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The Sins of the Fathers - Liability of Decedents' Estates and Trusts Under CERCLA

By THOMAS A. PACKER AND JAMES W. MILLER, JR.
Originally appeared in For The Defense, Defense Research Institute, April 1996

British novelist Samuel Butler said that when you tell someone you have left him a legacy the only decent thing to do is to die at once. If your legacy includes contaminated real property, however, you may first want to warn your heir. In a perfect world, our assets would survive us to benefit our family and friends. Our environmental liability would die with us. The world being far from perfect, however, one must keep in mind the biblical prediction that the sins of the fathers will be visited upon the sons. When it comes to environmental sins, the way things are headed, the whole family (and its insurers) should be prepared.

State survival statutes across the nation ensure that, although the netherworld may provide us with a safe haven from environmental liability, our beneficiaries may not be so fortunate. For instance, the present-day owners of contaminated real property formerly owned by a decedent commonly sue the decedent's estate under both state and federal law for the costs of investigation and remediation. The result of these suits can be that the cash and property the decedent believed he left for the benefit of his family is swallowed up by his pollution liability. As state and federal environmental liability grows more expansive, the possibility that a decedent may have nothing more than liabilities to leave behind becomes more likely.

That is not to say that suing a decedent's estate or trust is a simple matter. Environmental suits against decedents' estates and trusts are complicated by the unique way in which these entities own real property. Ownership interests in decedents' estates and trusts assets are divided among the beneficiaries of the estate or trust and the executor or trustee who manages the assets. Thus, in sorting out who should bear the liability for contaminated real property assets, judges and juries have several choices.

This article explains how the liability of decedents' estates and trusts is and will be determined under the most common form of pollution liability - the federal Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), 42 U.S.C. §§9601-9675. Estates and trusts may also be liable under state environmental statutes and the growing body of state common law environmental liability for nuisance and trespass, but CERCLA liability is the most prevalent. This article first explains how CERCLA liability is generally imposed. Next, it addresses how decedents' estate and trust executors and trustees are held liable under CERCLA. Finally, it analyzes the how this expansive liability may be defended and offers some special concerns for liability insurers.

The bottom line is that the scope of liability for decedents' estates and trusts is growing. This means that those who intend to make a testamentary transfer of contaminated property must consider the CERCLA liability they are no doubt transferring with it. Likewise, those who administer decedents' assets should realize that when they consent to administer the assets, they may also be exposing themselves to CERCLA liability.

OVERVIEW OF CERCLA LIABILITY
Any analysis of decedents' estates and trust liability under CERCLA begins, ironically, with the recognition that the statutory language does not expressly include such assets within its scope. As many trustees and executors already know, however, estates and trusts are regularly caught in CERCLA's ever-widening web. Therefore, a brief overview of CERCLA liability is the point of embarkation for a complete understanding of how decedents' estates and trusts fit into the CERCLA liability scheme.

The operative section of CERCLA for purposes of analyzing liability is 42 U.S.C. §9607(a). This section imposes liability on four classes of potentially responsible parties (1) the current owners or operators of a contaminated property; (2) owners or operators of the property at the time of hazardous waste disposal (3) persons who arranged for disposal or treatment of hazardous substances at the property, and (4) persons who accepted hazardous substances for transport to the property. The reported case analyzing the CERCLA liability of decedents' estates and trusts focuses on the first two classes of owners or operators.

CERCLA does not address whether liability may be imposed upon the estates or trusts of these responsible persons. CERCLA goes on to define "person" but mentions neither estate nor trust. Section 9601(21) defines a "person" as an individual, firm, corporation, association partnership, consortium, joint venture, commercial entity, United States Government, State. municipality, commission, political subdivision of a State, or any interstate body."

The only time CERCLA does appear to consider estates and trusts is in the exception to liability for property acquired by inheritance or bequest. This is section 9607(h)(3) and is known as the "innocent landowner" defense. It applies where: (1) the release of contamination was caused solely by a third party; (2) the landowner exercised care with respect to the hazardous substance; and (3) the landowner took precautions against foreseeable acts caused by the third party and the consequences that could result from those acts. Section 9607(h)(3) contains a fourth requirement that the responsible third party's act not occur in connection with a "contractual relationship" with the innocent landowner. Section 9601(35)(A)(iii) defines "contractual relationship," however, to specifically exclude instruments transferring title by inheritance or bequest. As a decedent's estate or trust typically comes into existence after the contamination has occurred, this exception is very useful, and will be discussed more detail below.

With this background of CERCLA liability, one can analyze specific examples of how estates and trusts are held liable and how they escape. The examples reveal that the estates and trusts are ever more likely to be found liable under CERCLA in a variety of ways, which are a testament to the creativity of the parties and the courts in this evolving area of the law.

DECEDENTS' ESTATES' LIABILITY UNDER CERCLA
The liability of a decedent's estate under CERCLA can arise at a number of points. Initially, of course, liability turns on whether the estate is considered a "person" under CERCLA. See 42 U.S.C. §9607. If the estate is held to be a person, the next step is to determine whether the estate can invoke the innocent landowner defense provided in section 9607(b)(3). If the estate is not an innocent landowner, the issue is whether state law may prevent the estate from being sued. Finally, if the estate does find protection under state law, the issue is whether CERCLA preempts the state law.

Case law reveals that CERCLA liability is no more likely to arise at one of these steps than at the others. Some decisions have found the estate liable, others have not. Two courts reached opposite results as to whether a decedent's estate is a "person." One court found that a decedent's estate is not an "innocent landowner." At least three decisions have held that CERCLA preempts state non-claim statutes. A closer look at each of these decisions shows that the creativity of the courts makes liability more likely than not.

The estate as a person. Two decisions which discuss whether a decedent's estate is a "person" under CERCLA are prime examples of where the law in this area is headed. Judges do not limit themselves to CERCLA's terms in determining liability but apply the statute broadly in an effort to support Congress's mandate to clean up the environment. Therefore, even though estates are not listed in the statute as persons, judges will analogize estates to other allegedly similar entities whose CERCLA liability had been previously determined. Consequently, the fates of estates will turn on whether they were more or less like entities which had previously been deemed "person." Unfortunately, as more decedents' estates are found liable on other bases, judges will have more examples of why estates should be found to be persons.

An estate can be a person. Bowen Engineering v. Estate of Reeve, 799 F.Supp. 467 (D.N.J. 1992), involved an action by a former owner of contaminated property against a decedent's estate for clean up costs. The decedent was the president and principal shareholder of a company which owned the property at the time it was contaminated.

The defendant estate moved for summary judgment, claiming that it was not a "person" under CERCLA because it was not one of the entities listed in 42 U.S.C. §9601(21). The district court, however, said that the definition of "person" is not limited to those listed in the statute. Id., at 475. It referred to the holding in United States v. Sharon Steel Corp., 681 F.Supp. 1492, 1496 (D.Utah 1987), where a liquidating trust for a dissolved corporation was held liable even through "liquidating trust" was not included in the section 9601(21) definition of person. The court reasoned that if a liquidating trust could be liable, then so could a decedent's estate. Id.

On the other hand, a federal court in Virginia held that a closed estate, like a "dead and buried" corporation whose assets have been distributed, cannot be a "person" under CERCLA. Chesapeake & Potomac Telephone Co. v. Peck Iron & Metal Co., 814 F.Supp. 1285, 1291 (E.D. Va. 1993).

The Chesapeake ruling is encouraging for the defense, but the rationale in both Bowen and Chesapeake should give the defense practitioner pause. In both decisions, the district court went beyond the language of the statute to determine whether a decedent's estate is a person. That neither court felt bound by the terms of the statute indicates that CERCLA can be applied broadly to find liability.

The innocent landowner defense. For those estates which are viewed to be more like liquidating trusts than dissolved corporations, however, all hope is not lost. A decedent's estate which has been held to be a person may still be an "innocent landowner." An estate cannot achieve this status, however, automatically.

As described above, the innocent landowner defense of section 9607(b)(3) may exclude property acquired by inheritance or bequest from liability. If properly asserted, this defense may be one of an estate's best bets to avoid CERCLA liability. Of course, the defendant must make certain showing before the defense will apply.

One decedent's estate learned that lessen the hard way. In Soo Line Railroad Co. v. B.J. Carney & Co. 797 F.Supp. 1472 (D.Minn. 1992), several estates and testamentary trusts contaminated a parcel of property which they were leasing. The owners of the property filed a claim under CERCLA, against the lessees for cleanup costs. The defendants responded that they received their interests in the property by inheritance and were, therefore, "innocent landowners" under CIERCLA. The district court was not impressed. It stated that inheritance alone is insufficient for innocent landowner status. Id., at 1484. It demanded that the estate show a sole third party cause and that it had taken the necessary precautions against contamination. Id. Without evidence of these other elements of the defense, innocent landowner status was not available. Id.

The holding in Soo Line is particularly instructive when one considers that an estate or testamentary trust may not need very much evidence of due care to achieve innocent landowner status. In fact, for purposes of CERCLA liability, persons who receive contaminated property through inheritances and bequests are to be treated with the most leniency. See United States v. Pacific Hide & Fur Depot, Inc. 716 F.Supp. 1341, 1348 (D.Idaho 1989), in which the defendants were not estates but were individuals who had received ownership interests in the property in the form of an inter vivos gift from their father while they were still teenagers. The district court considered the gifts to be no different from a bequest which was "precisely the situation designed to be covered by the innocent landowner defense." Id. It found that the individuals acted reasonably with regard to the contamination by doing nothing, even though the owners had worked at the salvage yard as teenagers and had holes eaten in their clothes from battery acid!

So, even though innocent landowner status is not automatic, an estate may at least meet its due care requirement simply by showing that it had no specialized knowledge of' the contamination at the time it received its interest in the contaminated property. Estates typically exist for the sole purpose of holding the decedent's property pending distribution: they may have no knowledge of prior operations on estate property. Thus, where properly asserted, innocent landowner status may be one of a decedent's estate's best options.

CERCLA PREEMPTION OF STATE NON-CLAIM STATUTES For those decedents' estates who cannot obtain innocent landowner status, the last line of defense is state law non-claim statute. Non-claim statutes limit the lifespan of an estate for purposes of claims against it. An estate is, after all, a state law creation and, as such, state law defines its existence. Consequently, an estate which is otherwise liable may not exist under state law for purposes of CERCLA liability.

The problem, of course, is that CERCLA is often held to preempt these state law non-claim statutes. Worse, the decisions that have held against preemption do so on tenuous grounds. Thus, while state non-claim statutes appear to be life rafts for decedents' estates which have lost their other defenses, preemption may sink them.

Statutes not preempted. The problem with the first case to recognize a state non-claim statute as a bar to a CERCLA claim is that it did not directly involve a decedent's estate. A cross-claimant who attempted to use the non-claim statute as a sword against a decedent's estate found it turned into a shield for the estate. Snediker Developers Limited Partnership v. Evans, 773 F.Supp. 984 (E.D.Mich. 1991), involved two former owners of contaminated property who found themselves as co-defendants in the cleanup action. One co-defendant filed a cross-claim for contribution under CERCLA section 9613(f) against the other.

The cross-defendants in Snediker had inherited the property from the Owner at the time the contamination was released onto the property. The cross-claimant argued that it had an equitable claim against the sellers based upon the CERCLA claim it necessarily had against the estate of their benefactors under Michigan probate law. Id., Lit 990 n.10. The district court held that the cross-claimant had no potential CERCLA claim against the estate because it was not timely under the Michigan statute. Id. By recognizing that the Michigan statute would preclude a CERCLA action against the estate, the district court impliedly endorsed the state non-claim statute as a bar to a CERCLA action. The issue whether CERCLA might preempt Michigan law, however, was never addressed and apparently was not squarely before the court.

A state non-claim statute can, however, withstand a detailed preemption analysis - if performed by a sympathetic court. In Witco Corp. v. Beckhuis, 38 F.3d 682 (3d Cir. 1993), a cross-claimant for contribution argued that CERCLA preempted a Delaware non-claim statute. With the issue squarely before it, the court of appeals held against preemption, for the following reasons: (1) CERCLA does not expressly preempt all state environmental law: (2) CERCLA is not such a comprehensive scheme of regulation as to provide no room for supplementation by state law: and (3) the Delaware statute of limitations does not conflict with CERCLA. Id. at 687.

As positive as the decision is for decedents' estates and trusts on the "express" preemption and "supplementation" by state law parts of the reasoning, the court's analysis of whether the non-claim statute "conflicts" with CERCLA is, in part, problematic. State law does not "conflict" with federal law under the Witco preemption analysis when compliance with both the state and the federal laws in question is possible, and the state law does not stand as an obstacle to Congressional intent. The "compliance" part of this analysis is particularly troublesome because one may not even become aware of its CERCLA liability until after a state non-claim statute has run. Id. at 688. Therefore, compliance with both statutes is impossible because one may have a claim which is timely under CERCLA but is untimely under the state non-claim statute.

Unfortunately, Witco simply dismissed the compliance issue, stating that "in the context of remediating the environment, [the Congressional intent issue is] the more important inquiry" for the "conflict" part of the preemption analysis. Id. Courts which have performed a more thoughtful analysis of the compliance issue have, by contrast, found in favor of preemption. See Soo Line, supra, Steego Corp. v. Ravenal, 830 F.Supp. 42 (D.Mass. 1993); Freudenberg-NOK General Partnership v. Thomopoulos, 1991 Westlaw 325290 (D.N.H.).

The compliance issue notwithstanding, Witco adopted what is perhaps decedents' estates' best overall argument - that probate law has historically been the sole province of the individual states. 38 F.3d at 690. If Congress had intended for CERCLA to disturb long-settled estates, the court added, "pandemonium in the descent and distribution of decedents' estates" could ensue. Id. The court also pointed to the availability of the innocent landowner defense to those who received contaminated property by inheritance as further evidence that Congress intended to allow state law to control the descent and distribution of property. Id. at 689.

The court in Witco further found that a non-claim statute simply governs the capacity of a party to be sued, and that Congress intended for state law to govern capacity to be sued. Id. at 690. Rule 17(b) of the Federal Rules of' Civil Procedure requires that the capacity of an individual to be sued be determined by state law. Also, several federal courts have held that the capacity of a dissolved corporation to be sued under CERCLA is determined by state law. See Levin Metals Corp. v. Parr-Richmond Terminal Co., 817 F.2d 1448 (9th Cir. 1987); United States v. Northeastern Pharmaceutical & Chemical Co., 8 10 F.2d 726 (8th Cir. 1986), cert. denied, 484 U.S. 848 (1987). The court applied both Rule 17(b) and the dissolved corporation decisions to find that Congress intended state law to govern capacity. Witco, 38 F.3d at 690.

Witco's analysis of the Congressional intent aspect of the "conflict" issue is extremely helpful to decedents' estates. The statement that state law has always governed probate matters could settle the intent issue by itself. Rule 17(b) and the dissolved corporation cases are also helpful where the court views a non-claim statute as governing the capacity of a party to be sued. The compliance aspect of the "conflict" issue is, on the other hand, problematic and it is this issue which Witco did not face.

Statutes preempted. The opinions in favor of' preemption by CERCLA, of course, assert the potential for state non-claim statutes to cut off CERCLA liability as evidence that Congressional intent regarding environmental cleanup is being thwarted. These cases rely on holdings like the one in United States v. Reilly Tar & Chemical Corp. 546 F.SLIPP. 1100, 1112 (D.Minn. 1982), that CERCLA should be broadly interpreted to allow the government to respond promptly and effectively to the national problems caused by hazardous waste disposal, and that state laws could not be allowed to limit the scope of liability under CERCLA. The district court in Freudenberg, supra, relied on the holding in Reilly Tar to allow a CERCLA contribution against a decedent's estate brought after the six-month deadline provided for in New Hampshire's non-claim statute for estates. The district court held that the statute had to be preempted in order to preserve the federal government's chosen scheme of liability for environmental contamination.

For the courts to follow Freudenberg, to the extent that state non-claim statutes purport to release responsible parties from liability for releasing hazardous wastes into the environment, CERCLA will preempt. Soo Line v. B.J. Carney Co., supra, 797 F.Supp. at 1485, cited Freudenberg, and rejected an estate's motion to dismiss based on a Nevada non-claim statute holding that CERCLA preempted the statute. Like the Freudenberg court, the district court in Soo Line referred to the purposes behind CERCLA as enunciated in United States v. Reilly Tar, that state law should not be allowed to circumscribe the scope of CERCLA liability.

These cases also rely on CERCLA's preemption of state corporate dissolution statutes whose effect is to limit the liability of a party Congress intended to hold liable for cleanup costs. Steego Corp. v. Ravenal, supra, 830 F.Supp. at 47, citing United States v. Sharon Steel Corp., 681 F.Supp. 1492 (D.Utah 1987). The Steego court even rejected the estate's argument that it should be equated with dissolved and fully distributed corporations which had previously been held immune to CERCLA liability because it had distributed all of its assets. This is the same argument which persuaded the court in Chesapeake & Potomac Telephone Co. v. Peck Iron & Metal Co., 814 F.Supp. 1285 (E.D.Va. 1993), to find that a decedent's estate was not a "person" under CERCLA. Steego, however, rejects this argument and holds that even dissolved corporations fall within CERCLA's liberal liability scheme. 830 F.Supp. at 47.

"Trust fund" liability. Interestingly, the Freudenberg line of cases has spawned a few decisions which find estates liable under a "trust fund" theory. See United States v. Martell, 887 F.Supp. 1183, 1189 (N.D.Ind. 1995); State v. W.R. Peele. Sr. Trust, 876 F.Supp. 733, 743 (E.D.N.C.), appeal denied, 889 F.Supp. 849 (E.D.N.C. 1995). Estates hold the decedent's assets in trust for the benefit of satisfying environmental liabilities of the decedent. Martell, 887 F.Supp. at 1199. The trust fund theory serves the dual purpose of satisfying the broad Congressional mandates for environmental liability under CERCLA as well as the equitable policy of avoiding the windfall which would result if a beneficiary were allowed to obtain assets otherwise subject to environmental liability. Id.

Summary of estates' liability. The lesson taught by Freudenberg, and the opinions that followed it, is that courts which consider CERCLA to be a "liberal liability scheme" are not likely to allow decedents' estates to escape liability. The arguments that an estate is not a "person" or that it is protected by a state non-claim statute, are insufficient to persuade a court which takes the position that Congress intended CERCLA to be broad enough to include decedents' estates.

The defense practitioner should therefore focus on more positive arguments. The innocent landowner defense should be the most obvious and effective argument if the due care criteria are met. The next best argument is that sate probate law has historically remained free from federal interference. That estates are uniquely governed by state law is a simple way to separate a decedent's estate from other CERCLA defendants. Focusing on these defenses will serve to avoid the quagmire created by the Freudenberg line of cases.

EXECUTOR AND CONSERVATOR LIABILITY
Estates are typically managed by executors and conservators, who are generally defined as individuals appointed to manage the finances of those who cannot manage themselves. One distinction between executors and conservators is that an executor manages the property of a decedent while a conservator manages the property of one who is living, although incapacitated. Another distinction is that an executor does not take legal title to estate assets while a conservator does, albeit for the benefit of the conservatee. See Castlerock Estates, Inc. v. Estate of Markham, 871 F.Supp. 360, 366 (N.D.Cal. 1994). Like executors, conservators are considered personal representatives and are subject to liability, which is typically limited to the assets of the estate. However, if one of these individuals is at fault for contamination as a result of his or her improper administration of estate property, he may be held liable beyond estate assets. See Castlerock Estates, supra, 871 F.Supp. at 369. And, as cleanup costs reach into the millions of dollars, plaintiffs are increasingly suing executors and conservators personally as estate assets are exhausted.

Executor and conservator liability under CERCLA turns on the control the executor or conservator had over disposition of the property and on their involvement in operations on the property. In Castlerock, a bank had served the estate of a former owner of contaminated property both as conservator while the owner was alive but incapacitated, and as executor after her death. The federal district court held that the bank, in its capacity as conservator and executor, could be held an "owner" under CERCLA only if it possessed certain indicia of ownership beyond bare legal title to the property. 871 F.Supp. at 366. The indicia of ownership included the ability to sell or lease the property and to manage the estate's operations. Id. at 377.

Not surprisingly, these same indicia also determined whether the bank was liable as an "operator" under CERCLA, and whether the bank could be held liable beyond estate assets. Id., at 368-69. The court looked to the powers granted to the bank under the California Probate Code as evidence of the scope of the bank's authority, and also reviewed the testimony of bank employees as to their understanding of the bank's duties as conservator and, later, as executor. Ultimately, the court held that triable issues of fact existed as to whether the bank's authority, and its exercise of that authority, was sufficient to warrant CERCLA liability.

Also worth noting is that executors and conservators hold estate assets in a trust-like capacity for the benefit of creditors and others interested in the estate. Uniform Probate Code §§ 3-711, 5-419. Consequently, the CERCLA liability of executors and conservators is much like that of trustees. See Castlerock Estates, 871 F.Supp. at 366. Cases discussing trustee liability (infra) can also serve as a guide to executor and conservator liability; they hold generally that liability turns on the authority the trustee had over trust property operations and how he or she exercised that authority. See City of Phoenix v. Garbage Services Co., 827 F.Supp. 600, 604 (D.Ariz. 1993).

As executors and conservators take possession and control of estate property, they are exposed to CERCLA liability; their personal liability will turn on their duties and how they perform them. As clean-up costs exhaust estate assets, executors and conservators must evaluate their exercise of authority over estates and consider how they are placing themselves at risk.

TESTAMENTARY TRUST LIABILITY
A testamentary trust is, like a decedent's estate, a bundle of a decedent's asset, brought together at his death. Unlike a decedent's estate, a testamentary trust is a creation of the testator's will and not of state law. Nevertheless, for purposes of CERCLA liability, the two are treated the same.

Testamentary trusts may be held liable as owners and operators of contaminated property and can assert the same defenses. Like the decedent's estate, the trust's best bet to avoid CERCLA liability is the innocent landowner defense. A trust can also assert a state non-claim statute, but it does not enjoy the estate's benefit of being a state law creation, so the state law protection is more easily preempted. As courts hold that Congress intended CERCLA to apply broadly, testamentary trusts will have the same problems avoiding liability as decedents' estates.

Some courts do not recognize any difference between testamentary trusts and decedents' estates for purposes of CERCLA liability. Several of the defendants in Soo Line Railroad Co. v. B.J. Carney Co., supra, were testamentary trusts. The district court treated the trusts and the estate identically in analyzing their innocent landowner arguments. It held that a testamentary trust, like a decedent's estate, does not automatically fall within the innocent landowner defense, but is obligated to offer some proof that it met the terms of the defense. Id. at 1484. The trusts had to show that the contamination was caused solely by a third party and that they had exercised due care and took precautions against foreseeable acts related to the contamination. See 42 U.S.C. § 9607(b)(3). As the trusts, like the estate, had presented no evidence that they met any of' these requirements, the court rejected their defense.

Likewise, the court rejected the trusts' state non-claim statute argument. Soo Line, 797 F.Supp. at 1485. It cited Freudenberg -NOK v. Thomopoulos, supra, and the purposes behind CERCLA as enunciated in United States v. Reilly Tar, supra, 546 F.Supp. at 1112, to hold that state law should not be allowed to circumscribe the scope of CERCLA liability.

Soo Line teaches that the similar character of the assets held by decedent's estates and testamentary trusts results in similar treatment for these entities under CERCLA. Because testamentary trusts, like decedents' estates, are mere vessels to hold the assets of a decedent, the trust will typically not have participated in the operation of the contaminated properties and will be amendable to the innocent landowner defense. Also, since CERCLA claims against a testamentary trust, like a decedent's estate, are limited by state probate law, trusts may benefit from applicable state non-claim statutes. However, both trusts and estates should be aware of how courts are treating them in order to completely assess their CERCLA risk.

As an estate has an executor to manage its assets. a trust has it trustee. Trustees differ from executors in that they actually take legal title to the property while executors do not (See Rodosevich, The Expansive Reach of CERCLA Liability: Potential Liability of Executors of Wills and Inter Vivos and Testamentary Trustees, "55 Albany L.Rev. 143. 170 ( 1991). The trustee and the executor, however, both retain the power to control operation, on property they manage. This power. as shown below, makes them both potentially liable under CERCLA.

Just as in executor or conservator's CERCLA liability is typically limited to estate assets, a trustee's liability is typically limited to trust assets. See Restatement (Second) of Trusts, §§264-265. Like the liability of a testamentary trust or a decedent's estate, the trustee, liability will turn whether he is a potentially responsible party under 42 U.S.C. §9607(a). Some courts have required no more than a confirmation that the trust assets include contaminated property to impose liability. Others have sought more significant indicia of ownership as a control of the contaminated property. As with decedents' estates and trusts, the trustee's potential liability appears to be expanding.

Liability based on status. The most dangerous development in executor and trustee liability is the advent of liability under CERCLA based solely on trustee status. In United States v. Burns, 1988 Westlaw 242553 (D.N.H.), the court held that because a trustee holds legal title to trust property under trust law. he may be liable under CERCLA as an Owner of contaminated trust property. The trustee in Burns had never been personally involved in the operations which caused the contamination, and moved to dismiss on the grounds that he could not be a responsible person under section 9607(a). The court rejected the trustee's Motion, holding that his status as an owner was not sufficient for CERCLA liability.

A trustee may even be found potentially liable where he is prohibited by the terms of the trust from participating in the management of trust property. In California v. Campbell, No, CU-S-93-604 (E.D.Cal. 1993), the testamentary trustees became personally liable when they failed to obey a state order to clean up the property. The trustees argued that they could not comply because the terms of trust prevented them from taking an active role in the management of the property! The district court was not persuaded, however, and held that the trustees could be liable as both owners and operators.

Trustees in Quadion Corp. v. Mache, 738 F.Supp. 270 (N.D.111. 1990), suffered a similar fate. Testamentary trustees held 70% of the stock of a closely held company whose operations allegedly contaminated certain real property. The trustees argued that they could not be responsible persons because, as trustees of mere shares. they could not be involved in company operations. The district court held, however, that the character of the trust assets in question - shares of a closely held company - dictated a finding of personhood, and thus liability. Id., at 274. It concluded that shareholders of a closely held company were considered to be involved in company operations, as a matter of law; they could have had authority to control the company's waste-handling practices. Id., at 275.

These "status" cases are further evidence that an executor or trustee cannot rely on a lack of actual participation in property operations (even where required by the terms of the trust) as a shield from liability. The possibility of CERCLA liability based on trustee duties accordingly must be considered. The trustee still may assert the innocent landowner defense and other defenses discussed above. The key is for the trustee to avoid naively considering himself immune under CERCLA.

Liability based on power and its exercise. Trustee liability can also arise as a consequence of the trustee's powers he or she exercises. Findings of such liability directly contradict the rationale of Campbell and Qudiaon, since those opinions do not require indicia of ownership in order to impose liability.

The "powers" cases look to the trustee's power to control the use of trust property in determining CERCLA liability. See City of Phoenix v. Garbage Services Co., supra. The scope of the trustee's powers is set forth in the terms of the trust instrument and by any applicable statutes, id., 827 F.Supp. at 607 n.8.

The basis for these liability guidelines is the Restatement (Second) of Trusts. §§-264, 265. Section 264 limits liability to the assets of a trust where liability arises from the acts of third persons. City of Phoenix, 827 F,Supp. At 603. Section 265 allows for liability beyond trust assets where liability arises from a tort committed by the trustee in the course of his administration of the trust. CERCLA liability is considered a type of "environmental tort" which arises from the use of property to dispose of hazardous wastes. Id., at 603-04. Thus, if the trustee has sufficient powers under the terms of the trust to determine whether hazardous wastes will be disposed on the property, he or she may he held tortiously liable under CERCLA and, therefore, liable beyond trust assets. Id., at 605.

City of Phoenix involved a bank which acted as trustee of testamentary trust. The bank exercised its power under the trust to purchase and to lease land to a landfill operator for eight years. The bank's involvement in the property operations, however, was limited to consultations on estate matters such as tax issues. Id., at 602. After the bank closed the landfill, the City of Phoenix took title to the property in a condemnation proceeding. The City discovered contamination and sued the bank as trustee to recover the cleanup costs. Id.

The bank, along with several bank and trust groups as amici curie, moved for partial summary judgment that the bank's liability should be limited to trust assets. The district court denied the bank's motion, holding that its purchase of the property and the lease to the landfill operator constituted an exercise of control sufficient for personal liability under CERCLA. Id., at 607. Thus, the bank was held to be potentially liable beyond the assets of the trust.

While a trustee's powers can be a source of CERCLA liability, a trustee's lack of power may render him or her immune from CERCLA liability. In United States v. Petersen Sand & Gavel, Inc., 806 F.Supp. 1346, 1358 (N.D. Ill. 1992), the trustee was held, under Illinois land trust law, to be empowered only to hold and dispose of legal title at the written direction of the beneficiaries. Thus, the trustee, with only legal title and no other incidents of ownership, could not be held liable as an "owner" under CERCLA. Id., at 1359. The district court further commented that, because the beneficiary retained full management and control of the Property, to hold the trustee liable simply as a "deep pocket" would go against the goals of' CERCLA to impose liability of those who Caused the contamination. Id.

Unfortunately, as revealed by the "status" cases discussed above, many Courts do not view CERCLA as intended to impose liability only on those responsible for contaminating real property. The arguments put forth in better-reasoned opinions make more sense when considered in light of historical trust law, which imposes personal liability only on trustees and executors for their own acts. If a trustee or executor could be held liable based upon the preexisting feature of the trust assets, no one would take the job. This is a policy upon which the defense practitioner may focus in attempting to avoid liability based on the trustee's status. Be aware, nevertheless, that the trend of the courts' decisions is otherwise; one must be prepared to distinguish such decisions.

A NOTE TO DECEDENTS LIABILITY INSURERS
For those liability insurers who think that their obligations to their polluting insureds cease following their death and the expiration of the period within which to make claims again the estate, think again. As discussed above, state probate codes often offer an effective shield to a decedent's CERCLA liability in the form of non-claim statutes. A significant number of codes, however, also contain provisions allowing for claims against a decedent's estate long after the time limits for all other claims against the estate have expired. The qualifier for these claims is that damages are limited to available liability insurance proceeds.

The following states have adopted this formula: Alaska, Arizona, California. Colorado. Delaware. Florida. Hawaii, Idaho. Kentucky. Maine. Michigan. Minnesota. Nebraska, New Mexico, North Carolina, North Dakota. Oregon. South Carolina. South Dakota, Utah, and Vermont.

Not surprisingly, these statutes are particularly popular among environmental claimants under CERCLA and state law nuisance and trespass theories whose potentially responsible polluters have died. If such claimants are fortunate enough to discover evidence of' the polluter's liability insurance, they may look to the insurance proceeds statute in actions against the polluter's liability insurers. The insurers are then faced with defending the estate of an insured who no longer exists.

The California Probate Code is all example of how almost all of these statutes work. Sections 550-555 operate as an exception to the general time limit for a claim against a decedent. A claimant seeking liability insurance proceeds serves its complaint on the insurer directly although the insured's estate is the named defendant. §552. The insurer then has the option of undertaking the defense of its nonexistent insured and contesting coverage, or defending the underlying liability case and contesting coverage in a later, independent action. §551.

A few states have statutes which are worded slightly differently but have a similar effect. For example, section 8-104(e) of the Maryland Estates and Trust Code specifies that liability coverage must have been ill effected at the time an action against the estate was instituted in order for that action to be brought after the expiration of the normal time limits. Kansas provides for enforcement of a "tort" claim against the personal representative of decedent after the estate has been closed and allows for the closed estate to be reopened and a special administrator appointed against whom to file suit. Kan.Prob. Code §59-2239. Arkansas also adopts this "tort" language. Ark.Code §16-56-105.

The District of Columbia provisions for claims against an estate enumerates a series of apparent insurance coverage liability requirements that must be met for an action to be brought against the estate. D.C.Code Ann. §20-903(d). First, the action must be brought within the generally applicable statute of limitations for that action. Second, the decedent had to have been covered by a liability policy at the time of the occurrence on which the claim is based. Third, the subject matter of the claim has to be within the scope of that policy. Furthermore, the District of Columbia statute specifies that recovery is restricted to the policy limit. Id.

Illinois employs the broadest language. Under the heading "Limitations on payment of claims," the Illinois law simply states that "[t]his Section does not bar actions to establish liability of the decedent to the extent the estate is protected by liability insurance." 755 ILCS 5/18-12.

An insurance company which elects to defend its nonexistent insured's estate effectively stands alone in the face of CERCLA liability claims. Such a situation naturally raises several issues for the insurer. For instance, because the insured is dead and his estate closed. but the insured's estate is the only named defendant, who verifies discovery responses? Also, as the insured no longer exists and the recovery is limited to insurance proceeds, should the in-surer develop facts such as intentional conduct which would make liability more likely, but coverage less likely" How aggressively should the insurer defend the underlying action versus defending itself against coverage? Add these issues to the question of whether to contest coverage at all and the insurer is left with a complicated scenario.

These statutes should make insurers realize that pollution liability may haunt them years after their policyholder is dead and the estate closed. The claimant for insurance proceeds may even have broader remedies under these statutes than he would otherwise have. For instance, section 551 of the California Probate Code provides that, so long as the limitations period for the underlying action had not expired at the time of decedent's death, claimants for insurance proceeds are allowed an extra year from the expiration of the original statute of limitations within which to bring their claim. As a result, as plaintiffs search for contributors to offset their pollution liability, they will no doubt begin employing these statutes more regularly.

Consequently, liability insurers should prepare themselves to offer the defenses discussed above, on behalf of the estates of their insureds whom they choose to defend.

CONCLUSION
As death is no escape from liability for contamination of real property, their estates and trusts (and their liability insurers) should prepare to defend themselves. These entities may be ensnared in CERCLA's wide net of liability just as easily its anyone else. Those who would escape must arm themselves with knowledge of the issues.

In sum, estate liability turns on whether the estate can be characterized as a "person" under CERCLA and to what extent the innocent landowner defense and state law will limit it. Trust liability is analyzed in the same fashion. As for the executors and trustees who manage the estate and trust estate assets, liability will usually turn on their control over the use of the contaminated property. With the numerous statements from courts about the breadth of CERCLA liability, and the court's recognition of the powers that these offices wield over property operations, these individual's liability is becoming more common..

CERCLA does not single out estates and trusts, but is does not afford them special treatment either. If the sins of the fathers are visited upon the sons, the whole family, and their insurers, will benefit from recognizing this fact.