2003 in Review. Environmental Litigation Update: Puget Sound Energy, Inc. v. ALBA General Insurance Co. 149 Wn.2d 135, 68 P.

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1 Environmental Litigation Practice Group Environmental Litigation Update: 2003 in Review This special edition highlights the important environmental litigation cases and trends in the Pacific Northwest during the past year. More detailed consideration of each of these cases is available on our Web site located at: ENVIRONMENTAL INSURANCE Puget Sound Energy, Inc. v. ALBA General Insurance Co. 149 Wn.2d 135, 68 P.3d 1061 (2003) by John Bjorkman The Washington Supreme Court (Supreme Court) added another important decision to its jurisprudence on insurance coverage for environmental cleanup costs this year. In holding that a non-settling insurer has the burden of proving the amount of an offset arising from the insured s prior settlement with other carriers, the Supreme Court continued a general pattern of favorable decisions for insureds seeking coverage for hazardous substance cleanup costs under historic third-party liability policies. With its latest decision in the Puget Sound Energy line of cases, the Supreme Court has kept Washington one of the leading states in the Nation on environmental insurance issues. Puget Sound Energy (PSE), the former Washington Natural Gas Company, owned or operated a number of contaminated properties including historic coal gasification plants in, Tacoma, Everett, and Chehalis. These facilities left coal tars, creosote, and polycyclic aromatic hydrocarbon contamination in soils, sediments, and ground water throughout western Washington s industrial areas. PSE sued several of its thirdparty liability carriers for coverage at six of these contaminated properties. The carriers moved for summary judgment claiming that PSE had already recovered in excess of $56 million in insurance and other payments and credits and, therefore, had been made whole for these six sites. PSE argued that the payments received included reimbursement for costs at sites other than the six properties at issue and that it had not allocated them to any particular site. Further, the future costs at these sites were unknown and, therefore, PSE could not fairly allocate any of the past payments to those future costs. The trial court granted the summary judgment and PSE appealed. The Washington Court of Appeals (Court of Appeals) held that PSE carried an initial burden of proof to demonstrate how it had allocated its prior recovery to the six sites at issue and Inside This Issue: PRIVILEGE: In re Grand Jury Subpoena (Mark Torf/Torf Environmental Management) CERCLA: Coeur d Alene Tribe v. Asarco Inc ENDANGERED SPECIES ACT: County of Okanogan v. NMFS CLEAN WATER ACT: Airport Communities v. Graves CLEAN AIR ACT: Alaska Department of Environmental Conservation v. EPA CLEAN WATER ACT: Environmental Protection Information Center v. Pacific Lumber Co how it intended to allocate its recovery to its anticipated future costs. Once PSE made that showing, the burden of proof would shift to the insurers to demonstrate that PSE had, in fact, received adequate compensation for the claims made against it. Still unsatisfied, PSE sought review in the Washington Supreme Court. The Supreme Court first examined its prior decision in Weyerhaeuser Co. v. Commercial Union Ins. Co., 142 Wn.2d 654, 15 P.3d 115 (2000). In Weyerhaeuser, the Supreme Court held that an insured s settlement with its insurance carrier often includes much more consideration than just a payment on a claim. The settling insurer typically receives, in addition to a release of the claim, certainty in avoiding the risks of an adverse outcome at trial and the cost savings of avoiding further litigation. Because the settling insurers paid for a release from an unquantifiable basket of risks and considerations, it was not possible to say simply that the payment was only for the claim. The Supreme Court then turned to the facts of the PSE case and the Court of Appeals decision. In PSE, there was evidence that the prior settlement payments included complete releases for claims at sites other than the six cont d on page 7

2 Page 2 Environmental Litigation Practice Group PRIVILEGE In re Grand Jury Subpoena (Mark Torf/Torf Environmental Management) 350 F. 3d (9th Cir. 2003) by Amit Ranade The Ninth Circuit recently expanded the work product privilege for protection of multi-purpose documents in cases where the litigation purpose of a document is so pervasive that other purposes,such as environmental compliance,cannot be distinctly separated from the facts surrounding their creation. In re Grand Jury Subpoena (Mark Torf/Torf Environmental Management), 350 F.3d 1010 (9th Cir. 2003) In May 2000, the Environmental Protection Agency (EPA) announced an investigation of Ponderosa Paint Manufacturing, Inc. (Ponderosa), alleging violations of federal waste management and transportation laws. In response, Ponderosa hired attorney John McCreedy seeking advice and representation. McCreedy, in turn, hired Mark Torf, an environmental consultant, to assist him in defending Ponderosa. Torf interviewed numerous witnesses, tested paint products and properties, and performed other investigative functions to assist McCreedy. During its investigation, the EPA served Ponderosa with a broad Information Request under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) requiring it to identify a variety of materials possibly handled in violation of federal laws. Hoping to avoid litigation, Ponderosa complied with the request based largely on information obtained by Torf. Ultimately, Ponderosa and the EPA agreed to an order in which Ponderosa cleaned up potentially hazardous materials without admitting liability. Torf continued to assist McCreedy with compliance during the cleanup process. In March 2002, a grand jury investigating the same events issued a subpoena to Torf for the production of all of his work in connection with the May 2000 EPA action. Ponderosa moved to quash the subpoena on work product privilege grounds. The magistrate judge overseeing the grand jury granted the motion, but the ruling was subsequently overturned on district court review. Ponderosa appealed to the Ninth Circuit. Through its decision, the Ninth Circuit joins other circuits by adopting the rule articulated in the Wright & Miller Federal Practice treatise. Under this standard, a document merits work product protection if, in light of its nature and the surrounding facts, it can be fairly said to have been prepared or obtained because of the prospect of litigation. In re Grand Jury Subpoena (Mark Torf/Torf Environmental Management), 350 F.3d at 1016 citing Charles Alan Wright, Arthur R. Miller, and Richard L. Marcus, Federal Practice & Procedure 2024 (2d. ed. 1994). The Ninth Circuit agreed with the government that documents with truly independent, non-litigious purposes are less likely to merit protection. It ruled, however, that where a non-litigious purpose is inseparably entangled with a litigious one, courts should look to the total factual circumstances to determine whether the document merits protection. If the facts indicate that the document was created because of the prospect of litigation, it merits protection even if it has other purposes. According to the Ninth Circuit, this because of standard applies regardless of whether the document s litigation purpose was primary or secondary. In re Grand Jury Subpoena (Mark Torf/Torf Environmental Management) expands the scope of the work product privilege in the Ninth Circuit to include many environmental compliance and cleanup documents. Under this ruling, companies, local government and individuals working to cleanup possibly hazardous sites and comply with environmental laws are less likely to have their own documents used against them. amitr@prestongates.com 2004 Legislative Session Significant Water Resources Proposals The Washington Legislature is considering several major water resources proposals this session, including proposals on instream flow and a radical proposal to do away with statutory relinquishment ( use it or lose it ). Preston Gates is participating in the dialogue on these proposals through the Washington Water Policy Alliance and other channels. Please contact Environmental and Land Use attorneys,matt Wells at mattheww@prestongates.com or Liz Thomas at ethomas@prestongates.com for additional information.

3 Page 3 CERCLA Coeur d Alene Tribe v. Asarco Inc. 280 F. Supp. 2d (D. Id. 2003) by Denise Lietz On September 3, 2003, Judge Edward J. Lodge issued an important decision in the on-going saga of the mining industry s liability for contamination of the Coeur d Alene Basin in Northern Idaho. Judge Lodge, in Coeur d Alene Tribe v. Asarco Inc., 280 F. Supp. 2d (D. Id. 2003), held that while the liability of the defendant mining companies for natural resource damages in the Basin was evident, the plaintiffs, the United States and the Coeur d Alene Tribe, had exaggerated the extent of those damages. This opinion is one of the few written decisions that provides extensive analysis of natural resource damage recovery under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). The Court will assess damages and other issues of liability during the second phase of the trial set for May The Basin was listed in 1983 on the Superfund National Priority List as the Bunker Hill Mining and Metallurgical Site, and the first remedial actions there concentrated in the twenty-one square mile area known as the Bunker Hill Box, or simply the Box. The contamination, resulting from 100 years of silver, lead, and zinc mining, has extended into other areas of the Coeur d Alene Basin. To address these areas of broad contamination, the Environmental Protection Agency (EPA), under the regulatory authority provided by the CERCLA, initiated a remedial investigation and feasibility study (RI/FS) for the Basin in This action began in 1991, when the Coeur d Alene Tribe filed suit in the Idaho federal district court, attempting to recover natural resource damages under CERCLA. In 1996, the federal government filed suit against several mining companies to recover cleanup response costs under CERCLA and natural resource damages under both CERCLA and the Clean Water Act (CWA). The Court then consolidated the two actions. While several of the mining companies are now bankrupt and others have settled the claims against them, the remaining defendants, Asarco, Incorporated and the Hecla Mining Company, continue to contest both their liability for and the extent of natural damages associated with their mining activities. In 2001, the Court heard evidence in the first phase of the trial. After listening to approximately 100 witnesses, 78 days of trial and having reviewed 8,695 exhibits and over 16,000 pages of testimony, the Court characterized this phase of the trial as one of battling experts, where witnesses with impeccable qualifications reached opposite conclusions on almost every issue. Id. at The Court ultimately determined that the mines in the Basin released over 60,000,000 tons of mine tailings, including wastes containing lead, cadmium, and zinc, before they began impounding the wastes in the late 1960s. Id. at The Court also found that, while mines are not the only source of metal contamination in the Basin, comingled mining waste is the primary cause of damage to the natural resources in the Basin. Id. at Judge Lodge s wide-ranging opinion addressed several issues in addition to directly analyzing the natural resource damage claims. The Court found EPA had not improperly combined its regulatory and enforcement functions by basing its decision to proceed with the RI/FS process for the Basin on the litigation in this case. Additionally, the Court found that the passive migration of the mining wastes that occurred following the enactment of CERCLA was a release that enabled the plaintiffs to recover costs under CERCLA. 1 The Court also extensively analyzed the federal government s CERCLA liability for its own activities in the Basin, primarily for its involvement in mining activities and highway construction. During World War II, the federal government was involved in many industries it considered critical to the war effort. In the mining industry, this involvement was extensive and included price controls, employee wage control, and oversight of mill security operations. The Court held this involvement did not cause the federal government to incur either operator or arranger liability under CERCLA. The Court also addressed other federal activities in the Basin, finding that the government has some CERCLA liability as an arranger, primarily for its involvement in funding construction of Interstate 90 through Idaho, which used a large amount of mine tailings as roadbed fill and in embankments. The heart of Judge Lodge s opinion was his examination of the federal government and the Tribe s claims for natural resource damages. The Court first addressed the defendants claims that the federal government and the Tribe were not the trustees for many of the natural resources in the Basin; only the trustee of a resource may recover natural resource damages. The Court held that statutory authority alone does not establish trusteeship over a resource, but that the level of actual dayto-day management of the resource was key. The issue of trusteeship in this case is complicated by the fact that the State of Idaho already settled its natural resource damage claims with the defendants. The Court addressed this issue by stating that the federal government and the Tribe are not limited or bound by what the State of Idaho may have chosen to settle for as damages, but they cannot recover a greater percentage than what this Court determines their actual control and management were in fact. If there is a windfall to the Defendants, only the State of Idaho can complain. Id. at The Court held that the federal government was trustee of 100% of federal lands, that the Tribe was trustee of 100% of the lands within its reservation boundaries, but neither was trustee of either state-owned or private lands. Additionally, the Court will determine the share of trusteeship for other resources, fish, wildlife, biota, water, and groundwater, after presentation of evidence concerning that issue in the next phase of the trial. Id. at The plaintiffs sought to have joint and several liability imposed on the mining companies, so each company would be liable for 100% of the natural resource damages and cleanup costs in the Basin. The mining companies asserted their liability should instead be apportioned based on the amount of mine tailing waste that they had discharged. The Court held cont d on page 7

4 Page 4 Environmental Litigation Practice Group ENDANGERED SPECIES ACT County of Okanogan v. NMFS 347 F.3d 1081 (9th Cir. 2003) by Matthew Wells The Ninth Circuit recently added a new chapter to the book on the interaction of the ESA and state water rights. In Okanogan County v. NMFS, the Circuit upheld the ability of federal agencies, through the ESA Section 7 consultation process, to impose permit conditions that affect the exercise of state water rights in order to protect listed fish species. The case involves two irrigation companies that require federal permits because their facilities are located on federal land. After engaging in Section 7 consultation with NMFS (now known as NOAA Fisheries) and US Fish and Wildlife Service in reissuing the permits, the US Forest Service imposed conditions deemed necessary to avoid jeopardizing listed fish species (salmon, steelhead and bull trout). The conditions effectively required the irrigation companies to limit their surface water diversions in times of low stream flow in order to protect listed species and habitat. Plaintiffs challenged the permit conditions, arguing that the Forest Service s conditions were an unconstitutional limitation on their property rights (vested state water rights) and were without statutory authority. Unfortunately for plaintiffs, the facts of the case allowed the Court to make quick work of their claims, avoid the constitutional issue, and conclude that the permit conditions were lawful. The key facts relied upon by the Circuit are the terms of the permits that had been issued to the irrigation companies since the early 1900s. From the outset, the permits clearly indicated that the government had the unqualified discretion to restrict or terminate the rights-of-way. Id. at Given the permit terms, the Circuit characterized the case as one about rightsof-way, not about water rights. Id. at While the outcome of the case is not particularly remarkable based on the facts, it is surprising that the Circuit refused to directly address the effects of the permit conditions on state water rights. We will have to wait for another case and another set of facts to determine when regulation of the exercise of state water rights under the ESA goes far enough to warrant real consideration of constitutional takings issues. mattheww@prestongates.com CLEAN WATER ACT Airport Communities v. Graves 280 F. Supp. 2d 1207 (W.D. Wash 2003) by Eric Laschever On August 18, 2003, Judge Barbara Rothstein issued a decision upholding the Army Corps of Engineers (Corps) 404 permit for the Sea Tac Airport third runway. See Airport Communities Coalition v. Graves, 280 F.Supp.2d 1207 (W.D. Wash. 2003) (Order Granting Defendants Motions for Summary Judgment and Denying Plaintiff Motion for Summary Judgment). The Court rejected arguments that the Corps (1) should have prepared a supplemental Environmental Impact Statement, (2) inadequately reviewed the public interest, and (3) failed to incorporate all of the conditions imposed by the Pollution Control Hearings Board (PCHB). The Court s rulings on the first two issues add to a considerable body of National Environmental Policy Act (NEPA) and Clean Water Act (CWA) jurisprudence. The Court s ruling on the third issue has had an immediate effect on the PCHB, and is discussed further below. The Corps issued its 404 permit after opponents challenged Ecology s certification of the 404 permit, under Section 401 of the CWA, in an appeal to the PCHB. The CWA requires states to issue such a certification within one year of the request. 33 U.S.C. 1341(a)(1). The PCHB added sixteen new conditions to the 404 permit. The Corps incorporated seven of the PCHB s sixteen conditions along with Ecology s certification in its Record of Decision. Opponents argued that the Corps violated the CWA because it failed to incorporate all of the PCHB s conditions. Because the PCHB conditions were added more than one year after the Corps had published its notice of application by the Port, the Court ruled that the Corps was not required as a matter of law to incorporate all of the PCHB s conditions. The Court concluded under the plain language of the statute that the Corps is only bound by state certification conditions issued within one year after the notice of the application. Airport Communities at 11. See Airport Communities, 28 F. Supp. 2d. at Before Airport Communities, Ecology routinely asserted it had up to a year to issue its certifications. Similarly, PCHB deliberations on complex projects may take a year or more. Under Judge Rothstein s reasoning, any conditions imposed more than one year later would not automatically apply to 404 permits. The Court suggested the state may pursue independent avenues for certification, such as issuing its certification in the form of an independently enforceable order that would be above and beyond the federal requirements. Airport Communities at 15. Id. at It is unclear how Ecology and the PCHB will modify the process for 401 certifications to address Airport Communities. The PCHB already established an expedited hearing schedule in one matter in an effort to issue a decision within the one year time frame. See Columbia River Alliance for Nurturing the Environment v. Dept. of Ecology, 2003 WL , PCHB No (2003). Airport Communities may signal a dramatic change in Washington s 401 certification process. ericl@prestongates.com

5 Page 5 CLEAN AIR ACT Alaska Department of Environmental Conservation v. EPA 298 F.3d 8814 (9th Cir. 2002) Kenneth J. Gish, Jr The Clean Air Act (CAA) has been described as an experiment in federalism. 1 The CAA vests the responsibility to create clean air standards in the federal Environmental Protection Agency (EPA), but grants the states the responsibility to implement those standards. Each state must develop and submit to the EPA for approval a state implementation plan (SIP) that provides for the attainment and maintenance of air quality. To prevent states from lowering air quality standards to attract polluting industry and the associated economic growth, the EPA retains authority to act when a state fails to comply with its SIP. This review authority can create friction between state agencies and the EPA, as it did recently in a case that originated in Northwestern Alaska. Most of Alaska is considered an attainment area under the CAA. Because of this designation, new or modified major sources of air pollution in Alaska must obtain a Prevention of Significant Deterioration (PSD) permit from the Alaska Department of Environmental Conservation (ADEC) prior to construction. Under Alaska s SIP, ADEC can only issue permits after determining that the source will utilize the best available control technology (BACT) to limit pollution. BACT is defined, in both the CAA and the Alaska SIP, as an emission limitation based on the maximum degree of reduction of each pollutant... which the permitting authority, on a case-by-case basis, taking into account energy, environmental, and economic impacts, and other costs, determines is available for such facility. 2 ADEC s grant of a PSD permit to Teck Cominco Alaska, Inc. (Cominco) for expansion of the Red Dog Mine provoked a series of non-compliance orders from the EPA, claiming that ADEC s determination of BACT was improper. Cominco s Red Dog Mine, located over 100 miles North of the Arctic Circle, is the world s largest producer of zinc concentrates. Because of the mine s remote location, it uses on-site diesel generators to provide electricity. The mine is the largest private employer in the Northwest Arctic Borough of Alaska. In 1996, the mine sought to increase production. Because the increase in production would require increased operation of one of the current generators (MG-5) and construction of a new one (MG-17), Cominco applied for a PSD permit from ADEC. In its initial application, Cominco stated that it would use low NOx burners as BACT. 3 ADEC made a separate determination that Selective Catalytic Reduction (SCR) was BACT for NOx emissions. 4 Cominco responded by offering to use low NOx burners on all of its generators, instead of SCR on only MG-5 and MG-17. ADEC accepted this as BACT, stating that SCR was not feasible, and issued the PSD permit. EPA, at the request of the National Parks Service, reviewed the permit s issuance. EPA determined that SCR, not low NOx burners, was BACT for diesel generators and issued a series of findings of non-compliance and orders prohibiting construction of the new generator. Eventually, the orders prohibiting construction were withdrawn, but the determinations of non-compliance with the SIP remained. ADEC appealed the findings of non-compliance to the Ninth Circuit claiming that the EPA had overstepped its bounds in rejecting its determination of BACT. The Ninth Circuit disagreed. In ADEC v. EPA, 298 F.3d 814 (9th Cir. 2002), the Ninth Circuit Court of Appeals found that the EPA acted within its powers, arising out of the language and legislative history of the CAA, when it determined that ADEC s BACT determination was improper. EPA s authority to issue orders for noncompliance with a SIP includes the authority to determine that a BACT determination is improper. Id. at Here, EPA s determination of noncompliance was proper as there was no justification of why SCR was costprohibitive for Cominco. Id. at Finally, the Court held that ADEC was incorrect in incorporating the contribution of Cominco to the regional economy in its BACT determination, stating Congress gave the EPA enforcement authority, to protect states from industry pressure to issue ill-advised permits. Id. at 823. The United States Supreme Court granted review of this decision. On January 21, 2004, the Supreme Court issued its decision. ADEC v. EPA, No , slip opinion (Jan. 21, 2004). In a five to four split, the Court affirmed the decision of the Ninth Circuit, holding that, under sections 113(a)(5) and 167 of the CAA, the EPA has the authority to issue stop construction orders if the state permitting authority s BACT determination is unreasonable. Id. at 36. While the state permitting authority may be in the best position to determine, on a case by case basis, whether a proposed control technology is feasible, it cannot make unreasonable BACT determinations, ones that are not supported by the facts. Id. at 22. The Court found that the EPA did not act in an arbitrary and capricious manner in issuing the orders as ADEC failed to provide a reasoned justification for why it changed its BACT determination at the Red Dog Mine Facility. Id. at 31. The decision in this case reaffirms the CAA s reputation as an experiment in federalism. States are free to make their own case by case BACT determinations under the PSD program, provided they articulate a reasonable justification for their decision. If the states do not provide such justifications, this case clearly demonstrates that the EPA can and will step in to invalidate the permits., kennethg@prestongates.com 1 See Michigan v. EPA, 268 F.3d 1075, 1078 (D.C. Cir. 2001) 2 42 U.S.C. 7479(3) 3 Low NOx burners control NOx by using high-combustion air temperatures to increase atomization of NOx particles and prevent their release into the atmosphere. See ADEC v. EPA, 298 F.3d 814, (9th Cir. 2002). 4 SCR is a process that injects ammonia or urea into the exhaust and then that mixture is combined with a catalyst to reduce NOx emissions. Id. at 817.

6 Page 6 Environmental Litigation Practice Group CLEAN WATER ACT Environmental Protection Information Center v. Pacific Lumber Co. 266 F.Supp. 2d 1101 (N.D. Cal. 2003) by William Chapman & Christopher Varas The United States District Court for the Northern District of California recently entered an order that may expand federal district court jurisdiction over citizen suits challenging EPA regulations related to the Clean Water Act (CWA). This possible expansion of federal district court jurisdiction is twofold. First, the court narrowly interpreted which types of challenges must be heard by federal circuit courts, versus federal district courts. Second, the court concluded that when the EPA proposes revisions to the regulation and solicits commentary on the revisions, the statute of limitations on challenges to EPA regulations starts over, even if the EPA ultimately decides not to amend the original regulation. The following summarizes the court s reasoning on both issues. The suit centers around the logging activities of the Pacific Lumber Company (PALCO) and its subsidiary, the Scotia Pacific Lumber Company. Plaintiff Environmental Protection Information Center (EPIC) has charged that the companies are illegally polluting Bear Creek with sediment from sites for which PALCO has not obtained a permit from the National Pollutant Discharge Elimination System (NPDES). PALCO responded that EPA regulations promulgated in 1976 exempted its logging activities from the NPDES permitting requirements. As part of its suit, EPIC challenged the validity of one part of the 1976 EPA regulations, on which PALCO relies. The regulations, though authorized by the CWA, are not themselves part of the CWA statute. The regulation EPIC has challenged excludes certain non-point source effluents from the NPDES permitting requirements. Among the activities exempted from the NPDES permitting requirements are surface drainage [and] road construction and maintenance from which there is natural runoff. See EPIC, 266 F. Supp. 2d at The EPA proposed revisions to the exemption in 1999 and solicited comments on its proposed revisions. Ultimately, however, the EPA rejected the proposed revisions and closed its consideration without amending the exemption. While PALCO s challenged activity falls within the 1976 exemption, EPIC has argued that the EPA exceeded its authority under the CWA when it promulgated the exemption. PALCO and the EPA moved to dismiss for lack of subject matter jurisdiction and because the statute of limitations lapsed before EPIC filed its complaint. The court rejected both arguments. The CWA gives federal circuit courts exclusive jurisdiction to hear certain CWA claims. Among the claims reserved to the federal circuit courts are challenges to the EPA s issuance of limitations on effluents promulgated under 301, 302, 306, or 405 of the CWA, and actions issuing or denying any permit under 402. CWA 509(b). Defendants argued that the 1976 exemption falls within both of these categories, and so only a federal circuit court, not the federal district court in which the plaintiffs brought their challenge, could consider the suit. The court rejected both categorizations. With regard to the first category, the court concluded that the EPA enacted the non-point source exemption pursuant to authority granted it in 304 and 501 of the CWA, neither of which grants federal circuit court jurisdiction. The court also noted that the exemption was not an action limiting effluents, but rather the opposite: an action exempting an entire category of non-point sources from the opportunity for regulation.... See EPIC, 266 F. Supp. 2d at The court concluded that, even under a broad reading of the statutory language, a regulation which exempted effluents could not be termed a limitation. Id. at With regard to the second category, actions issuing or denying permits, the court drew a distinction between actions issuing or denying permits on the one hand, and actions identifying a class of silvicultural sources that do not require NPDES permits on the other. Id. Here again, the court concluded that a categorical rule exempting particular sources from the NPDES requirement on the grounds that they are non-point sources does not relate to the issuance or denial of an individual permit. Rather, the exemption simply removes the category of effluents from the universe of sources to which the permits apply. Id. at Thus, by narrowly interpreting the CWA provisions that grant federal circuit court jurisdiction, the court potentially expanded the jurisdiction of federal district courts. The defendants also asked the court to dismiss the complaint because it was filed well after 1982, when the six-year statute of limitations on the 1976 regulations expired. The court rejected EPIC s argument that the statute of limitations did not apply because it was challenging the exemption as applied to PALCO s activity. Id. at The court agreed with EPIC, however, that the EPA reset the statute of limitations when it proposed revisions to the regulations. The court rejected the defendants argument that the statute did not reset because the EPA ultimately left the regulations unchanged. The key for the court was not whether the EPA ultimately changed the regulation, but rather that the agency explicitly invited comments on... the underlying nonpoint source provision[.] Id. at Based on this analysis, the court ruled that the statute of limitations started running in 2000, and that the complaint was timely. This order does not necessarily indicate an increased risk of liability for entities operating within the EPA s 1976 non-point source exemption. Indeed, in an order dated October 14, 2003, the court granted the defendants motions for partial summary judgment, ruling as a matter of law that the EPA did not exceed the scope of its authority in promulgating the 1976 exemption. Nevertheless, the court s narrow interpretation of the CWA provisions granting jurisdiction to the federal circuit courts may increase the opportunity for citizen suits challenging EPA CWA regulations in the federal district courts. Similarly, this instance of resetting the statute of limitations could expose other long-lived regulations to new challenges as the EPA reconsiders them or solicits commentary on proposed changes. billc@prestongates.com cvaras@prestongates.com

7 Page 7 ENVIRONMENTAL INSURANCE: Puget Sound Energy, Inc. v. ALBA General Insurance Co. (cont d from cover) involved in the litigation. To the extent that PSE had not previously made its own allocation of recoveries to these sites, the Supreme Court was not inclined to make it do so in order to bring a claim against its non-settling insurers. The Supreme Court further held that to the extent PSE s settling insurers had received a release for future costs that PSE had not yet incurred, PSE was not able to make an allocation. Thus, the Court of Appeals had asked PSE to do far more than simply meet a burden of proof; PSE was asked to produce information that it did not yet know. Because this went beyond a simple burden of proof, the Supreme Court reversed the Court of Appeals and held that the insured does not have the initial burden of proof. Instead, the carrier must prove the fact of prior payments and their amount in order to obtain an offset. As a practical matter, liability insurers in environmental coverage matters rarely actually admit coverage and pay claims. If a defense is provided, it is always under a reservation of rights. A negotiated settlement of a disputed coverage claim can involve, as in PSE, a release of claims for all of the insured s other sites whether known or unknown. In addition, carriers will often ask for a policy buy-back, seek to liquidate their separate defense obligation, or sometimes ask for an indemnity from the insured as part of the settlement of a disputed coverage claim. These and other factors make the allocation of the settlement payment to the amount of the principal claim a difficult proposition. The Supreme Court s decision fairly allocates that difficulty to the insurer who is, after all, seeking the offset to avoid its otherwise fixed contract obligation. Further, the Supreme Court s decision perhaps minimizes the effect of a collusive settlement between the insured and the settling insurer establishing an artificially low value for the principal claim. While a court may choose to admit such an agreement as evidence of the allocated value of the claim and thus the offset, the fact the insurer carries the initial burden of proof allows it to open the trial with its proof. The Supreme Court s PSE decision continues the Supreme Court s tradition of favoring insureds in environmental insurance coverage disputes. The PSE decision will, once again, assist Washington business and industry as they labor to cleanup historic contamination in our State. johnb@prestongates.com CERCLA: Coeur d Alene Tribe v. Asarco Inc. (Cont d from page 3) all of the mining companies in the Basin had used roughly similar methods in their mining operations, so that there was an imperfect, but reasonable relationship between the waste volume, the release of hazardous substances and the harm at the site. Id. at Based on this relationship, the Court held that the two remaining mining companies were liable only in proportion to the percentage of the volume of mining tailings they produced: Asarco was therefore liable for the release of 22% of the tailings and Hecla for 31%. The Court also made a preliminary finding that some injury to natural resources in the Basin had occurred following the passage of CERCLA. The Court will quantify the actual amount of damages during the second phase of the trial. While the Court held there was mining-related damage to water, soils and sediments, riparian resources, fish, birds (specifically tundra swans), groundwater, and benthic macorinvertebrates and phytoplankton, the Court found there was no damage to other wildlife or bird species. Additionally, the Court stated, The liability of certain responsible parties including Hecla and Asarco is evident, but the Defendants are correct when they argue that there has been an exaggerated overstatement by the Federal Government and the Tribe of the conditions that exist and the source of the alleged injury to natural resources. Id. at This assessment clearly provides some comfort to the defendants as they approach the second phase of the trial. Both the defendants and the plaintiffs have pointed to Judge Lodge s decision as a victory. The second phase of this trial and the probable appeals will show the true effects of this decision. It will be many years before anyone is able to tell if the laws at issue here have provided true compensation for the damage to natural resources caused by the mining in the Basin, or if, instead, the true measure of their impact is lawsuits and legal fees. denisel@prestongates.com 1 Tisha Pagalilauan and Holly Harris addressed this important aspect of the decision in the November 2003 Update. Environmental Litigation Tool Kit Law Seminars International presents the Environmental Litigation Tool Kit at the Renaissance Hotel on February 19. Both environmental and legal groups will speak on panels as part of a substantive workshop on procedural and evidentiary aspects of environmental litigation, which is scheduled for 8:30 am-5 pm. Preston Gates attorney Eric Laschever will participate in a panel discussion entitled Resolving Cases Before Environmental Boards. Topics include administrative litigation v. ordinary civil litigation; rules (both evidentiary and procedural); mediation/ settlement strategies, and presenting a case to an ALJ or Administrative Board. For registration, tuition and topic details please visit or call (206) Eric Laschever ericl@prestongates.com

8 925 Fourth Avenue, Suite 2900, WA Fourth Avenue Suite 2900, WA Tel: (206) Fax: (206) HOW TO REACH US If you would like more information about these or other Environmental and Land Use issues, or have a suggestion for a future article, please contact the authors, Update editor Holly Harris at hollyh@prestongates.com and Alina McLauchlan at alinam@prestongates.com, or chair Konrad Liegel at konradl@prestongates.com or (206) If you would like to add someone to our list or update your information, please contact our Mailings Coordinator, Brenda McDaniels, at bmcdaniels@prestongates.com or (206) Note: Past issues of the Update may be found online at DISCLAIMER This newsletter provides general information about Environmental and Land Use laws. It is not a legal opinion or legal advice. Readers should confer with appropriate legal counsel on the application of the law to their own situations. Entire contents copyright 2004 by Preston Gates & Ellis LLP. Reproduction of this newsletter in whole or in part without written permission is prohibited. Printed on recycled paper.