NOTE: The following is provided for general information purposes only. This information should not be cited or relied upon as legal authority nor does it substitute for the advice of competent legal counsel.
As a general working definition, an environmental liability is a legal obligation to make a future expenditure due to the past or ongoing manufacture, use, release, or threatened release of a particular substance, or other activities that adversely affect the environment and/or human health. The obligation may be a current obligation or a potential obligation if it depends on future events or a law or regulation that is not yet in effect. A business has an opportunity to prevent or mitigate a potential liability obligation in order to avoid an adverse impact.
Environmental liabilities may arise from a number of sources including: federal, state, and local environmental statutes, regulations, and ordinances, and from "common law" (i.e., judge-made law or case law) which can vary from state to state. Most federal and state environmental laws sanction violators through administrative, civil, or criminal proceedings.
The following six categories or types of environmental liabilities are generally recognized:
Compliance Obligations. These obligations arise from laws and regulations that govern the manufacture, use, disposal, and release of chemical substances and other activities that adversely affect the environment and/or human health. The costs to a business for complying with environmental laws and regulations can range from modest expenditures for administrative activities (e.g., recordkeeping, reporting, and training), to more substantial expenditures including capital and operation and maintenance costs for process treatment equipment or for closing out waste management units and post-closure care.
Remediation Obligations. These obligations relate to the cleanup of a property or site contaminated by chemicals or other substances that pose a risk to human health and the environment. Remediation can cost a business millions of dollars for a wide range of activities including: investigation of the nature and extent of contamination, excavation and treatment/disposal of soil and sediment, pumping/treatment of surface and groundwater, provision of alternate drinking water supplies, purchase of property, and management, technical and legal services associated with the remediation activities.
Among the types of environmental liabilities, remediation obligations can present a business with particularly high risk exposure since a business may be liable for cleaning up contamination at inactive unregulated sites, formerly owned or leased properties, sites where a business sent wastes for disposal as a third-party, and property a business acquired but did not contaminate. Thus, a business may have remediation obligations for currently known contamination and potential remediation obligations for future unknown contamination.
Fines and Penalties. Any business not in compliance with applicable statutory or regulatory requirements may have obligations to pay civil and criminal fines and penalties as well as expenses for projects agreed to as part of any settlement for noncompliance. Fines and penalties can range from thousands of dollars to millions of dollars per violation.
Compensatory Damages. Under some state and federal statutes as well as common law, a business may be obligated to pay compensation for "damages' (also known as compensatory damages) incurred by individuals, their property, and businesses from the use or release of toxic substances or other pollutants. This is also referred to as toxic tort liability. Compensation obligations may include: personal injury (e.g., "wrongful death", bodily injury, and medical monitoring), property damage (e.g., diminution of property value), and economic loss (e.g., lost profits, and cost of renting substitute space or equipment). Compensation costs can be fairly minor or quite substantial depending on, among other factors, the number of claimants, the nature of the claim, and the legal defense costs incurred in handling these claims.
Punitive Damages. Payments for punitive damages can be imposed in addition to compensatory damages as a means to punish and deter conduct viewed as showing a callous disregard for others or being grossly negligent. Although rarely assessed, punitive damages are often many times larger than compensatory damages.
Natural Resource Damages. Liability for natural resource damages (NRD) arises from injury, destruction, loss, or loss of use of natural resources (e.g., plants, wildlife, land, air and water) that do not constitute private property. Natural resources must be controlled by federal, state, local, foreign, or tribal governments. NRD liability can arise from accidental releases as well as lawful releases to the air, water and soil. Although NRD settlements in the hundreds of thousands of dollars were prevalent a decade ago, settlements in the tens of millions of dollars (valued as cash payments, land preservation/transfer, and restoration projects) are becoming more common.
Source: Information presented in this primer was summarized from: Valuing Potential Environmental Liabilities for Managerial Decision-Making: A Review of Available Techniques. (United States Environmental Protection Agency, EPA 742-R-96_003). December 1996. A more detailed discussion of this topic is presented in this document.
(http://www.epa.gov/oppt/library/pubs/archive/acct-archive/pubs/liabilities.pdf).
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