Strategies for Handling Contaminated Real Property in Probate

By October 13, 2015 No Comments

Reprinted with permission from the King County Bar Bulletin.

What happens when the beneficiaries of an estate are left to contend with real property contaminated with heavy metals such as arsenic, lead, mercury or cadmium? Or, in a more common scenario for residential real estate, what if the beneficiaries, or the estate’s personal representative, discover during probate that the home’s heating oil tank is leaking?

The federal Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA),1 commonly referred to as Superfund, regulates how contaminated property is cleaned up and who is responsible for the cleanup costs. Under Superfund, liability for contamination from hazardous substances2 (which do not include home heating oil) extends to not only the owner or operator of a vessel or facility responsible for the release of a hazardous substance into the environment, but also any person who owned or operated a facility where the hazardous substance was disposed of or which arranged for the treatment or disposal of a hazardous substance.3 Responsibility for cleanup costs related to contamination from hazardous substances can extend long after the property is sold by the owner responsible for the release.

In addition to Superfund, Washington’s Model Toxics Control Act (MTCA)4 also addresses cleanup of land contaminated by hazardous substances, and broadens the Superfund definition of “hazardous substance” to include “petroleum or petroleum products”” that have been released from an underground storage tank.5 Division I of the Washington Court of Appeals has held that a former homeowner is not exempt from liability when an underground heating oil storage tank is discovered to have leaked on their former property – even if the owner had no knowledge of such a leak – because “leaking fuel oil into the ground”” is not a “domestic purpose” under the terms of MTCA.6

Consider the not uncommon circumstances in Martin v. Johnson,7 a 2007 case decided by Division II. In the 1970s, H.E. Sherry Johnson converted the energy source for the heating system in her 1910 home from oil to electricity. She did not remove, drain or decommission the underground oil storage tank. At some point, the oil tank began to leak.

When she sold the house in 1994, Johnson indicated on the seller’s disclosure statement8 that she “didn’t know” about the presence of an underground oil storage tank. A decade later, when the buyers, the Martins, sold the home, their purchaser discovered the presence of the leaking tank and required its removal from the property. After the Martins spent more than $60,000 removing the tank and cleaning the contaminated soil and groundwater resulting from the leak, they sued the personal representative of the estate of Johnson, who by that time had passed away, for the cost of the cleanup.9

One option for the personal representative of an estate faced with contamination due to a leaking oil tank may be to find out whether the property owner was covered by Washington’s Pollution Liability Insurance Agency (PLIA) under the Heating Oil Pollution Liability Protection Act.10 PLIA provides up to $60,000 in coverage for oil tanks enrolled in the program. Another option for an estate’s personal representative may be to file a claim with the decedent’s homeowner’s insurance carrier. Some policies may provide coverage, while coverage may be excluded by other policies.

In Martin, the personal representative sought coverage for the oil tank leak from Johnson’s former insurer. While the insurance company denied coverage for the cost of cleaning up the contamination, it nonetheless agreed to defend the estate in the lawsuit, reserving the issue of coverage.11 The estate and the Martins eventually settled, with the estate agreeing to a judgment against it of more than $80,000.12 The insurance company, however, was granted summary judgment on the issue that the oil tank leak was outside the scope of Johnson’s insurance coverage. This ruling was upheld by the Court of Appeals in an unpublished opinion.13

What if the oil tank leak or other contamination is discovered during the probate? MTCA exempts fiduciaries (but not an estate) from liability under the statute, provided the personal representative complies with MTCA’s conditions of exemption. RCW 70.105D.020(17)(b)(iii) provides that a fiduciary such as a personal representative is exempt from liability under MTCA, provided that the fiduciary did not cause or contribute to the contamination, if the fiduciary complies with all of the following:

(A) The fiduciary properly maintains the environmental compliance measures already in place at the facility;

(B) The fiduciary complies with the reporting requirements in the rules adopted under this chapter;

(C) The fiduciary complies with any order issued to the fiduciary by the (Department of Ecology) to abate an imminent or substantial endangerment;

(D) The fiduciary allows the department or potentially liable persons under an order, agreed order, or settlement agreement under this chapter access to the facility to conduct remedial actions and does not impede the conduct of such remedial actions;

(E) Any remedial actions conducted by the fiduciary are in compliance with any preexisting requirements identified by the department, or, if the department has not identified such requirements for the facility, the remedial actions are conducted consistent with the rules adopted under this chapter; and

(F) The fiduciary does not exacerbate an existing release.

While a personal representative can transfer real property via a personal representative’s deed, which does not require the same disclosures as a typical sale of residential real property, a beneficiary who inherits property from an estate and later sells it does not benefit from such an exemption. If the contamination is more serious than that of a leaking oil tank, or if the estate includes property that is subject to Superfund cleanup, beneficiaries may find themselves inheriting a potential liability rather than an asset. Under such circumstances, the beneficiaries may consider disclaiming their interest in the property under RCW 11.86.031 to avoid liability for cleanup costs.

In short, contaminated property can cause a big, dirty mess in a probate. A property owner’s death does not terminate his or her liability for contamination that occurred on property they owned during their lifetime, even if they sold that property prior to their death and even if they were not aware the contamination occurred. Washington law provides some protection for personal representatives from liability for contamination on property they handle in their fiduciary role, provided the personal representative follows the rules.

1 42 U.S.C. 9601-9675.

2 A list of what is considered by the Environmental Protection Agency to be a “hazardous substance” is located at 40 C.F.R. 302.4.

3 42 U.S.C. 9607.

4 RCW 70.105D.

5 RCW 70.105D.020(13)(d).

6 Grey v. Leach, 158 Wn. App. 837, 849 (Div. I 2010).

7 Martin v. Johnson, 141 Wn. App. 611 (Div. II 2007).

8 Id. at 615; RCW 64.06.020.

9 Id. at 616.

10 RCW 70.149.

11 Martin, 141 Wn. App. at 616.

12 Id.

13 Metro. Prop. & Cas. Ins. Co. v. Estate of Johnson, 149 Wn. App. 1025 (Div. II 2009).

This post is for informational purposes and does not contain or convey legal advice. The information herein should not be used or relied upon in regard to any particular facts or circumstances without first consulting with an attorney.

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