Risk Management for Environmental Consultants

Environmental consultants fill their days helping clients manage environmental risks. Often overlooked by consultants, however, are the environmental risks they may be inadvertently accepting in the course of their work. Several legal cases have allowed third parties to seek damages from consultants for their activities in ways that are often surprising.

For example, last October, a Colorado court allowed a suit to move forward against a consultant for a cantaloupe grower who conducted a food safety audit at the cantaloupe packing facility (but who was not hired to test the cantaloupe) after a listeria outbreak from the cantaloupe killed 33 people and made 147 people sick. ¹See, e.g., Lopez v. Frontera Produce, Dist. Ct. Colo., 13CV31951. In that case, the court ruled that the consultant knew or should have known that the audit would be used to identify or uncover conditions that led to the distribution of the contaminated cantaloupe and allowed a suit to move forward brought by relatives of the deceased.

The Lopez case is only a recent example of court decisions that seem oblivious to the risk of imposing liability on companies that are actually engaged in preventing or remedying the very harms that environmental laws are intended to address. Reliable numbers reflecting the frequency of lawsuits directed against environmental consultants are difficult to find, but anecdotal information and the overall growth of the market suggests an increasing trend. While lawsuits between environmental consultants sometimes arise in the normal course of business, the area of recent concern has been the increasing trend of third parties who relied on the work of an environmental consultant suing the environmental consultant when their reliance, rightly or wrongly, turns out to be misplaced. ²See CH2M Hill, Inc., Annual Report Form 10-K 26 (2015) (describing disputes in the normal course of business); see generally Joel Schneider, The Expanding Liability of Environmental Consultants to Third Parties, 13 Villanova Environmental L.J. 235 (2002).

Establishing Liability.

Whether filed by the consultant’s former client or a third party, the predicate for establishing liability of a consultant generally arises from either breach of contract or negligence on the part of the consultant. In most cases, claims for breach of contract must be brought by one of the parties to the contract and must be based on the “four corners” of the contract. By contrast, negligence claims can be brought by third parties and are based on what duties of the consultant were “reasonably foreseeable.” Although the duties that are reasonably foreseeable rely heavily on the contract language, they are not necessarily one and the same. Generally, therefore, negligence claims are broader and more threatening to consultants trying to manage their risks.

Cases like the Lopez case are predicated on the concept that it was reasonably foreseeable for the consultant to realize the risk of harm to a third party relying on the consultant’s work. Similar cases are not hard to find. In Chartis Specialty Insurance Co. v. Aqua Science Engineers, Inc., 2013 BL 231636, N.D. Cal.the insurer for Lowe’s Home Center sued Aqua Science Engineers for failing to identify all of the underground storage tanks located on the property where a Lowe’s store was to be built. The insurer filed suit to recover the $1.05 million it paid to Lowe’s for the clean up costs. The consultant was unable to escape from the case on a motion for summary judgment. ³See generally, Schneider supra, at 236-38 (collecting cases).

Comparing Lopez and Chartis Insurance with the result in Sykes v. Propane Power Corp., 224 N.J. Super. 686is useful. In Sykes, following entry of an administrative consent order, a power company hired an environmental consultant to identify the methods of chemical recovery used at the plant. When a boiler associated with chemical recovery exploded, killing William Sykes, an employee of the power company, his relatives alleged that the consultant’s work was partly to blame for not identifying the dangers in the design of the system. The court ruled in favor of the consultant, relying on the language of the consultant’s contract that made clear that identification of the chemical recovery process was all that was required, without any requirement to assess safety or operation. In this case, a narrowly drawn scope of work for the consultant resulted in a different outcome than a contract’s requiring performance of an audit, as in Lopez.

It is also worth noting, however, that other courts have moved in a different direction regarding a consultant’s duty to his client’s employees. In Caldwell v. Bechtel, Inc., 631 F.2d 989, D.C. Cir.for example, a federal appeals court concluded that an engineering consultant could be responsible for the silicosis of a heavy-equipment operator performing the clean up under the consultant’s clean-up plan.

Understanding the Scope of Work.

These cases highlight the importance of a clear understanding about the scope of the work undertaken by the consultant as expressed in the contract for the work.

Negligence claims can also incorporate other duties. For example, consultants can be expected to show that they are staying abreast of the most current standards for testing and inspection and can be held responsible for failure to do so. ⁴See, e.g., Vitol Trading S.A., Inc. v. SGS Control Servs., 680 F. Supp. 559, S.D.N.Y., rev’d on other grounds, 874 F.2d 76, 2d Cir. Consultants performing environmental site assessments can be expected to comply with the American Society for Testing and Materials (ASTM) standards for conducting such assessments.

The waste remediation field is particularly risky for contractors. Loose statutory language under the federal waste clean-up law known as the Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, has led to several instances where environmental consultants have been unable to dismiss litigation directed against them as so-called “arrangers” or “operators.” In Ganton Technologies, Inc. v. Quadion Corp., 834 F. Supp. 1018, N.D. Ill., for example, a federal court ruled that the remediation contractor and remediation engineers were potentially “operators” – and therefore potentially responsible parties for the cost of clean up under CERCLA – since they “were hired to deal with the hazardous material.” Other more recent CERCLA cases show that the Ganton Technologies case was not an isolated example. ⁵See, e.g., BancorpSouth Bank v. Environmental Operations, Inc., 908 F. Supp. 2d 1016, 2012 BL 292642, E.D. Mo. (CERCLA liability for engineering firms hired to remediate a landfill); Ford Motor Co. v. Edgewood Props., 2012 BL 236538, D.N.J., 06-1278, 8/31/12 (deciding that an environmental consultant could not be dismissed from a CERCLA lawsuit).

Avoiding Risks.

Fortunately, with the right tools and training, consultants can avoid most of the risks posed by this expanding liability. Well-drafted contracts can ensure there is no misunderstanding about what is – and what is NOT – the responsibility of the consultant. For example, it is commonplace for clients to include literally hundreds of pages of documents related to the site history, regulatory decisions involving the site and the related work of previous consultants. A well-drafted contract, however, should be limited to the minimum necessary to establish the scope of work. When multiple documents are necessary, the primary agreement should reflect which documents take precedence over others. Here is an example: ⁶These provisions and others in this article are simply examples and may need modification for different types of projects or different jurisdictions.

The following documents shall comprise the Contract Documents, and in case of any inconsistency, conflict or ambiguity among the Contract Documents, the documents shall govern in the following order: (a) Change Orders and written amendments to this Agreement; (b) this Agreement, including all Exhibits specifically identified on the Agreement Summary Page, but to the extent conflicts exist between this Agreement and any of the Exhibits, this Agreement shall control; and (c) the drawings (large scale governing over small scale), and addenda issued prior to the execution of this Agreement.

Just as it is important to precisely define the scope of the work, in some cases it is prudent to suggest what limitations may exist in the work. This is particularly important if the contract involves subsurface work. For example:

Unforeseen conditions are inherent in environmental services and subsurface work. If the conditions at the Worksite include (a) subsurface or other physical conditions which are materially different from those indicated in the Contract Documents, including the Worksite Information, or (b) unusual or unknown physical conditions which are materially different from conditions ordinarily encountered and generally recognized as inherent in Work provided for in the Contract Documents, Consultant shall stop Work and give prompt written notice of the condition to Owner. Consultant shall not be required to perform any work relating to the unknown condition without the written mutual agreement of the Parties.

Broad Indemnification Clause.

Another risk area is an overly broad indemnification clause. It can be difficult to remove a clause requiring indemnification of a client from a client’s proposed contract, but this option is almost always best. Similarly, if indemnification or liability can be limited to the price of the services being offered, this is an added level of protection (although not fully honored in all circumstances) that can be difficult to negotiate. As an absolute minimum, consultants must avoid being responsible for activities or events beyond their control and should require that there at least be some negligence on their part, or preferably gross negligence, before indemnification is required. There is also no reason that the indemnification obligation shouldn’t be mutual.

Work involving hazardous substances, such as those associated with CERCLA, also present unique risks. Because such projects usually involve subsurface work and because complete clean up can be difficult to guarantee, a clause such as the following is recommended:

Owner acknowledges that completion of the Work in accordance with this Agreement may not constitute all necessary remedial activities. While it is the intent of Owner and Consultant to avoid its occurrence, continued, additional, or other remedial action may be required by Owner after the completion of the Work in accordance with this Agreement. For example, Owner may remain responsible by law for Contaminants that are not the subject of the Work or contaminated residual resulting from the Work. Varying characteristics of the Contaminants may require in progress modifications to the intended Work to achieve the intended objective(s) of the Work. Therefore, notwithstanding any contrary provision in the Agreement, Consultant makes no representation or warranty, or guaranty, express or implied, that the Work will result in a complete resolution for Owner of responsibilities and liabilities for Contaminants and their residual associated with the Site, or that the Site will become completely free of all Contaminants or fit for all uses.

It is also important to make clear that the consultant was not acting as the operator or arranger, and that the substantive responsibilities for such activities rest with the client and not the consultant. Another means to protect against operator or arranger liability is by requiring indemnification from the client for claims stemming from such allegations. Finally, contract provisions stating that the Consultant’s work product will not be made available to, or is not intended for use by, third parties are increasingly important.

Good Work Practices.

In addition to a well-drafted contract, good work practices are another means of risk management. Too often, for example, e-mails between consultants and clients can suggest that consultants have taken responsibility for work that wasn’t intended under the original contract. Of course, the contract should require any such changes to be in writing and signed by the parties, but even with such a clause, an e-mail exchange in which the consultant acknowledges a need to do some additional assessment can be used to buttress an argument that the consultant knew such work was reasonably foreseeable to prevent some alleged harm. In one example, a client directed a consultant to minimize costs, so the consultant modified its clean-up plan to require less source removal, only to be sued when the client’s site wasn’t free of contamination on schedule. A clarifying e-mail, e.g., we can save you some money but it may slow the rate of remediation, would have made all the difference.

Insurance is probably already part of a consultant’s risk management toolbox. Because general insurance policies are often carefully worded to avoid some environmental claims, however, specialized policies are also a good idea. The exclusions under any policy should be carefully scrutinized.

With the right preparation, and minimal cost, environmental consultants can continue solving their clients problems without creating problems of their own.