Unsafe sewage sludge or beneficial biosolids?: Liability, planning, and management issues regarding the land application of sewage treatment residuals

Boston College Environmental Affairs Law Review, Summer 1999 by Goldfarb, William, Krogmann, Uta

Lenders are also wary of the other possible legal actions, discussed above, that may be brought against them or other parties involved. Thus, in order to explore the issues relating to liability arising from land application of sewage sludge, the Farm Credit Bank of Springfield, Massachusetts, invited a number of interested parties to a twoday symposium, in November of 1993, on "Minimizing Risks and Sharing Liability from Application of Sludge and Sludge By-Products on Agricultural Land." The purpose of the symposium was to recommend actions for minimizing any perceived or real risks attached to land application, and to focus on the task of developing equitable risk-sharing mechanisms within the joint and several liability framework.454 One conclusion was certain-under current law, landowners, farm operators, and lenders are all potentially liable for risks arising from application of sewage sludge, unless one of them assumes such risks from the others through a clear, legally enforceable mechanism. A variety of management tools and risk-sharing mechanisms were explored at the Symposium. The following is a description of three of these-bonds, insurance, and express indemnification agreements.

A. Bonds

The posting of bonds could adequately cover certain clearly defined expenses, such as those associated with monitoring and management costs.455 However, bonds are less useful as a risk-sharing mechanism in instances where potential liability exposure is large. For instance, in cases where settlements would be costly or exposure to class action suits would be broad, the bond required would be prohibitively expensive.456 However, it is recognized that bonds could be a mechanism to assure an available pool of funds should landowners and operators fail to carry out best management practices, or should they no longer be willing to do so.

B. Insurance

For companies engaged in potentially risky activities, such as sewage sludge land application, insurance can be a necessary protection against a variety of claims. Any or all of the following parties could obtain insurance coverage: the POTW, the sewage sludge-derived product manufacturer, other transporters, the sewage sludge contractor responsible for applying the sludge to land (sludger), and the farmer-landowner. However, the environmental liability and associated risks faced by these actors will rarely, if ever, be fully covered by insurance.457 Some sewage sludge vendors have purchased policies offering limited protection,458 although it is unclear what risks are actually covered, what standards a court would apply in determining responsibility among parties, or what limits of protection these policies afford. The effectiveness of insurance as a risk-sharing mechanism, and the cost of obtaining coverage, will depend upon the scope of the coverage provided, limitations on the number and size of claims, and the conditions that must be met in order to justify a claim.459

The liability insurance policy that offers the broadest protections against third party suits is the "comprehensive general liability policy" (CGL).460 These policies are based on standard forms developed by the insurance industry and provide for two types of claims: those for bodily injury and those for property damage. However, these policies also contain a standard pollution exclusion, which is the most significant issue affecting coverage for suits involving sewage sludge application."561 A standard exclusion typically defines "pollutants" as "any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals, and waste. Waste includes materials to be recycled, reconditioned or reclaimed."462 The question is whether sludge is to be treated as a pollutant. In two related cases, Colorado courts have denied insurance company motions for summary judgment, and held that a question of fact existed as to whether treated sewage sludge was to be considered a pollutant under the standard exclusion language.463 Both cases involved sewage sludge that was disposed of at landfills prior to the promulgation of Part 503 regulations, but the courts' analyses remain pertinent. In City of Englewood v. Commercial Union Assurance Co., the insurers argued that they had no duty to defend the city's disposal of municipal sewage sludge at a nearby landfill, because the disposal fell squarely within the pollution exclusion language in the insurance contract.464 However, the appeals court concluded that there was a legal basis on which insurers might be held liable to indemnify the cities because there is a "pending legal issue regarding the characterization of domestic sewage sludge."465 Noting that courts have recognized a distinction between toxic industrial sludge and nontoxic domestic sewage sludge and stabilized sewage sludge,466 the appeals court cited a Colorado federal district court ruling in Metro Wastewater Reclamation District v. Continental Casualty Co., which rejected the proposition that sewage sludge, as a matter of law, was an irritant, contaminant, or pollutant.467 The Colorado state court in Englewood concluded that there was a mixed question of law and fact as to whether domestic sewage sludge is an irritant, contaminant, or pollutant within the meaning of the pollution exclusion clause.468