When a party “cashes out” of its liability to the government under the federal Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), under Environmental Protection Agency (EPA) guidance in place since 1988 the settling party typically pays a premium over what would otherwise be its equitable share. Even though settlements have featured premiums for decades, parties often do not consider issues that they present.

A settling party may have opportunities to substitute for the “cash-out” covenant not to sue at lower cost than the premium. That may create settlement negotiation opportunities, and may even call into question the amount of any premium demanded by the government. In addition, nonsettling parties may have issues arising from the application of the premium and its impacts on remaining claims.