                    October5. 1987




Mr. Larry R. Soward         Opinion No. JM-806
Executive Director
Texas Water Commission      Re: Whether a corporate guar-
P. 0. BOX 13087             antee given by the operator of
Austin, Texas   78711       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
                            settlement   agreement    dis:
                            claiming 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.     Establishina a oar-
       titular third oartv claim uoon the ouarantee
       devends uoon an initial determination of
       liability against    the   hazardous   waste
       facilitv in ouestion and upon the per-
       formance of all of the basic        elements
       necessary to create a contract.    (Emphasis
       added.)
     Because the corpprate guarantee is to be interpreted
and enforced in accord with the laws of the state in which




                            p. 3815
Mr. Larry R. Soward - Page 2 (.X+806)




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. m    40 C.F.R. 5264.147(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
    necessary to have       court determination of tort
iyability before the corp:rate 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 occur-
       rences 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, w
       an amount aareed to in settlement of a claim
       arisina from or allesed to arise from such
       3niur-Vor damaae, the guarantor will satisfy




                           p; 3816
Mr. Larry R. Soward - Page 3    (~~-806)




      such judgment(s), award(s), or settlement
      aareement(s_lup 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 con-
       tractual 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




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