Credit: Chatree Petjan/Adobe Stock
As the effects of climate change continue to alter our environmental landscape, contamination and its subsequent cleanup often make front page news. Less often discussed are the legal schemes involved in those cleanups, including how the costs of undertaking them are paid. A party held responsible for cleanup costs may look to recoup some of its financial outlay from other parties, whether through an indemnity agreement or insurance. While contractual recoupment should be an option regardless of jurisdiction, New York Navigation Law adds additional potential routes to recovery via statute.
Article 12 of New York Navigation Law is meant to address some of these issues stemming from environmental contamination by ensuring the swift and effective remediation of oil spills that threaten the environment and our fragile relationship with nature. It imposes strict liability – meaning liability regardless of fault – on any party deemed responsible for the discharge of oil. A so-called "responsible party" can be held liable for all costs necessary for cleanup and removal of the environmental contamination. But what happens when more than one party is potentially at fault?
New York courts have liberally construed Article 12 by finding a broad range of entities potentially liable – from facility operators to oil tank owners, and even homeowners. For example, under New York Navigation Law's strict liability provision, the owner of an oil tank from which oil has spilled or leaked can be required to pay for cleanup of the spill, regardless of the spill's cause, the extent of the spill, or even lack of knowledge of the spill. A property owner also may be deemed a responsible party if contamination occurs on their property, once again regardless of their actual fault.
Given the strict liability mandate of the Navigation Law, what recourse may the owner of oil have when a transportation partner spills fuel during delivery? As the oil belongs to the fuel provider, the provider may be held responsible for reimbursement to New York State for any damage and cleanup costs. But should the delivery company have to pay back the fuel provider for the damage they caused? There are three main ways for the fuel provider to seek repayment, or indemnification: through contract, via insurance, and under the statute.
First, the fuel provider can look to its agreement with the fuel delivery company. If that contract contains an indemnification or hold harmless provision, the fuel transportation company may have to indemnify the fuel provider for some or all costs associated with the damage done by the fuel transportation company's error. To gain the protection of contractual indemnification after a spill, a fuel provider should make sure that their contract with the fuel delivery company contains an indemnification clause prior to signing that contract. An indemnification clause can and should expressly state the type and extent of indemnification provided, and should contain words sufficiently broad to trigger the delivery company's indemnification obligations. It is also good practice to ensure that the indemnification clause abides by any requirements to which it may be subject – different jurisdictions may have different statutory or policy restrictions on indemnification provisions. Certainly an indemnitee does not want to seek indemnity only to find that the contractual indemnification provision is unenforceable.
Additionally, parties can contract that the delivery company maintain its own insurance to reinforce the indemnification and potentially provide access to the insurance company's (most likely) deeper pockets. As an added benefit, an insurance policy might remain accessible to indemnify cleanup costs even if a delivery company has insufficient assets or has become insolvent. To that end, the delivery contract could mandate that the delivery company add the provider as an additional insured to its liability policy. Additional insured status could help avoid various considerations that may caution against a policyholder seeking coverage directly from its own insurance company.
Of course, if a spill happens and a provider seeks indemnification, the delivery company could deny its indemnity obligations even if those requirements are clearly set forth in the contract. The insurance company may also deny its duty to indemnify the provider as a direct or additional insured. In such instances, the fuel provider can look to the indemnification and contribution remedies available under the Navigation Law.
Where multiple parties are involved or potentially responsible for a spill, the party held liable by the State can seek indemnity and contribution under the Navigation Law itself. An injured party may recover its cleanup costs and any damage costs resulting from petroleum discharge. More specifically, a party that is considered a "discharger" may seek contribution or indemnity under the Navigation Law from other responsible parties.
Additionally, Section 176(8) of the Navigation Law provides that: "every person providing cleanup, removal of discharge of petroleum or relocation of persons pursuant to this section shall be entitled to contribution from any other responsible party." This means that parties who undertake cleanup efforts and removal can seek contribution from other responsible parties to cover losses already incurred. While that could mean litigation, knowledge of this remedy available under the statute may lead to a resolution without the necessity of filing suit as a precursor to recovery.
As a matter of policy, the Navigation Law makes good sense. From an environmental and health standpoint, the immediate goal after a spill should be containment and cleanup, in an effort to mitigate contamination seeping into waterways or groundwater. Potentially responsible parties can then determine who ultimately should pay. While it may seem daunting to consider potentially litigating on numerous theories of recovery – under contract, insurance policy, and statute – the ability to obtain contractual or statutory indemnity and contribution provides a welcome alternative to a possibly faultless party being left holding the bill under a strict liability theory.
The availability of indemnity or contribution will depend on the facts associated with a spill. However, being proactive and clear with contractual language paired with the statutory provisions within the Navigation Law make such recourse more readily available for a faultless fuel provider.
John M. Leonard, a shareholder in Anderson Kill's New York office, has represented policyholders in a full spectrum of insurance coverage matters, including disputes over coverage for environmental liability, business interruption losses, D&O and E&O defense and indemnity, and general liability losses.
Ethan W. Middlebrooks, an attorney in Anderson Kill's New York office, concentrates his practice in insurance recovery. He has assisted policyholders on a broad range of matters, including first-party property, construction-related claims, additional insured disputes, business interruption losses, and D&O defense and indemnity, and general liability losses.
Jamie O'Neill is a student at the Fordham University School of Law and a Summer Associate at Anderson Kill.