The US Environmental Protection Agency (EPA) on May 8, 2024 expanded the obligations of coal-fired power plants to remediate coal ash-related groundwater impacts with amendments to the federal Coal Combustion Residual (CCR) rule. This comes just after EPA recommitted itself to enforcing the CCR rule’s groundwater protections. Energy companies with coal-fired power plant operations may look to their legacy liability insurance policies to help pay for any increased remediation obligations required by these developments.
Coal-fired power plants have been required to remediate certain coal ash-related groundwater impacts—see 40 C.F.R., part 257—since the rule became effective in October 2015. EPA’s amendments to the CCR rule subject legacy CCR units and CCR management units (CCRMU) to the rule’s requirements for groundwater monitoring, corrective action, and closure, and significantly expand the scope of groundwater impacts that trigger a remediation requirement. [1]
A legacy CCR unit is “a CCR surface impoundment that no longer receives CCR but contained both CCR and liquids on or after October 19, 2015, and that is located at an inactive electric utility or independent power producer.” “Liquids” that may be contained in a legacy CCR unit include “all of the various types of liquids that may be present in a CCR unit, including . . . surface water, groundwater, and any other form of water that has migrated into the impoundment[.]”
A CCRMU is “any area of land on which any noncontainerized accumulation of CCR is received, placed, or otherwise managed that is not a regulated CCR unit.” These changes to the federal CCR rule potentially increase required closure costs materially by both 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 its federal enforcement priorities would include CCR, [3] EPA issued an “Enforcement Alert” in December 2023, communicating its commitment to enforcing the CCR rule to protect groundwater. [4] EPA alert noted that “[o]ne of the key programmatic goals of the CCR Rule is to ensure that the manner in which coal ash disposal units are closed will ensure that the long-term—which often means permanent—disposition of the coal ash will not adversely impact human health and the environment, particularly groundwater. Groundwater contamination at coal ash disposal facilities is a significant concern.”
LOOKING AHEAD
Utilities facing closure requirements under the federal CCR rule or legacy CCR rule promulgated on May 8 should consider seeking the advice of experienced insurance recovery counsel as to whether historical liability insurance policies may cover costs associated with required closures of CCR units, legacy CCR units, and CCRMUs. Legacy liability policies generally provide what is called occurrence-based coverage for third-party property damage, including impacts to groundwater, that is caused by an “occurrence” during the historical policy periods. The definition of an “occurrence” varies, but the term generally means an unexpected event, accident, or exposure to certain conditions. A claim for coverage can be asserted under an occurrence-based policy after the policy period ends—even decades later. Older policies tend not to have aggregate limits and have otherwise favorable terms for policyholders.
The assessment and development of coverage claims for closure costs under legacy insurance policies (often dating back to the early 1900s) may require legacy insurance program reconstruction and archeology to uncover valuable existing coverage. Coverage claims are developed by combining counsel’s knowledge of insurance coverage and interpretation of policy terms with the knowledge of experts in historical groundwater impacts and closure costs. [5]
Coverage claims are then presented to the appropriate insurers and either negotiated or litigated to resolution. The potential value available to energy companies under historical liability insurance policies to help pay for CCR remediation obligations can be material. Prompt action to preserve and pursue such rights and claims is recommended.
[1] See Hazardous and Solid Waste Management System: Disposal of Coal Combustion Residuals From Electric Utilities; Legacy CCR Surface Impoundments, 89 Fed. Reg. 38950 (May 8, 2024).
[2] For more information on the implications of the legacy CCR rule, please see Morgan Lewis’s LawFlash EPA Finalizes Rules for Fossil Fuel-Fired Power Plants, Including GHG Standards (April 29, 2024).
[3]EPA Announces Federal Enforcement Priorities to Protect Communities from Pollution (Aug. 17, 2023).
[4] EPA Finds Significant Noncompliance with the RCRA Coal Ash Disposal Regulations (Dec. 2023).
[5] It remains to be seen what effect, if any, the US Supreme Court’s June 28, 2024 opinion eliminating Chevron deference to agency interpretations of statutes will have in any legal challenge to the legacy CCR rule. Morgan Lewis’s LawFlash on the implications of Loper Bright v. Raimondo and Relentless v. Commerce can be found at The End of the Chevron Doctrine: An Environmental Law Watershed?. If the most recent CCR rule is stayed during a judicial challenge, in whole or in part, the delay could afford policyholders an opportunity to explore coverage potential.
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