63 acres of Idaho property. In 2007 they started development and filled in most of the property with dirt and rock in preparation for building a house. The Environmental Protection Agency (“EPA”) filed a compliance order against the Sacketts, alleging that the property was a wetland subject to the Clean Water Act. The order required the Sacketts to restore the property. The Sacketts asked for a hearing, which the EPA refused. The Sacketts filed an action in the District Court asking for injunctive and declaratory relief, arguing that EPA’s action was arbitrary and capricious under the Administrative Procedure Act, 5 U.S.C. §706(2)(A), that they had the right to judicial review of final agency action for which there was no other adequate remedy in a court, 5 U.S.C. § 704, and that the refusal to grant the right to review violated their procedural due process rights under the Fifth Amendment.
Under the Clean Water Act, 33 U.S.C. 1319(a)(3), (“CWA”) the EPA can either issue a compliance order “on the basis of any information available,” or file a civil action in federal court seeking compliance under § 1319(b). Administrative penalties can also be issued under § 1319(g). Those penalties can accrue at the rate of $32,500 per day in fines or administrative penalties of $11,000 per day for each violation. The EPA maintains that the first enforcement option, compliance orders, are enforceable through a subsequent district court action. The EPA argued before the district court that if it issued a simple compliance order under § 1319(a)(3) in lieu of either an administrative penalty or a civil action in district court that the respondent had no right to an appeal under the Administrative Procedures Act (“APA”) and the CWA. In response, the Sacketts argued that the APA makes agency action reviewable when there is no other adequate remedy.
The district court dismissed the lawsuit and the Ninth Circuit affirmed the dismissal. Sackett v. United States Environmental Protection Agency, 622 F.3d 1139 (9th Cir. 2010) rev’d Sackett v. United States Environmental Protection Agency __ U.S. __ (2012). Both the district court and the Ninth Circuit found that uniform case law holds that the CWA does not grant a right to appeal a compliance order, citing decisions from the Tenth, Sixth and Seventh Circuit Courts of Appeal. The basis for these decisions is that the compliance order does not by itself impose monetary sanctions; that the EPA must resort to the district courts first; and that the denial of pre-enforcement judicial review does not violate the Fifth Amendment’s due process guarantee. The United States Supreme Court granted a writ of certiorari and the matter was argued on January 9, 2012. A decision was issued on March 21, 2012.
The unanimous decision was authored by Justice Scalia. The reasoning in the order was straightforward and to the point. The court started with Chapter 7 of the Administrative Procedures Act, 5 U.S.C. § 704, which provides for judicial review of agency action.
The court began its analysis by addressing the legal issue of whether the compliance order was agency action. The court found that there was “no doubt” that the order was “agency action” under the APA as the APA even defines a “failure to act” as agency action §§551(13), 701(b)(2).
As to whether the Order constituted “final” agency action, the court stated:
It has all of the hallmarks of APA finality that our opinions establish. Through the order, the EPA “‘determined’” “‘rights or obligations.’” Bennett v. Spear, 520 U. S. 154, 178 (1997) (quoting Port of Boston Marine Terminal Assn. v. Rederiaktiebolaget Transatlantic, 400 U. S. 62, 71 (1970)).By reason of the order, the Sacketts have the legal obligation to “restore” their property according to an agency approved Restoration Work Plan, and must give the EPA access to their property and to “records and documentation related to the conditions at the Site.” App. 22, ¶2.7. Also, “‘legal consequences . . . flow’” from issuance of the order. Bennett, supra, at 178 (quoting Marine Terminal, supra,at 71). For one, according to the Government’s current litigating position, the order exposes the Sacketts to double penalties in a future enforcement proceeding. It also severely limits the Sacketts’ ability to obtain a permit for their fill from the Army Corps of Engineers, see 33 U. S. C.§1344. The Corps’ regulations provide that, once the EPA has issued a compliance order with respect to certain property, the Corps will not process a permit application for that property unless doing so “is clearly appropriate.”33 CFR §326.3(e)(1)(iv) (2011).
Id. at __. (footnotes omitted). The court next addressed the question of whether there was any other adequate remedy. Justice Scalia held that although the CWA allows the EPA to seek enforcement of the compliance order, “each day that [the Sacketts] wait for the agency to drop the hammer, they accrue, by the Government’s telling, an additional $75,000 in potential liability.” Id. at __. The court next addressed the EPA’s argument that the CWA prohibits an appeal. The court first found that nothing in the CWA expressly precludes judicial review. The court next addressed the Government’s argument that because the CWA grants the EPA a choice of a compliance order or a judicial proceeding that it would undermine the Act to allow judicial review. This is the argument that the various circuits that had reviewed previous challenged relied upon. The court rejected this argument as resting on a question-begging premise that the relevant difference between a compliance order and an enforcement proceeding is that only the latter is subject to judicial review. The court suggested that there were other reasons that the EPA could want to issue a compliance order, other than just avoiding court. The court went on to reject all of the other arguments offered by the Government, including the final argument that subjecting compliance orders to judicial review would make it less likely that the EPA would use orders. In rejecting this argument, the court held that this “may be true—but it will be true for all agency actions subjected to judicial review. The APA’s presumption of judicial review is a repudiation of the principle that efficiency of regulation conquers all.” Id. at __. The court concluded by noting that “And there is no reason to think that the Clean Water Act was uniquely designed to enable the strong-arming of regulated parties into “voluntary compliance” without the opportunity for judicial review—even judicial review of the question whether the regulated party is within the EPA’s jurisdiction.” Id. at __.
The rule change proposed by the IDNR is functionally identical to the practice invalidated by the Sackett decision. In both instances the government proposes to issue a document in which a violation of the law is alleged. In both instances the rules do not specifically state that a party has no right to appeal from a Letter of Inquiry, Letter of Noncompliance, or Notice of Violation. In both instances it is the practice of the agency to deny a party the right to an appeal. In both cases the rules governing the imposition of penalties specifically allow for the consideration of whether there have been previous violations. See, 567 IAC 10.2(2)(e). Read broadly, a previously issued, but non-appealable, Notice of Violation for the same matter could be used to enhance penalties. In the words of Justice Alito in his concurring opinion in the Sackett case, “In a nation that values due process, not to mention private property, such treatment is unthinkable.”
One way to perhaps bring the proposed rule into compliance is to formally state that none of the measures set out in Chapter 17 can be used or referenced in any subsequent proceeding or in any follow-up assessment of a penalty under Chapter 10. The alternative is to provide the right to a contested case under Iowa Code Chapter 17A. That was the alternative suggested by the United States Supreme Court in the Sackett case.
In order to comply with due process requirements there is really no other middle ground that I can suggest. Either the action by the IDNR is not “administrative action” because it is not coupled with any ability to sanction the alleged violator or it is in fact administrative action which is intended to impose a real or threatened sanction due to its use in a subsequent enforcement action by the IDNR.
Sincerely,
James L. Pray
JLP:hs
Four cars approach an intersection with a four-way stop. Every car is heading in a different direction. All arrive the intersection at the same time and all are equipped with autonomous control and none of the driver/aka passengers are paying attention. The “car to the right rule kicks in” and all four cars, for whatever reason, decide that they are indeed the “car to the right.” All of the cars collide in the center of the intersection, causing bodily harm to all four drivers. Here in Iowa, which is not a no-fault state, the negligent party’s insurance company is on the hook for the claims. But who was negligent? The drivers for not taking over the controls? The software programmers for not taking into account the scenario that I outlined above? The car manufacturers? Nobody? I suppose it is also inevitable that UPS, FedEx, and the Postal Service will replace their drivers with autonomous cars and robots to handle the delivery of packages. The same must be true for over the road trucks.
What if the driver is legally drunk and the autonomously piloted car is in a car accident? Is the driver really guilty of a DUI? Will autonomously piloted cars encourage drinking and driving?
It is clear that autonomous vehicles will require a reworking of state laws to account for new developments. The easiest way to handle some of the legal issues is for states to adopt no-fault insurance laws that specifically take into account autonomous vehicles.
Background: On April 2, 2007, the U.S. Supreme Court ruled in Massachusetts v. EPA, that greenhouse gases, including carbon dioxide, are air pollutants under the Clean Air Act and that the EPA must determine if they threaten public health and welfare. On December 15, 2009, the EPA Administrator found that the current and projected concentrations of greenhouse gases endanger the public health and welfare of current and future generations. Thereafter, the EPA agreed to proceed with rulemaking. The first real product of this rulemaking procedure is the new GHG standard for large power plants.
Proposal: The new rules are reportedly so strict that no coal-fired power plant can meet the regulations. Although the rules exempt about a dozen coal-fired power plants already on the drawing boards, the rule will apply to future plants. Certain natural gas fired plants are able to meet the new rules.
The rules can be found HERE.
Natural Resources Defense Council, Inc., et al., v. United States Food and Drug Administration, et al., (S.D.N.Y. March 22, 2012) (1:11-cv-03562-THK)
Online copy: HERE
Background: In 1977 the FDA issued notices announcing its intent to withdraw approval of the use of certain antibiotics in livestock for the purposes of growth promotion and feed efficiency because the practice had not been found by the FDA to have been proven to be safe. Until the filing of the lawsuit by the Natural Resources Defense Council on May 25, 2011 the FDA had done nothing with respect to the notices for thirty years. During that time, research continued to show that the use of sub-therapeutic antibiotics on animals was either unsafe or that the use was not proven to be safe. In fact, the court noted that:
Research has shown that the use of antibiotics in livestock leads to the development of antibiotic-resistant bacteria that can be and has been -transferred from animals to humans through direct contact, environmental exposure, and the consumption and handling of contaminated meat and poultry products.
It appears to be clear that the FDA did not collect any substantive research data that justified reversing the withdrawal process. The NRDC lawsuit alleged that the FDA’s thirty-year delay constituted a violation of the APA and the FDCA and asked that the court order the FDA to withdraw approval of the drugs for sub-therapeutic purposes.
In December of 2011 the FDA responded to the NRDC lawsuit by withdrawing the notices. In response to a motion for summary judgment filed by NRDC, the FDA argued that the lawsuit was now moot. In doing so, the FDA did not allege that the withdrawal of the notices was based on any reversal of the original 1977 findings that the drugs were not proven to be safe.
Discussion: The Judge first disposed of the FDA’s mootness argument. The Judge held that by withdrawing the notices without any change in the underlying findings that the FDA was violating the law. Although the FDA pointed to a new guidance document that it had drafted in 2010 to deal with microbial food safety issues, the Judge noted that non-binding guidance documents and other policy documents do not take the place of administrative action mandated by the statute. The court concluded that the withdrawal “does not absolve the agency of its statutory duty to initiate and complete withdrawal proceedings.”
The court’s ruling is silent on the issue of whether the FDA had any other defense other than mootness. The court therefore had no problem concluding that the FDA had to proceed with its procedure to withdraw the drugs. The court held:
Defendants are hereby ordered to initiate withdrawal proceedings for the relevant NADAs / ANADAs . Specifically, the Commissioner of the FDA or the Director of the CVM must re issue a notice of the proposed withdrawals (which may be updated) and provide an opportunity for a hearing to the relevant drug sponsors; if drug sponsors timely request hearings and raise a genuine and substantial issue of fact, the FDA must hold a public evidentiary hearing. If, at the hearing, the drug sponsors fail to show that use of the drugs is safe, the Commissioner must issue a withdrawal order.
The court ended the opinion by noting that it was not mandating any particular outcome and added that the drug companies had a right to a hearing where they could try to prove that the sub-therapeutic uses of the drugs were safe.
Sackett v. United States Environmental Protection Agency, __ U.S. ___ (2012)
Lower court decision: Sackett v. United States Environmental Protection Agency, 622 F.3d 1139 (9th Cir. 2010).
Summary: United States Supreme Court holds that Federal courts have subject-matter jurisdiction to conduct review of administrative compliance orders issued by the Environmental Protection Agency pursuant to the Clean Water Act, 33 U.S.C. § 1319(a)(3), before the EPA has filed a lawsuit in federal court to enforce the compliance order. Decision reverses the Ninth Circuit and several other circuits.
Background: The Sacketts own .63 acres of Idaho property. In 2007 they started development and filled in most of the property with dirt and rock in preparation for building a house. The EPA filed a compliance order against the Sacketts, alleging that the property was a wetland subject to the Clean Water Act. The order required the Sacketts to restore the property. The Sacketts asked for a hearing, which the EPA refused. The Sacketts filed an action in the District Court asking for injunctive and declaratory relief, arguing that EPA’s action was arbitrary and capricious under the Administrative Procedure Act, 5 U.S.C. §706(2)(A), that they had the right to judicial review of final agency action for which there was no other adequate remedy in a court, 5 U.S.C. § 704, and that the refusal to grant the right to review violated their procedural due process rights under the Fifth Amendment.
Decision. Under the Clean Water Act, 33 U.S.C. 1319(a)(3), the EPA can either issue a compliance order “on the basis of any information available,” or file a civil action in federal court seeking compliance under § 1319(b). Administrative penalties can also be issued under § 1319(g). Those penalties can accrue at the rate of $32,500 per day in fines or administrative penalties of $11,000 per day for each violation. The EPA maintains that the first enforcement option, compliance orders, are enforceable through a subsequent district court action. The EPA argued before the district court that if it issued a simple compliance order under § 1319(a)(3) in lieu of either an administrative penalty or a civil action in district court that the respondent had no right to an appeal under the APA and the CWA. In response, the Sacketts argued that the APA makes agency action reviewable when there is no other adequate remedy.
The district court dismissed the lawsuit and the 9th Circuit affirmed the dismissal. Both courts found that the uniform caselaw holds that the CWA does not grant a right to appeal a compliance order, citing decisions from the 10th, 6th, and 7th circuits. The basis for these decisions is that the compliance order does not by itself impose monetary sanctions; that the EPA must resort to the district courts first, and that the denial of pre-enforcement judicial review does not violate the Fifth Amendment’s due process guarantee. The United States Supreme Court granted a writ of certiorari and the matter was argued on January 9, 2012. A decision was issued on March 21, 2012.
The unanimous decision was authored by Justice Scalia. The reasoning in the order was straightforward and to the point. The court started with Chapter 7 of the Administrative Procedures Act. 5 U.S.C. § 704 which provides for judicial review of
The court began its analysis by addressing the legal issue of whether the compliance order was agency action. The court found that there was “no doubt” that the order was “agency action” under the APA as the APA even defines a “failure to act” as agency action §§551(13), 701(b)(2). As to whether the Order constituted “final” agency action, the court stated:
It has all of the hallmarks of APA finality that our opinions establish. Through the order, the EPA “‘determined’” “‘rights or obligations.’” Bennett v. Spear, 520 U. S. 154, 178 (1997) (quoting Port of Boston Marine Terminal Assn. v. Rederiaktiebolaget Transatlantic, 400 U. S. 62, 71 (1970)).By reason of the order, the Sacketts have the legal obligation to “restore” their property according to an agency approved Restoration Work Plan, and must give the EPA access to their property and to “records and documentation related to the conditions at the Site.” App. 22, ¶2.7. Also, “‘legal consequences . . . flow’” from issuance of the order. Bennett, supra, at 178 (quoting Marine Terminal, supra,at 71). For one, according to the Government’s current litigating position, the order exposes the Sacketts to double penalties in a future enforcement proceeding. It also severely limits the Sacketts’ ability to obtain a permit for their fill from the Army Corps of Engineers, see 33 U. S. C.§1344. The Corps’ regulations provide that, once the EPA has issued a compliance order with respect to certain property, the Corps will not process a permit application for that property unless doing so “is clearly appropriate.”33 CFR §326.3(e)(1)(iv) (2011).
Id. at __. (footnotes omitted). The court next addressed the question of whether there was any other adequate remedy. Justice Scalia held that although the CWA allows the EPA to seek enforcement of the compliance order, “each day that [the Sacketts] wait for the agency to drop the hammer, they accrue, by the Government’s telling, an additional $75,000 in potential liability.” Id. at __. The court next addressed the EPA’s argument that the CWA prohibits an appeal. The court first found that nothing in the CWA expressly precludes judicial review. The court next addressed the Government’s argument that because the CWA grants the EPA a choice of a compliance order or a judicial proceeding that it would undermine the Act to allow judicial review. This is the argument that the various circuits that had reviewed previous challenged relied upon. The court rejected this argument as resting on a question-begging premise that the relevant difference between a compliance order and an enforcement proceeding is that only the latter is subject to judicial review. The court suggested that there were other reasons that the EPA could want to issue a compliance order, other than just avoiding court. The court went on to reject all of the other arguments offered by the Government, including the final argument that subjecting compliance orders to judicial review would make it less likely that the EPA would use orders. In rejecting this argument, the court held that this “may be true—but it will be true for all agency actions subjected to judicial review. The APA’s presumption of judicial review is a repudiation of the principle that efficiency of regulation conquers all.” Id. at __. The court concluded by noting that “And there is no reason to think that the Clean Water Act was uniquely designed to enable the strong-arming of regulated parties into “voluntary compliance” without the opportunity for judicial review—even judicial review of the question whether the regulated party is within the EPA’s jurisdiction.” Id. at __.
This case is a welcome breath of clear reasoning from the Supreme Court and a strong blow against the strong-arm tactics employed by the EPA. It is too early to tell how this will change the EPA’s practice. It is possible that the EPA will resort to another nefarious practice of dangling a consent order in front of a party with the threat that if the party does not accept the terms within a few days that the EPA will issue an order imposing a much higher fine.
Jim Pray
In a recently science article recently published by the Annals of the New York Academy of Sciences in the Ecological Economic Reviews issue entitled “Full cost accounting for the life cycle of coal” by Paul R. Epstein and eleven other authors, several startling new facts regarding the mining practice of mountaintop removal were outlined. First, mountaintop removal is the relatively recent practice of leveling mountains and filling streams to gain access to and remove coal seams. Mountaintop removal has been completed on five hundred sites in Kentucky, West Virginia, Tennessee, and Virginia. This means that there are five hundred mountains and ridges that no longer exist. In addition, 2,000 miles of streams have been buried and rerouted. The effluent from the coal mining sites is estimated to be polluting 2,500 miles of additional downstream rivers and streams. A total of 1.4 acres of forest have also been removed. In West Virginia alone, there are 110 billion gallons of coal slurry in impoundments. These impoundments are associated with coal refining plants. Fifty-three of Appalachia impoundments have already failed, including one that spilled 309 million gallons in 2000.
The article also outlines the health risk to the local communities caused by the air and water contamination. However, reports of cancer clusters admittedly needs further study.
Sometimes a headline is so bizarre that you have to stop and wonder if it is true. When I read that on March 13, 2012 Scotts Miracle-Gro had entered a plea of guilty with a proposal to pay $4.5 million in fines for adding an insecticide known to be toxic to birds to 73 million bags of birdseed I was floored. How could anybody be so stupid? That is like selling rat poison as cat food. But after checking out the story, it turns out that it is indeed true.
So what was Scotts thinking? Did it have it out for birds? Their excuse, feeble as it is, is that they wanted to kill the vermin that was eating the seed in their warehouse. That is not an excuse, since the obvious conclusion is that this pesticide is listed as toxic to birds. Based on the story in the Washington Post/Bloomberg, employees even warned management years into the scheme that the practice was illegal to no avail. Management simply created fake documents and fake correspodence to show that it had the proper permits.
I suspect that this manager will be going to prison even if the company itself gets off with a $4.5 million fine. Perhaps a better sentence would be that Scotts is barred from selling any pesticide or herbicide for two years. That might teach a lesson in corporate responsibility.
PPL Montana, LLC v. Montana, ___ U.S. ____ No. 10-218 (February 22, 2012)
http://www.supremecourt.gov/opinions/11pdf/10-218.pdf
Summary: United States Supreme Court engages in a historical fact-finding tour of old documents, including the Lewis and Clark notes, to determine if Montana or PPL, as riparian landowners, hold title to riverbeds underlying the PPL hydroelectric dams in Montana.
Background: Section 3, Clause 1 of the US Constitution states: “New States may be admitted by the Congress into this Union; but no new State shall be formed or erected within the Jurisdiction of any other State; nor any State be formed by the Junction of two or more States, or Parts of States, without the Consent of the Legislatures of the States concerned as well as of the Congress.” Since the admission of Tennessee in 1796, Congress has included in each State’s act of admission a clause providing that the State enters the Union “on an equal footing with the original States in all respects whatever.” This constitutional doctrine has been held to cause any navigable rivers present in a state upon statehood to become sovereign waters of that state unless the United States had previously granted those waters to a third party. Non-navigable waters are not held by a sovereign.
PPL owed a number of hydroelectric dams on Montana rivers. It never paid any rents to Montana for the use of the riverbed. In 2003 a citizen group sued PPL asking that the court find that the dams were built on state-owned lands. Montana joined the suit. The case was dismissed for lack of subject matter jurisdiction. The case was refilled in state court. Montana argued that under the equal-footing doctrine that it owned the riverbeds and could charge rent. The court awarded Montana an order that PPL pay Montana $40,956.180. The Montana Supreme Court affirmed, finding that the rivers in question were navigable because parts of them were navigable. The court found that portaging was not an impediment to a river’s status as “navigable.” The court also held that the rivers were therefore owned by Montana.
Justice Kennedy, writing for a unanimous court, decided that the court needed to determine if the river was navigable at the time of statehood. He rejected the Montana court’s determination that a forced portage had no effect on navigability. He also cited a number of cases in which rivers were divided into navigable and non-navigable sections.
I’ve always joked to my clients that some people in the environmental field won’t be happy until we are wearing grass skirts and diapers. I used to add that we would be cooking meals over a charcoal fire, but with the heat over global warming that is probably not on the agenda any longer.
But now I see that some business interests are suggesting that measures need to be taken to prevent cytotoxic chemotherapy drugs and other products from entering the wastewater stream. This is part of a larger concern that pharmaceuticals and personal care products (“PPCPs”) are contaminating groundwater and drinking water supplies when flushed down the toilet or dumped down the drain. The EPA and USGS are already finding these PPCPs and highly toxic chemotherapy drugs in groundwater.
What caught my eye was a report that the law firm for a company called Pharma-Cycle has issued a memo making the legal contention that flushing human excrement violates Rhode Island environmental laws if that excrement contains hazardous substances. Of course the law firm’s client sells the products that would supposedly solve this problem. Exactly what this product looks like is unclear as their webpage does not clearly explain what is in their “Pharma-Cycle kit.” If it is not a diaper, then it is likely some sort of toilet contraption similar to the portable toilets that can be used by campers along with a hamper, and, I hope, some sort of seal.
What all of this ignores of course is that illegal drugs such as cocaine are also commonly found in the wastewater stream. In fact, federal agencies can use the levels of those drugs in the wastewater stream to calculate actual drug use in communities. It is already illegal to have or use those drugs, so is there really any hope of being able to keep those drug users from doing their thing in their toilet? No.
Finally, I am left with the worrisome thought this movement will catch on and that we will all be wearing grass skirts and diapers. Just wait.
Protecting against property damage and liability losses during the transportation of biofuels requires that producers, marketing companies, and transporters fully appreciate not only the different types of liabilities and claims that can arise but the different products and contractual protections that are available. Just as a ship builder must make sure that the ship is 100% watertight before it is launched, producers, marketing companies, and transporters must be assured that they have purchased or contracted complete protection. Failure to have proper insurance in place at any stage of the production and transportation stream can give insurance companies and third parties an opportunity to shift risks back to the producer, marketing company, or transporter.
Insure the product before it leaves the plant.
Ironically, insuring against liability and loss in the transportation of biofuels begins with making sure that there is adequate insurance and liability protection for the biofuel before it even leaves the plant. This is because insurance companies and third parties may seek to deny coverage and liability for any loss that occurs after the product leaves the plant on the basis that it was defective (or “off-spec”) when it left the plant. Also, because many sales and marketing agreements transfer title to product as soon as the biofuel enters the pipeline, train car, or truck who is responsible if there is a disaster during that process? There can be both product loss and liability claims arising from a fire or spill of biofuels during the loading or pumping process. In the event of a catastrophic failure, it may even be difficult to tell how much product was in the tank and how much had been successfully transported. If the producer has insurance policies in place to protect it in either case, then it will be left to the different insurance companies to determine who has liability.
Liability arising from damage to vehicles, property and people during the transportation of the product.
The transportation of biofuels usually requires the use of train cars, barges, or trucks. Liability can arise if a carrier’s vehicles or barges are damaged on the facility grounds. As an example, poor road conditions and unclear signage can contribute to accidents on the facility. Releases of sulfuric acid and methanol (used to refine biofuels) can escalate the size and complexity of the claim. The facility’s management should make sure that it has adequate insurance. Standard property casualty policies may not cover damage to trucks and trains owned by third parties because that property is not owned, controlled or leased by the facility.
Furthermore, standard liability policies frequently exclude incidents involving train derailments or collisions. If the facility owns railroad tank cars, then management should check to make sure that there is insurance in place to cover not only the cost of repair but also any liability or demurrage claims that may arise if an injury or derailment is caused by a defect in the tank car. If coverage for damages to or caused by railroad trains is excluded, then the company should buy a special endorsement or policy.
Liability arising from releases of biofuel
Transportation of finished biofuels and byproducts can also pose a liability risk due to releases during transit. This risk is greatly reduced if the product is being carried by a common carrier’s equipment. Generally, the common carrier will be liable for accidents involving its own equipment and drivers. However, depending on the tariff or contract, the shipper may have a duty to secure the load properly. If the facility owns the trailer or tank car, then any equipment problem that contributes to an accident or release of product can also generate secondary liability, even if it is being transported by a common carrier. Both producers and marketers can be involved in the ownership of trailers and tank cars and both should be careful to make sure that adequate insurance is obtained.
If product is released during transport, there are possible civil, administrative, and criminal penalties that can be assessed by state and federal agencies if the release can be traced back to a failure of the refinery to properly load and secure the product. For releases that are large enough to require removal and remediation, then there may also be liability to state and federal agencies that respond and third parties whose property may be affected. Standard policies may specifically exclude any claims arising from the release of a “pollutant.” Finding environmental insurance that will cover those claims can be very challenging. Lower tier environmental insurance policies contain so many exclusions that they are nearly worthless. There is also no point in buying an environmental insurance policy if it excludes releases that take place during transport or cleanup costs. It is hard to believe that an environmental policy would exclude emergency response and removal costs, but they are out there.
Pursuing the insurance.
The job does not end with the identification of an insurance policy that appears to cover a given claim. There is an old adage that insurance companies are in the business of collecting premiums and not paying claims. If the claim is small, insurance companies reject the claim knowing that the cost of litigation for the insured to recover on the claim will consume any recovery. If the claim is large, they reject the claim knowing that when faced with the prospect of costly and drawn-out litigation the insured may capitulate and take less than the full value of the coverage. In either case, the producer, marketer, or transporter may have to go to court in order to get the coverage that it has paid for.
James Pray is a member of the BrownWinick law firm in Des Moines, Iowa and is chair of both its environmental and energy law practice groups. He is former chair of the Iowa Bar Association’s environmental and administrative law councils. He has been actively litigating railroad, trucking and environmental matters for more than 20 years. He has worked with more than 30 biodiesel and ethanol facilities across the United States.
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