Environmental Liabilities: Considerations For The Consulting Engineer
 
by Howard W. Ashcraft, Jr.
  
  
Introduction

Test tubes and monitoring wells are replacing "sticks and bricks" in engineering practice. This transition creates new and exciting opportunities, but also profoundly affects the liabilities engineers face. New risk management strategies must be developed to balance risk and reward. This paper summarizes key factors affecting environmental liabilities and provides suggestions for minimizing these new environmental risks.

Environmental Claims-Qualitatively Different

Several factors make environmental claims more dangerous than traditional construction claims.

Leveraged Liability: Liability for environmental projects is often disproportionate to the fees earned. Errors in small projects can result in large liabilities. Because liability is least when knowledge of the site is greatest, environmental projects, such as site assessments, can even have liability that is inversely proportionate to the fee. Doing less may result in more liability.

Third Party Liability: Environmental claims are often made by persons the engineer has never met. This broad range of invisible claimants-lenders, purchasers or bystanders-increase the probability and severity of claims.

Strict Statutory Liability: Negligence is the primary standard applicable to construction professionals. Environmental professionals, in contrast, can be subjected to strict statutory liability. CERCLA and similar statutes can impose liability on the faultless.

Evolving Technologies: Fast changing technologies assure that better methodologies will be developed. Unfortunately, today's decisions may get measured by tomorrow's knowledge.

Changing Social and Regulatory Environments: Even if technologies remained constant, the social and regulatory frameworks change. Creative claimants will contend their engineers should have anticipated likely developments.

Long Tailed Liability: Most construction claims occur soon after construction is completed. Statutes of limitation and repose further serve to shorten liability exposure. Environmental claims may lie dormant for many years. When they awake, culpable parties may have disappeared, insurance may have vanished, and legal standards may have changed. The asbestos crisis evidences the distress caused by latent liabilities.

Criminal and Personal Liability: Environmental statutes often contain provisions imposing personal and criminal liability. The dangers inherent in such claims complicate defense of environmental claims. Conflicts of interests abound, privileges disappear and defense costs skyrocket.

Liability of Environmental Professionals Under CERCLA

Engineering consultants face environmental liabilities imposed by contract terms and traditional tort law. While the liabilities arising under these theories can be severe, the legal basis for such claims does not differ from traditional principles applicable to construction claims. The liability faced by engineering consultants under environmental statutes, however, can be substantially broader than allowed under traditional theories.

CERCLA, discussed below, is the leading statutory liability program. It is a template followed by many states. Although other statutory programs may also apply, the potential CERCLA exposures demonstrate the breadth of statutory liability.

A CERCLA Primer

• The essential elements of a CERCLA action are:
• defendant is a "person" listed in CERCLA Section 107(a)(1-4);
• a release(1) or threatened release of a hazardous substance occurred;
• the release occurred at a "facility"(2) and
• the plaintiff(3) incurred response costs consistent with the national contingency plan. (4)

CERCLA imposes strict(5), joint and several liability(6). Liability exists even if the engineer's conduct met the "standard of care." This broad liability standard, when combined with the expansive nature of environmental damages, drastically increases potential liability.

CERCLA defines four categories of responsible persons: owners, operators, arrangers and transporters(7). Few engineers will be facility owners, but they can inadvertently be operators, arrangers or transporters. Operators are persons who operated a facility at the time a disposal of hazardous wastes occurred(8). Arrangers are persons who by "contract, agreement or otherwise arranged for disposal or treatment, or arranged for transport for disposal or treatment of hazardous substances..."(9) Engineers, particularly engineers engaged in design/build remediations, fall within the broad sweep of CERCLA's arranger language.(10) Transporters are persons who accept hazardous substances for "transport to disposal or treatment facilities, incineration vessels or sites selected by such person..."(11) Inadvertent transportation liability can arise when hazardous material is moved within a project site or when a "transporter" is significantly involved in disposal site selection.

Application of CERCLA to Environmental Professionals

Ganton Technologies, Inc. v. Quadion Corporation (12) and City of North Miami, Fla. v. Berger, (13) reflect contrasting approaches to the liability of environmental engineers. These decisions also demonstrate the increased liability inherent in design/build and environmental construction management.

In Ganton Technologies, the court held that a remediation contractor and the remediation engineer could be liable under CERCLA as "operators" of a remediation site. The court noted that both were alleged to have control over the remediation site. Amazingly, the court concluded:

Further, holding clean-up contractors liable under CERCLA is consistent with the policies of CERCLA." As stated by Judge Parsons "CERCLA was intended to tax those who profit or benefit from their disposal." Thus, Congress included within the statute generators, transporters, and dumpsite owners or operators as potential responsible parties. Brookfield-North, slip op. at 23-24. Clean-up contractors fall in this category. (14) (Emphasis added.)

The Ganton Technologies court shows little sympathy for the realities of consulting practice. The court did not recognize any distinction between those who "profit from disposal" and those who "profit by remediation." Both are liable under CERCLA. Further, the court found authority to control disposal, an essential element of CERCLA liability, because the engineer's reports indicated that the engineer actively supervised the contractor's work.(15) While the court did not discuss the contents of the report, one can infer that the reports reviewed the adequacy of the contractor's work since the engineer argued that it merely observed the contractor's work.

A contrasting view appears in City of North Miami. The engineering firm contracted to design a landfill, assist with permits, and consult regarding operation, but was not liable under CERCLA. The engineer only provided advice and did not have the authority to control operations on the site.

The City of North Miami court expressed concern over extending CERCLA's reach to the many engineers providing opinions and advice, stating:

The crucial point is that PBS&J had no authority to make the final operational decisions. It could inspect the site, render advice relating to the placement of wastes and the like, but the ultimate authority whether to implement such advice resided with Hadad and Kaufman. Accordingly, PBS&J's role as an independent engineering contractor for the Munisport site does not render it an operator under CERCLA. Indeed, imposing CERCLA liability on independent contractors such as PBS&J would mean that operator liability could be extended to ensnare virtually all engineers and contactors who provide advice relating to the operation of a waste site.(16)

The North Miami court did hold that the contractor which constructed the landfill was liable under CERCLA as it had actual control over disposal.

The two decisions reflect opposing currents in CERCLA liability. Ganton Technologies assumes that CERCLA is furthered by holding remediation contractors liable since the profit (or hope to) from remediation. North Miami is cautiously opposed to extending liability. Taken together, the cases lead to three conclusions. First, an engineer's CERCLA liability will depend upon the view of the individual court in which an action is brought. Second, the characterization of an engineer's services in the proposal, contract and report is critical to liability. Authority to control or manage the remediation process must be avoided if CERCLA liability is to be escaped. Third, design/build engineers and contractors will almost always be subject to CERCLA liability. Design/builders must decide whether their increased control over project quality counterbalances the increase risks.

Application of CERCLA to site Remediation

Another pair of cases demonstrate CERCLA risks from a contractor's view. In Kaiser Aluminum vs. Catellus,(17) the Ninth Circuit held a rough grading contractor jointly and severally liable for site clean-up costs. The court classified the contractor as an "operator" because it had control of the site and as a "transporter" because it moved hazardous materials from one portion of the site to another.

A contrasting view was expressed in Danella Southwest v. Southwestern Bell Telephone.(18) In Danella a contractor excavated and removed dirt it believed was uncontaminated. After it had excavated some of the material and transported it to another site, it learned that the soil was contaminated with dioxin. The contractor was a proper party under CERCLA, but the court concluded that a zero liability allocation was appropriate.

Application of CERCLA to Transport and Disposal Decisions

Until recently, it was generally believed that transporter liability did not affect engineers unless they were engaged in physically transporting hazardous wastes. Two 1994 cases, however, cast doubt on the extent of transporter liability. In Tippins v. USX,(19) the court held that a transporter that recommended four alternative waste disposal sites "actively participated" in the selection and was, therefore, liable under CERCLA. Although cast as a transporter case, the reasoning of the decision could be transferred to environmental consulting.

The `active participation' standard advances the objectives of CERCLA by recognizing the reality that transporters often play an influential role in the decision to dispose waste at a given facility. Generators undoubtedly regularly rely upon a transporter's expertise in hazardous waste management when considering disposal alternatives. A sophisticated transporter specializing in the transportation of hazardous material is accordingly frquently in the best position to ensure safe and proper disposal of the waste. There is no sound reason for such parties to escape CERCLA liability while the generators, owners, and operators are held liable, when they essentially determined the disposal location subject to the remedial actions and incurring the response costs. This approach also comports with the need to interpret a remedial statute such as CERCLA liberally.

In contrast, the court in C.P. Systems v. Recovery Corp., (20) held that a disposal consultant was not liable as an arranger where it recommended a disposal site, found a transporter, and invoiced the owner for the marked up costs of transportation. The court compared the consultant's activity to the tasks undertaken in Emergency Technologies Services Corp. v. Morton International. In Emergency Technologies, the broker:

• completed the waste profile sheets;
• contacted the disposal site;
• provided shipping and manifest documents;
• supplied description codes and instructions;
• arranged the shipping date;
• provided instructions for packaging the waste; and
• sent invoices the the generator reflecting "disposal" and "transportation" costs.

Although the broker's level of involement in Emergency Technologies may have been greater than the consultant's involvement in C.P. Systems, the difference is slight. The different outcomes are more likely correlated to the specific court than to the specific facts.

State Statutes

There are a tremendous number of state statutes that concern environmental liabilities. Although many of these statutes do not directly discuss the liability of environmental engineers, expansive interpretations of these statutes could include holding engineering firms responsible without fault. HWAC publishes a review of state environmental statutes and regulations affecting environmental engineers.

Three California examples demonstrate a range of state statutory schemes.

 

California Health and Safety Code, 25363. (1993) imposes strict liability for any clean-up costs recoverable pursuant to the Hazardous Waste Control Act (25100 et seq.). Paragraph (f) of that section provides that any response action contractor liable under this standard who proves by a preponderance of evidence that the response action contractor is responsible for only a portion of the costs shall be required to pay only that portion of expenses attributable to the response action contractor's actions.

 

California Water Code 13350 (d)(e)(f) (1993) sets a strict liability standard for any person who causes or permits a hazardous substance to be discharged in or on waters where it creates a nuisance or pollution.

 

Proposition 65, a referendum passed in 1986, effectively imposes strict liability on anyone who causes or contributes to the discharge into water of a known or suspected carcinogen or chemical known to cause reproductive toxicity. The extent of Proposition 65 liability is still unknown. It does not apply to discharges which (1) will not cause any significant amount of the chemical to enter water and (2) is in conformity with other laws. (California Health & Safety code 25249.9.) However, the defendant has the burden of establishing that the discharge is not significant. Proposition 65 permits direct citizen suits.

Liability Mitigation Strategies

Mitigation strategies will vary with the type of project undertaken. A few general concepts apply to most projects.

Client Selection

Who the client is affects liability exposure. For example, a site assessment for a governmental body is less risky than a pre-purchase assessment for a real estate development syndicate. If the information will be distributed to many third parties, risk obviously increases. The first step in managing risk, therefore, is to critically examine clients to determine whether, and on what terms, the assignment is accepted. The following is a list of factors which may be useful in evaluating client based risks.

• Prior experience with a client;

• Sophistication of client;

• Long term viability of client;

• Economic resources of client;

• Relationship of client to project, i.e., end user or developer;

• Litigation history of client;

• Direct or representative client; i.e., real estate syndicate, PRP committee, trustee, receiver or joint venture.

Project Selection

Project selection is an important component of risk management. General factors to consider include:

• Adequacy of prior information or investigation;

• Technical sophistication;

• Novel technologies

• Method of financing;

• Contractual terms;

• Attitudes of reviewing agencies;

• Sensitivities of surrounding neighbors/landowners;

• Peculiar geologic and hydrogeologic conditions.

Quality Assurance/Creation Mechanisms

Quality assurance programs are especially significant in environmental projects. Since the magnitude of potential loss is great, any effort to reduce error is beneficial. Futher, the existence of a quality assurance progam may be required by the standard of care. Quality assurance may also assist in deflecting claims of willful violations of environmental statutes. Prosecutors have great discretion in determining whether to institute criminal proceedings. Evidence that the firm has a policy of searching for and preventing error can be used to persuade prosecutors that criminal proceedings are not warranted.

Total Quality Management teaches that inspection does not create quality. Quality assurance should create structures and systems that avoid error, rather than try to catch errors after they have occurred.

Contractual Protections

Scope and Limitations

Besides technical excellence, the best method for reducing the risk that work will be deemed to have breached the standard of care is often to carefully delineate the scope of work to be undertaken, including work which will not be performed. The analysis to be performed, the standards being used, and the limits on the investigation should be set forth in writing. This supports the argument that the work was correctly performed within the standards and limits imposed.

The scope of work is usually proven from three documents: proposal, contract and report. It is vital that they be consistent and that important limitations on the scope of work be echoed in all three documents. Many firms have QA/QC review of reports; the proposal and contract should have QA/QC review as well.

Third Party Reliance

The contract should explicitly limit reliance by third parties. This is accomplished by stating:

• that the services, data and opinions are for the sole use of client, and are for a particular project, and may not be relied upon by anyone other than the client;

• that the data, opinions and reports are not to be distributed to the third parties without engineer's written agreement;

• that the services, data and options are perishable; i.e., that they should not be relied upon indefinitely; and

• that the agreement is not assignable.

In conjunction with these limitations, the engineer can request that the client indemnify it from liability to third parties caused by unauthorized distribution or use of the report. If it is necessary to distribute the report to a third party, an agreement should be executed by the third party and the client which states that:

• the third party is bound by all of the conditions and limitations of the contract and report;

• the third party is bound by any limitations of liability or indemnity provisions;

• that the liability limitation is an aggregate; and

• that the client does not have any duty to apportion the limitation amount between client and third party.

Limitation of Liability

With exceptions, one liability to a client can be limited by contract. Because liability limitations have little effect on third liabilities, they should be considered an element of a risk management plan, not a complete solution.

The limitation provision must be carefully crafted in concordance with the jurisdiction's specific rules and the client's specific needs. (21)

Consequential Damage Waivers

Many agreements contain provisions waiving consequential damages. These clauses can preclude claims for indirect economic loss and lost profits. Such losses are often the largest portion of an environmental claim.

Fines and Penalties Waivers

An engineer's failure to timely meet deadlines, discharge requirements or similar goals may result in impostion of significant fines against the client. If this is a significant risk, the engineer may wish to disavow responsibility for such fines and penalties.

Indemnification

Indemnification protects the engineer against claims by third parties. Indemnification, however, has four limitations. First, indemnification rarely provides complete protection. It is difficult to draft clauses that accomplish the exact result intended. The options are generally too strong or too weak to meet the parties' reasonable expectations. Second, indemnification law is complicated and quirky. Courts do not interpret indemnification clauses in accordance with their plain language.(22) Third, many states have statutes that limit the scope of indemnification in construction agreements.(23) Such clauses may preclude broad indemnification provisions. Fourth, indemnification depends upon the continued financial viability of the indemnitor. Indemnification is a valuable, but incomplete contractual protection.

Pre-existing Condition Waiver/Indemnification

Clients often resist broad indemnification or limitation of liability provisions. However, they can be convinced to accept liability for pre-existing contamination. Thus, the client may be willing to waive liability or indemnify the engineer against claims arising from contamination that existed before the engineer's services.

Conclusion

Environmental projects are qualitatively different from conventional construction or engineering projects and have a higher potential for loss. Current statistics are not sufficient to determine whether the higher potential for loss equates with higher risk. It appears that the actual risk depends upon a variety of factors, including some factors within the engineer's control. To achieve satisfactory relationships of profit and risk, project principals must understand and manage these risks.

Endnotes

1. A release is defined to mean [A]ny spilling, leaking, pumping, purging, emitting, emptying, discharging, injecting, escaping, leaching, dumping, or disposing into the environment 8 (42 U.S.C.A. 9601(22)).

2.  

3. A facility is defined broadly as any building, structure, installation, equipment, pipe or pipeline (including any pipe into a sewer or publicly owned treatment works), well, pit, pond, lagoon, impoundment, ditch, landfill, storage container, motor vechicle, rolling stock, or aircraft, or any site or area where a hazardous substance has been deposited, stored, disposed of, or placed, or otherwise come to be located; but does not include any consumer product in consumer use or any vessel. (42 U.S.C.A. 9601(9)).

4. If the plaintiff is the United States, this requirement is relaxed such that the response costs incurred are allowable if not inconsistent with the national contingency plan.(42 U.S.C.A. 9607(a)(4)(A)).

5. 42 U.S.C.A. 9607(a); United States v. Aceto Agricultural Chemicals Corp., 872 F.2d 1373,1378-9; Environmental Transportation Systems, Inc. v. ENSCO, Inc., 763 F.Supp. 384,387 (C.D.Ill. 1991) United States v. Bliss, 667 F.Supp. 1298-1304 (E.D.Mo. 1987).

6. 42 U.S.C.A. 9607.

7. New York v. Shore Realty Corp., 759 F.2d 1032,1042, fn. 13 (2nd Cir. 1985);United States v.Aceto Agricultural Chemicals Corp., 872 F.2d 1373, 1377 (8th Cir. 1989).

8. 42 U.S.C.A. 9607(a)(1-4).

9. 42 U.S.C.A. 9607(a)(2).

10. 42 U.S.C.A. 9607(a)(3).

11. See, generally, Ashcraft, CERCLA ARRANGER LIABILITY: EMERGING RISK FOR ENVIRONMENTAL CONSULTANTS, The Constuction Lawyer, V14. No. 1, January 1994.

12. 42 U.S.C.A.9607(a)(4).

13. 834 F.Supp.. 1018 (N.D.Ill. 1993).

14. 828 F.Supp. 401 (E.D. Va. 1993).

15. id., at 1022.

16. id., fn. 2 at 1022.

17. id. at 413.

18. 976 F.2d 1338 (9th Cir. 1992).

19. 775 F.Supp. 1227 (E.D. Mo. 1991).

20. 37 F.3d 87 (3rd. Cir. 1994).

21. No. 93 C 2905 (N.D. Ill. 1994); 1994 U.S. Dist. Lexis 5901.

22. Information regarding limitation of liability can be obtained from ASFE and EJCDC as well as errors and omissions insurers. The author also has two papers, available on request, entitled Enforceability of Limitation of Liability Clauses and Drafting and Managing Limitation of Liability Clauses.

23. Courts generally do not like liability transfer mechanisms, such as indemnification clauses and have developed interpretation rules that limit the effect of particular language. Without understanding these interpretations, one cannot draft clauses that surmount the interpretation problems.

24. Although designed for construction projects, these clauses generally define construction quite broadly and would cover remediation projects and many environmental studies.

Attribution

Howard W. Ashcraft, Jr. is a partner in the San Francisco law firm of Hanson, Bridgett, Marcus, Vlahos & Rudy L.L.P. He is a Fellow of the American College of Construction Lawyers, a Governing Committee member of the American Bar Association's Forum on the Construction Industry, a panel member of the American Arbitration Association's Large and Complex Case Program for construction cases, and an active participant in the ACEC Legal Counsel Forum and the HWAC Legal Counsel Roundtable. He specializes in representing design and enviromental professionals in litigation, contract and professional practice matters.

This article is a condensation of a paper written in October of 1995. The complete paper can be obtained from the author by e-mail at howardash@attmail.com.

The information in this and all other RISK Administration and Management Company articles is intended for information purposes only and does not consitute legal advice and assistance, please contact competent counsel in the jurisdiction of your professional practice

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