Retroactive Liability Research Articles

Retroactive Liability in China's Soil Pollution Law: Lessons from Theoretical and Comparative Analysis

AbstractWhether companies and shareholders should be held liable for land contamination that occurred prior to the passage of the law imposing liability for such contamination is a complex issue. After a theoretical analysis of the legitimacy of retroactivity in land contamination law, our comparative study shows that most countries have adopted, or tacitly approve of, retroactive liability for land contamination. However, the liability schemes implemented in the countries investigated vary as to the types of obligation, the timing of conduct for which liability is imposed, and the standard of liability, among other factors. The retroactive imposition of liability in China's recently enacted Law on the Prevention and Control of Soil Pollution is examined, as well as the roadblocks that still remain, and further improvement based on the theoretical and comparative analysis are considered.

The Impacts and Implications of CERCLA on the Soil Environmental Conservation Act of the Republic of Korea

AbstractThis article explores the development and enforcement of the Republic of Korea’s Soil Environmental Conservation Act (SECA). It argues that, although Korea has adopted the statutory model of the United States (US) Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and US case law, it has formulated SECA to devise a Korean model of an effective and reasonable liability scheme based on the Korean regulatory context. The original SECA, especially its retroactive liability provision, was declared unconstitutional by the Constitutional Court of Korea, because it violated ‘the principle of legitimate expectations protection’. Since then, SECA has been amended to include more diverse categories of polluter and to provide more adequate defences. The development process of this Korean model can be instructive for less developed countries that urgently need to address soil pollution but are not yet equipped with the necessary environmental statutes and regulatory infrastructure and, thus, are vulnerable to environmental risks.

Clean Up of a Legislative Disaster: Avoiding the Constitution Under the Original CERCLA

The congressional process leading to the enactment of the original CERCLA in December 1980 was a legislative disaster. The “compromise” statute which emerged left many gaps and ambiguities for the federal courts to resolve. These included deletions of the phrase “joint and several,” of the right of contribution, and of the statute of limitations provision that had appeared in earlier bills. The structure of the statute imposing retroactive liability on multiple parties for the same cleanup in informal administrative and complex judicial proceedings presented substantial legal questions. From 1981 to 1986, the Department of Justice advocated interpretations of the statute that pushed the regime to the very limits of or ignored the Constitution. Presented with these interpretations, the federal courts had to consider the definitions of those limits. This sometimes led to judicial interpretations of CERCLA to avoid the constitutional difficulties. Here we consider several of these lower court interpretations – the right of contribution, the “sufficient cause” exception to statutory fines, and the statute of limitations. Amendments to CERCLA in 1986 largely short-circuit the judicial need to further address these matters.

Developing a National Contaminated Land Liability Scheme in China: the Comprehensive Environmental Response, Compensation, and Liability Act Revisited

Land contamination has undermined sustainable development in China in the context of the nation’s environmental, economic and social wellbeing. It is still heavily reliant on general environmental protection legislation to regulate soil- or land-polluting activities and it is becoming increasingly evident that contaminated land issues should be addressed in a more cohesive and equitable national framework. The US Congress enacted the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) in 1980 to regulate remediation and redevelopment of contaminated sites. This ground-breaking legislation delineates a complex and far-reaching liability scheme for various potential responsible parties. However, throughout its history, CERCLA’s defining features imposing ‘strict, joint and several, and retroactive liability’ have been roundly criticised for resulting in limited coverage of claims, curtailment of statutory defences, unfairness to innocent parties and high transaction costs. China has already incorporated several key liability standards, for example strict liability and joint and several liability provisions; however, the regimes developed in both jurisdictions remain problematic and in many cases ineffective. Bearing in mind the lessons learned from CERCLA, this article argues that a more flexible contaminated land liability regime might be appropriate for China. A number of criteria should be considered in the development of China’s nationwide contaminated land legislation, which include: adoption of the ‘polluter pays’ principle; establishment of the ‘retroactive liability’ on a firm legal basis; adoption of joint and several liability; and establishment of ‘state liability’ within China. In particular, the profound social and economic transformation in China must be taken into account in both the design and development of a contaminated land liability regime and this article highlights some of the important issues in this regard.

Constitutional Issue on Retroactive Liability of Korean Soil Environmental Conservation Act

Constitutional Issue on Retroactive Liability of Korean Soil Environmental Conservation Act

The Expected Utility Maximization Framework And The Demand and Supply For Retroactive Liability Insurance

The paper uses the expected utility of wealth maximization principle to establish the economic boundaries under which a market for retroactive liability insurance will develop. It is shown that the economic feasibility for the backdated insurance coverage is affected by the income tax rates, and the levels of risk aversion of the potential insurer and insured and by the time to settlement. However, the potential insurers tax rate is more relevant than the other parameters.

STRICT PRODUCT LIABILITY AND SAFETY: EVIDENCE FROM THE GENERAL AVIATION MARKET

I. INTRODUCTION Beginning in the 1960s, the legal system in the United States began a gradual transition to a standard of strict product liability. The proponents of the strict liability standard argued that such a move would enhance both economic efficiency and safety by placing the burden of accident prevention on manufacturers, who presumably have lower marginal costs of preventing accidents than consumers. (1) In addition, it was argued that the adoption of a strict liability standard would make it easier for consumers to obtain financial compensation from manufacturers for any injuries that they suffered. A key component of the strict liability standard is the notion of design defect, according to which a manufacturer can be held liable if the risk of product injuries exceeds the product's utility based on current design standards. (2) The manufacturers of short-lived goods deemed to be guilty of design defect may replace existing products with safer versions, passing on the higher costs associated with accident prevention and liability insurance to consumers in the form of price increases. (3) The manufacturers of long-lived products, however, may be physically or financially unable to retrofit previously sold items to bring them up to current design standards, thus exposing manufacturers to retroactive liability for goods sold in the past. In this situation, the manufacturers of long-lived products are faced with one of two choices: (a) absorb the increased costs in the form of lower profits or (b) attempt to pass on the liability costs for the previously sold units to new customers in the form of higher prices. This latter scenario may lead to a downward spiral in which sales fall, leading producers to further price increases in an effort to recoup the sunk liability costs from an ever-declining number of new units sold. One of the industries hardest hit by the change in liability standards was the general aviation (GA) industry. Martin (1991), Pattillo (1998), Priest (1991), Stimpson (1988), and Viscusi (1991), among others, have discussed the devastating impact of strict product liability on the manufacturers of GA aircraft. (4) GA planes are an example of a durable good with extremely long service lives; in 2005, the average age of the GA fleet in the United States was 34 yr. Although 75%-85% of GA accidents are attributed to pilot error, 90% of all accidents involving a fatality or serious injury result in a lawsuit against aircraft manufacturers. (5) As a result of the increase in litigation, claims and other legal expenses for aircraft manufacturers and their suppliers increased from $24 million in 1976 to $210 million in 1986, an increase of 775%. (6) As manufacturers attempted to pass on the higher liability costs by increasing prices, sales of new aircraft over the same period declined by 90%, from 15,451 units in 1976 to 1,495 units in 1986 according to the General Aviation Manufacturers Association (2006). Supporters of the move to a strict liability standard in the GA market have argued that it forced manufacturers to cease production of outmoded models of aircraft that suffered from design flaws and manufacturing defects, thus improving the level of safety. This claim, they argue, is consistent with the fact that GA accidents and fatalities declined following the transition to the strict liability standard. (7) Martin (1991, 86-87), however, argues that in formulating the rule of strict liability ... no one considered the distinction between products purchased and used as capital items with a long service life and those purchased as consumables ... General aviation airplanes are prime examples of a capital item that has a long service life. Each general aviation airplane in the active U.S. fleet that carries a manufacturer's data plate represents a separate product liability risk to that manufacturer. The cost of that risk, whether self-insured or under-written, must be paid each year. …

Found Law, Made Law and Creation: Reconsidering Blackstone's Declaratory Theory

Sir William Blackstone's Commentaries on the Laws of England is arguably the single most influential work of jurisprudence in American history. Written in the late eighteenth century, it regularly appeared in American law school classrooms up until the early part of the twentieth century, when ridiculing Blackstone and the Commentaries became a part of legal academic orthodoxy and the influence of the Commentaries waned. Blackstone eventually became the poster child for everything that the realists and their descendants thought was wrong with American law—formalism, natural rights and plutocracy.Both Blackstone's admirers and his detractors have devoted significant attention to his famous account of judging, which holds that judges find (or declare) law rather than make law. In the introduction to the Commentaries, Blackstone states that the judge's job is to determine the law “not according to his own private judgment, but according to the known laws and customs of the land;” the judge is “not delegated to pronounce a new law, but to maintain and expound the old one.” One reason Blackstone's account has been attractive in some quarters is because it supplies apparent answers to a number of problems raised by the idea of judge-made law. If judges merely find and apply authoritative law, their decisions presumptively carry the authority of the law they are applying. Because the law pre-exists the decision, the specter of retroactive liability disappears.

Retroactive Criminal Liability and International Human Rights Law

Retroactive Criminal Liability and International Human Rights Law

A Weighted, Multi-Attribute, Site Prioritization and Selection Process for Brownfield Redevelopment

Michigan is widely recognized as having one of the most innovative programs for converting brownfields into productive uses. The state provides a number of financial incentives along with suspension of retroactive liability for prospective developers. Michigan also has among the greatest number of brownfields of any state. The sheer number of sites and locations throughout the state, the cost of acquisition and cleanup, and the amount of information needed to make a reasoned decision and complete the necessary permits can make the choice of candidate sites difficult. A method to differentiate among potential sites for selection is clearly necessary. In this paper, a Brownfield Site Ranking Model is proposed for selecting sites for potential redevelopment. This process identifies 11 siting criteria derived from the review of general siting factors that can be evaluated in locating a business on a formerly used site. Such factors include commercial marketing guidelines, financial incentives, environmental regulatory compliance requirements, regional infrastructure and labor resources, and local community acceptance. These factors were integrated into a conventional, step-by-step, site identification and selection process using a multi-tiered, weighted procedure. The process was developed in cooperation with the Brownfield Redevelopment Authority of Jackson County and was tested on several prospective commercial and industrial sites. Results suggest a high degree of correlation between site characteristics and likely end uses and argue for a selection process that allows participation by local governments. The complete process, which can be computerized and adapted to a geographic information system, provides a model for commercial developers, real estate brokers, siting consultants, and local communities in selecting target sites for redevelopment.

A GIS-based decision support system for brownfield redevelopment

Rapid growth in regions surrounding large metropolitan areas leads to the phenomenon of urban sprawl. In states like Michigan, land is being converted at a rate seven times greater than formerly used (and potentially contaminated) sites are being redeveloped. City governments now see these unused or abandoned areas as important assets in realizing the goal of urban revitalization. New legislation in Michigan provides economic (e.g. tax recapture) and legal (e.g. suspension of retroactive liability) incentives for local governments and prospective developers who are now seeking these brownfields instead of farmland and open space. To evaluate land use options with respect to brownfields inventory, characterization, and potential for redevelopment, both government and private decision-makers need access to information regarding land capability; development incentives; public goals, interests, and preferences; and environmental concerns such as site contamination and environmental quality. This paper discusses a decision support system that provides access to state, regional, and local geospatial databases, several informational and visualization tools, and assumptions useful in providing a better understanding of issues, options, and alternatives in redeveloping brownfields. The resultant decision support system is augmented by a unique geographic information systems (GIS)-based land use modeling application called Smart Places ® as an integrated expert system. The decision support system is being tested in a city- and county-level brownfield identification, screening, and marketing effort in Jackson County, Michigan. This project represents a testbed for decision-makers and policy analysts at all levels of government to establish urban land use policy and development guidelines that may be applicable to related land use issues in a variety of urban and urbanizing settings. While this project was conducted in Michigan, the tools and procedures used are seen as readily adaptable to other locations.

Retroactive liability and the insurability of long-tail risks

This article focuses on a specific aspect of liability insurance that arises out of the latent nature of certain insured events. In particular, it is concerned with the fact that in the interval between the original tort and the claim for damages the standard of care applied by the courts may change. This is the problem of retroactive liability. The article begins by briefly reviewing the legal background to the retrospective application of liability rules. Then it formally addresses the question of how retroactive liability can be reconciled with the goals of tort law and whether retroactive liability is insurable.

Risk management considerations in transactions involving contaminated or potentially contaminated real estate

Contaminated property transactions include sales of real estate, leases, mergers, and acquisitions that involve a transfer of property that is impacted by historic pollution. Problems have been created in these transactions for parties on both sides by environmental laws that impose strict, joint and several and retroactive liability for environmental conditions on either the buyer or seller (lessor or lessee) who may have caused a release of contaminants. SEC environmental disclosure requirements have further complicated the situation by making it difficult for either party to agree to indemnify the other for such liabilities. Insurance policies have taken the place of indemnity agreements in these transactions and they can provide additional protection that addresses a wide range of environmental uncertainties. This article will consider a number of contaminated property transactions and review the use of insurance to facilitate their completion. It also provides briefcase studies that demonstrate the comprehensive nature of the protection that can be provided to neutralize environmental risks in these commercial transactions and to manage balance sheet liabilities even where the real estate is not sold.

Retroactive Liability or the Public Purse

The article addresses the question of whether responsibility for pollution created in the past should be retroactively applied to firms, or if the costs of cleaning up existing pollution should be financed by the public. We show that making firms liable for retrospective environmental costs can weaken the incentive to take precautions against future environmental costs. This follows since public financing of these costs can lead to greater prospective risk deterrence by allowing firms to more fully internalize the costs of future environmental risks. However, an analysis of existing public financing approaches highlights a set of dangers associated with their practical use.

Attitudes toward managing hazardous waste: What should be cleaned up and who should pay for it?

Hazardous waste policy in the United States uses a liability-based approach, including strict, retroactive, and joint and several liability. To assess attitudes toward these basic principles of liability, and toward priorities for clean-up of wastes, a questionnaire was mailed to legislators, judges, executives of oil and chemical companies, environmentalists, and economists. The questionnaire consisted of abstract, simplified cases, which contrasted basic principles rather than dealing with real-world scenarios. Subjects were asked how they would allocate clean-up costs between companies and government as a function of such factors as adherence to standards, adoption of best available technology (BAT), and influence of penalties on future behavior. Most subjects felt that, if the company followed government standards or used the best available technology (BAT), it should pay for only a portion of the clean-up cost, with the government paying the rest. In general, responses did not support the principles underlying current law - strict, retroactive, and joint-and-several liability. Most subjects were more interested in polluters paying for damages than in deterrence or future benefit - even to the extent that they would have harmless' waste sites cleaned up. A bias was found toward complete clean-up of some sites, or zero risk.' Different groupsmore » of subjects gave similar answers, although more committed environmentalists were more willing to make companies pay and to clean up waste regardless of the cost. 21 refs., 3 tabs.« less

Making decisions about liability and insurance: Editors' comments

Two related trends have created novel challenges for managing risks in the United States. The first trend is a series of dramatic changes in liability law. Tort law has expanded to assign liability to defendants for reasons other than negligence. Recent doctrines include joint and several liability, retroactive liability, probabilistic causation, and unlimited duration of liability. Many of these legal changes have added unpredictability about future damage claims (and about further changes in the law), making it difficult for firms to assess risks and for risks to be shifted effectively from firms to insurers (Committee for Economic Development, 1989).

Catastrophic Events and Retroactive Liability Insurance: The Case of the MGM Grand Fire

Catastrophic Events and Retroactive Liability Insurance: The Case of the MGM Grand Fire This study examines the capital market response to the MGM Grand fire and to the announcement of MGM Grand's purchase of $170 million in retroactive liability insurance. The information transfer effect is also examined. Event study research methods support earlier findings that the news of the fire had an adverse effect on MGM's security price. Security prices of industry co-member firms, however, experienced a negative information transfer (positive returns) on the date of the fire, a result consistent with intra-industry shifts in market share. Shifts in systematic risks were not documented for MGM or a portfolio of industry co-members. Catastrophic Events and Retroactive Liability Insurance: The Case of the MGM Grand Fire Recent analytical papers have developed the conditions under which an insured's purchase of retroactive liability insurance is economically advantageous. Smith and Witt (1985) argue that tax arbitrage enables the insured to share in the insurer's immediate income tax reductions for loss reserves. Venezian and Fields (1987) identify additional shared economic benefits derived from differential expectations of ultimate loss and the insurer's comparative advantage in dealing with losses. These arguments imply a favorable capital market response to the announcement of a retroactive insurance purchase. However, it is possible that a retroactive insurance purchase has an additional role in determining firm value. If the capital market is unsure about the probability and amount of loss related to the insured risk, the retroactive insurance agreement may provide a reliable dollar estimate of a significant portion of the loss. Thus, the insurance policy serves to adjust the capital market's initial estimate of probable loss. This study examines the capital market response to the MGM Grand fire and to the announcement of MGM Grand's purchase of $170 million in retroactive liability insurance to help cover the costs of potential liability claims resulting from the fire. The notion that information about catastrophic loss results in security price changes for the announcing firm is developed and empirically demonstrated in Sprecher and Pertl (1983, 1988). Evidence that such losses have industry-wide impact (information transfer) is provided by Bowen, Castanias, and Daley (1983) and Hill and Schneeweis (1982). The information transfer effect is also examined in this study because of its potential to differentiate, at least partially, between 1) the market's interpretation of the economic advantages of retroactive insurance; and 2) the market's use of the insurance announcement to determine the extent of loss. The former is firm-specific while the latter may have industry impact due to competitive shifts within the industry or changes in industry risk. Thus, a finding of information transfer relating to both the fire and the retroactive insurance announcement would be indicative of the market using a retroactive insurance announcement to adjust expectations of probable loss. The results of this study are consistent with previous research in that the news of the fire had an adverse effect on MGM's security price. The security prices of industry co-member firms were affected in the opposite direction (negative information transfer) on the date of the fire, a result consistent with intra-industry shifts in market share. Also, MGM experienced a statistically significant negative unexpected security return associated with the retroactive insurance purchase. Once again, industry co-members experienced significant unexpected returns in the opposite direction. Shifts in systematic risk were not documented for MGM or the portfolio of industry co-members. The interpretation of these results is that the securities market used the retroactive insurance announcement to adjust expectations of probable loss. …

Adding an Economic Dimension to Risk Assessment: Discussion

Government policy choice requires comparison of the costs and benefits of alternative actions. Difficulties arise from uncertainty about the consequences of candidate policies and the need to compare outcomes that differ on both economic and health dimensions. Economics can improve risk assessment and policy choice by providing methods for (a) identification and analysis of the scientific uncertainties that are critical to government policy selection, (b) analyzing market interactions that affect exposure to the hazards in question, and (c) valuing health effects and other potential consequences. In food supply, as in other domains, the link from government policy to health and economic outcomes is mediated by market interactions. Risk assessment (of chemicals, microorganisms, and other agents) considers the links from policy to human exposure to health consequences. The link from exposure to health effects is characterized by a physiological dose response function; that from policy to exposure depends on economic interactions. Conditional on government regulations, food producers decide what foods to produce and technologies to employ; consumers decide what foods to consume. These decisions lead to supply and demand functions, which jointly determine the quantities of each food consumed. The quantities and their distribution in turn determine consumer exposure to foods and associated agents, and worker or environmental exposure to agents associated with production. Supply and demand decisions can be affected by information about the benefits and costs associated with consumption or production. From a producer's perspective, one of the costs of a new production technology is the possibility of liability for unintended damage to consumer or worker health or to the environment. Fleisher analyzes producers' possible liability for environmental damage associated with the use of production technologies involving genetically engineered microorganisms (GEMs). Because GEMs are perceived to represent a low-probability/high-consequence risk, estimating future liability is particularly difficult. Individuals frequently have difficulty in evaluating small risks, choosing either to ignore them or to overvalue a reduction to the apparent certainty of no risk from the source (Kahneman, Slovic, and Tversky). In a new legal area, producers must consider the possibility of retroactive liability: even if all reasonable precautions are taken, GEM users may find themselves liable in the future. To the extent that identification of the producer whose GEMs caused any damage is difficult, however, individual producers may escape liability unless something like the market-share liability doctrine applied to asbestos-linked worker injury is applied. Economics can also provide a method for valuing diverse policy outcomes. Policy choice frequently involves risk-cost tradeoffs when improved health can be obtained at additional cost. Risk-risk tradeoffs may also be important; e.g., possibly carcinogenic preservatives may reduce the incidence of acute illess from foodborne pathogens, at the cost of increased cancer in the future. Candidate policies are most readily compared if the differences in outcomes on all relevant dimensions can be made commensurate, as by valuing them in monetary units. Roberts presents a simple rule for estimating the cost of illness from foodborne pathogens. The cost is assumed to be a linear function of severity, measured by the proportion of cases that prove fatal. The specific formula she presents requires validation using information on additional pathogens, but the approach is promising. Methods requiring only limited data can be valuable because the number of hazards that must be evaluated overwhelms current methods; e.g., two-thirds of pesticide James K. Hammitt is a mathematician with the Rand Corporation.

An Economic Analysis of Retroactive Liability Insurance

Retroactive liability insurance may be written to provide coverage for a known loss that occurred during a past time period. Some simplified financial models are developed in this paper in order to provide some economic insights about the market for this coverage. The financial motives and conditions for the development of this market are analyzed. In particular, federal income taxes provide economic incentives for writing the coverage. Tax arbitrage enables the insured to share the income tax deductions for loss reserves available to an insurer when the coverage is written. Interest rates, insurer expenses. and the expected time to settlement influence the development of the market. Potential incentive conflicts may arise, however.

Retroactive Law

Previous articleNext article No AccessRetroactive LawStephen R. MunzerStephen R. Munzer Search for more articles by this author PDFPDF PLUS Add to favoritesDownload CitationTrack CitationsPermissionsReprints Share onFacebookTwitterLinkedInRedditEmail SectionsMoreDetailsFiguresReferencesCited by The Journal of Legal Studies Volume 6, Number 2Jun., 1977 Sponsored by The University of Chicago Law School Article DOIhttps://doi.org/10.1086/467578 Views: 18Total views on this site Citations: 6Citations are reported from Crossref Copyright 1977 The University of ChicagoPDF download Crossref reports the following articles citing this article:Huanhuan Wang Retroactive Liability in China's Soil Pollution Law: Lessons from Theoretical and Comparative Analysis, Transnational Environmental Law 9, no.33 (May 2020): 593–616.https://doi.org/10.1017/S2047102520000011Huanhuan Wang Cleaning Up Contaminated Sites in Urban China: Who Should Be Liable?, (Feb 2019): 167–187.https://doi.org/10.1007/978-3-030-00758-4_8Yaniv Roznai Legisprudence Limitations on Constitutional Amendments? Reflections on The Czech Constitutional Court’s Declaration of Unconstitutional Constitutional Act, ICL Journal 8, no.11 (Jan 2014).https://doi.org/10.1515/icl-2014-0103Aurelien Portuese, Orla Gough, Joseph Atangan Tanega The Principle of Legal Certainty as a Principle of Economic Efficiency, SSRN Electronic Journal (Jan 2013).https://doi.org/10.2139/ssrn.2332016 Introduction, (Nov 2012): 3–25.https://doi.org/10.1017/CBO9781139135009.004Julian N. Eule Temporal Limits on the Legislative Mandate: Entrenchment and Retroactivity, Law <html_ent glyph="@amp;" ascii="&"/> Social Inquiry 12, no.2-32-3 (Apr 1987): 381–459.https://doi.org/10.1111/j.1747-4469.1987.tb00542.x