“What’s Buried Beneath?” A Practical Guide to Environmental Liabilities for Wisconsin Businesses

You’ve found the perfect property for your expanding business. The location is ideal, the price is right, and the building seems to fit your needs perfectly. You’re ready to sign on the dotted line. But before you do, have you asked the important question –

What’s buried beneath?

For anyone buying, selling, or financing commercial or industrial real estate in Wisconsin, this question is not just a matter of curiosity – it’s a critical component of risk management. The hidden costs associated with historical environmental contamination can turn a dream property into a financial nightmare. At Halling & Cayo S.C., we frequently guide clients through the process of identifying and mitigating these risks before the deal closes.

Understanding Your Potential Liability: More Than Just a Box to Check

Environmental due diligence is often seen as another hurdle in a long transaction process. However, a thorough investigation is your primary shield against future liability. Under federal law, like the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA or “Superfund”), and Wisconsin’s Spills Law (Wis. Stat. § 292.11), a property owner can be held responsible for cleanup costs, even if they didn’t cause the contamination. This is known as “strict, joint, and several liability,” and it means you could be on the hook for the entire cleanup cost, regardless of whether or not it was your fault.

So, where do these liabilities come from? The sources are more common than you might think:

• Leaking Underground Storage Tanks (USTs): Decades-old gas stations or properties with their own vehicle fleets often had USTs for fuel. Leaks can contaminate soil and groundwater with petroleum.
• Historical Manufacturing: A property that once housed a machine shop, a metal plater, or a furniture finisher could have soil contaminated with heavy metals or industrial solvents.
• Dry Cleaners: The chemicals used in dry cleaning, particularly perchloroethylene (PCE), are potent contaminants that can persist in the environment for years.
• Improper Waste Disposal: Past owners may have simply dumped barrels of waste or used contaminated fill material to level a portion of the site.

The key to protecting yourself is performing “All Appropriate Inquiries” (AAI) before acquiring a property. This process typically involves:

1. Phase I Environmental Site Assessment (ESA): In a Phase I ESA, a professional consultant reviews historical records, inspects the property, and interviews past owners to identify any “Recognized Environmental Conditions” (RECs) – essentially the presence or likely presence of contamination. A properly conducted Phase I ESA is the first step toward qualifying for a defense against liability under CERCLA, known as the Bona Fide Prospective Purchaser (BFPP) defense. Though it is important to know that there is no BFPP defense under Wisconsin’s Spill Law.
2. Phase II Environmental Site Assessment (ESA): If the Phase I ESA identifies potential issues, a Phase II may be necessary. This involves collecting and testing soil, groundwater, or vapor samples to confirm the type and extent of contamination. While it costs more upfront, knowing exactly what you’re dealing with can save you millions down the road.

Finding a Deeper Pocket: Can You Recover Cleanup Costs?

Discovering contamination doesn’t always have to be a deal-killer or a financial catastrophe. The next logical question our clients ask is: If we have to clean this up, who pays for it?

Fortunately, the party who discovers the contamination is not always the one who bears the full financial burden. There are several ways to try and recover the associated costs and damages.

1. Previous Owners and Responsible Parties The most direct path to recovery is to pursue the party that caused the pollution. Under CERCLA, a purchaser who incurs eligible response costs can file a contribution or cost-recovery action against previous owners or operators who were responsible for the contamination or those who generated the hazardous substances found to have contaminated the property. There is no such private right of action in Wisconsin’s Spill Law, but there may be common law claims available. However, your purchase agreement may be the most powerful tool; a well-drafted contract will include representations, warranties, and indemnification clauses that hold the seller responsible for unknown environmental conditions.
2. Unlocking Historical Insurance Policies This is an area where experienced legal counsel is invaluable. While modern Commercial General Liability (CGL) policies almost always contain an “absolute pollution exclusion,” this was not always the case. Policies written before the mid-1980s often provided broad coverage for property damage that Wisconsin courts have interpreted to include environmental cleanup costs.

Locating these old policies can feel like an archaeological dig, but they can be worth their weight in gold. We have successfully helped clients find multi-million dollar coverage from decades-old insurance policies they didn’t even know existed, turning a devastating liability into a manageable project funded by an insurer.

3. State and Federal Programs Governmental bodies recognize that cleaning up contaminated properties (often called “brownfields”) provides a public benefit. The Wisconsin Department of Natural Resources (DNR) and the U.S. Environmental Protection Agency (EPA) offer various programs to assist, including:

• Brownfield Grants: To help fund assessments and cleanups.
• Ready for Reuse Loans and Grants: These offer low-interest financing to help cover remediation costs.
• Liability Assurances: The DNR may provide liability exemptions or certificates of completion that give owners, lenders, and future buyers peace of mind.

Proactive Counsel is Your Best Defense

Navigating the world of environmental liability requires a proactive, rather than reactive, approach. By conducting thorough due diligence before a transaction, you arm yourself with the knowledge to negotiate a fair price, allocate risk contractually, or walk away from a bad deal.

And if contamination is found, don’t assume you’re left holding the bag. A strategic investigation into cost-recovery options, from former owners to historical insurance assets, can make all the difference.

If you are buying, selling, or developing property in Wisconsin and have questions about environmental due diligence or liability, please contact the experienced environmental and business attorneys at Halling & Cayo S.C. We are here to help you unearth any problems and protect your investment.