Environmental liability may be triggered if a business or a regulated party violates federal, state, or local environmental statutes, regulations, and ordinances. Another source of liability can be the common law (i.e., judge-made law or case law), which may provide the basis for a cause of action even if a business or regulated party has complied with federal and state laws and regulations. Most federal and state environmental laws sanction violators through administrative, civil, or criminal proceedings. Although being held liable commonly leads to larger fines - which are assessed in administrative and civil actions - parties held criminally liable for their actions can be sentenced to jail. The following terms are used to denote categories of environmental liability.
Compliance Liability: Liability that arises from laws and regulations that apply to the manufacture, use, disposal, and release of chemical substances and to other activities recognized under environmental laws and regulations as adversely affecting the environment, such as dredging a wetland, illegal dumping of hazardous wastes or operating without a required permit.
Remediation Liability: Liability to cleanup a site and/or pay for the cleanup of a site contaminated by chemicals, hazardous substances and other wastes considered under law, regulations, and by science to pose adverse health risks to humans and the environment. Such sites may include old or previously undiscovered landfills or dumps, abandoned industrial sites where wastes were disposed or leaked over time and releases from tanks that contained petroleum products or other hazardous substances.
Fine and Penalty Liability: Liability to pay fines or penalties to federal, state or local authorities under administrative, civil or criminal law for noncompliance. With environmental violations certain federal and state environmental statutes provide for penalties of $25,000 per day of violation. Depending upon the number and nature of the violations, proposed penalties can be significant. In some cases it may be possible for a party to complete a Supplemental Environmental Project1 (SEP) agreed to by the federal, state or local governmental authority administering the program to defray a portion of the fine or penalty as part of a settlement for noncompliance.
Compensatory Liability. Liability under some state and federal statutes (as well as under common law), to pay or "make whole" individuals, businesses and units of local government for damages suffered by them or their property for the use or release of toxic substances or other pollutants. Commonly known as "compensatory damages," these liabilities may occur even if a business or regulated party is in compliance with all applicable environmental standards.
Punitive Damage Liability: Liability to pay damages, which are punitive2 in nature and are imposed in addition to compensatory damages; to punish and deter conduct viewed as showing callous disregard of others or as being grossly negligent. Punitive damages are typically awarded in addition to compensatory damages, thus dramatically increasing the potential overall costs of environmental liability.
Natural Resource Damages (NRD) Liability: Liability (normally in the form of fines or assessments) arising from natural resources damages liability. Natural resource damages liability arises from injury, destruction, or loss of natural resources that do not constitute private property. Federal, state, local, foreign, or tribal governments are charged with protecting natural resources, which include plants, wildlife, land, air and water. NRD liability can be imposed for accidental releases (e.g., during transport), damages that may occur at Superfund sites as well as lawful releases. Penalties or assessments can be prescribed under the following federal laws: Comprehensive Environmental Response Compensation and Liability Act; the Oil Pollution Act; and the Clean Water Act. The federal and state agencies charged with determining NRD liability may assign monetary value to the specific natural resource(s) that have been damaged.
- SEPs are compliance agreements entered into during the settlement process to reduce a predetermined penalty in return for performance of an environmentally beneficial project. In most cases the estimated cost of the project is greater than the predetermined penalty. SEPs allow regulated parties the opportunity to put penalty payments toward projects that benefit the environment and the public, while restoring their reputation.
- Punitive damages are awarded in cases of serious or malicious wrongdoing to punish or deter the wrongdoer or deter others from behaving similarly.