At the height of the Cold War, 15 of the 25 largest aerospace companies in the United States were based in Southern California, and the U.S. counted on these companies to build modern military weapons like fighter planes, bombers, and ballistic missiles.

As the U.S.’s attention turned toward the race to outer space, California aerospace companies were there creating the firepower and making the components needed for the Apollo and Gemini space missions. Throughout these times, the U.S. government was driving what the aerospace companies made, how they made it, how they handled the various hazardous materials that went into it, and how they disposed of the hazardous waste generated during its production. The directions given by the government to these ends came in several forms and generally left no room for deviation.

Material specifications were exact. Safety manuals and handling guidelines were explicit. Instructions on the manner of disposal of wastes were detailed. This level of involvement by the government in the manufacture, handling, shipping, and disposal of munitions and related products can, and has, led to the U.S. government being held responsible as an “operator” or “arranger” under CERCLA.

Historical Contaminations
A case in point is the government’s role in causing the widespread perchlorate contamination recently found to be in the drinking water supplies underlying most of Southern California. Perchlorate’s primary use, particularly from the 1940s through the 1990s, was serving as an oxidizing agent to provide thrust in the rocket motors and missiles.

Indeed, 90% or so of the annual production of ammonium and potassium perchlorate compounds was used by the defense and aerospace industries, with the Dept. of Defense candidly admitting to Congress that ammonium percholorate was the lifeblood of the nation’s strategic defense system and space exploration. The government’s instructions to aerospace companies relating to grinding, storage, handling, use, and disposal of perchlorate from the 1940s through the early 1980s are quite telling.

During this time frame, the dangers of exposing perchlorate to the ground surface or to open waters and streams were not appreciated. Only years later was it learned that these types of operations allowed perchlorate to dissolve in water and percolate down through the soil and into drinking water aquifers.

CERCLA’s scheme of liability is often unforgiving. Good intentions, like those the government had during the 1940s through the 1980s with respect to the handling and disposal of perchlorate, do not negate liability for the legacy of contamination that has resulted. Similarly, current or former owners or operators of a former munitions manufacturing site often get caught up in CERCLA’s web of liability despite a lack of active wrongdoing.

CERCLA does, however, provide an equalizer, which is the right of one potentially responsible party (PRP) to bring an action against another PRP for contribution toward costs expended to clean up a contaminated site. As noted above, among those PRPs for contamination at former munitions manufacturing or testing sites is the U.S. government (generally, the Dept. of Defense). Even insurance companies that have paid out insurance proceeds to fund environmental cleanups may seek contribution from the DOD and other PRPs.

Liability circumstances
The DOD’s liability under CERCLA typically hinges on whether it acted as an “operator” of or “arranger” at a contaminated site. Of course, the DOD may also have liability as an “owner” of a site, which is often the case with former military bases and installations.

Under CERCLA, liability as an “operator” depends on whether someone is found to have exercised “substantial control” over the operations at the site, even a site which some third party owned. Liability as an “arranger” depends on whether someone, by contract, agreement, or otherwise, arranged for disposal or treatment of hazardous substances at a particular site.

While arranger liability has become more difficult to establish with the 2009 United States Supreme Court ruling in Burlington Northern & Santa Fe Railway Company v. United States, a finding that the DOD and other PRPs acted as an arranger is possible when it can be shown that they took deliberate steps toward disposing of a hazardous substance at the subject site.

Indeed, in a July 2005 Report to Congress on perchlorate contamination in the southwestern U.S., the DOD candidly admitted that activities at DOD-related facilities that may have contributed to the release of perchlorate to the environment include the open burning of munitions items, rocket motor and ordinance testing, and Hog-Out operations.

Similarly, a 2003 analysis prepared by the Democratic Staff of both the House Committee on Energy and Commerce and the House Committee on Resources, reported that “the DOD has created, and is responsible for cleaning up, the largest number of toxic waste sites of any person or entity in the United States.”

Cleanup reimbursement
The cost to clean up contamination stemming from releases at former munitions sites has often been paid by insurance companies. These carriers, while having an extra hurdle to clear, may also have CERCLA contribution rights to pursue against the DOD and other PRPs.

One such hurdle is the “Made Whole Doctrine” which essentially provides that an insurance company may not enforce a right to subrogation until its insured has been “fully compensated.” The purpose of the doctrine is to ensure that an insurance company fulfills its contractual obligations to its insureds before pursuing subrogation rights against third-party tortfeasors.

To this end though, insurers can generally pursue their subrogation rights where: (1) the insurance policy or some other contract dictates the priority of recovery or otherwise waives application of the “made-whole” doctrine; (2) the insurer is not competing with its insureds in claims against a particular third-party tortfeasor; (3) the insurer is funding the litigation against the third-party tortfeasor rather than riding on its insured’s efforts to pursue the third party; (4) the common tortfeasor being pursued by both the insurer and the insured has sufficient assets to satisfy both claims; or (5) the insurer has paid out the limits of its insurance policy.

A second hurdle to clear may exist when the claim against the DOD arises wholly out of rights existing under a government contract which, in some circumstances, are barred from assignment under the federal Anti-Assignment Act.

CERCLA’s wide net for capturing PRPs has often drawn the ire of manufacturers and landowners. With some creative thinking, however, PRPs can use that breadth to recoup some of the cleanup costs they have incurred from, among others, the U.S. government itself. It is widely recognized that the DOD has historically been one of the nation’s largest polluters, as expediency in generating weapons and ignorance of potential environmental impacts collided to create a legacy of contamination.

Now, with politicians and environmentalists leading the charge, the DOD is being called upon to help pay for the cleanup of former munitions sites. For landowners and PRPs who are ready to act, being able to navigate the terrain, handle liability issues, and deal with surprise contamination issues can often be enough to prevent action altogether.

The reality is that there are a range of environmental solutions and recovery mechanisms available to facilitate bringing these properties back to a productive use. Many PRPs and their insurers are, or should be, capitalizing on this momentum by turning to DOD for contribution under CERCLA.

Anthony R. Slimowicz is the Managing Director of WCD Capital Partners, LLC, a Brownfields Redevelopment Company located in New Jersey. Warren A. Koshofer is a partner in Blank Rome’s Los Angeles, California office. He has been practicing law for more than 20 years and is admitted to the Bar in California, New York, New Jersey and Pennsylvania.