Utilities Affected by Latest EPA Rule May Use Traditional Liability Insurance Policies – Publications

The U.S. Environmental Protection Agency (EPA) expanded coal-fired power plants’ obligations to remediate coal ash impacts on groundwater on May 8, 2024, with amendments to the federal Coal Combustion Residue (CCR) Rule. This comes just after the EPA recommitted to enforcing the CCR rule’s groundwater protections. Utilities operating coal-fired power plants can use their old liability insurance policies to help pay for any increased remediation obligations required by these changes.

Since the rule became effective in October 2015, coal-fired power plants have been required to remediate certain groundwater impacts from coal ash—see 40 CFR part 257. EPA’s amendments to the CCR rule subject legacy CCRs and CCR management units (CCRMUs) to the rule’s groundwater monitoring, remediation, and closure requirements and significantly expand the scope of groundwater impacts that trigger remediation. (1)

A legacy CCR unit is “a surface CCR tank that is no longer receiving CCR but contained both CCR and liquids on or after October 19, 2015, and is located at a defunct utility or independent power producer.” The “liquids” that may be in a legacy CCR unit include “all of the different types of liquids that may be present in a CCR unit, including…surface water, groundwater, and any other types of water that have entered the tank(.)”

A CCRMU is “any area of ​​land on which any uncontainerized accumulation of CCR that is not a regulated CCR unit is received, placed, or otherwise managed.” These changes to the federal CCR rule potentially significantly increase the required closure costs, both by bringing additional CCR units within the scope of the rule for the first time and by defining “liquids” to include “surface water” and “groundwater.” (2)

After announcing that federal enforcement priorities would include the CCR, (3) EPA issued an “Enforcement Alert” in December 2023 communicating its commitment to enforcing the CCR to protect groundwater. (4) EPA’s Alert noted that “one of the key programmatic goals of the CCR is to ensure that the manner in which coal ash storage facilities are closed ensures that long-term—which often means permanent—storage of coal ash does not adversely affect human health and the environment, particularly groundwater. Groundwater contamination at coal ash storage facilities is a serious concern.”

Looking to the future

Utilities facing closure requirements under the federal CCR or the legacy CCR rule promulgated on May 8 should consider seeking advice from an experienced insurance recovery attorney regarding whether historic liability insurance policies may cover costs associated with the required closure of CCR units, legacy CCR units, and CCRMUs. Legacy liability policies typically provide what is known as event-based coverage for third-party property damage, including groundwater impacts, that is caused by an “event” during the historic policy periods. The definition of an “event” varies, but the term typically means an unexpected event, accident, or exposure to certain conditions. A claim for coverage can be made under an event-based policy after the policy period has ended—even decades later. Legacy policies typically have no aggregate limits and otherwise have favorable terms for policyholders.

Evaluating and developing closing cost claims under old insurance policies (often dating back to the early 1900s) may require reconstruction and archaeology of old insurance programs to discover valuable existing coverage. Coverage claims are developed by combining an attorney’s knowledge of insurance coverage and interpretation of policy terms with expert knowledge of historical groundwater and closing cost effects. (5)

Claims for coverage are then submitted to the appropriate insurers and negotiated or settled through litigation. The potential value available to energy companies under historic liability insurance policies to help pay CCR remediation obligations can be significant. Prompt action is advised to preserve and pursue such rights and claims.