                             March 24. 1987




Mr. Larry R. Soward                        Opinion No. JM-653
Executive Director
Texas Water Com.iaafoa                     Re: Whether the Texas Water Comaia-
P. 0. Box 13087                            aion may adopt a federal rule which
Austin, Texas   78711                      would permit the use of a corporate
                                           guarantor for liability     coverage of
                                           au owner or operator of a hazardous
                                           waste,  treatment.   storage and dis-
                                           posal facility

Dear Mr. Soward:

       The United        States    Environmental       Protection       Agency recently
promulgated       an interim        final     rule   which    amends the        financial
responsibility       requirements       for liability      coverage      for ovners and
operators      of   hazardous       waste     treatment,     storage,       and disposal
facilities.        See 40 C.F.R.           5264.151(h) (2)      (1986).       Owners and
operators of hazardous waste facilities             have encountered difficulty in
obtaining the liability         insurance necessary to comply with federal and
state liability       coverage requirements for hazardous waste facilities.
The new federal rule allows the use of a parent corporate guarantee as
an alternative       to liability        insurance    to   comply with third party
liability      requirements       for    hazardous     waste    facilities.        See 40
C.F.R.     54264.147(g).    265.147(g)      (1986).    The corporate       guaranteemust
track the language specified              in the federal        regulations.       -See 40
C.F.R. 1264.151(h)(2).

      You indicate    that the Texas Water Commission         has adopted most of
the relevant     federal    regulations    by reference     as part of the Texas
Industrial   Solid Waste Rules.       You would like to utilize        the provision
which authorizes       the use of        corporate     guarantees.      Because the
corporate   guarantee is to be interpreted           and enforced in accord vlth
the lava of the state in which the guarantor is incorporated,                 the new
rule requires     a written statement from each state’s            Attorney General
or Insurance       Commission attesting that            the corporate      guarantee
required by the rule Is a legally            valid and enforceable       obligation.
See 40 C.F.R.         1264.147(g)(2).        The Texas      Insurance     Commission
indicated    that it      lacks   statutory     authority    to respond to your
request.   Additionally,      because the corporate       guarantee at issue here
must be provided by a parent corporation             of the owner or operator of
the covered hazardous waste facility,            in the usual case the guarantor
vi11 not be “in the business” of acting a8 guarantor.                  Consequently,
such a corporate         guarantee would not constitute            an unauthorized


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Mr. Larry   R. Soward - Page 2        (JM-653)




insurance business.       See Tex. Ins. Code art.      1.14-1,  52(a)(2).    The
Texas Attorney     Generama     authorized   to provide written   legal advice
to the heads of state agencies.        See V.T.C.S. art. 4399.    Accordingly,
you ask vhether       the corporate guarantee       required   by the federal
regulations    is legally  enforceable    in Texas.

      As indicated.    the corporate    guarantee about vhich you               inquire
must track the language specified      in the federal regulations.               -See 40
C.F.R. 9264.151(h)(2).     This proviaiou   requires:

                     corporate     guarantee,         apecff led  in
            I26:.147(g)     or 1265.147(g)    of t&r   Chapter, must
            be worded as follows,      except that instructions   in
            brackets     are to be replaced      with the relevant
            iuforsation     and the brackets deleted:

                 CORPORATE
                         GUARANTEE
                                 FOR LIASILITT COVERAGE

                Guarantee sade this [date] by [name of guaran-
            teeing entity],      a business     corporation    organized
            under the laws of the State of [insert               name of
            State],    herein referred     to as guarantor, on behalf
            of our subsidiary      [owner or operator]      of [business
            address].     to any and all third parties          who have
            sustained or say sustain bodily injury or propaste
            damage caused by [sudden and/or nonsuddenl acci-
            dental occurrences       arising   from operation     of the
            facflitp(ies)     covered by this guarantee.       @mphasia
            added).

            Recitals.

            1.    Guarantor meets or exceeds the financial        test
                  criteria    and agrees    to     comply vlth     the
                  report iug   requirements    for     guarantors     as
                  specified  in 40 CFR 264.147(g)     and 265.147(g).

            2.    [Owner or operator]            owns or operates         the
                  f ollowiug       hazardous         vast8      management
                  facility(ies)       izovered     by    this   guarantee:
                   [List for each facility:           EPA Identification
                  Number, name, and address. ]             This corporate
                  guarantee satisfies        RCRA third-party    liability
                  requirasenta      for    [insert    “sudden” or “nou-
                  sudden” or        “both      sudden    and   nonsudden”]
                  accidental    occurrences      in above-named owner or
                  operator facilities        for [insert dollar amount]
                  of coverage.

            3.    For  value received    from [owner or operator],
                  guarantor   guarantees    to any and all    third
                  parties   vho have sustained     or xay sustain


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Mr. Larry R. Sovard - Page 3         (Jn-653)




               bodily     injury      or property     damage caused by
               [sudden and/or          nonsudden] accidental         occur-
               rences       arising       from    operations      of     the
               facility(ier)         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         occur-
               rences,      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 (8) , award(r),              or settlement
               agreement(a)         up to the limits         of coveraga
               identified       above.

          4.   Guarantor agrees that if,             at the end of any
               f iacal   year      before       termination       of     this
               guarantee,      the guarantor falls           to meet the
               financial    test criteria,         guarantor shall send
               within 90 days. by certified              mail, notice       to
               the EPA Regional           Admtnistrator(a)         for    the
               Region(s)    in which the facility(ies)             la (are)
               located    and to [owner or operator]                that he
               intends      to     provide        alternate      liability
               coverage as specified           in 40 CPR 264.147 and
               265.147. as applicable,           in the name of [owner
               or operator I.       Within 120 days after the end
               of    such fiscal       year,      the    guarantor     shall
               establish       such    liability        coverage      unless
                [owner or operator] has done so.

          5.   The guarantor    agrees     to    notify     the   EPA
               Regional Administrator    by certified     mail of a
               voluntary   or  involuntary      proceeding      under
               Title    11 (Bankruptcy),     U.S.     Code,    naming
               guarantor   as debtor,    within     10 days after
               cowaencement of the proceeding.

          6.   Guarantor agrees that within          30 days after
               being notified     by an EPA Regional Adminis-
               trator    of a determination     that guarantor no
               longer meets the financial        teat criteria     or
               that he is disallowed       from continuing      as a
               guarantor,     he    shall   establish     alternate
               liability    coverage    as specified    in 40 CPR
               264.147 or 265.147 in the name of [owner or
               operator],   unless [owner or operator] has done
               so.



                                   p. 2973
Mr. Larry R.   Soward - Page 4      m4-653)




          7.   Guarantor resemes        the right    to modify this
               agreement to take into account amendment or
               modification   of the liabflity     requirements set
               by 40 CPR 264.147 and 265.147,          provided that
               such modification      shall become effective     only
               if   a Regional     Administrator      does not dis-
               approve the modification        vithin     30 days of
               receipt   of notification    of the modification.

          8.   Guarantor agrees to remain bound under ehia
               guarantee for so long as [ovner or operator]
               must comply with the applicable   requirements
               of 40 CPR 264.147 and 265.147 for the above-
               listed   facility(ies), except as provided   in
               paragraph 9 of this agreement.

          9.    Guarantor    may terminate       this    guarantee    by
                sending notice     by certified      nail to the EPA
                Regional Administrator(s)       for the Region(s)     in
                which the facility(iea)       is (are) located       and
                to [owner or operator],          provided     that this
                guarantee nay not be terminated            unless    and
                until [the ouner or operator]        obtains,    and the
                EPA Regional         Administrator(a)       approve(a)
                alternate  liability    coverage complying with 40
                CFR 264.147 and/or 265.147.

           10. This   guarantee  is  to be      interpreted and
               enforced in accordance with the laws of [State
               of incorporation  of guarantor].

           11. Guarantor       hereby expressly  waives notice      of
               acceptance      of this guarantee by any party.

               I hereby certify        that the wording of this
           guarantee is identical      to the vordlng specified in
           40 CPR 264.151(h)(2).

           Effective   date:

           [Name of guarantor]
           [Authorized signature for guarantor]
           [Name of person signing]
           [Title of person signing]
           Signature of witness or notary:

      The corporate    guarantee required by the federal regulations    la a
contract   between the owner or operator of a hazardous waste facility
and the parent corporation      of the owner or operator guaranteeing that
the parent till      pay claims by third parties      for bodily  injury or
property damage arising      from accidental  occurrences  at the owner or
operator’s    hazardous waste facility.      Such third party beneficiary



                                       p. 2974
Mr. Larry R. Soward - Page 3       (Jn-633)




contracts   do not ordinarily    change the degree of care that the law
imposes.    See Stafford   v. Thornton.    420 S.W.2d 133, 138 (Tax. Civ.
APP. - ml10           1967, writ    ref’d   n.r.8.); see also    Clearwater
Constructors,   Inc. v. Gutierrez,   626 S.W.2d 789, 793 (Tax. Civ. App. -
San Antonio 1981, no writ);     Sun 011 Co. v. Employers Casualty Co., 330
S.W.2d 348, 349 (Tax. Civ. App. - Dallas 1977, uo writ).        The general
duty of care owed to the public is govsmsd by tort law.            sink0 v.
City of San Antonio,      702 S.W.2d 201, 208 (Tax. App. - San Ahtonio
1983, no writ).      A corporate   guarantee such as the one required       by
section 264.131(h)(2)    simply imposes a degree of contractual   liability
ou a party who might not otherwise be liable.

      As a general rule, privity         of contract     must be established     to
recover on a contract      action.      A third   party can, however, recover
under a contract     with a showing that the contract           is made for the
third party’s   benefit,   &,       that the parties     to the contract    intend
that the third party benefit         from the contract.       See Corpus Christ1
Bank 6 Trust v. Smith, 323 S.W.Zd 301. 303-04 (Ter1973).                  Whether
the contracting    parties  intend to benefit        a third party is a matter
to be determined from the contract            as a whole,      in light    of the
cfrcumatancea    under which the contract         is made.     Citizens  National
Bank in Abilenc v. Texas 6 P. Railway Co. , 130 S.W.2d 1003, 1006 (Tex.
1941).    If the provisions        of a contract       are not ambiguous.       the
question of whether the contract benefits           a third party is a question
of law to be determined from the contract             alone.   Standard Accident
Insurance Co. v. Blythe, 107 S.W.2d 880. 883 (Tax. 1937); see also Sun
Oil Co. v. Employers Casualty Co., 330 S.W.2d at 349 (right of th=
party beneficiary    to enforce contract is questlon of substantive          law).

     A corporate guarantee contract which tracks this quoted language
can be deemed, as a matter of law. to intend to benefit a third party.
The quoted language expressly benefits

           any and all third parties      who have sustained      or
           may sustain     bodily  injury    or property     damage
           caused by . . . accidental        occurrences    arising
           from operation     of the facility(les)      covered by
           this guarantee.

40 C.F.R. 5264.131(h)(2).    This language is not ambiguous. A contract
which benefits  a third party need not expressly name the third party
so long as the third party is sufficiently     designated or described.
See Knox v. Ball.      191 S.W.2d 17. 23 (Tex. 1943); see also James
E&art    h Co. v. Law. 228 S.W.2d 601. 603 (Tex. Civ. App. -Waco
1930). aff’d.  233 S.W.2d 338 (Tex. 1950).

      Establishing    third-party    beneficiary      status    also   depends on
whether     the claiming     party  is   either     a “donee”       or “creditor”
beneficiary    rather than an “incidental”       beneficiary.      Sun Oil Co. v.
Employers Casualty Co.,        330 S.W.Zd at 349.          If performance     of a
promise would satisfy     a duty owed by the promiaee co the third party,
the third party Is a creditor      beneficiary.       -Id.    The purpose for the



                                    p. 2973
I4r. Larry R. Sovard - Page 6 (JIi-653)            ’




financial     responsibility      requirements    for hazardous waste facilities
is to provide a method for the payment of claima of liability                         for
bodily    injury    or property      damage caused by accidental           occurrences
arising    from operation      of hazardous waste facilities.          The owners and
operators     of hazardous waste facilities           ova a duty of care not to
cause bodily       injury    and property      damage through the operation             of
hazardous      waste facilities.         Consequently,    this    form of corporate
guarantee creates a third party “creditor”              beneficiary    contract    which
can be enforced        in Texas.      It should be noted, however, that eata-
bliahing     a particular     third party claim upon such a guarantee depends
upon an initial          determination     of liability      in a particular         case
against     the ovuar or operator            of   the hazardous       waste    facility
in question.        See Sun Oil Co. v. Employers Casualty                 Co.,   supra.
Additionally,      baforc a particular      corporate    guarantee contract      may be
enforced,     all of the elements necessary            to create a contract          must
exist.

                                     SUMMARY

                  A corporate     guarantee which is executed to
            comply with the third party liability        requirements
            for hazardous waste facilities         and vhich tracks
            the language of the corporate        guarantee set forth
            in section   264.131(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.




                                               tl /h
                                                  Very truly    your


                                                        A
                                                  JIM     MATTOX
                                                  Attorney General of Texas

JACK EIGETOWER
First Assistant Attorney        General

MARY’RRLLER
Executive Assistant       Attorney   General

RICK GILPIN
Chairman, Opinion Committee

Prepared by Jennifer Riggs
Assistant Attorney General



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