Minnesota's Environmental Response and Liability Act: An Economic Justification

Thomas S. Ulen, Mark A. Hester and Gary V. Johnson

Editors' Summary: In 1983, the Minnesota Legislature enacted the country's most aggressive and comprehensive state Superfund statute, the Minnesota Environmental Response and Liability Act (MERLA). The statute establishes an extensive private cause of action that includes joint and several liability for economic and personal injury, broadly defined; relaxes standards of proof of causation; and applies this liability retroactively.

Recently, there has been a strong move in the legislature to amend MERLA to remove its most aggressive features. One of the most vigorous criticisms has been that insurance will be unavailable to cover liability for hazardous waste exposure. The authors use the tools of economic analysis to examine the Act and the reasons that have been put forth for amending it. They conclude that MERLA provides for greater safety from hazardous waste disposal than other statutes, and in a responsible and cost-effective manner. Though it will impose greater costs on disposers and generators of hazardous wastes, these costs provide appropriate incentives for responsible behavior. Further, there is no reason to believe that insurers cannot evaluate the risks involved and issue coverage in the same way as other novel risks have been covered in the past.

Mr. Ulen is an Associate Professor of Economics and Law at the University of Illinois. Mr. Hester is a candidate for the J.D. and M.B.A. degrees at the University of Illinois and is a Graduate Research Assistant at the Institute for Environmental Studies, University of Illinois. Mr. Johnson is an Assistant Professor in the Institute for Environmental Studies and the Department of Agricultural Economics at the University of Illinois.

[15 ELR 10109]

The public policy issues raised by the disposal of hazardous and toxic wastes have been among the most complicated and troubling environmental issues of the last decade. In recent months at both the federal and state level these issues have been near the top of the legislative agenda. Congress reauthorized and amended the Resource Conservation and Recovery Act¹ in 1984 and has been engaged in a continuing battle over reauthorization of the Comprehensive, Environmental Response, Compensation, and Liability Act, or Superfund.² But no legislative initiative has been as aggressive and comprehensive in addressing the thorny issues of hazardous waste disposal as has the Minnesota Environmental Response and Liability Act (MERLA).³

MERLA, Minnesota's "mini-Superfund" statute, has been controversial throughout its brief existence. A bill was introduced in 1981, but controversy, including a veto in 1982 by the Governor, delayed final enactment until 1983.⁴ Then after only a year, late in 1984 and through the spring of 1985, a renewed and even stronger chorus of criticism moved the Minnesota Legislature to the brink of repealing the more progressive sections of MERLA.⁵

The most vigorous of these renewed criticisms of the Act came from the insurance industry.⁶ The essence of their position is that MERLA so broadly expanded the liability exposure of generators and disposers that it would be virtually impossible for the insurance industry to quantify the increased risks, and, as a result, unprofitable for them to continue to offer environmental impairment insurance in Minnesota.⁷ Indeed, the industry announced its intention to boycott Minnesota because of MERLA.⁸

The particular provisions that the industry found offensive deal with recovery for personal injuries; specifically, the standard of liability, retroactive liability, whether the standard to be used for retroactive liability was the same [15 ELR 10110] as that covering more recently-caused harms, and the standard for establishing causation.⁹

Various changes to MERLA have been proposed in the Minnesota legislature and are currently being discussed. The House passed a bill that deletes retroactivity, joint and several liability, and the relaxed causation standard from MERLA.¹⁰ A similar Senate bill¹¹ never made it out of the Judiciary Committee because several members tied further action on the bill to the creation of a state-administered fund to compensate hazardous waste victims. This deadlock resulted in the Committee's formulating a new bill that eliminates MERLA's relaxed causation standard only, while establishing the administrative compensation fund for which several members had held out.¹²

What is distressing about this potential gutting of MERLA is that that law represents one of the most enlightened public policies yet proposed for dealing with the potential harms from the disposal of hazardous wastes. The novel provisions of that statute offer a greater guarantee of current and future safety to property and persons from hazardous waste disposal than that provided by any other statute dealing with the matter or by the safeguards provided by common law. And this promise is achieved by MERLA in a responsible and cost-effective manner. Far from serving as a cause for repeal, these provisions should have invited more judicious scrutiny and praise, and should have been emulated in other states and at the federal level in the revision of CERCLA. In what follows, we first discuss the novel provisions of the Minnesota statute. Then we suggest, using some well-known conclusions from the literature in the economic analysis of law, that these provisions were both efficient and equitable. Finally, we evaluate the most frequent criticisms of MERLA, especially the insurance industry's contentions, and suggest that these criticisms are unfounded or that they may be easily avoided by minor revision to MERLA.

MERLA's Controversial Provisions

In many respects the Minnesota hazardous waste statute is no different from that of the federal government and those of some other states.¹³ For example, MERLA imposes a tax on current generators in order to establish a fund to finance cleanup of problematic hazardous waste disposal sites.¹⁴ Neither Minnesota industry nor outside observers found these developments to be cause for concern.

However, the extent of generator and disposer liability defined under MERLA, especially for personal injuries, is unique. First, no other state or federal hazardous waste statute establishes such extensive private causes of action. Section 115B.05 makes any person responsible for the release of a hazardous substance from a facility strictly liable, jointly and severally, for all economic damages and all damages for death, personal injury, or disease resulting from the release. Economic damages under the Act include destruction of real or personal property, loss of use of real opr personal property, and loss of past or future income from injury to real or personal property.¹⁵ MERLA defines damages for death, personal injury, or disease to include medical, rehabilitation, and burial expenses, loss of past or future income, and damages for pain and suffering.¹⁶

Second, insurers and others found MERLA's retroactive application troubling. Section 115B.06 states that the liability provisions of § 115B.05 apply to all releases of hazardous substances from facilities unless those materials were wholly deposited before January 1, 1960.¹⁷ However, this section allows some defendants to escape this retroactive liability if they can show that the materials they disposed of were wholly deposited before January 1, 1973, and that their activities in disposing of the materials were not "abnormally dangerous."¹⁸

Third, objections were raised to MERLA's causation section.¹⁹ This section was aimed at helping plaintiffs whose only recourse for recovering for personal or property damages attributable to the disposal of hazardous waste was in a common law action in tort. The causation standard prevailing in such actions makes it nearly impossible to establish a legally defensible causal connection between exposure to a particular substance and plaintiff's injury, even if, on slightly less exacting but nonetheless academically respectable scientific terms, there was a strong probability that the causal connection existed. Therefore, if the only recourse that plaintiffs had was to common law, they would almost never recover.

In general, in order to establish legal causation in an injury case, a plaintiff must prove with "reasonable medical certainty" that defendant caused his injury.²⁰ For most torts this is an appropriate standard. But for personal harms arising from hazardous waste disposal, the burden is virtually impossible because most ailments that might be caused by a specific toxic substance also have multiple other possible causes.²¹ A plaintiff in this situation is reduced to basing causation on speculation and conjecture, and a court has no alternative but to direct a verdict for the defendant.²²

MERLA's response to this plaintiff's dilemma was [15 ELR 10111] § 115B.07, which reduces the plaintiff's burden of establishing causation in order to reach the jury. Under that section, the court may not direct a verdict against the plaintiff on the issue of causation if the plaintiff's evidence is sufficient to enable a reasonable person to find that:

(a) the defendant is responsible for the release;

(b) the plaintiff was exposed to the hazardous substance;

(d) the death, injury, or disease suffered by the plaintiff is caused or significantly contributed to by exposure to the hazardous substance.²³

Moreover, the section goes on to state that evidence to a "reasonable medical certainty" that exposure caused or significantly contributed to plaintiff's injury is not required in order to submit the case to a jury.²⁴

MERLA merely attempted to address the liability, statute of limitation, and causation issues that plaintiffs injured by hazardous waste face at common law. Given the potential problems of leaving the solution of these issues to the slow accretion of precedent, the Minnesota statute was a timely public policy stroke. The question that needs to be addressed regarding MERLA's treatment of these thorny common law issues arising from harms from hazardous waste disposal is whether the treatment is correct.

An Economic Argument for MERLA

It is possible to interpret the critics of MERLA as saying that the costs imposed by the Act on generators, disposers, and insurers are so large as to swamp whatever benefits the Act may confer. In this section we shall discuss, first, MERLA's benefits and, second, its costs.We conclude that the former are considerable and that any increases in costs flowing from the Act are justifiable or have been greatly exaggerated by the Act's critics.

A very powerful tool for analyzing the complex problems arising from hazardous waste disposal is modern microeconomic theory and especially its application to the law.²⁵ This literature is relevant to a discussion of MERLA in that it offers a strong theoretical foundation for both the standard and scope of liability for harms arising from the disposal of hazardous waste, for the relaxed causation standard enacted in MERLA, and for some form of compensation for harms due to older sites, either in the form of retroactive liability or an administrative compensation scheme.

The heart of an economic analysis of the disposal of hazardous waste is the recognition that economic inefficiencies result from the imposition by disposers (and generators) of uncompensated costs on third parties.²⁶ The harms that a leaking hazardous waste disposal site are likely to inflict on neighboring property and persons of this and future generations are considerable. Unless society regulates the activity of disposers and generators — either directly through statute or regulation or indirectly through exposure to common law or statutorily-defined liability — those parties will incorrectly ignore the costs their actions might impose on others. For example, absent siting requirements or exposure to tort liability for harms inflicted, landfill disposers have an incentive to spend too little on minimizing the possibility of a leak from their disposal site. Thus, they might make the site's liner less secure than it should be or they might locate the landfill over an aquifer that supplies drinking water. Additionally, because disposers' own costs would not include costs caused by leakage from such sites, they may charge generators too low a price for disposing of their waste, a fact that induces generators to produce too much of their toxic-waste-generating output. Finally, in the absence of some societal regulation, those who are themost likely to be harmed by hazardous waste disposal may believe that the only protection they have from these potential harms is to move or in some other way to incur extraordinary costs to avoid harm.

All of these exceptional costs constitute inefficiencies that can be minimized by a public policy that makes those who impose these risks and other costs on third parties liable for them. It is this simple economic fact that underlies all environmental policies aimed at inducing polluters to take account of the uncompensated costs they impose on others.²⁷

It follows that all harms caused by the disposers and generators of hazardous wastes should be subject to compensation or preventative regulation. It does not matter to an efficient public policy whether those harms are to property — for example, to the fertility of soil, to the usefulness of a well, or to livestock — or to persons — for example, immediate health risks, death, or teratogenic harms. Indeed, it follows that if the producers of hazardous-waste-generating products cannot bear the full costs of their actions, they should not produce.²⁸ Thus, MERLA's policy of broadly defining private causes of action for harms arising from hazardous waste disposal or generation to include personal harms is an efficient provision in that it induces generators, disposers, potential victims, and others to perceive more correctly the costs imposed by hazardous wastes.

It follows, of course, that the mere fact that MERLA increases the costs of generators, disposers, and insurers is not adequate justification for its amendation: an appropriately-drawn statute in fact will be certain to make those parties bear some increase in costs. The only argument that may be mounted against MERLA on this count is that it imposes these increases on the wrong parties. For that reason, we now turn to a discussion of how an economic analysis of liability standards can suggest who should bear the costs of more safely disposing of hazardous wastes. The issues that arise in this context from [15 ELR 10112] MERLA are twofold: first, is strict liability the appropriate standard, and second, is joint and several liability justifiable for hazardous waste torts?

In answering these questions, we may draw on a long and persuasive literature on the economic analysis of tort liability.²⁹ The efficiency goal of tort law is to minimize the sum of prevention, accident, and administrative costs. The remarkable general conclusion of this literature is that negligence with contributory negligence and strict liability with contributory negligence are equally efficient at minimizing those costs.³⁰

There are, however, two important exceptions to this general conclusion. Both exceptions argue for strict liability over negligence, and both of them fit the case of harms inflicted by the disposal of hazardous waste.

The first exception arises in circumstances in which only the defendant may be looked to for research and development of a safer technology than the one currently prevailing in the industry.³¹ In this instance, even if under the current technology the defendant would not be deemed negligent, efficiency considerations argue for holding him strictly liable for any harms he causes.

Consider this proposition as it applies to an instance of harm arising from the disposal of hazardous waste. Suppose that the court, following Judge Learned Hand, defines negligence as the failure to take cost-justified precautions,³² and that here, under the current technology, the costs to the disposer of taking preventive action, in the form, say, of making the site more secure, were very much greater than the expected benefits.³³ The defendant disposer will not be found negligent.

But suppose that there is reason to believe that there is a safer and less expensive disposal technology that can be developed relatively quickly with a reasonable amount of research and development. In these circumstances, unless disposers are held strictly liable for the harms they create using the current technology, their incentive to make the investment in research and development for the safer technology is greatly diminished. Under the fault standard there is little inducement to undertake the research because there is very little to gain for the innovator. However, under the strict liability standard the disposers may find that the investment in the safer disposal technology will save them damage payments to plaintiffs. Because it is surely the case that disposers and generators are the only private parties to whom society may realistically look for initiating the development of safer disposal methods, the appropriate standard to apply in an action for recovery of harms arising from a hazardous waste disposal site is one of strict liability.

A second, and related, general economic argument for strict liability over negligence arises in circumstances in which the likely defendants are, in general, more capable than are plaintiffs of making the sort of cost-benefit calculations about prevention and insurance that an efficient tort law seeks to induce.³⁴ There can be little doubt that the disposers and generators of hazardous wastes are generally far more skilled at the business of computing the costs and benefits of preventing a leak through, say, better siting or the purchase of environmental impairment or general causalty insurance against this particular harm than would be a private plaintiff and should, therefore, be held strictly liable for those harms. Notice that this point suggests that even if the costs of environmental impairment liability (EIL) coverage were much greater than the costs to potential victims of avoiding harm by either moving away from disposal sites or by increasing their medical and property insurance coverage, it might be more efficient to impose liability on the generators and disposers. This would be so if, despite their lower costs, potential victims were simply incapable of correctly evaluating the risks they faced and thus systematically under-insured against the harms from a hazardous waste disposal accident. Interestingly enough, cognitive psychology seems to be offering support for this strict liability argument by adducing an increasing amount of evidence that individuals are not very good at making the appropriate calculations about the risks they face from low probability events.³⁵ Both of these points argue for holding generators and disposers strictly liable for harms caused by their hazardous waste sites.³⁶

[15 ELR 10113]

The critics have also objected to MERLA's imposition of joint and several liability on disposers and generators.³⁷ Their worry is that this provision gives plaintiffs too much of an advantage by unjustifiably broadening the class of defendants. Additionally, it is alleged that because most disposers and generators, and especially the more profitable ones, will be more at risk and will face higher litigation costs than if there were no joint and several liability, insurance premiums and legal fees for potential defendants will increase tremendously.³⁸

These criticisms may well be correct, and yet, as we have already seen, it does not follow from the mere fact that disposers' and generators' costs will increase that joint and several liability is a bad thing and should be expunged from MERLA. On equity grounds, joint and several liability is justifiable if it lowers the costs of a deserving plaintiff's recovery, and thus increases his chances of being fully compensated for the harms he has suffered, more than it increases the expected costs of the potential tortfeasors. On efficiency grounds, joint and several liability is justifiable if it encourages joint and multiple tortfeasors to take increased care in their dealings with each other.³⁹ This increased care in dealing will lead to the less costly or more accurate exchange of information between generators and disposers about, say, the mature of the wastes being deposited and the allocation of the risks of certain accidents resulting from a leak. The parties might be more explicit in their contractual obligations to accept or be absolved of various kinds of risks. For example, one commonly-feared occurrence in a landfill disposal site is that several drums will, over time, leak, causing the mingling of substances that, although individually relatively harmless, in combination are volatile and highly toxic. It is virtually impossible after a leak has occurred to establish whose substances leaked and mingled. If generators and disposers are held jointly and severally liable, they have an incentive to label their wastes correctly so that the disposer will know which drums may be safely placed next to each other in order to minimize the harms from an inadvertent leak.⁴⁰

Another section of MERLA that deeply concerned the critics was the one that relaxed the causation standard facing private plaintiffs.⁴¹ Under a strict liability standard the plaintiff must make a showing that the defendant proximately caused plaintiff's harm. This standard is probably too exacting for the sorts of causes of action that are likely to arise from the disposal of hazardous wastes, and, therefore, may well preclude otherwise deserving plaintiffs from recovering. There are two principal reasons for believing that the traditional common law standard for showing proximate cause for hazardous waste-related harms is too burdensome. First, many of the personal harms arising from exposure to hazardous waste have multiple causes, including some that are not directly related to hazardous waste exposure.⁴² The toxicological information necessary to make the attribution of harm to a particular hazardous waste and not to other sources is, thus far, unavailable.⁴³ This murky scientific evidence makes it extremely difficult for a plaintiff to surmount the usual burden of establishing proximate cause. Second, hazardous waste-related harms, as with other catastrophic and cumulative torts, are likely to first come to light long after the tortfeasors and other supporting evidence have become unavailable.⁴⁴ Without the relaxed legal causation standard provided in MERLA, it would be exceedingly difficult for those who have only recently discovered harms caused in the past by exposure to hazardous waste to establish their right to compensation in tort.⁴⁵

The section of MERLA that extended that broad liability for the disposal of hazardous wastes retroactively is the only one for which an efficiency analysis may make a case for revision. However, it is important to recognize that the revision to which we refer is relatively minor and far less sweeping than that proposed by the Act's critics. Recall that the Act provides for a blanket exemption from liability for all sites in which wastes had been wholly deposited before January 1, 1960, but that for sites with wastes that had been wholly deposited before January 1, 1973, defendants could escape liability by showing that their disposal had not been "abnormally dangerous."⁴⁶ Because there has been no litigation of this aspect of the Act, it is impossible [15 ELR 10114] to be certain how the Minnesota courts would have interpreted the phrase "abnormally dangerous."⁴⁷ If the reading had imposed, in essence, a negligence standard under which disposers were required to take no more but no less care in their disposal between 1960 and 1973 than was reasonable under the technology of that day, then the retroactivity would have been perfectly justifiable on both efficiency and equity grounds.

But because this matter was unclear, it might be argued that insurers, generators, and disposers were justified in fearing that the interpretation of "abnormally dangerous" would be such as to expose them, unreasonably, to the same broad liability that they faced, not unreasonbly, for more current harms. To the extent that this fear was reasonable and caused an inefficient run-up in the insurance costs of generators and disposers, it makes out a case for amending the Act in one of two ways: either by explicitly defining a negligence standard for harms arising before some given date, or by entirely removing compensation for past personal and property harms from the tort system in favor of a no-fault, state-administered compensation plan.⁴⁸ As a consequence of the well-known problems of establishing causation and finding a defendant financially healthy enough to compensate plaintiffs, and also because of the long delay that may occur between the disposal of hazardous wastes and the infliction of harm, the compensation approach has a strong appeal. But whichever solution is ultimately chosen, an additional topic upon which debate must be joined is the date to use in dividing harms between those compensable through a victims' compensation fund or through an action for negligence and those actionable under the strict liability provisions of the Act. This matter is, however, really one of administrative detail and not one that argues for cutting off any relief for past harms. The preceding analysis suggests that the benefits of the Minnesota statute that may be derived in the form of increased efficiency for potential victims and potential tortfeasors are considerable. Moreover, we have argued that most, if not all, of the additional costs imposed by the Act on generators, disposers, and insurers are justifiable. We must now turn to a more explicit discussion of these increased costs.

The first group for whom MERLA may cause increased costs are the industries whose production of output generates hazardous wastes as a by-product. The thrust of their criticism of MERLA is that the increased exposure to liability under the Act will cause existing hazardous-waste-generating industries to leave the state or, in the future, to expand their production facilities in those states whose hazardous waste regulations were less burdensome and will dissuade new industries from locating in Minnesota.⁴⁹ As a result, it was argued, the state would lose jobs and other economic benefits.

There is a certain superficial plausibility to this argument, but a deeper investigation reveals it to be an empty one. First, afterthe passage of MERLA existing generators could minimize their exposure to liability under the Act by simply shipping their wastes out of the state for disposal. Indeed, many generators have been doing this since well before the passage of MERLA. There have been no active landfill disposal sites in the state since 1973, and there is currently only one commercial incineration facility. The additional costs of shipping hazardous waste out of state are not likely to be large, especially when compared to the costs of on-site disposal. For some firms, the retroactivity of strict joint and several liability might have caused an increased in their general causalty or EIL premiums, but it is not likely that these increases would have been large enough to induce an existing industry to leave Minnesota. It is, of course, possible that the broadened liability under MERLA for harms inflicted henceforth might have raised insurance and other costs sufficiently to discourage some new businesses from locating in the state. However, there is evidence that new or existing generators have not changed their behavior in response to the enactment of MERLA. Testifying before the Minnesota Senate Agriculture and Natural Resources Committee, Mr. Jeff Peterson, the chairman of the Legislative Affairs Committee for the Chemical Specialties Manufacturers Association, said that he was aware of no decision by an industry to refuse to locate in Minnesota or to refuse to expand an existing facility in the state because of MERLA.⁵⁰

A second group that might have claimed increased costs as a result of MERLA were hazardous waste disposal site operators. In fact, the impact of the Act on this group is complex. There are currently no sites operating in the state so it cannot be maintained that MERLA imposed a competitive disadvantage on this group with respect to disposal facilities located in neighboring states with less stringent regulations. For those disposers whose sites were not entirely filled before January 1, 1973, the Act does increase their exposure to liability rather suddenly. Above we argued that these increased costs should be borne by someone, but we also suggested that there is some rationale for amending the Act so as to deal more fairly or efficiently [15 ELR 10115] with these particular increased costs due to retroactive liability.

The third group whose costs increased because of MERLA was the insurance industry. Their argument is that the broadened liability exposure for environmental harms made their risks so large as to be unquantifiable with the result that the industry announced its intention to "boycott" Minnesota by refusing to offer environmental-impairment liability policies there.⁵¹

There are two reasons for doubting that the Act places the insurance industry in as desperate a position as it claims. First, the contention that risks like those imposed by MERLA are unquantifiable and, therefore, make it unprofitable for insurers to write policies in the State of Minnesota is doubtful. The world is filled with events that are so rare or of such catastrophic magnitude that one might argue that no insurer could possibly offer a policy at a realistic premium to cover exposure to that risk. And yet the policies exist in profusion. Indeed, one of the enduring strengths of the insurance industry over the past centuries has been its ability to underwrite new and unproven risks and thus to allow progress to go forward. It is precisely the business of insurance companies to discover enough regularity in uncertain events to be able to establish a premium that customers would rather pay than face the uncertainty and that provides the insurance company with a reasonable rate of return. This is no less true for the uncertainties created by MERLA for environmental impairment than it has been for large new risks throughout the last several centuries. This is not to say that establishing the appropriate EIL coverage and the appropriate premium is an easy matter.⁵² Some experimentation will be necessary to establish a premium that is acceptable to both the insurers and the insured. But given time, it can and will be done.⁵³

Second, the argument that there is in fact an insurance industry boycott is not factually correct. The insurance industry's assertions that the unquantifiable risks imposed by MERLA drove all suppliers of EIL insurance out of the state are not supported by the facts. A study conducted by the Minnesota Department of Commerce and completed in December of 1984 found that at that time four insurers continued to offer EIL policies in Minnesota after the establishment of MERLA.⁵⁴ This is approximately the same number of companies that are writing EIL policies for the country as a whole.⁵⁵ This suggests that the insurers are unfairly and inaccurately imputing a nationwide change in the structure of the EIL industry to the actions of the Minnesota legislature.

The Minnesota study further concluded that, at the best of times, the number of carriers in the EIL insurance market was small.⁵⁶ Thus, even if MERLA led to the exit from the industry of only a few EIL insurance carriers, the impact of the legislation would seem to be enormous. This exaggerated impact would then magnify insurers' perception of the degree of risk involved in this line of insurance. In more stable, older lines of liability coverage, where the number of carriers would be greater, no insurer would be as likely to perceive any legislative impact as being so large.⁵⁷ Moreover, insurers can issue EIL policies that by contract refine their exposure among EIL risks,⁵⁸ so that they are not faced with the alternative of offering EIL policies (and facing what they argue is potentially unlimited liability) or offering no EIL insurance products at all.

These considerations suggest that the costs imposed by MERLA are justifiable and that they are not burdensome. Thus, it is extremely unlikely that the benefits of the Act are less than the costs imposed. The Act has much to recommend and, save for the suggested minor revisions to the retroactivity section, should be retained intact.

Conclusion

Our analysis of the arguments for the controversial provisions of MERLA and our strong belief that most of the criticisms of the Act are not justified are made all the more important by the fact that most legislators and commentators are likely to read the Minnesota experience as a license to restrict the scope of liability for harms arising from the disposal of hazardous waste. A completely contrary conclusion is warranted: other states and the federal government, in its revision of CERCLA, should adopt the enlightened provisions of the Minnesota Environmental Response and Liability Act.

1. 42 U.S.C. §§ 6901-6991i, ELR STAT. 41901.

2. Ward, The 99th Congress: A Look at the Year Ahead, 15 ELR 10002 (1985).

3. MINN. STAT. ANN. §§ 115B.01-115B.24 (West 1985 supp.).

4. Long, Legislative Developments in Minnesota, 14 ELR 10114 (1984).

5. Carlson, Minnesota's Pollution Statute Generates Boycott by Insurers, Wall St. J., Oct. 23, 1984, at 33, col. 1.

6. An overview of the insurance industry's position on related issues, but not directly dealing with the controversial provisions of MERLA, may be found in two articles by Leslie Cheek, Vice President for Federal Affairs of Crum and Forster Insurance Companies: Why Current Victim Compensation Proposals are Unfair and Ineffective, 14 ELR 10125 (1984), and The Proposed Federal Cause of Action Is No Solution to Victims' Compensation Problems, 14 ELR 10296 (1984).

7. Carlson, supra note 5.

8. Id.

9. See infra text accompanying notes 12-16 and 21-22.

10. H.F. 268, 74th Leg. (1985).

11. S.F. 300, 74th Leg. (1985).

12. S.F. 571, 74th Leg. (1985).

13. See generally Comprehensive Environmental Response, Compensation, and Liability Act of 1980, 42 U.S.C. §§ 9601-9657, ELR STAT. 41943 (establishing "Hazardous Substance Response Trust Fund," or "Superfund," to finance cleanup of hazardous waste sites); CONN. GEN. STAT. ANN. § 22-451 (West 1984) (creating emergency response fund to provide money for cleanup of hazardous waste sites); OHIO REV. CODE ANN. § 3734.18 and .21 (Page 1980 (supp. 1985) (levying fees on owner/operators of hazardous waste disposal facilities to finance and establish "hazardous waste cleanup account").

14. MINN. STAT. ANN. §§ 115B.20, 115B.22, ELR, STATE SUPERFUND STATUTES 1984, at 47, 48.

15. MINN. STAT. ANN. § 115B.05(a)(1)-(3), ELR, STATE SUPERFUND STATUTES 1984, at44.

16. Id.

17. MINN. STAT. ANN. § 115B.06, subd. 1(b), ELR, STATE SUPERFUND STATUTES 1984, at 44.

18. MINN. STAT. ANN. § 115B.06, subd. 1(a), subd. 2, ELR, STATE SUPERFUND STATUTES 1984, at 44.

19. See Carlson, supra note 5; MINN. STAT. ANN. § 115.07, ELR, STATE SUPERFUND STATUTES 1984, at 44.

20. See SUPERFUND § 301(e) STUDY GROUP, SENATE COMM. ON ENV'T & PUBLIC WORKS, 97th Cong., 2d Sess., INJURIES AND DAMAGES FROM HAZARDOUS WASTE — ANALYSIS AND IMPROVEMENTS OF LEGAL REMEDIES 55 (Comm. Print 1982).

21. Davis, Cancer in the Workplace — The Case for Prevention, 23 ENV'T 29 (July/August 1981).

22. W. PROSSER, LAW OF TORTS 242-43 (4th ed. 1971).

23. MINN. STAT. ANN. § 115B.07(a)-(d), ELR, STATE SUPERFUND STATUTES 1984, at 44.

24. MINN. STAT. ANN. § 115B.07, ELR, STATE SUPERFUND STATUTES 1984, at 44.

25. For an introduction to this rapidly growing field of scholarship, see R. POSNER, ECONOMIC ANALYSIS OF LAW (2d ed. 1977).

26. For a general discussion of the issues involved, see Carlson, Johnson, and Ulen, An Economic Analysis of Illinois' Hazardous Waste Law, 24 NAT. RESOURCES J. 865 (1984).

27. See generally W. BAUMOL & W. OATES, ECONOMICS, ENVIRONMENTAL POLICY, AND THE QUALITY OF LIFE (1979).

28. In the hearings before the Minnesota Senate Judiciary Committee on MERLA, Senator Randolph Peterson put the matter succinctly: "If the products that are producing this waste can't carry the cost of [compensating victims for loss of earning capacity and loss of life], they ought not to be made." Minnesota Senate Judiciary Committee (Feb. 22, 1985).

29. The literature on the economic analysis of tort law began with G. CALABRESI, THECOSTS OF ACCIDENTS (1970). A helpful introduction may be found in POSNER, supra 25, at 119-59. It is worth noting that many of the conclusions of the economic literature on tort liability are the same as those provided by traditional legal analysis, whose focus is not so much on the efficiency aspects of tort rules but rather on the ability of the law to compensate a plaintiff who has been unjustly wronged.

30. See, e.g., Brown, Toward an Economic Theory of Liability, 2 J. LEGAL STUD. 323 (1973). This conclusion suggests that for many unintentional harms the decision as to the standard by which to judge defendant's liability may be made on grounds other than efficiency.

31. Posner, Strict Liability: A Comment, 2 J. LEGAL STUD. 205, 207 (1973). An additional condition is that the plaintiffs and defendants must not be is a continuing business relationship in a competitive industry. Most private and public plaintiffs in an action against the disposers or generators of hazardous wastes are not likely to be customers of the defendants so that this additional condition also fits the likely circumstances of a hazardous waste disposal site tort action.

32. United States v. Carroll Towing Co., 159 F.2d 169 (2d Cir. 1947). It is certainly true that courts employ tests other than that of Judge Hand to determine fault, but those other tests are closely related to the Hand test. For our purposes, this cost-benefit analysis of fault makes our point more clearly and forcefully than does any of those other tests.

33. An example will help to clarify the point. Suppose that a particular leak at a landfill disposal site has imposed $10,000,000 in compensable losses on the plaintiffs, and the court must decide if the defendant negligently caused this harm. Evidence establishes that if the defendant, using the current technology of disposal, had spent an additional $50,000 securing the clay liner, the probability of the plaintiff being harmed in the amount of $10,000,000 would have been reduced by 0.001. The expected benefit of the precaution is $10,000, the product of the amount of harm from not taking the precaution and reduction in the probability of the accident that the precaution creates. Under the Hand test, the defendant would not be at fault for not havingtaken the additional $50,000 in precaution because that cost exceeds the expected benefit of $10,000.

34. Calabresi & Hirschoff, Toward a Test for Strict Liability in Tort, 81 YALE L.J. 1055 (1972).

35. For an easily accessible survey of the relevant literature, see Kahneman & Tversky, Judgment Under Uncertainty: Heuristics and Biases, in JUDGMENT UNDER UNCERTAINTY: HEURISTICS AND BIASES (Kahneman, Slovic, & Tversky ed. 1982).

36. This is not to say that there will not be a host of interesting but vexing problems for hazardous waste-related torts under a regime of strict liability. For example, what should be the relationship between the defendant's liability and his compliance with all relevant licensing, siting, reporting and other prior regulations? To what extent should assumption of the risk, contributory negligence, and other affirmative defenses be available to the defendant disposer or generator? In view of the complexity of the issues involved in establishing legal cause, even under the relaxed Minnesota standards, should there be special courts to try these matters, as we have special courts to try tax, patent, and customs matters? Should jury trials be abolished in these cases because of the seeming tendency for jurors to be unduly swayed by the plaintiff's harm?

37. MINN. STAT. ANN. § 115B.04.It is worth noting again that judicial interpretation of the relevant sections of CERCLA has read joint and several liability into the federal statute. See United States v. Chem-Dyne Corp., 572 F. Supp. 802, 13 ELR 20986 (S.D. Ohio 1983); United States v. A & F Materials Co., 578 F. Supp. 1249, 14 ELR 20105 (S.D. Ill. 1984).

38. See generally MINNESOTA DEP'T OF COMMERCE, DIVISION OF POLICY ANALYSIS, ENVIRONMENTAL IMPAIRMENT LIABILITY INSURANCE AND THE INSURABILITY OF MINNESOTA RISKS UNDER THE MINNESOTA ENVIRONMENTAL RESPONSE AND LIABILITY ACT (Dec. 1984).

39. See generally Landes & Posner, Joint and Multiple Tortfeasors: An Economic Analysis, 9 J. LEGAL STUD. 517 (1980).

40. The argument above suggests that joint and several liability should hold for current harms or only those caused since the passage of MERLA. An important further question is whether joint and several liability should hold for harms covered by the retroactive liability of MERLA. Recall that the argument for joint and several liability for recently-caused harms is that it will induce, in the future, the optimal contractual sharing of risk and imparting of information among disposers and generators. Clearly, making joint and several liability retroactive cannot change past behavior. Therefore, no efficiency gain is reaped from making this form of liability retroactive. As we shall argue below, the whole issue of retroactivity may be one that is more amenable to solution through an administrative compensation scheme than through litigation. The troublesome issue of retroactive joint and several liability is one more reason for preferring the administrative compensation solution.

41. See supra text accompanying notes 19-24.

42. See Note, Toxic Substance Contamination: The Risk-Benefit Approach to Causation Analysis, 14 U. MICH. J.L. REF. 53 (1980). Note that this particular problem in assessing the defendant's contribution to plaintiff's harm where there are alternative, non-hazardous waste related causes is distinguishable from the problem addressed by a standard of joint and several liability. There we were concerned with easing the burden on the plaintiff of showing which one hazardous waste source, among multiple hazardous waste sources, proximately caused his harms.

43. See generally Fiksel, The Problem of Indeterminate Causation in Victime Compensation (Oct. 1, 1984) (paper presented at the 1984 Annual Meeting of the Society for Risk Analysis) (copies on file with the authors and ELR).

44. The problems of time-delayed traumatic torts are discussed in Catastrophic Personal Injuries, 13 J. LEGAL STUD. 415 (1984).

45. This is not to say that there are not additional problems because of the long delay between disposal and harms that the causation standard cannot reach, no matter how much it is relaxed. Moreover, while we are assuming that those who have been harmed are entitled to compensation, we do not necessarily believe that actions in tort are the best way for this compensation to reach victims. The complicated litigation arising from asbestos exposure should caution against using tort litigation to compensate for some time-delayed torts. It may well be that a more efficient and equitable method of compensation for harms arising from past exposure to hazardous waste is a nofault victims' compensation fund.

46. MINN. STAT. ANN. § 115B.06, subd. 1(a), subd. 2.

47. Although in the recent case of Mahowald v. Minnesota Gas Company, 344 N.W.2d 856 (1984), the Supreme Court of Minnesota defined "abnormally dangerous" according to RESTATEMENT (SECOND) OF TORTS § 520 (1977), but did not rely on that section in reaching its holding. Moreover, the Court stated that it had never applied § 520 in any case. Therefore, it remains unclear how Minnesota courts would interpret "abnormally dangerous." Section 520 states that in determining whether an activity is abnormally dangerous, the following factors are to be considered:

(a) existence of a high degree of risk of some harm to the person, land or chattels of others;

(b) likelihood that the harm that results from it will be great;

(d) extent to which the activity is not a matter of common usage;

(e) inappropriateness of the activity to the place where it is carried on; and

(f) extent to which its value to the community is outweighed by its dangerous attributes.

48. In fact, S.F. 571, 74th Leg. (1985) provides for the creation of a victims' compensation fund to be financed by an appropriation from the general revenue fund and a surcharge on the hazardous waste generator tax established by MERLA and administered by a three-member board.

49. For example, in her testimony on the proposed changes to MERLA before the Minnesota Senate Agriculture and Natural Resources Committee, Ms. Heather Joiner, an executive of her family's electro-plating business, testified that, due to the enactment of MERLA, her business purchased a plant in Mississippi. When the business decided to expand, additional capacity was added to the Mississippi plant. Ms. Joiner testified that, in the absence of MERLA, the business would have preferred to have added the capacity to its Minnesota facility. Minnesota Senate Agriculture and Natural Resources Committee (Feb. 12, 1985).

50. Minnesota Senate Agriculture and Natural Resources Committee (Feb. 12, 1985).

51. See Carlson, supra note 5.

52. For a general discussion of the issues in underwriting and ratemaking for new risks, see R. MEHR & E. CAMMACK, PRINCIPLES OF INSURANCE 576-622 (6th ed. 1976).

53. It has been argued that general liability insurance policies currently in force can be read to cover the sort of harms to person and property likely to arise from hazardous waste disposal. See Note, The Applicability of General Liability Insurance to Hazardous Waste Disposal, 57 S. CAL. L. REV. 745 (1984). But see Walsh, Insurers Are Shunning Coverage of Chemical and Other Pollution, Wall St. J., Mar. 19, 1985, at 1, col. 6.

54. MINNESOTA DEPARTMENT OF COMMERCE, supra note 38, at 33. Testimony given in February by Mr. Reynaud Harp, Deputy Commissioner for Insurance, before the Minnesota Senate Judiciary Committee indicated that there were then three insurers offering EIL policies in Minnesota. Minnesota Senate Judiciary Committee (Feb. 25, 1985). See Walsh, supra note 53.

55. There is said to be a general crisis imminent in the environmental impairment insurance industry. There has been a precipitous increase in premiums within the last year; only three or four companies are currently offering policies, down from fourteen companies in 1984. See Walsh, supra note 53.

Before taking this crisis too much to heart, one should recall that precisely the same pattern was evident in the late 1970s in the medical malpractice insurance industry. Those underwriters weathered the storm or were replaced by new insurers so that, despite periodic cries for reform, the medical malpractice crisis is no longer with us. See Margolick, Medical Malpractice: The Role of Lawyers, N.Y. Times, Feb. 21, 1985, at 8, col. 4. It is not too much to anticipate precisely the same developments among EIL insurance underwriters.

56. Testimony of Mr. Reynaud Harp concerning MERLA, Minnesota Senate Judiciary Committee (Feb. 25, 1985).

57. Id.

58. Id.