Shell Oil to Pay $1 Billion for Toxic Waste Cleanup

SAN FRANCISCO —  In a massive lawsuit among major corporations, a jury ruled Monday that Shell Oil Co., and not its 250 insurance companies, must pay upward of $1 billion for the toxic waste cleanup at the Rocky Mountain Arsenal north of Denver.

The verdict, reached on an 11-1 vote after five days of deliberation, is certain to be applied in toxic pollution cases throughout the country.

“The result has far-reaching ramifications for the entire country,” said William Trautman, attorney for Shell. “The insurance companies are a big source of funds in the effort to help clean up the environment in America. This case was attempting to get them to help pay the bill.”

In the 14-month trial before San Mateo County Superior Court Judge William Lanam, Shell claimed that the millions it spent on insurance premiums since it began working on the site in 1952 covered it against claims involving the contamination from 30 years of pesticide manufacture.

Shell is expected to appeal.

“Judge Lanam’s legal decisions were correct. The jury instructions were correct. I don’t think Shell has much to appeal,” said Barry L. Bunshoft, lead attorney for Shell’s main insurance company, Lloyd’s of London, one of 250 insurance companies that successfully argued they were not responsible for the cleanup cost.

Bunshoft argued that the cleanup cost is not the insurance companies’ responsibility because Shell knew almost from the time it bought the facility that it was causing damage. Insurance does not cover a “company that knew better and chose to pollute the environment because it was cheap. That was our fundamental case,” Bunshoft said.

“If there’s a mistake, it’s covered. But this was no mistake.”

Shell used the plant on the Army base for the manufacture of Aldrin and Dieldrin, pesticides used on corn crops until the EPA banned nearly all uses for the chemicals in 1974 because they are suspected carcinogens. The Army had used the base to produce chemical weapons, including mustard gas and nerve gas. Both Shell and the Army continue to work there, but their only mission is the cleanup.

Although Shell argued that it was unaware of leakage, insurance company lawyers repeatedly turned the jurors’ attention to evidence that the company was aware of environmental damage. They pointed to the deaths of hundreds of ducks on the site, starting in 1952. The fowl succumbed after eating snails and other food from polluted ponds.

“Shell was aware of massive deaths of ducks, 1,200 of them, in 1952. Shell was caught covering up the deaths in the ‘60s by the state,” said Vito Peraino, one of Lloyd’s attorneys.

He said the evidence showed that “hundreds of millions of gallons” of highly toxic waste were dumped during the 30 years of operation, and that Shell knew of ground-water pollution as early as 1954.

Attorneys in the case say the same issue exists in every case stemming from the 1980 congressional act that created the Superfund and directs polluters to help pay for the cleanup.

The insurance industry has contended that it is not responsible for helping to defray cleanup costs, particularly since 1970, when insurance companies specifically excluded pollution from their policies after the massive Santa Barbara oil spill. For damage caused before 1970, the industry argues that it is not responsible if the polluters knew they were damaging the environment.

Shell deposited its wastes into an Army-operated sewage system at the 27-square-mile site just north of Stapleton International Airport. The company contended that the Army required it to use the disposal system, and that there was no evidence that it knew before 1979 of any contamination.

The Army sewage system, however, was inadequate. Untreated liquid chemicals were dumped into thinly lined or unlined ponds. Solid waste was buried in drums that came open. Now the Rocky Mountain Arsenal is among the most contaminated of the 951 toxic dumps identified by the Environmental Protection Agency.

The EPA and Colorado sued Shell five years ago in Colorado to force it to correct the damage. In an agreement struck in January, Shell and the U.S. Army agreed to split evenly the first $500 million in costs. Shell must pay 35% of the next $200 million, and 20% of everything above that, with the government paying the remainder. Overall costs could exceed $2 billion.

Shell, in turn, sued its insurance carriers in 1983 in San Mateo County. Its main insurance company was Lloyd’s. But the risk of insuring a chemical plant is so great that Shell and Lloyd’s both needed additional insurance companies to cover potential hazards.

Court Created

The arena for the battle of the titanic corporations was an unlikely spot: a converted auditorium at the abandoned Crestmore High School in San Bruno. It was redesigned according to an architect’s design at a cost of $350,000. Another $400,000 was spent to turn old classrooms into offices for the lawyers directly involved in the trial. In all, there were four rows of 24 desks that each seated two or three lawyers.

Shell chose San Mateo County as its venue. While attorneys for the Dutch-based conglomerate have not stated their reasoning, the county’s bench has a good reputation and cases move through the San Mateo County courts relatively fast.

The jury cast 30 votes in all, one for each year Shell operated the plant, and made each decision by an 11-1 margin.

Trautman predicted that the verdict will have a “chilling effect on the efforts of other manufacturers to make a major financial commitment to pursue insurance companies.”

“I do think insurance companies, along with taxpayers and manufacturers, should all contribute” to the national problem of toxic dump clean-up, Trautman said. “It is going to take a monumental undertaking.”

A case involving Shell and its insurance companies will be tried by the same judge in January, 1990. The case involves Shell’s disposal of aviation fuel sludge at the McColl dump in Fullerton.