Indiana Supreme Court Addresses Statute of Limitations for Clean-up Contribution

The Indiana Supreme Court handed down its opinion on June 19 in Richard Pflanz, et al. v. Merrill Foster, et al., holding that for a property owner’s claim for contribution toward environmental cleanup costs the statute of limitation does not begin to run until the owner is ordered to clean up the property, regardless of whether an owner earlier knew or should have known about the need for cleanup.

In 1976, Merrill Foster bought a service station from Sunoco, Inc. and operated it for two years as Friendly Foster’s Service. Foster then closed the petroleum dispensing activities and stopped using the underground storage tanks. Richard and Delores Pflanz purchased the property in 1984; prior to the sale, Foster informed them about the presence of the underground storage tanks but told them the tanks were not in use and had been closed. In fact, the tanks were still open and contained some petroleum. The Pflanzes operated a tire store on the property for two years and then leased the property to a third party.

In 2001, the Pflanzes learned for the first time that there were environmental issues with the property. The Indiana Department of Environmental Management inspected the property and discovered that the underground tanks were leaking. The Pflanzes then incurred more than $100,000 in cleanup costs, including costs for closing or removing the underground tanks and removing contaminated soil and water.

In December 2004, the Pflanzes filed a complaint against Foster and Sunoco seeking a determination of liability for the environmental contamination, damages under theories of waste, negligence, and stigma; contribution for cleanup costs pursuant to the Underground Storage Tanks Act; and declaratory relief for future anticipated cleanup costs.

Foster moved to dismiss for failure to state a claim upon which relief could be granted, arguing that the complaint was barred by the statute of limitations. The trial court agreed and dismissed.

On appeal, the Court of Appeals affirmed the trial court, concluding that when Indiana enacted the USTA’s contribution statute in 1987 and amended it in 1991, the Pflanzes, in the exercise of reasonable diligence, should have tested the property for contamination such that the statute of limitation began to run no later than 1991.

The Indiana Supreme Court granted transfer, reversing the trial court’s dismissal of the claim. In so doing, the Supreme Court found a significant distinction between claims for damage to property and claims for contribution to cleanup costs. Under Indiana law, a cause of action for damage to property accrues and the statute of limitation begins to run when a claimant knows or should have known of the damage. In claims for contribution or indemnification, however, the damage that occurs is the incurrence of a monetary obligation that is attributable to the actions of another party. Generally, parties bringing such actions for contribution or indemnification must wait until after the obligation to pay is incurred, otherwise the claim would lack the essential damage element.

Because the damage in issue in this contribution claim was the cleanup obligation assessed by IDEM that resulted from Foster’s use of the land, the statute of limitation did not begin to accrue until after the Pflanzes were ordered to clean up the property. Accordingly, since that order was not issued until 2001, the contribution claim was filed within the 10-year statute of limitations.

Direct questions to NAMIC’s Regulatory Affairs Counsel Marsha Brown.

Posted: Tuesday, June 24, 2008 12:00:00 AM. Modified: Tuesday, July 29, 2008 10:45:43 AM.

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