In an important case of first impression, a three-judge panel of the Pennsylvania Superior Court kept pace with several other jurisdictions in ruling that liability under the federal Comprehensive Environmental Response, Compensation and Liability Act, otherwise known as CERCLA or the Superfund Law, applies to indemnification clauses in contracts signed before the statute was enacted.

In County of Delaware v. J.P. Mascaro & Sons Inc. the court, in an opinion by Judge John T.J. Kelly, said the key to deciding whether liability under CERCLA applies can be found in the boundaries of the indemnification clause: "[t]o include CERCLA liability, the clause in question must be either specific enough to include CERCLA liability, or so general as to include any and all environmental liability…. In determining whether an indemnification clause covers CERCLA liability, courts look to whether language limiting the indemnity exists, and whether the language indicates the intent to allocate all potential liabilities among the parties. An indemnification clause does not cover CERCLA liability if it contains limiting language."

As background, J.P. Mascaro & Sons Inc. won a bidding war to remove and dispose of waste created by one of two incinerators in Delaware County in 1975. Under the ensuing contract, Mascaro chose the method of hauling and disposing of the waste, although the county had final approval of the disposal site. Mascaro chose to use the Gloucester Environmental Management Systems (GEMS) landfill in Gloucester County, New Jersey, and with Delaware County approval, Mascaro hauled waste under the contract from December 17, 1975 until December 16, 1976.

The New Jersey Department of Environmental Protection subsequently filed a federal suit against GEMS, alleged illegal dumping in the landfill. The County was joined as a third-party defendant in 1997. The County was also later joined in a New Jersey state court action brought by homeowners bordering the GEMS landfill, Kelly said.

The County demanded that Mascaro defend and indemnify against the claims on the basis of their 1975 contract, but Mascaro took no action. Eventually, the county settled both suits, $73,565 for the federal action and $25,000 for the state action. It incurred legal fees and costs for both actions in the amount of $163,745, although $40,000 of those fees had been paid under a policy with an insurer.

The County later filed a contractual indemnification claim against Mascaro in Delaware County Common Pleas Court, resulting in a verdict in the county's favor of $305,910. Mascaro appealed the denial of its post-trial motions, arguing that nowhere in the indemnification clause did it agree to assume any CERCLA liability, because the contract pertained to the years 1975-76, well before CERCLA was enacted or even contemplated.

Judge Kelly said that, while the issue had yet to be decided in Pennsylvania, other jurisdictions had consistently held that a pre-CERCLA indemnification clause could include CERCLA liability, especially where, as here, the language of the contract with is general and extremely broad: "[b]ased upon Delaware County's intent to allocate all liability to Mascaro, the general language of the indemnification clause, and the lack of language indicating a limit on its reach, we agree with the trial court that the indemnity clause at issue is general enough to include CERCLA liability."

In addition, Mascaro argued, the services it provided under the contract involved only collection and transportation, not disposal, and while it transported the waste to the landfill, it had no part in the disposal. The fact that the County required final approval of the landfill site indicated the parties' intention that a third-party landfill would perform the disposal duties and that Mascaro was only responsible for collection and transportation.

The contract's language limiting indemnification to suits occurring "in the course of [Mascaro's] performance," Mascaro argued, precluded its liability for any action that did not arise immediately during the time it was collecting and transporting the Delaware County waste.

The court looked to the language of the contract, which stated: "[Mascaro] offers to furnish and operate equipment for full and complete removal and disposal of residue from the Delaware County Refuse Incinerator.” Judge Kelly said the contract further stated that Mascaro would defend and indemnify the county against any injury occurring in the course of the performance of the contract.

According to the court, Mascaro's argument ignores the clear and unambiguous language of the contract stating that it was responsible for disposal: "[m]oreover, Mascaro's assertion that it was responsible for only transportation of the waste residue is belied by the fact that it had the responsibility of choosing the location of the disposal….Mascaro's claim that it actually performed only the transportation aspect of the contract is also disingenuous considering it accepted full payment under the transportation and disposal contract."

Finally, the court said that Mascaro's decision to dump at GEMS, made in the course of the contract, created an injury that led to the suits against the county, thus making Mascaro obligated to defend and indemnify the county.

Judges Correale F. Stevens and Frank J. Montemuro also sat on the panel.

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Paul Bruder is a member of Rhoads & Sinon’s Environmental Law and Litigation Practice Group. If you have any questions about this issue, or if you need legal assistance in any area of environmental law, you can contact Mr. Bruder via email at pbruder@rhoads-sinon.com, or by telephone at 717-233-5731.

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