Articles, Alerts & Perspectives

The Critical Path 

Insurance coverage issues on commercial construction projects are complex. Add in the contractual requirement of providing additional insured status and problems can arise when tendering and accepting a defense.

This article discusses a unique insurance coverage issue which may arise in a multi-defendant property damage action involving additional insured requirements among contractors. It is common in a property damage action for a carrier to provide a defense and later file a declaratory judgment when evidence discerned in discovery establishes that no coverage existed. In these situations, the policy language and jurisdiction determines whether the insured owes defense costs to the carrier.

But what is the duty of an additional insured to reimburse the carrier for defense costs when it is subsequently determined that coverage did not exist? The additional insured has no written contract with the carrier. Moreover, what if the additional insured was provided a defense from its own carrier, only to have the defense tendered to a
different carrier based upon additional insured status? What is the obligation of the primary insurer? Let’s address this through a factual example.

The Owner hires Contractor to construct a mixed-use building and the Contractor subsequently hires a Subcontractor. The contract between Contractor and Subcontractor calls for Subcontractor to add and recognize Contractor as an additional insured to its policy.

Substantial completion is achieved and the Owner takes possession of the building despite a payment dispute between Contractor and Owner. The Contractor files suit against the Owner. The Owner claims major structural issues with the building. The Owner then files a Counterclaim for breach of contract and negligence against the Contractor and joins the Subcontractor under a negligence theory.

Contractor and Subcontractor each turn the claims over to their respective carriers, and each provide a defense under a reservation of rights. …

The PIOGA Press

The Pennsylvania Supreme Court has rejected the long-standing test for analyzing claims brought under Article I, Section 27 of the Pennsylvania Constitution, commonly known as the Environmental Rights Amendment (ERA). In its June 20, decision in Pennsylvania Environmental Defense Foundation (PEDF) v. Commonwealth, the Supreme Court set aside the test from Payne v. Kassab that has been used since 1973, and held that the Commonwealth’s oil and gas rights are “public natural resources” under the ERA and that any revenues derived from the sale of those resources must be held in trust and expended only to conserve and maintain public natural resources.

The Supreme Court’s opinion in PEDF is an important step in the ongoing judicial reexamination of the ERA. However, the impact of the court’s decision on environmental and land use issues beyond the relatively narrow facts of this case remains unclear.

Factual background

A statutory special fund in Pennsylvania known as the Oil and Gas Lease Fund holds all rents and royalties from oil and gas leases of Common wealth land. The lease fund was originally required by statute to be used “exclusively used for conservation, recreation, dams, or flood control.” In 1995, the Pennsylvania Department of Natural Resources (DCNR) became the entity responsible for making appropriations from the lease fund for projects. Between 2009 and 2015, the Pennsylvania General Assembly made a number of budgetary decisions related to the lease fund, including the enactment of Sections 1602-E and 1603-E of the Fiscal Code, which transferred control over the royalties from oil and gas leases from the DCNR to the General Assembly and required that there could be no expenditures of money in the lease fund from royalties unless that money was transferred to the General Fund by the General Assembly. …

Babst Calland announced that Timothy H. Goodman has joined the firm as shareholder in the Transportation Safety Group in the Firm’s Washington, D.C. office.

Goodman brings to clients a current and detailed understanding of the federal government’s approach to transportation safety regulation (particularly motor vehicles), including its programs and personnel as a former Federal Senior Executive (key positions just below top Presidential appointees).  Goodman spent nearly a decade at the U.S. Department of Transportation (USDOT), where he served in various capacities, including at the National Highway Traffic Safety Administration (NHTSA) and in the Secretary of Transportation’s Office of the General Counsel. As NHTSA’s Assistant Chief Counsel for Litigation and Enforcement, Goodman was the chief legal officer for the litigation and enforcement matters of the 600-plus employee federal agency. He also served as a senior trial attorney in the Secretary of Transportation’s Office of the General Counsel, where he led teams in matters throughout USDOT and across multiple transportation modes, including pipeline safety, hazardous materials, federal environmental, urban transit, motor carrier, aviation economic regulatory, and maritime matters.

Goodman is the fourth former USDOT regulatory attorney during the past 18 months to join Babst Calland’s Washington, D.C. office where former colleagues and energy attorneys from the USDOT’s Pipeline and Hazardous Materials Safety Administration (PHMSA) maintain a national Pipeline and HazMat Safety practice.  He joins us from a prominent global law firm where he focused on transportation regulatory and litigation matters.

At the DOT, Goodman was recognized for effectively working with corporate executives, senior officials and engineers to achieve practical and efficient results in high profile enforcement actions, landmark consent orders, litigations and rulemakings. He collaboratively led some of the largest civil enforcement actions and recalls in the history of NHTSA – including the largest and most complex safety recall in U.S. …

Best Lawyers

The call never seems to come at an ideal time. It is usually late in the workday or over a weekend, and it often starts with a question from an unusually tense client who asks, “Hey, we have a problem. Do you have a few minutes to talk?”

Perhaps none of my prior cases have been as notable or newsworthy as the January 2014 Freedom Industries, Inc., (Freedom) spill into the Elk River in Charleston, West Virginia.1 

The Freedom chemical storage and distribution facility was located in Charleston on the banks of the Elk River. On the morning of January 9, 2014, inspectors from the West Virginia Department of Environmental Protection arrived at the facility in response to complaints about a chemical odor. It subsequently was determined that as much as 10,000 gallons of a mixture of crude methylcyclohexanemethanol (MCHM) and polyglycol ethers (PPH, stripped) leaked from an aboveground storage tank at the facility and that some portion of the leaked chemicals flowed into the Elk River. The facility was located approximately 1.5 miles upstream of the intake for the West Virginia American Water drinking water treatment facility. The MCHM/PPH mixture was drawn into the West Virginia American Water intake on the Elk River, thereby contaminating the drinking water system. Later, on the evening of January 9, West Virginia American Water issued a “do not use” order for 93,000 customer accounts (approximately 300,000 residents) across portions of nine counties in West Virginia. After the spill, hospitals reported a noted increase in patient visits, with complaints of a number of symptoms including nausea, rashes, vomiting, abdominal pain, and diarrhea following exposure to the water through inhalation, ingestion, and/or skin contact. Residents affected by the “do not use” order were further advised to restrict their usage of tap water for drinking, cooking, and bathing for up to nine days. …

SNL

Even though a court struck down the U.S. Environmental Protection Agency’s attempted 90-day pause on oil and gas industry methane regulations, the EPA may still be able to carry out plans for a longer regulatory suspension.

The 90-day stay, which went into effect June 2 but was vacated July 3, was not the only suspension in the works for the EPA rule designed to limit methane from new and modified oil and gas sources. The agency on June 16 proposed a two-year stay on the regulation’s requirements on fugitive emissions, pneumatic pumps and professional engineer certification.

For the longer stay, the agency is taking 30 days of comment from the public on the hold. Importantly, that process uses different statutory authority with different legal standards than the ones at play for the shorter, recently reversed stay, according to Whit Swift, a partner with Bracewell LLP.

“I don’t think that [this ruling] is fatal to the longer stay that is presumably just citing the broader authority of the EPA administrator to promulgate rules as deemed necessary,” Swift said in a July 5 interview. “If you think of that as the authority for this longer stay, the court doesn’t determine the fate of the longer stay. But it does create … the confusing situation they were trying to avoid. … Now you’ve got these elements of the methane rule springing back into effect until EPA, assuming it moves forward, does stay the rule following notice and comment.”

For the 90-day stay attempt, EPA Administrator Scott Pruitt moved to put a hold on parts of the agency’s rule limiting methane emissions, saying stakeholders had not had enough time to discuss certain aspects of the final 2016 regulation. …

The PIOGA Press

This article is an excerpt of The 2017 Babst Calland Report, a report which represents the collective legal perspective of Babst Calland’s energy, environmental and pipeline safety attorneys addressing the most current business and regulatory issues facing the oil and natural gas industry. A full copy is available by writing info@babstcalland.com.

The second half of 2016 was marked by several significant federal air program developments as the Environmental Protection Agency (EPA) raced to implement President Barack Obama’s Climate Action Plan before the change in administration. The final New Source Performance Standards (NSPS) for oil and natural gas production, processing, transmission and storage activities, which established first-time methane requirements, went into effect on August 2. By then, lawsuits were already well underway to challenge the 2016 NSPS and EPA’s authority to regulate methane emissions.

In October, EPA finalized the “Control Techniques Guide – lines” (CTG) directing state and local air agencies to reduce volatile organic compound (VOC) emissions from existing oil and natural gas industry sources in areas with ozone problems (including all of Pennsylvania). It is anticipated that Pennsylvania will adopt regulations to implement the CTG in the Commonwealth within the next few years.

In November, EPA issued a final Information Collection Request (ICR) to gather information for the agency to develop a federal rule to limit methane emissions from existing sources. The final ICR set in motion a flurry of activity as more than 15,000 owners and operators were tasked with submitting extensive information to EPA in a short timeframe. For many companies, the ICR presented an enormous challenge due to its broad scope, complex EPA reporting forms and significant compliance costs. Also in November, EPA finalized additional revisions to the Petroleum and Natural Gas Systems source category of its Greenhouse Gas Reporting Rule. …

The Legal Intelligencer

The Pennsylvania Municipalities Planning Code, 53 P.S. Section 10101 et seq., authorizes municipalities to engage in land use planning and implement land use controls through a number of mechanisms, including comprehensive plans, official maps, zoning ordinances, subdivision and land development ordinances and planned residential developments. On May 9, the Commonwealth Court rendered a decision in Delchester Developers v. Zoning Hearing Board, 2017 Pa. Commw. Ct. LEXIS 192 (Pa. Commw. Ct. 2017), concluding, among other things, that stormwater management ordinances are not land use ordinances governed by the MPC.

In Delchester Developers, Delchester Developers L.P. submitted a preliminary land development plan application to the township of London Grove seeking approval to develop commercially two lots located within the township’s Groundwater Protection Overlay District. The overlay district encompasses a threatened geological formation in the township that allows water to move quickly through it. In recognition of the threat to and challenges posed by the geological formation, the township board of supervisors adopted stringent stormwater management regulations applicable in the overlay district to ensure recharge, prevent sinkhole formation and protect the groundwater from contamination.

In order to effectuate its plans, Delchester sought several variances and special exceptions from the township’s zoning hearing board, and brought challenges to the substantive validity of various township ordinances, including the township’s stormwater management ordinance (SWMO). The township zoning hearing board denied all of Delchester’s requests. The zoning hearing board rejected Delchester’s substantive validity challenge to the SWMO, concluding that because the SWMO is not a land use ordinance under the MPC, the zoning hearing board lacked jurisdiction over the challenge. The trial court affirmed.

Section 909.1(a)(1) of the MPC confers upon a zoning hearing board exclusive jurisdiction to hear and render final adjudications on “substantive challenges to the validity of any land use ordinance,” …

Kallanish Energy

The oil and gas industry rebounded during the past year through efficiency measures, consolidation and a resurgence of business opportunities related to shale gas development and its impact on upstream, midstream and downstream companies, according to a just-released study by Pittsburgh-based law firm Babst Calland.

As a result, many new opportunities and approaches to regulation, asset optimization and infrastructure are underway, The 2017 Babst Calland Report – Upstream, Midstream and Downstream: Resurgence of the Appalachian Shale Industry; Legal and Regulatory Perspective for Producers and Midstream Operators, found.

“This report provides perspective on the challenges and opportunities of a resurging shale gas industry in the Appalachian Basin, including: the divergence of federal and state policy that creates more uncertainty for industry; increased special interest opposition groups on new issues and forums despite their lack of success in the courts; and the expansion from drilling to midstream development and now to downstream manufacturing that demonstrates the emergence of a more diverse energy economy,” according to Joseph K. Reinhart, co-chair of Babst Calland’s Energy and Natural Resources Group.

Shale gas continues to provide Pennsylvania, Ohio and West Virginia with “significant economic opportunities through employment and related revenue from the development of well sites, building of pipelines necessary to transport gas to market, and new downstream opportunities being created for manufacturing industries due to the volume of natural gas and natural gas liquids produced in the Appalachian Basin.”

Shell’s progress from a year ago to construct an ethane cracker plant in Beaver County, Pa., represents just one example of the expanding downstream market for natural gas, according to the law firm, Kallanish Energy finds.

Many other manufacturing firms are expected to enter the region and establish businesses drawn by the energy and raw materials associated with natural gas and natural gas liquids from the Marcellus and Utica Shale plays. …

Babst Calland released its seventh annual energy industry report entitled The 2017 Babst Calland Report – Upstream, Midstream and Downstream: Resurgence of the Appalachian Shale Industry; Legal and Regulatory Perspective for Producers and Midstream Operators. This annual review of shale gas development activity acknowledges the continuing evolution of this industry in the face of economic, regulatory, legal and local government challenges. To request a copy of the Report, contact info@babstcalland.com.

In this Report, Babst Calland attorneys provide perspective on issues, challenges, opportunities and recent developments in the Appalachian Basin and beyond relevant to producers and operators .

In general, the oil and gas industry has rebounded during the past year through efficiency measures, consolidation and a resurgence of business opportunities related to shale gas development and its impact on upstream, midstream and downstream industries. As a result, many new opportunities and approaches to regulation, asset optimization and infrastructure are underway. Increased spending during the past year has led to a significantly higher rig count in the Appalachian Basin enabling growth in the domestic production of oil and gas as other shale plays across the country experience reductions.

The shale gas industry continues to provide the tri-state region with significant economic opportunities through employment and related revenue from the development of well sites, building of pipelines necessary to transport gas to market, and new downstream opportunities being created for manufacturing industries due to the volume of natural gas and natural gas liquids produced in the Appalachian Basin. Shell’s progress from a year ago to construct an ethane cracker plant in Beaver County, Pennsylvania represents just one example of the expanding downstream market for natural gas. Many other manufacturing firms are expected to enter the region and establish businesses drawn by the energy and raw materials associated with natural gas and natural gas liquids from the Marcellus and Utica shales. …

PA Law Weekly

Job interviews are tough and they can be full of awkward questions. One of the awkward questions many applicants face is a potential employer’s request for an applicant’s compensation history. Not only is that question awkward, but some have theorized that basing starting compensation on an applicant’s historical compensation perpetuates the gender and minority wage gap. As a result, a percentage increase of the current salary of an applicant who is impacted by the wage gap could result in an even wider wage gap when compared to an applicant who is not negatively impacted by the wage gap. Accordingly, there has been a recent trend in several cities and states to propose and even pass legislation banning a new employer from seeking salary history information from an applicant or basing a starting salary on an applicant’s prior salary.

In 2016, Massachusetts became the first state to pass a law prohibiting employers from asking potential candidates about their salary histories prior to making a job offer. Massachusetts Gov. Charlie Baker signed “The Act to Establish Pay Equity” on Aug. 1, 2016, with an effective date of July 1, 2018. Under this law, among other things, it is unlawful for an employer to “seek the wage or salary history of a prospective employee from the prospective employee or a current or former employer or to require that a prospective employee’s prior wage or salary history meet certain criteria,” Section 105A(c)(2). Salary history bills have also been introduced in other states such as California, New Jersey and Washington.

Cities are also getting in on the action, passing ordinances prohibiting the salary history question. On May 4, Mayor Bill De Blasio of New York City signed a bill into law prohibiting employers from asking applicants about their salary histories or relying on the salary history of an applicant to determine the salary that it will offer to an applicant. …

The PIOGA Press

The oil and gas industry has enjoyed recent successes in two types of ordinance challenges in Pennsylvania. The first victory came in another in a growing line of zoning ordinance validity challenges, this one in Mount Pleasant Township, Washington County. The second victory came in a challenge to Grant Township, Indiana County’s prohibition on underground injection wells.

Mount Pleasant Township

As we reported last year for The PIOGA Press, five municipalities faced zoning ordinance validity challenges in 2015 and 2016. The cases were inspired largely by the Pennsylvania Supreme Court’s plurality opinion in Robinson Township v. Commonwealth, and essentially argued that the ordinances did not regulate oil and gas development stringently enough, that zoning ordinances cannot permit oil and gas uses in agricultural or residential districts, and that municipalities must engage in extensive environmental assessments when enacting regulations.[1] The zoning hearing boards in Allegheny Township, Westmoreland County, Middlesex Township, Butler County, and Pulaski Township, Lawrence County, each rejected these arguments and upheld the ordinances. The remaining two challenges, in Robinson Township and New Sewickley Township, did not proceed to the merits.[2]

In May 2016, while the Allegheny and Middlesex cases were pending on appeal before the Commonwealth Court and the Pulaski case was pending before the Lawrence County Court of Common Pleas, Citizens for Pennsylvania’s Future (PennFuture), with assistance from Fair Shake Environmental Legal Services (Fair Shake), challenged the Mount Pleasant Township, Washington County, zoning ordinance on similar Robinson Township-based grounds.

Range Resources-Appalachia, LLC, MarkWest Energy Partners, L.P., and owners of a proposed well site intervened in the case. The Mount Pleasant Township Zoning Hearing Board took testimony through nine nights of hearings and ultimately decided, as did the zoning hearing boards in the previous challenges, to uphold the targeted ordinance. …

American College of Environmental Lawyers

(by Chester Babst)

When President Trump issued his energy-related Executive Order in March directing further review by the EPA Administrator of, among other things, the Clean Power Plan, it signaled the death knell for what was arguably President Obama’s centerpiece domestic action on climate change. But while the Order’s likely intent to neutralize this and other rules would have appeared to pave the way for a flurry of lawsuits filed by environmental groups and States particularly concerned about global warming, the federal dockets have thus far been somewhat quiet with respect to the Trump Administration’s handling of prior climate change-related rulemaking.

A group of 10 states have begun to push back, though, by filing a petition in the Second Circuit. The rule that is requested to be reviewed? It doesn’t involve coal-fired power plants. Nor wellpads or compressors. Rather, the petition involves rulemaking aimed at the ominous … ceiling fan. The rule, enacted by the Department of Energy in January, establishes minimum energy efficiency standards for fans manufactured after January 2020 pursuant to the Energy Policy and Conservation Act.  According to the DOE, the rule is projected to reduce carbon dioxide emissions by over 200 million tons and methane emissions by 17 million tons through 2049.  Some 12 days after the rule was finalized, DOE delayed the effective date by 60 days with the stated intent of conducting further review and consideration of new regulations, consistent with the Freeze Memo. In March, DOE subsequently pushed back the effective date even further until September, with the basis being that DOE Secretary Rick Perry was, perhaps unsurprisingly, unable to accomplish the review and consideration of the rule within the 60-day timeframe.  …