March 24. 1987
Mr. Larry R. Soward Opinion No. JM-653
Executive Director
Texas Water Com.iaafoa Re: Whether the Texas Water Comaia-
P. 0. Box 13087 aion may adopt a federal rule which
Austin, Texas 78711 would permit the use of a corporate
guarantor for liability coverage of
au owner or operator of a hazardous
waste, treatment. storage and dis-
posal facility
Dear Mr. Soward:
The United States Environmental Protection Agency recently
promulgated an interim final rule which amends the financial
responsibility requirements for liability coverage for ovners and
operators of hazardous waste treatment, storage, and disposal
facilities. See 40 C.F.R. 5264.151(h) (2) (1986). Owners and
operators of hazardous waste facilities have encountered difficulty in
obtaining the liability insurance necessary to comply with federal and
state liability coverage requirements for hazardous waste facilities.
The new federal rule allows the use of a parent corporate guarantee as
an alternative to liability insurance to comply with third party
liability requirements for hazardous waste facilities. See 40
C.F.R. 54264.147(g). 265.147(g) (1986). The corporate guaranteemust
track the language specified in the federal regulations. -See 40
C.F.R. 1264.151(h)(2).
You indicate that the Texas Water Commission has adopted most of
the relevant federal regulations by reference as part of the Texas
Industrial Solid Waste Rules. You would like to utilize the provision
which authorizes the use of corporate guarantees. Because the
corporate guarantee is to be interpreted and enforced in accord vlth
the lava of the state in which the guarantor is incorporated, the new
rule requires a written statement from each state’s Attorney General
or Insurance Commission attesting that the corporate guarantee
required by the rule Is a legally valid and enforceable obligation.
See 40 C.F.R. 1264.147(g)(2). The Texas Insurance Commission
indicated that it lacks statutory authority to respond to your
request. Additionally, because the corporate guarantee at issue here
must be provided by a parent corporation of the owner or operator of
the covered hazardous waste facility, in the usual case the guarantor
vi11 not be “in the business” of acting a8 guarantor. Consequently,
such a corporate guarantee would not constitute an unauthorized
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Mr. Larry R. Soward - Page 2 (JM-653)
insurance business. See Tex. Ins. Code art. 1.14-1, 52(a)(2). The
Texas Attorney Generama authorized to provide written legal advice
to the heads of state agencies. See V.T.C.S. art. 4399. Accordingly,
you ask vhether the corporate guarantee required by the federal
regulations is legally enforceable in Texas.
As indicated. the corporate guarantee about vhich you inquire
must track the language specified in the federal regulations. -See 40
C.F.R. 9264.151(h)(2). This proviaiou requires:
corporate guarantee, apecff led in
I26:.147(g) or 1265.147(g) of t&r Chapter, must
be worded as follows, except that instructions in
brackets are to be replaced with the relevant
iuforsation and the brackets deleted:
CORPORATE
GUARANTEE
FOR LIASILITT COVERAGE
Guarantee sade this [date] by [name of guaran-
teeing entity], a business corporation organized
under the laws of the State of [insert name of
State], herein referred to as guarantor, on behalf
of our subsidiary [owner or operator] of [business
address]. to any and all third parties who have
sustained or say sustain bodily injury or propaste
damage caused by [sudden and/or nonsuddenl acci-
dental occurrences arising from operation of the
facflitp(ies) covered by this guarantee. @mphasia
added).
Recitals.
1. Guarantor meets or exceeds the financial test
criteria and agrees to comply vlth the
report iug requirements for guarantors as
specified in 40 CFR 264.147(g) and 265.147(g).
2. [Owner or operator] owns or operates the
f ollowiug hazardous vast8 management
facility(ies) izovered by this guarantee:
[List for each facility: EPA Identification
Number, name, and address. ] This corporate
guarantee satisfies RCRA third-party liability
requirasenta for [insert “sudden” or “nou-
sudden” or “both sudden and nonsudden”]
accidental occurrences in above-named owner or
operator facilities for [insert dollar amount]
of coverage.
3. For value received from [owner or operator],
guarantor guarantees to any and all third
parties vho have sustained or xay sustain
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Mr. Larry R. Sovard - Page 3 (Jn-653)
bodily injury or property damage caused by
[sudden and/or nonsudden] accidental occur-
rences arising from operations of the
facility(ier) covered by this guarantee that
in the event that [owner or operator] fails to
satisfy a judgment or award based on a
determination of liability for bodily injury
or property damage to third parties caused by
[sudden and/or nonsudden] accidental occur-
rences, arising from the operation of the
above-named facilities, or fails to pay an
amount agreed to in settlement of a claim
arising from or alleged to arise from such
injury or damage, the guarantor will satisfy
such judgment (8) , award(r), or settlement
agreement(a) up to the limits of coveraga
identified above.
4. Guarantor agrees that if, at the end of any
f iacal year before termination of this
guarantee, the guarantor falls to meet the
financial test criteria, guarantor shall send
within 90 days. by certified mail, notice to
the EPA Regional Admtnistrator(a) for the
Region(s) in which the facility(ies) la (are)
located and to [owner or operator] that he
intends to provide alternate liability
coverage as specified in 40 CPR 264.147 and
265.147. as applicable, in the name of [owner
or operator I. Within 120 days after the end
of such fiscal year, the guarantor shall
establish such liability coverage unless
[owner or operator] has done so.
5. The guarantor agrees to notify the EPA
Regional Administrator by certified mail of a
voluntary or involuntary proceeding under
Title 11 (Bankruptcy), U.S. Code, naming
guarantor as debtor, within 10 days after
cowaencement of the proceeding.
6. Guarantor agrees that within 30 days after
being notified by an EPA Regional Adminis-
trator of a determination that guarantor no
longer meets the financial teat criteria or
that he is disallowed from continuing as a
guarantor, he shall establish alternate
liability coverage as specified in 40 CPR
264.147 or 265.147 in the name of [owner or
operator], unless [owner or operator] has done
so.
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Mr. Larry R. Soward - Page 4 m4-653)
7. Guarantor resemes the right to modify this
agreement to take into account amendment or
modification of the liabflity requirements set
by 40 CPR 264.147 and 265.147, provided that
such modification shall become effective only
if a Regional Administrator does not dis-
approve the modification vithin 30 days of
receipt of notification of the modification.
8. Guarantor agrees to remain bound under ehia
guarantee for so long as [ovner or operator]
must comply with the applicable requirements
of 40 CPR 264.147 and 265.147 for the above-
listed facility(ies), except as provided in
paragraph 9 of this agreement.
9. Guarantor may terminate this guarantee by
sending notice by certified nail to the EPA
Regional Administrator(s) for the Region(s) in
which the facility(iea) is (are) located and
to [owner or operator], provided that this
guarantee nay not be terminated unless and
until [the ouner or operator] obtains, and the
EPA Regional Administrator(a) approve(a)
alternate liability coverage complying with 40
CFR 264.147 and/or 265.147.
10. This guarantee is to be interpreted and
enforced in accordance with the laws of [State
of incorporation of guarantor].
11. Guarantor hereby expressly waives notice of
acceptance of this guarantee by any party.
I hereby certify that the wording of this
guarantee is identical to the vordlng specified in
40 CPR 264.151(h)(2).
Effective date:
[Name of guarantor]
[Authorized signature for guarantor]
[Name of person signing]
[Title of person signing]
Signature of witness or notary:
The corporate guarantee required by the federal regulations la a
contract between the owner or operator of a hazardous waste facility
and the parent corporation of the owner or operator guaranteeing that
the parent till pay claims by third parties for bodily injury or
property damage arising from accidental occurrences at the owner or
operator’s hazardous waste facility. Such third party beneficiary
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Mr. Larry R. Soward - Page 3 (Jn-633)
contracts do not ordinarily change the degree of care that the law
imposes. See Stafford v. Thornton. 420 S.W.2d 133, 138 (Tax. Civ.
APP. - ml10 1967, writ ref’d n.r.8.); see also Clearwater
Constructors, Inc. v. Gutierrez, 626 S.W.2d 789, 793 (Tax. Civ. App. -
San Antonio 1981, no writ); Sun 011 Co. v. Employers Casualty Co., 330
S.W.2d 348, 349 (Tax. Civ. App. - Dallas 1977, uo writ). The general
duty of care owed to the public is govsmsd by tort law. sink0 v.
City of San Antonio, 702 S.W.2d 201, 208 (Tax. App. - San Ahtonio
1983, no writ). A corporate guarantee such as the one required by
section 264.131(h)(2) simply imposes a degree of contractual liability
ou a party who might not otherwise be liable.
As a general rule, privity of contract must be established to
recover on a contract action. A third party can, however, recover
under a contract with a showing that the contract is made for the
third party’s benefit, &, that the parties to the contract intend
that the third party benefit from the contract. See Corpus Christ1
Bank 6 Trust v. Smith, 323 S.W.Zd 301. 303-04 (Ter1973). Whether
the contracting parties intend to benefit a third party is a matter
to be determined from the contract as a whole, in light of the
cfrcumatancea under which the contract is made. Citizens National
Bank in Abilenc v. Texas 6 P. Railway Co. , 130 S.W.2d 1003, 1006 (Tex.
1941). If the provisions of a contract are not ambiguous. the
question of whether the contract benefits a third party is a question
of law to be determined from the contract alone. Standard Accident
Insurance Co. v. Blythe, 107 S.W.2d 880. 883 (Tax. 1937); see also Sun
Oil Co. v. Employers Casualty Co., 330 S.W.2d at 349 (right of th=
party beneficiary to enforce contract is questlon of substantive law).
A corporate guarantee contract which tracks this quoted language
can be deemed, as a matter of law. to intend to benefit a third party.
The quoted language expressly benefits
any and all third parties who have sustained or
may sustain bodily injury or property damage
caused by . . . accidental occurrences arising
from operation of the facility(les) covered by
this guarantee.
40 C.F.R. 5264.131(h)(2). This language is not ambiguous. A contract
which benefits a third party need not expressly name the third party
so long as the third party is sufficiently designated or described.
See Knox v. Ball. 191 S.W.2d 17. 23 (Tex. 1943); see also James
E&art h Co. v. Law. 228 S.W.2d 601. 603 (Tex. Civ. App. -Waco
1930). aff’d. 233 S.W.2d 338 (Tex. 1950).
Establishing third-party beneficiary status also depends on
whether the claiming party is either a “donee” or “creditor”
beneficiary rather than an “incidental” beneficiary. Sun Oil Co. v.
Employers Casualty Co., 330 S.W.Zd at 349. If performance of a
promise would satisfy a duty owed by the promiaee co the third party,
the third party Is a creditor beneficiary. -Id. The purpose for the
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I4r. Larry R. Sovard - Page 6 (JIi-653) ’
financial responsibility requirements for hazardous waste facilities
is to provide a method for the payment of claima of liability for
bodily injury or property damage caused by accidental occurrences
arising from operation of hazardous waste facilities. The owners and
operators of hazardous waste facilities ova a duty of care not to
cause bodily injury and property damage through the operation of
hazardous waste facilities. Consequently, this form of corporate
guarantee creates a third party “creditor” beneficiary contract which
can be enforced in Texas. It should be noted, however, that eata-
bliahing a particular third party claim upon such a guarantee depends
upon an initial determination of liability in a particular case
against the ovuar or operator of the hazardous waste facility
in question. See Sun Oil Co. v. Employers Casualty Co., supra.
Additionally, baforc a particular corporate guarantee contract may be
enforced, all of the elements necessary to create a contract must
exist.
SUMMARY
A corporate guarantee which is executed to
comply with the third party liability requirements
for hazardous waste facilities and vhich tracks
the language of the corporate guarantee set forth
in section 264.131(h)(2) of Title 40 of the Code
of Federal Regulations creates a third party
“creditor” beneficiary contract which can be
enforced in Texas. Establishing a particular
third party claim upon the guarantee depends upon
an initial determination of liability against the
hazardous waste facility in question and upon the
performance of all of the basic elements necessary
to create a contract.
tl /h
Very truly your
A
JIM MATTOX
Attorney General of Texas
JACK EIGETOWER
First Assistant Attorney General
MARY’RRLLER
Executive Assistant Attorney General
RICK GILPIN
Chairman, Opinion Committee
Prepared by Jennifer Riggs
Assistant Attorney General
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