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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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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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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 [email protected]
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
