Variable life insurance replacements: NTM 00-44 reiterates to member firms that replacement recommendations (when a customer surrenders existing insurance coverage in order to purchase a new variable life insurance policy) must comply with the industry's suitability requirements. Many times a replacement might be made to benefit the agent at the expense of the customer since a customer may incur extended surrender charge periods and new fees and unfavorable tax consequences. NTM 00-44 reminds registered representatives that they "should carefully consider whether a replacement is in the best interests of the customer."
Advertising and sales literature: NTM 00-44 informs members that "any variable life insurance communication that overemphasizes the investment aspects of the policy or potential performance of the subaccounts may be misleading."
4. Pruco Securities Corp. (Letter of Acceptance Waiver and Consent No. CAF990010)
NTM 00-44 also discusses Pruco Securities Letter of Acceptance Waiver and Consent. Pruco Securities was found to have violated NASD Rule 3010 (Supervision) for failing to establish, maintain, and enforce reasonable supervisory procedures for the selling of variable annuities and the firm failed to adequately differentiate between fixed and variable life insurance products. However, the NASD primarily focused on the misrepresentations concerning the sale of the variable annuities finding that "[N]ew policies could be acquired by customers already owning the firm's life insurance by using cash values or future dividends from customers' existing policies, for little or no additional cash payment" rather than being surrendered or exchanged.
III. Closing
In the last eighteen months, the NASD has increased its regulatory actions against firms and their members for the sale of variable annuities. These actions appear to represent a trend by the NASD to curb annuity sales abuses and are likely to continue in the future.
By Matthew J. Cozzi , Field & Golan, Chicago
Many landowners, former owners, prospective purchasers and operators of potentially contaminated property in Illinois tread lightly (or, perhaps, should) in fear of liability under the broad umbrella of the Comprehensive Environmental Response, Compensation and Liability Act, commonly known as CERCLA. However, comparatively few of these entities may also be aware of the other 800 pound gorilla living on their doorstep, the Illinois Environmental Protection Act.
Much has been written regarding the statutory framework of CERCLA, 42 U.S.C. § 9601, et seq., as it relates to the liability of various types of entities. Perhaps lesser known, and certainly less litigated, are the comparable provisions of Illinois' "baby CERCLA"--the Illinois Environmental Protection Act ("IEPA"), 415 ILCS 5/1, et seq. The following is an overview and comparison of the provisions of CERCLA and IEPA as they relate the issues of: (1) the liability of "covered persons"; (2) the defenses available to an alleged potentially responsible party ("PRP"); and (3) whether a PRP may file a counterclaim or third-party claim against other PRPs for contribution.
An analysis of IEPA and its interpretation by the courts demonstrates that IEPA is a force to be reckoned with as it largely parallels the wide reach of CERCLA. However, as will be seen, IEPA does allow for increased protection for owners and operators of contaminated land where they are truly "innocent" parties, while restricting the right of such innocent parties to sue to recover their clean-up costs.
I. Liability of "covered persons"
A. CERCLA
While the government may pursue a CERCLA action against a PRP, a private party may also bring a cost recovery action under CERCLA pursuant to § 107(a) of the statute. See Akzo Coatings, Inc. v. Aigner Corp., 30 F.3d 761, 764 (7th Cir. 1994). In order to prevail in a private party action under CERCLA, the plaintiff must establish that:(1)thedefendantis a "covered person" under § 107(a) of the statute; (2) there was a release or threatened release of a hazardous substance from the defendant's site; (3) the release or threat of release caused the plaintiff to incur response costs that are consistent with the National Contingency Plan ("NCP") which was in effect at the time the response costs were incurred; and (4) the plaintiff did not pollute the property in any way. See NutraSweet Co. v. X-L Engineering Co., 227 F.3d 776, 784 (7th Cir. 2000). As the Seventh Circuit has limited a private cost recovery action to innocent parties, a liable party who wishes to recover costs from others must proceed under a different section of the statute, as discussed below.
While CERCLA liability only extends to specific "covered persons," the scope of such categories is wide-ranging. Under CERCLA, "covered persons" include:
(1) the owner and operator of a vessel or a facility;
(2) any person who at the time of disposal of any hazardous substance owned or operated any facility at which such hazardous substances were disposed of;
(3) any person who by contract, agreement, or otherwise arranged for the disposal or treatment, or arranged with a transporter for transport for disposal or treatment, of hazardous substances owned or possessed by such person, by any other party or entity, at any facility or incineration vessel owned or operated by another party or entity and containing such hazardous substances; and
(4) any person who accepts or accepted any hazardous substances for transport to disposal or treatment facilities, incineration vessels or sites selected by such person, from which there is a release, or a threatened release which causes the incurrence of response costs, of a hazardous substance...
42 U.S.C. § 9607(a).
Being in the chain of title for property is not a requirement for CERCLA liability. Liability under CERCLA has been held to extend to lessees and sublessees as well as to the property owner. See Pape v. Great Lakes Chemical Co., 1993 WL 424249, *3 (N.D. Ill. Oct. 19, 1993). CERCLA "owner" liability may be extended to a lessee who exercises control over the facility at the same time that hazardous wastes were being stored, utilized and disposed there or otherwise participates in the disposal of hazardous wastes. See Pape v. Great Lakes Chemical Co., 1993 WL 424249 at *3; Lentz v. Mason, 961 F. Supp. 709, 715 (D.N.J. 1997). Similarly, a party who does not hold title to contaminated property may be held liable under CERCLA as an "operator" if it participates in the disposal or release of hazardous substances at the site, or exercises substantial, actual control over the day-to-day operations of the site. Lentz v. Mason, 961 F. Supp. at 715.
The protections normally afforded under a corporate structure will also not immunize its controlling individuals from liability under CERCLA. CERCLA "operator" liability also extends to officers, directors and majority shareholders of corporations that own or operate a facility on a site in which a release of hazardous substances has occurred. See Browning-Ferris Indus. of Illinois, Inc. v. Ter Maat, 195 F.3d 953, 955 (7th Cir. 1999). An officer, director or majority shareholder will be held liable as an operator under CERCLA when he has knowledge of an activity and possesses the duty and power to prevent it but acquiesces in the conduct. See NutraSweet Co. v. X-L Engineering Co., 933 F. Supp. 1409, 1418 (N.D. Ill. 1996). In order for CERCLA liability to be imposed, the plaintiff must show "active participation in, or exercise of specific control of, the activities in question..." by the officer, director or majority shareholder. NutraSweet Co. v. X-L Engineering Co., 933 F. Supp. at 1418. Such acts would include supervision of the day-to-day operations of the facility, such as negotiating hazardous waste dumping contracts, directing where the hazardous wastes were to be dumped, or directing measures for preventing the release of the hazardous substances into the surrounding environment. See Browning-Ferris Indus. of Illinois, Inc. v. Ter Maat, 195 F.3d at 956. However, an officer, director or majority shareholder's general corporate authority or supervisory capacity is not alone sufficient to impose CERCLA liability. See NutraSweet Co. v. X-L Engineering Co., 933 F. Supp. at 1418.
B. IEPA
The net of liability under IEPA is similarly broad. IEPA imposes liability for all remedial or removal costs incurred as a result of a release or substantial threat of release of a hazardous substance upon:
(1) the owner and operator of a facility or vessel from which there was a release or substantial threat of release of a hazardous substance or pesticide;
(2) any person who at the time of disposal, transport, storage or treatment of a hazardous substance or pesticide owned or operated the facility or vessel used for such disposal, transport, treatment or storage from which there was a release or substantial threat of release of a hazardous substance or pesticide;
(3) any person who by contract, agreement, or otherwise has arranged with another party or entity for transport, storage, disposal or treatment of hazardous substances or pesticides owned, controlled or possessed by such person at a facility owned or operated by another party or entity from which facility there is a release or substantial threat of release of such hazardous substances or pesticides; and
(4) any person who accepts or accepted any hazardous substances or pesticides for transport to disposal, storage or treatment facilities or site from which there is a release or a substantial threat of a release of a hazardous substance or pesticide. 415 ILCS 5/22.2(f).
As with CERCLA, liability under IEPA has been held to extend to lessees as well as to the property owner and lessor. See Wasteland, Inc. v. Illinois Pollution Control Bd., 118 Ill. App. 3d 1041, 456 N.E.2d 964 (3d Dist. 1983). IEPA liability may also extend to officers of corporations that own or operate a facility on a site in which a release of hazardous substances has occurred. See People ex rel. Burris v. C.J.R. Processing, Inc., 269 Ill. App. 3d 1013, 1016, 647 N.E.2d 1035, 1037 (3d Dist. 1995). A corporate officer will be held liable under IEPA when a plaintiff can show that the officer actively participated or was personally involved in a violation of IEPA. See People ex rel. Burris v. C.J.R. Processing, Inc., 269 Ill. App. 3d at 1018, 647 N.E.2d at 1038. Allegations that a corporate officer "caused or allowed" a violation to occur will be sufficient to state a claim under IEPA. See People ex rel. Burris v. C.J.R. Processing, Inc., 269 Ill. App. 3d at 1018, 647 N.E.2d at 1038.
Although IEPA casts a wide net of liability, the statute also restricts the right of a private party to bring a cost recovery action. While certain courts in the Northern District of Illinois have previously found that IEPA contains an implied private right of action to recover costs, more recent decisions have rejected those holdings and concluded that there is no such private right of action under IEPA. See Norfolk Southern Railway Co. v. Gee Co., 2001 WL 710116, *16 (N.D. Ill. June 25, 2001); Chrysler Realty Corp. v. Thomas Indus., Inc., 97 F. Supp. 2d 877, 880 (N.D. Ill. 2000). However, as discussed below, a party being prosecuted under IEPA does have an avenue for recovery from other PRPs based on those parties' contributions to the violation at issue.
III. Defenses
A. CERCLA
Once a CERCLA plaintiff has established its prima facie case, a defendant may look to only three limited affirmative defenses to completely avoid liability. A party may escape liability under CERCLA if it can establish by a preponderance of the evidence that the release of hazardous substances and the damages caused therefrom were caused solely by (1) an act of God, (2) an act of war, or (3) an act or omission of a third party who is not an employee or agent of the defendant or who does not have a contractual relationship with the defendant. 42 U.S.C. § 9607(b). The following discussion focuses on the first and third defenses under CERCLA.
1. Act of God
The act of God defense in § 107(b) may only be asserted by a party liable under CERCLA if the release of hazardous substances was the sole result of:
an unanticipated grave natural disaster or other natural phenomenon of an exceptional, inevitable, and irresistible character, the effects of which could not have been prevented or avoided by the exercise of due care or foresight.
42 U.S.C. § 9601(1). As suggested by the statutory language, in order to qualify as an "act of God," the natural phenomenon must be well beyond what could be considered normal climatic conditions. For example, neither an "unprecedented cold spell" which causes the bursting of pipes nor a heavy rainfall that causes a release of hazardous substances will qualify as an act of God under § 107(b). See United States v. Barrier Indus., Inc., 991 F. Supp. 678, 679-80 (S.D.N.Y. 1998) ("unprecedented cold spell"); United States v. Alcan Aluminum Corp., 892 F. Supp. 648, 658 (M.D. Pa. 1995) (heavy rainfall caused by hurricane). As the act of God must be the sole cause of the release, there can be no other acts by the defendant which contributed to the release. See United States v. Barrier Indus., Inc., 991 F. Supp. at 679-80; United States v. Alcan Aluminum Corp., 892 F. Supp. at 658 (rainfall from hurricane was not sole cause of release because of defendant's dumping of hazardous substances into area in which rains eventually fell). The act of God defense will also not lie where the release caused by the climatic conditions could have been prevented through the defendant's better design of waste facilities. See United States v. Stringfellow, 661 F. Supp. 1053, 1061 (C.D. Cal. 1987).
2. Harm caused by unrelated third-party
A party may also escape liability under CERCLA if it can prove that the release of the hazardous substances was caused solely by unrelated persons or events. 42 U.S.C. § 9607(b). Section 107(b)(3) of CERCLA allows a party to escape liability by showing by a preponderance of the evidence that at all times it took due care with respect to the hazardous substance, and that it took precautions against the foreseeable acts or omissions of the third party and the foreseeable consequences of those acts or omissions. 42 U.S.C. § 9607(b)(3). The party must also show that an unrelated third party, with whom the defendant had no direct or indirect contractual relationship, was responsible for the release. 42 U.S.C. § 9607(b)(3).
The term "contractual relationship" includes land contracts, deeds or other instruments transferring title or possession, unless the real property was acquired by the defendant after the disposal or placement of the hazardous substances, and at the time that the defendant acquired the property, it did not know and had no reason to know that any hazardous substances were released. 42 U.S.C. § 9601(35)(A). In order to establish that the defendant had no reason to know of the release of the hazardous substances, the defendant must have undertaken, at the time of acquisition, "all appropriate inquiry" into the previous ownership and uses of the property consistent with good commercial or customary practice. 42 U.S.C. § 9601(35)(B).
3. Divisible harm
In addition to the three affirmative defenses specifically set forth in § 107(b), the imposition of joint and several liability under CERCLA is subject to the limited common law defense of divisibility of harm based upon § 433A of the Restatement (Second) of Torts. Under this "defense," if harm at a CERCLA site is divisible, a party found to be liable under CERCLA will only be responsible for that portion of the harm caused by that party. See United States v. Alcan Aluminum Corp., 990 F.2d 711, 721-22 (2d Cir. 1993). In proving that harm is divisible and capable of reasonable apportionment, a defendant may present evidence of (1) the nature and relative toxicity of the substances released; (2) their migratory potential; (3) the degree of migration; (4) the total volume of materials disposed of at the site; (5) the synergistic capacities of the hazardous substances at the site; (6) the relative contributions of the other PRPs; and (7) that the response actions taken by the plaintiff were unrelated to the defendant's particular hazardous substance. See United States v. Alcan Aluminum Corp., 990 F.2d at 722; United States v. Marisol, Inc., 725 F. Supp. 833, 842 (M.D. Pa. 1989). The harm found to exist at a CERCLA site will not be deemed to be indivisible simply because the hazardous substances released by the various PRPs have commingled. See United States v. Alcan Aluminum Corp., 990 F.2d at 722.
B. IEPA
The affirmative defenses offered to a defendant under IEPA mirror those available under CERCLA; namely, (1) an act of God; (2) an act of war; and (3) an act or omission of a third party who is not an employee or agent of the defendant or who does not have a contractual relationship with the defendant. 415 ILCS 2/22.2(j)(1). As above, the focus here will be placed on the first and third defenses. However, while all three of these defenses are purposely limited in scope and application, IEPA does go farther to protect truly innocent landowners or operators.
1. Act of God
A party may escape liability under IEPA if it can establish by a preponderance of the evidence that the release of hazardous substances and the damages caused therefrom were caused solely by an act of God. 415 ILCS 2/22.2(j)(1). The similarity between IEPA and CERCLA indicates that the Illinois courts would likely require that the alleged act of God be an unanticipated, exceptional and disasterous natural phenomenon and that the PRPs did not in any way contribute to the release of the hazardous substances.
2. Harm caused by unrelated third-party
As under CERCLA, a party would not be held liable under IEPA if it could prove that the release of the hazardous substances was caused solely by unrelated parties or events. 415 ILCS 5/22.2(j)(1). The defendant must show that at all times it took due care with respect to the hazardous substance, and that the defendant took precautions against the foreseeable acts or omissions of the third party and the foreseeable consequences of those acts or omissions. 415 ILCS 5/22.2(j)(1)(C).
In order to escape liability under § 22.2(j)(1)(C), the defendant also must show by a preponderance of the evidence that a third party, with whom the defendant had no direct or indirect contractual relationship, was responsible for the release. 415 ILCS 5/22.2(j)(1)(C). The term "contractual relationship" includes land contracts, deeds or other instruments transferring title or possession, unless the real property was acquired by the defendant after the disposal or placement of the hazardous substances, and at the time that the defendant acquired the property, it did not know and had no reason to know that any hazardous substances were released. 415 ILCS 5/22.2(j)(6)(A). In order to establish that the defendant had no reason to know of the release of the hazardous substances, the defendant must have undertaken, at the time of acquisition, "all appropriate inquiry" into the previous ownership and uses of the property consistent with good commercial or customary practice. 415 ILCS 5/22.2(j)(6)(B).
3. Section 58.9 "defense"
In addition to the defenses set forth in § 22.2, IEPA also provides a mechanism for escaping liability if one is truly an innocent party. Section 58.9(a)(2) of IEPA states in part:
Notwithstanding any provisions in this Act to the contrary, including subsection (f) of Section 22.2, in no event may the State of Illinois or any person require the performance of remedial action pursuant to this Act against any of the following:
(A) A person who neither caused nor contributed to in any material respect a release of regulated substances on, in, or under the site that was identified and addressed by the remedial action taken pursuant to this Title.
(B) Notwithstanding a landlord's rights against a tenant, a landlord, if the landlord did not know, and could not have reasonably known, of the acts or omissions of a tenant that caused or contributed to, or were likely to have caused or contributed to, a release of regulated substances that resulted in the performance of remedial action at the site.
415 ILCS 5/58.9(a)(2). While it is not one of the enumerated "defenses" to an action for remediation of a contaminated sire, § 58.9(a)(2) acts as such by preventing the responsibility for remedial action from being imposed upon any party who can demonstrate that it neither caused nor contributed in any material way to a release of hazardous substances at a site.
IV. Ability to file claims for contribution
A. CERCLA
Although CERCLA allows for an "innocent" party to bring a private cause of action to recover costs, the statute also provides for a claim for contribution by a liable party against other PRPs. Section § 113(f)(1) of CERCLA provides:
Any person may seek contribution from any other person who is liable or potentially liable under section 9607(a) of this title, during or following any civil action under section 9606 of this title or under section 9607(a) of this title. 42 U.S.C. § 9613(f)(1).
In addition to allowing a claim for contribution against third-parties, § 113(f)(1) permits counterclaims for contribution against plaintiffs for the amount of response costs fairly attributable to the conduct of those plaintiffs. See Amcast Indus. Corp. v. Detrex Corp., 2 F.3d 746, 748 (7th Cir. 1993). However, a court is not required to adopt pro rata assessments of contribution once a party is determined to be liable under CERCLA. See Environmental Transp. Sys., Inc. v. ENSCO, Inc., 969 F.2d 503, 509 (7th Cir. 1992).
In resolving a claim for contribution under § 113(f), a court may allocate response costs among parties liable under CERCLA using "such equitable factors as the court determines are appropriate." 42 U.S.C. § 9613(f)(1). Such equitable factors include, but are not limited to, (1) the relative faults of the parties; (2) the ability of the parties to demonstrate that their contribution to a discharge, release or disposal of a hazardous substance can be distinguished; (3) the amount of the hazardous substance involved; (4) the degree of toxicity of the hazardous substance involved; (5) the degree of involvement by the parties in the generation, transportation, treatment, storage, or disposal of the hazardous substance; (6) the degree of care exercised by the parties with respect to the hazardous substance concerned, taking into account the characteristics of the hazardous substance; (7) the degree of cooperation by the parties with federal, state or local officials to prevent any harm to the public health or the environment; and (8) any contracts between the parties bearing on the allocation of cleanup costs. See Kerr-McGee Chemical Corp. v. Lefton Iron & Metal Co., 14 F.3d 321, 326 n. 4 (7th Cir. 1994). The above factors are, however, not exhaustive and a court may properly consider only a few factors or one factor, depending on the totality of circumstances. See Environmental Transp. Sys., Inc. v. ENSCO, Inc., 969 F.2d at 509.