Zombie Corporations and CERCLA Liability: Identifying...

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Zombie Corporations and CERCLA Liability:

Identifying, Reviving and Pursuing Zombie

PRPs

Today’s faculty features:

1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific

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have any questions, please contact Customer Service at 1-800-926-7926 ext. 1.

TUESDAY, APRIL 3, 2018

Presenting a live 90-minute webinar with interactive Q&A

David Ashton, Assistant General Counsel, Port of Portland, Portland, Ore.

Loren R. Dunn, Principal, Beveridge & Diamond, Seattle

Christopher A. Rycewicz, Northwest Resource Law, Portland, Ore.

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Zombie Corporations and CERCLA Liability

David Ashton

david.ashton@portofportland.com

Assistant General Counsel

Zombies: Reviving Defunct Corporations

• What we are going to cover:

– Raising money to help defray cleanup costs

– Focus on pursuing defunct corporations to reach

insurance

– In states with favorable law on corporate asset

marshalling and distribution and cleanup cost recovery on

pre 1986 insurance policies

– First: what it takes to revive the corporation

– Second: what it takes to tap into their insurance

– Third: Practical issues important to success

– Wrap up: Q&A

6

By: Loren R. Dunn

Zombie Corporations and CERCLA Liability:

Identifying, Reviving and Pursuing Zombie PRPs

Strafford Webinars April 3, 2018

How Do Corporations Die?

• Orderly process of dissolution

− File articles of dissolution with state

− Give notice to creditors

− Distribute remaining assets

• Administrative dissolution

− Company fails to make annual registration with state

− No notice to claimants

− Essentially, everyone walks away

• Bankruptcy?

8

Dead? Or Dead and Buried?

• Dead = dissolved, but assets not completely (or formally) distributed.

• Dead and buried = dissolved, and assets apparently distributed.

− But, not quite!

9

Why Revive a Corporation?

• Recover assets!

− Property either late-discovered or not ever transferred

− Property wrongfully distributed

◦ Seek to recover from distributees

◦ Not very commonly pursued in environmental matters

◦ Often difficult to accomplish

− Property not transferrable / “contingent assets”

◦ Insurance assets

10

Why Revive a Corporation?

• To provide an orderly process for recovering assets

• To cause the corporation to secure non-transferrable or contingent assets:

− Insurance proceeds

11

How to Awaken the Dead?

• File litigation!

• Serve the defendant

− Last agent

− By publication

• Notify the (target) insurer(s)

• Seek appointment of a Trustee

− Petition to court

− Trustee to provide formal notice to insurer(s)

− Demand defense from insurer(s)

− Who pays the Trustee?

12

Even Zombies Deserve Lawyers

• Who is the client?

− Past officers / shareholders?

− Insurer?

− Trustee!

• How to deal with insurer defenses and reservations of rights

• Purpose of defense – settle and terminate zombie

13

Who May Be Interested in Zombies?

• Parties performing cleanups who are in search of assets / contributions

• Insurers looking to share the defense / settlement with other insurers

14

Places to Look for Zombie Opportunities

• Property lease / rental records

• Vessel records

• Contractor records

• Port records

• State lands aquatic records

• Historical archives

15

Limitations

• State laws often limit the period for claims to brought following dissolution

− Can be challenging to overcome time limits to recover assets that were properly distributed pursuant to formal dissolution

• However, time limits are often not applicable if statutory dissolution process not followed

• Courts often allow late claims for contingent assets

Privileged & Confidential | Attorney-Client Communication 16

Settlements: Expectable Best Practices

• Court approval / consent to settlement

• Provides for proper dissolution of entity

• Exhausts insurance claims / proceeds

Privileged & Confidential | Attorney-Client Communication 17

Zombie Corporations

and CERCLA Liability:

Identifying, Reviving

and Pursuing Zombie

PRPs

CHRISTOPHER RYCEWICZ

TUESDAY, APRIL 3, 2018

Determining Historical Coverage • Review Insured’s History of Buying Liability

Insurance Focus on Pre-1986 Comprehensive

General Liability Policies Primary v. Excess/Umbrella Coverage Locating 20+ Year Old Policies is often

challenging

19

Determining Historical Coverage • Finding Lost Policies • Interview Key Former Employees • Review Financial Records • Check with Insured’s Current and Historic

Insurance Brokers • Research Claims History • Contact Former Legal Counsel • Hire an Insurance Archaeologist

20

Determining Historical Coverage • Request Coverage History from Known

Insurers • Insurer's Statutory Obligations • Specimen Policies • Guidance Provided by Oregon Statute • Proving Terms of Lost Policies • Secondary Evidence of Coverage • Initial Burden on Insured

21

Additional Insured Opportunities • An additional insured (AI) is an entity that is

named as an insured on the insurance policy issued to a separate entity.

• Being named as an AI is usually the result of a contractual requirement, such as a Port requiring that its subcontractors operating on the Port’s premises name the Port as an AI.

22

Additional Insured Opportunities • An AI usually results from a policy endorsement that will

either name the AI by specific name or by a general description in a blanket AI endorsement.

• To determine the extent of coverage provided, you need to examine the specific language of the policy or AI endorsement. Often, a dispute will revolve around whether the AI provision covers the AI’s independent actions, as opposed to potential liability arising from the ongoing operations of the named insured. This language was used in the mid-80’s in a standard ISO form.

23

Additional Insured Opportunities • WHO IS AN INSURED (Section II) is amended

to include as an insured the person or organization shown in the Schedule, but only with respect to liability arising out of “your work” for that insured by or for you.”

24

Triggering a Defense for Zombies • Someone needs to pay for the defense. • Defending pollution claims is expensive. • A zombie often has no incentive to put up a defense

to CERCLA claims. • CGL policies impose two primary obligations on an

insurer: the obligation to defend and the obligation to pay damages.

• Requiring an insurer to provide a defense raises the possibility that the insurer will be motivated to pay damages.

25

Zombies and Lost Policy Claims • What is a lost policy? • Who brings the claim? • How to prove the existence, terms, and conditions

of coverage?

26

Scope of Coverage • Key Policy Language • The insurer will pay on behalf of the insured “all

sums which the insured shall become legally obligated to pay as damages by reason of bodily injury or property damage arising out of an occurrence.”

27

Scope of Coverage • “All Sums”

• Relates to Allocation • Difference between Oregon and Washington

• Washington – Joint and Several • Oregon – Pro Rata

• “Legally Obligated to Pay” • Statutory Obligation • Applies to “Voluntary” Cleanup Actions

28

Scope of Coverage • “Property Damage”

• Third Party Property (e.g., adjacent property, groundwater)

• Threat of Damage to Third Party Property Triggers Duty to Defend

29

Scope of Coverage • “Occurrence”

• During Policy Period • Neither Expected Nor Intended • Continuous Trigger Generally Applied in

Environmental Context • Multiple Occurrences Affect Calculation of

Coverage Available

30

Applicable Exclusions • Pollution Exclusion

• Qualified Pollution Exclusion (Pre-1986) • “Sudden and Accidental” • Subjective Intent of the Insured

• Absolute Pollution Exclusion (Post-1986)

31

Applicable Exclusions • Owned Property Exclusion

• No coverage if damage is limited to Insured’s property

• Groundwater considered Third Party Property • Recovery of Soil Cleanup Costs

32

The Insured’s Duties • Notice

• Early and Often • Effects of Late Notice

• Proving Terms of Coverage • Initial burden on Insured

• Extent of the Coverage • Policy Limits • Policy Period

33

The Insured’s Duties • Proving Terms of Coverage (cont’d)

• Applicability of Exclusions are Insurer's Burden • Cooperation in Investigation of Claim

34

The Insured’s Duties • Duty to Defend

• Triggered by a “Suit” • Complaint • PRP Letter • Other?

• Scope of the Duty to Defend • Allegations in Complaint/PRP Letter • Applies even where no Duty to Indemnify

35

The Insurer’s Duties • Duty to Defend (cont’d)

• Covered Costs • Attorney Fees and Costs • Investigation-Related Costs

• Oregon Environmental Claims Statute

36

The Insurer’s Duties • Duty to Indemnify

• Scope of the Duty to Indemnify • Relates to “Damages” Incurred by Insured

• Covered Costs • Remediation Costs • Attorney Fees and Costs Not Covered by Duty to

Defend

37

Attorney Fee Recovery Strategies

• It is important to be able to recover prevailing party attorney fees.

• Many states recognize an insured’s right to recover prevailing party attorney fees in a coverage dispute.

• Oregon has a statutory right contained in ORS 742.061.

38

Christopher Rycewicz Northwest Resource Law PLLC 1000 SW Broadway, Suite 2300 Portland, OR 97205 503.664.3582 crycewicz@nwresourcelaw.com

Zombie Corporations and CERCLA Liability

David Ashton

david.ashton@portofportland.com

Assistant General Counsel

Zombies: Claims Management Issues

•Implement Follow the money strategy

(FTM)

–Zombies one aspect

–Aggressively pursing claims in dissolution

proceedings and probate

–Aggressively pursuing claims in

bankruptcies

–Other funding sources?

41

Zombies: Importance of Due Diligence

• Use corporate successorship theories to

pursue existing entities for predecessors’

liabilities

– To confirm a current obligation or

– Tap predecessors’ insurance

• Successor liability – not unless:

– Express/implied assumption

– De facto merger

– Mere continuation

– Fraud to evade liability

42

Zombies: Importance of Due Diligence

• Due Diligence checklist:

– Proof of zombie status or successorship

– Proof of pre-1986 insurance

– Who controls the target assets?

– Favorable jurisdiction on corporate and insurance issues

– Resources to manage layers of specialized claims

• Expertise in: PRP claims, corporate law, insurance

claims, debtor/creditor law, proving aging claims

• Receiver for zombie

– Funding to invest in claim

43

Zombies: Claims Funding Strategies

•Shared funding – Common Interests

PRP group

•Contingent/alternative fee

arrangements

•Professional receivers/trustees

•Convince Government Agencies to

pursue

44

Zombies: Managing the Claim

•Client expectations

•Early mediation

•Fee shifting mechanisms

•Critical success factors

45

Zombies: Avoiding/Minimizing Claims

• When liquidating:

– Implement state dissolution or bankruptcy

procedures

• Notice

• List claims

• Disclose insurance as asset and use in claims

resolution

• Goal of total claims resolution

– If not possible, establish claims trust

46

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