Barg Coffin Lewis & Trapp, LLP Articles

June 10, 1996

State Appellate Court Expands Allowable Claims Against UST Fund

by R. Morgan Gilhuly

Thwarting efforts by the State Water Resources Control Board to limit disbursements from the state Underground Storage Tank Cleanup Trust Fund, a California court of appeals recently ruled that corrective action costs incurred at separate but adjacent underground storage tank sites can represent two "occurrences" and therefore may support two reimbursable claims against the UST Trust Fund. This ruling is significant because state law sets a reimbursement limit of $1,000,000 for all claims arising from the same event or occurrence.

At the heart of the recent ruling was the court's interpretation of the term "occurrence." Health & Safety Code Section 25299 defines occurrence as an "accident, including continuous or repeated exposure to conditions, which results in an unauthorized release of petroleum from an underground storage tank." In an effort to limit claims against the UST Trust Fund, the state board's implementing regulations consider unauthorized releases that are caused by several sources, but require only one site investigation, to be a single "occurrence."

In the recently reported decision, the Caldo Oil Co. operated tank systems on adjacent parcels of land. Releases occurred at both locations. Caldo performed one site investigation covering all the releases, and eventually expended over $800,000 on each parcel. Caldo argued that the statute's definition of occurrence and the traditional insurance industry definition of occurrence supported its conclusion that two reimbursable claims existed.

The court of appeals agreed, rejecting the board's arguments that there was only one occurrence and that its implementing regulations provided a reasonable limitation on claims that is vital to the financial security of the UST Trust Fund. By consolidating Caldo's claims for corrective action on the adjacent parcels, the board had sought to limit Caldo's reimbursement to $990,000 of the more than $1.7 million Caldo spent at the two locations.

While this ruling is good news for UST Trust Fund claimants that have performed single-site investigations at locations involving multiple sources, there is no indication in the Caldo opinion how many such claimants may exist. Moreover, to the extent that Caldo helps a few claimants, it may harm many others, according to Dave Deaner, manager of the state board's UST Cleanup Fund. Deaner notes, for example, that the deductible applicable to the claim will still be based on the number of occurrences. As a result, "D" category claimants now subject to a $10,000 per occurrence deductible could be subject to a $30,000 deductible for cleanup of three leaking tanks in one location. Except for the possible effect on the deductible, the Caldo decision will have no impact on the many site cleanups that are performed for less than the Fund's reimbursement cap.

Moreover, many cleanups are likely to get cheaper. The recommendations of the Lawrence Livermore National Laboratory report on USTs released last October appear to be having an impact on the number of closures at low-risk UST sites. According to Deaner, regional boards and local implementing agencies have closed hundreds of low-risk sites in the last several months. The state board plans to issue a policy addressing implementation of the Lawrence Livermore report by the end of this year, at which time claims against the Fund may decrease in amount and number. If the recommendations of the Lawrence Livermore report are widely adopted, many claims against the Fund are likely to be for investigation and monitoring costs only rather than for more expensive cleanup of soil and groundwater.

In the end, the impact of Caldo may be short-lived. Deaner reports that the state board has filed a petition for rehearing and may appeal the Caldo decision to the state Supreme Court. And proposed legislation defining "occurrence" in accordance with the state board regulation that the Court of Appeals rejected is already being drafted and appended to proposed Senate Bill 562.

Deaner notes that the Fund faces a significant funding shortfall compared to projected demand. A backlog of over 6,000 claims now awaits processing. The majority of disbursements being made from the Fund are payments on existing claims, rather than on new claims. In fiscal year 1995-96, of the $123 million annual appropriation for claims, $80 million was used for existing claims with the remaining $43 million used for new claims.

Caldo Oil Company v. State Water Resources Control Board, to be reported at 52 Cal.Rptr.2d 609, 1996 WL 221831, 96 Daily Journal D.A.R. 5317, 96 Cal. Daily Op. Serv. 3275 (Cal. Ct.App., April 30, 1996).

This article was authored with the assistance of Landels Ripley & Diamond, LLP attorney Mary J. Decker.
These materials are provided for information purposes only and are not intended as and cannot be considered legal advice. Before taking action based upon this information, you should consult your legal counsel.

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