The 9th U.S. Circuit Court of Appeals has affirmed a lower court's ruling dismissing an insurance company's Superfund subrogation suit to recover payments made to a policyholder for environmental response costs stemming from cleaning up pollutants released on the policyholder's property.

In its 2-1 ruling Fridayin Chubb Custom Ins. Co. v. Space Systems/Loral, Inc.; Ford Motor Co.; Sun Microsystems, Inc.; Chevron Corp.; and Harman Stevenson Inc., the court upheld the U.S. District Court for the Northern District of California's 2011 dismissal of a 2009 suit filed by Chubb Custom Insurance Co.

Chubb sued the defendants for recovery of $2.4 million in insurance payments it made to its insured, Taube-Koret Campus for Jewish Life, for costs the community center incurred in cleaning up pollutants released on its Palo Alto, Calif., property. Chubb argued that the defendants should be held liable for Taube-Koret's costs because they released the hazardous substances that migrated to the Taube-Koret property from surrounding properties they owned and operated at various times.

Last week's appellate court ruling upheld the lower court's judgment that Chubb lacked standing to sue under Comprehensive Environmental Response, Compensation and Liability Act Section 107(a) because it had not incurred “costs of response” in cleaning up the affected property and because the common law principle of subrogation does not apply to that section.

The court also held Chubb lacked status under CERCLA Section 112(c) because it did not allege that its insured had made a claim either to the Superfund or to a potentially liable party.

“Our decision here does not mean that insurers cannot bring subrogation claims in environmental matters,” the appellate court's majority wrote. But, the ruling notes, “CERCLA was not enacted to benefit insurance companies; rather, it was enacted to promote the timely cleanup of contaminated waste sites, impose liability on those responsible for polluting the environment and to encourage settlement through a complex statutory scheme. An expansive application of subrogation to sections 107(a) and 112(c) is inconsonant with those overall goals.”

The appeals court also held that Chubb had failed to file suit under state law in time to meet California statute of limitations requirements.