Early in 2021, we wrote about potential insurance implications that could arise from the then-new Biden Administration’s expected regulatory priorities. Among other things, we noted that heightened scrutiny on coal ash was expected. On January 11, 2022, the U.S. Environmental Protection Agency (EPA) confirmed that prediction, issuing a press release announcing “key steps” it is taking to “protect groundwater from coal ash contamination.” As companies with coal ash liabilities consider EPA’s new guidance and next steps, they should be aware that they may have insurance that could cover some of their coal ash cleanup costs.
Coal Ash and Regulatory Background
For many decades, coal-fired power plants have generated coal ash, also known as coal combustion residuals (CCRs): by-products of burning coal to make electricity, and one of the largest types of industrial waste generated in the United States. Historically, a standard method for managing coal ash was to place it onsite in unlined impoundments or landfills.
In April 2015, EPA published a new rule regulating—for the first time—the disposal of CCRs (the CCR Rule). The CCR Rule came after years of study in which EPA concluded that CCRs should be regulated under the Resource Conservation and Recovery Act as a non-hazardous solid waste. The CCR Rule established a number of minimum criteria for the storage of CCRs in existing and new surface impoundments and landfills, including (among other things) location restrictions, liner design criteria, groundwater monitoring and corrective action requirements, and closure and post-closure care requirements. The CCR Rule set forth detailed and comprehensive rules requiring groundwater monitoring and, as necessary, the assessment, selection, and implementation of corrective actions for groundwater contamination at CCR surface impoundments.
In 2020, EPA established April 11, 2021, as the deadline to initiate closure of unlined surface impoundments, but the agency allowed owners to apply for extensions if either compliance with the deadline was technically infeasible or the owner committed to permanently cease using coal-fired boilers.
EPA’s January 2022 Press Release
On January 11, 2022, EPA began issuing its first proposed determinations on applications to extend the deadline to close unlined coal ash ponds or impoundments. In announcing its decisions, EPA reiterated its “commitment to protecting groundwater from coal ash contamination.” EPA announced it will be “putting several facilities on notice regarding their obligations to comply with CCR regulations” and “laying out plans for future regulatory actions to ensure coal ash impoundments meet strong environmental and safety standards.” EPA also reaffirmed is position that surface impoundments and landfills cannot be closed with coal ash remaining in contact with groundwater and said it will “focus on compliance” at facilities that intend to close impoundments in that manner. EPA also noted it is working with state agencies “to investigate compliance concerns at coal ash facilities across the country.” The announcement signals that EPA intends to take a more active role in regulating CCRs going forward. Looking ahead, EPA said it will establish regulations for legacy coal ash impoundments.
Insurance Coverage for Coal Ash Liabilities
Companies facing these regulations should evaluate their historical insurance, because certain costs incurred as a result of the CCR Rule, including for groundwater investigation and corrective action and closure, may be covered under liability insurance policies issued prior to 1986.
Typically, general liability insurance policies provide coverage for amounts the insured is legally obligated to pay because of property damage caused by an occurrence, if the occurrence or property damage took place during the policy period. Thus, CCR-related liability arising today relating to impoundments and landfills that were in use decades ago could be covered under pre-1986 policies. Courts in most jurisdictions have held that damage to groundwater constitutes damage to a public resource (i.e., damage to third-party property for purposes of insurance coverage). Insurers are likely to raise a number of defenses to try to avoid their coverage obligations with respect to coal ash liability, including arguing that the damage was expected and intended, closure is a “cost of doing business,” allocation, and other exclusions. The law on key coverage issues relevant to CCR liability varies between states and must be analyzed to assess the likelihood of success in a CCR coverage claim.
Depending on the specific insurance policies, the facts relating to the CCR impoundments/landfills and liability, and applicable law, there may be a strong argument for coverage for CCR liability. Companies facing CCR liability would be wise to analyze their historic insurance policies and the applicable law to assess whether they may have coverage to help defray the substantial cost of coal ash cleanup.