LEGISLATION: Paying for Natural Resource Damages

Joseph Catanese

What does the Exxon Valdez $1.1 billion cleanup settlement have in common with the solid waste industry? This massive judgment resulted from the Natural Resource Damages Assessment (NRDA) statute - a law that also can directly affect refuse businesses.

NRDA allows the government to collect damages for injury, destruction or loss of natural resources. These assessments pay to restore or replenish wildlife habitats, marshes, beaches, rivers, etc. Damages typically are assessed by a contingent valuation, which measures the passive uses - such as the public's enjoyment - of the environment.

NRDA also represents a potential source for financial losses.

Today, NRDA is being used for all types of environmental damage, and awards have gained momentum, although its legislative future remains in question.

Customarily, natural resource damages are viewed as the difference between the natural resource in its pristine condition and its condition after the damage, and includes the cleanup, the value of lost use of the resource and the assessment cost.

The Department of the Interior (DOI), Washington, D.C., defines NRDA under the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) and establishes NRDA procedures for assessing damages caused by the release of hazardous wastes. This process identifies alternatives for restoring affected resources and/or acquiring equivalent resources.

These procedures consist of four phases:

* Preassessment. During this phase it's determined whether assessment actions are warranted.

* Assessment Plan. This involves ensuring reasonable assessment costs are incurred. Also, a plan is created describing the procedures to determine the extent of injury.

* Assessment. The three steps in assessment are: (1) determination of injury; (2) quantification; and (3) determination of damage.

* Post-Assessment. A monetary value is calculated.

Prior to 1992, damages were assessed at the lesser of restoration costs or by lost use values without restoration. In Ohio v. Department of Interior, 880 F.2d 432 (D.C. Cir. 1992), environmental groups challenged existing regulations, asserting that CERCLA would require levying damages to restore, replace or acquire the equivalent of injured resources in every case. The case resulted in the DOI revising NRDA regulations to establish the importance of restoration costs over lost use values, and to include the loss of passive use values. However, concerns remain on whether restoration costs or replacing natural resource are sufficient. In many situations, complete restoration or replacement is not possible. For example, when lost wildlife cannot be immediately replaced and, even where full restoration is possible, the public suffers the loss of enjoying the resource.

Thus, while all compensatory sums recovered are used to restore, replace or acquire equivalent natural resources, CERCLA explicitly allows for compensation in excess of actual damages as well.

Consider the case of a municipal wastewater treatment facility that accidentally released raw sewage from a pump station into a major waterway. Because of a line break, approximately 10 million gallons of raw sewage overflowed into the creek adjoining the pump station.

Two years later, state authorities issued a NRDA of nearly $200,000 against the municipality. The state also imposed a $50,000 penalty on the municipality and assessed fish kills and loss of recreational use of the creek at $200,000.

To satisfy the NRDA, the municipality performed a supplemental environmental project. The state determined that the most suitable project was a wetlands restoration.

The final construction of the wetlands restoration project totaled approximately $80,000, which was accepted in lieu of the initial $200,000 NRDA.

Considering the potential for significant NRDA claims, companies should work with their insurers to develop effective cost-containment strategies. Also, it's important to review your insurance policy's language to determine how your insurer would address NRDA claims. By paying attention to remediation plans, regulatory compliance and risk management, significant reductions in the financial risks of NRDA claims can be made.