Could a hazardous-waste corporate guarantee be enforced when a settlement agreement disclaimed tort liability?

Texas AG Opinion JM-806: Settlement Liability Under a Hazardous-Waste Corporate Guarantee

Plain-English summary

Federal hazardous-waste rules allowed a facility to use a parent-company guarantee instead of liability insurance. An earlier Texas opinion, JM-653, said enforcement depended on an initial determination of the facility's liability. The Environmental Protection Agency was concerned that this wording might prevent enforcement when a settlement agreement disclaimed liability.

JM-806 said that concern was unfounded. A settlement commonly disclaimed tort liability while creating a contractual obligation to pay the agreed amount. That contractual liability was enough for the guarantee; JM-653 had not required a court judgment establishing tort liability.

The federal guarantee language itself covered an owner or operator that failed to pay an amount agreed upon in settlement of a claim. The Attorney General therefore concluded that a corporate guarantee based on settlement liability could be enforced in Texas.

Currency note

This opinion was issued in 1987. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Did enforcement require a court judgment finding the facility liable in tort?

No. JM-806 expressly said JM-653 did not require a court determination of tort liability before the guarantee could be enforced.

What liability did the settlement create?

The opinion treated the promise to pay the agreed settlement amount as contractual liability.

Did a disclaimer of tort liability eliminate the payment obligation?

No. The disclaimer and the contractual obligation served different functions. The settlement could disclaim tort liability while still fixing an amount the facility agreed to pay.

Why did the wording of the federal guarantee matter?

The quoted form expressly promised payment when the owner or operator failed to satisfy a judgment, award, or settlement agreement arising from alleged bodily injury or property damage.

What did JM-806 add to JM-653?

It clarified that JM-653's phrase "initial determination of liability" included liability imposed by a settlement agreement and was not limited to an adjudicated tort judgment.

Background and regulatory framework

JM-653 had addressed parent corporate guarantees used to satisfy third-party liability requirements for hazardous-waste facilities. It concluded that a guarantee tracking 40 C.F.R. section 264.151(h)(2) created an enforceable third-party creditor-beneficiary contract in Texas.

The federal rules required an Attorney General statement about enforceability because the guarantee was interpreted under the law of the guarantor's state of incorporation. JM-806 responded to the EPA's concern about the effect of liability disclaimers in settlement agreements.

The opinion relied on the guarantee's own language, which included a failure to pay "an amount agreed to in settlement of a claim" among the events triggering the guarantor's payment obligation.

Citations

Regulations and prior opinion:

• 40 C.F.R. section 264.147(g)(2)
• 40 C.F.R. section 264.151(h)(2)
• Texas Attorney General Opinion JM-653 (1987)

Source

• Landing page: https://www.texasattorneygeneral.gov/opinions/jim-mattox/jm-806
• Original PDF: https://www.texasattorneygeneral.gov/sites/default/files/opinion-files/opinion/1987/jm0806.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Obvious character-level OCR errors have been corrected, but minor errors may remain; the linked PDF is authoritative.

October 5, 1987

Mr. Larry R. Soward
Executive Director
Texas Water Commission
P. O. Box 13087
Austin, Texas 78711

Opinion No. JM-806

Re: Whether a corporate guarantee given by the operator of a hazardous waste facility as a mechanism for demonstration of financial responsibility can be enforced if the owner or operator of a subsidiary corporation has signed a settlement agreement disclaiming liability

Dear Mr. Soward:

You seek clarification of Attorney General Opinion JM-653 (1987). Opinion JM-653 addressed federal rules that allow the use of a parent corporate guarantee as an alternative to liability insurance to comply with federal liability requirements for hazardous waste facilities. In Opinion JM-653, this office determined:

A corporate guarantee which is executed to comply with the third party liability requirements for hazardous waste facilities and which tracks the language of the corporate guarantee set forth in section 264.151(h)(2) of Title 40 of the Code of Federal Regulations creates a third party "creditor" beneficiary contract which can be enforced in Texas. Establishing a particular third party claim upon the guarantee depends upon an initial determination of liability against the hazardous waste facility in question and upon the performance of all of the basic elements necessary to create a contract. (Emphasis added.)

Because the corporate guarantee is to be interpreted and enforced in accord with the laws of the state in which the guarantor is incorporated, the federal rules require a written statement from the Attorney General attesting that the corporate guarantee required by the rules is legally enforceable. See 40 C.F.R. § 264.147(g)(2). You indicate that the United States Environmental Protection Agency expressed concern that the statement, underscored above, in Opinion JM-653 could be read to preclude enforcement of a corporate guarantee when the hazardous waste facility enters into a settlement agreement that disclaims liability. The Environmental Protection Agency stated that most settlement agreements contain a disclaimer of liability by the hazardous waste facility in question. We believe that these concerns are unfounded.

As indicated in Attorney General Opinion JM-653, enforcing the corporate guarantee in question depends on an "initial determination of liability." This liability may take the form of contractual liability imposed by a settlement agreement. Most settlement agreements disclaim tort liability and fix a specific amount as settlement of a third party's claim. This establishes contractual liability for the amount of the settlement agreement. Attorney General Opinion JM-653 does not indicate that it is necessary to have a court determination of tort liability before the corporate guarantee may be enforced.

The corporate guarantee set forth in the federal code and quoted in Opinion JM-653 expressly recognizes that the contractual liability imposed by a settlement agreement can form the basis for the enforcement of the corporate guarantee. Section 3 of the guarantee provides:

For value received from [owner or operator], guarantor guarantees to any and all third parties who have sustained or may sustain bodily injury or property damage caused by [sudden and/or nonsudden] accidental occurrences arising from operations of the facility(ies) covered by this guarantee that in the event that [owner or operator] fails to satisfy a judgment or award based on a determination of liability for bodily injury or property damage to third parties caused by [sudden and/or nonsudden] accidental occurrences, arising from the operation of the above-named facilities, or fails to pay an amount agreed to in settlement of a claim arising from or alleged to arise from such injury or damage, the guarantor will satisfy such judgment(s), award(s), or settlement agreement(s) up to the limits of coverage identified above. (Emphasis added.)

This type of corporate guarantee is enforceable in Texas. See Attorney General Opinion JM-653.

SUMMARY

A corporate guarantee based on contractual liability imposed by a settlement agreement may be legally enforced in Texas.

JIM MATTOX
Attorney General of Texas

MARY KELLER
Executive Assistant Attorney General

JUDGE ZOLLIE STEAKLEY
Special Assistant Attorney General

RICK GILPIN
Chairman, Opinion Committee

Prepared by Jennifer Riggs
Assistant Attorney General