USA – CALIFORNIA Law and Practice Contributed by: Kim Bick, Alan Bick, Corrie Plant and Tyler Alexander, Bick Law LLP
towards ESG requirements for companies doing busi- ness in California will likely continue. 6.6 Environmental Audits The California Code of Regulations Section 5280 (m) defines “Environmental Audit” as “an investigation that may be required by a lender or a corporation into the applicant’s operations and compliance with fed- eral, state and local environmental laws, regulations and rulings, which would indicate whether the facility is, or is likely to become, contaminated”. However, California does not impose a general environmental audit requirement. Still, California requires thorough environmental reviews in permitting through CEQA and has begun imposing disclosure requirements regarding environmental impacts through statutes like SB 253 and SB 261. California will likely continue to expand environmental impact reporting requirements on companies within the state. In imposing liability on directors and officers, Califor- nia follows the Responsible Corporate Officer doc- trine. Under the doctrine, officers and directors are liable for violations of strict liability statutes that pro- tect the public welfare when the officers and directors (i) were in a position of responsibility that allowed them to influence the corporation’s activities or policies; (ii) had the ability to influence the corporation’s actions that caused the violation; and (iii) either caused the violation or failed to stop the violation. For example, in People v Roscoe , 169 Cal. App. 4th 829, 839 (2008), the Third District of the California Court of Appeal applied this doctrine in holding two officers, directors, and shareholders liable for leakage from an under- ground gasoline storage tank. 7. Personal Liability 7.1 Directors and Other Officers Officers and directors may also be liable under the Responsible Corporate Officer doctrine for violations of the Clean Air Act and Clean Water Act. See United States v Iverson , 162 F.3d 1015, 1022-25 (9th Cir. 1998) (applying Responsible Corporate Officer Doc- trine in Clean Water Act case based on 33 U.S.C. § 1319 (c)(6)’s definition of “person” as including “any responsible corporate officer”).
In addition, officers and directors may be person- ally liable for tortious acts that they commit, author- ise, negligently fail to prevent, or ratify, regardless of whether the corporation is also liable.
8. Insurance 8.1 Environmental Insurance
Environmental and pollution liability insurance is available in California to help mitigate the risk of site contamination and associated liability from business operations. Commercial and general liability insur- ance policies may also provide coverage for some environmental liability, although environmental risks tend to be excluded. Like other insurers, environmen- tal insurance providers are regulated by the California Department of Insurance and required to meet finan- cial strength requirements. California companies are not subject to a blanket requirement to purchase envi- ronmental insurance, although specific programmes do require a qualified policy. For example, Califor- nia’s cleanup loan programme requires the borrower to obtain a qualified environmental insurance policy before disbursing funds (Cal. Health & Safety Code § 80520). Environmental insurance can also play an impor- tant role in real estate transactions, acting like title insurance to protect the purchaser from the risk of unknown contamination. These policies are generally expensive, subject to exclusions, and limited in dura- tion. Still, they are sometimes a necessary tool in get- ting a deal across the finish line.
9. Lender Liability 9.1 Financial Institutions/Lenders
Under both CERCLA and California’s Hazardous Sub- stance Account Act, lenders who hold mortgage or other security interests in contaminated properties are not liable for cleanup costs unless the lenders actively participated in or managed the activities that caused the contamination. Similarly, lenders do not become potentially responsible parties solely by virtue of acquiring title to a contaminated property through foreclosure. Those protections may be lost, however,
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