Costs of Superfund Lawsuits Stir Up Calls for Change

BUSINESSES want to trim the legal costs related to cleaning up the nation's most polluted sites.

"You've got a system that's designed to generate litigation," says Marc Rosenberg of the Insurance Information Institute, which represents property/casualty insurers.

A study released late last month revived debate on the subject by providing better data on the legal bills of insurers and industrial companies arising from Superfund hazardous-waste cleanups.

Mr. Rosenberg and others say that much of the litigation could be avoided by a "no-fault" system of cleaning up the sites, much as some states have tried to do with automobile insurance. One such system would finance cleanups with a surtax on business insurance policies.

But environmentalists say a no-fault system would amount to a polluter "bailout," hindering the goal of the 1980 Superfund law: to "make the polluters pay" for the cleanups, which could cost $100 billion.

"By fighting the legal fees, they're trying to keep away from the larger" costs of cleanups, says Doug Wolf, an attorney with the Natural Resources Defense Council. "In some ways [the current process] is cumbersome, but it sends all the right messages to industry."

Rosenberg counters that a no-fault system would only cover cases arising from the laxer, pre-Superfund era, while companies would be held accountable for more current instances of toxic dumping. Mr. Wolf argues that in most Superfund cases companies were aware of the danger their waste posed.

The no-fault proposal has garnered little congressional support to date, both observers say.

The study, by the RAND Institute for Civil Justice, looked at data on hazardous-waste cleanups from four large insurance firms and five Fortune 100 industrial companies from 1986 to 1989. The report included both federal Superfund cases and sites covered by state cleanup programs.

In 1989, the four insurers together spent $72 million on these cases, of which 88 percent went for transaction costs (mostly legal fees, with some administrative expenses). The industrial firms spent $31 million, with 21 percent going for transaction costs.

"If the sampled firms are representative of the insurance industry as a whole, insurers spent $410 million on transaction costs in 1989," say study authors Jan Paul Acton and Lloyd Dixon.

One reason why the transaction costs were so high on a percentage basis is that, for many of the sites under consideration, the costly cleanup work had not gotten very far.

"The lawyers have been more active than the engineers," Rosenberg says.

The report noted that the transaction-cost percentage becomes much smaller as cleanup proceeds. But the study and initial news coverage of it did not emphasize this point.

For example, the report looked at 49 Superfund cases on which more than $100,000 had been spent. Cleanup had been completed on only three sites, and on these transaction costs amounted to 7 percent of the total.

The authors caution against generalizing based on these few completed cases. For one thing, they note that small and medium-size businesses may have different spending patterns than the larger industrial firms in their study.

Despite the study's limited scope, "it is, compared to what's gone before, the best thing on this subject," Wolf says.

The study comes amid growing concern about the burden of legal costs on the business community. The Bush administration, and particularly the competitiveness council headed by Vice President Dan Quayle, has been pushing for broad reforms to cut legal costs.

To date, about 7 percent of the 1,245 sites listed on Superfund's "national priorities list" have been cleaned up. Proponents of a no-fault system argue that it would allow cleanups to proceed faster.

Not every cleanup is litigated. But many are, especially ones where the Environmental Protection Agency says many companies are jointly responsible. Lawsuits follow among companies to determine who pays most and whether the cleanups are covered by insurance policies dating from the pre-Superfund era.

Since the insurance contracts come under state law rather than federal, the same issues are tried in many states, such as what a policy means by "sudden" or "accidental" events.

The insurers' litigation expenses are spread over many cases. The firms in the RAND study spent an average of $184,000 per coverage dispute from 1986 to 1989.