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Environmental, Natural Resources & Related Insurance Coverage Dispute Resolution

What is the right time to pursue ADR for an environmental or natural resources dispute?

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Conventional wisdom tells you to pursue alternative dispute resolution (ADR) as soon as you have enough information to obtain a satisfactory resolution of your claim. This means scheduling arbitration as soon as you can provide the arbitrator with enough information to decide liability and damages. It means scheduling mediation once you have the facts needed to present your case for liability (or non-liability) to your opponent and the mediator, and once you have enough information about costs to know the range of a reasonable settlement.  Delaying ADR past this point likely means unnecessary legal fees and the unnecessary investment of your own time and energy.

Are there special considerations to this conventional wisdom for disputes arising out of environmental or natural resources claims? Yes, absolutely. Disputes in these two areas are undeniably complex. They are frequently subject to unique sources of uncertainty. For example, imagine an environmental dispute that has arisen after the purchase of real property. Environmental contamination has been discovered that may be subject to an indemnity clause in the purchase and sale contract. The indemnity, though, only covers contamination caused by the seller.  To use risk lingo, the “known knowns” here are (1) that contamination has been discovered and (2) that it will cost money to remedy.  But there are a host of “Known unknowns”:  

  • Do you really know the extent of the contamination? 
  • What will it cost to clean up? 
  • Was it caused by the seller? 
  • Are there other parties who may bear some of the liability? 

There are also “unknown unknowns”: 

  • Is there other contamination that has not yet been discovered? 
  • Could there be other claims in the future (environmental or not) that would be subject to the same indemnity obligation (which will influence the scope of the release that might be given in a settlement)?

In this context, the time for ADR is when those of the “known unknowns” that can MATERIALLY impact the resolution (either the arbitrator’s decision or a mediated settlement) have become capable of being reasonably estimated and when the scope of “unknown unknowns” has been defined sufficiently to either fit into the resolution or to be clearly carved out of it. 

Sometimes reaching a stage where ADR can be successful will require pre-ADR input from or consideration of the interests of people or entities who are not direct parties to the dispute. In environmental and natural resources cases there may be other stakeholders who will have an interest in and ability to influence what your ultimate resolution is (e.g. public processes for restoration or remedy selection). Having an understanding of what this input likely will be may be necessary to help you narrow your uncertainty. There may be governmental agencies that will need to issue permits or approvals for a project that is part of the resolution. And there may be others who may bear some portion of liability to one or the other of the ADR parties. 

In my next blog posts, I will provide more detail on ways in which you might most quickly and efficiently bring your environmental or natural resources dispute to the point where it is ready for ADR, so as to avoid unnecessary delay or further costs of litigation. Along the way, I will offer advice on steps you can take to increase the chances of a successful ADR. Among the topics to be addressed:

  • If the ultimate costs/damages are currently unknown, how can you narrow the uncertainty around costs?
  • What if involvement or input from a third party is required to get to resolution?
  • Are there pre-mediation or pre-arbitration steps that could narrow uncertainty and increase the probability of a successful resolution?
  • Would a phased arbitration or mediation provide a greater chance of success? 
  • What if the parties simply can’t get certainty on costs, is resolution through ADR even an option?
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