Insurance fight prolongs scrap yard's endless pollution

HARTFORD CITY — A junk yard and one of the nation's largest insurance companies continue to blame each other for never-ending water pollution.

During five years of court battles with Hartford Iron & Metal, Valley Forge Insurance has spent millions of dollars in a seemingly inept attempt to stop PCB-contaminated storm water from illegally draining off of the salvage yard and into city streets, sewers and waterways.

A citizen group is conducting soil sampling to find out whether the contamination has spread onto neighboring residential properties.

It all started 10 years ago, when the Indiana Department of Environmental Management (IDEM) discovered mismanagement of auto fluids and other waste at Hartford Iron's five-acre site at 209 S. Division St.

In 2009, the scrap yard agreed to remove widespread, dangerous levels of PCBs and lead found in the soil, and to control the runoff of storm water to protect the residential neighborhood. Because of the legal dispute, that still hasn't happened.

PCBs are a group of man-made chemicals that were used in electrical equipment, hydraulic equipment, plastics, oil and many other products. The United States banned the manufacturing of the chemicals in 1979 because they are a known carcinogen and persist in the environment, according to the U.S. Environmental Protection Agency. For example, people who eat fish may be exposed to PCBs that have bioaccumulated in the fish. Lead is a highly poisonous element that can damage the human nervous system.

The factual background of the dispute between Valley Forge and Hartford Iron is "very complicated," U.S. District Court Judge Robert Miller Jr. wrote last month.

"Hartford Iron's scrap yard developed a series of environmental problems, including rain water picking up chemicals from the scrap yard soil and flowing off the property as contaminated storm water," he wrote.

IDEM and EPA brought enforcement actions to make Hartford Iron pay penalties and remediate the site, and Hartford Iron sought liability coverage from its insurer, Valley Forge.

Legal disputes arose, but eventually the insurance company agreed to pay for the cleanup of the site and to defend Hartford Iron against IDEM and EPA.

"The remediation has been fraught with problems and has spawned a variety of conflicts; the environmental regulators continue to impose fines and penalties for ongoing non-compliance, and Hartford Iron and Valley Forge blame each other for the continued problems," Miller wrote. "In general, Valley Forge believes that Hartford Iron's refusal to cooperate with the environmental contractors has prevented effective remediation; Hartford Iron believes the remediation plan thus far has been inept and accuses Valley Forge of trying to pin the blame for the runaway costs solely on Hartford Iron."

In 2013, Valley Forge agreed to pay EPA a fine of $189,580 for illegally discharging PCB-contaminated storm water down the city's storm drains and other violations at Hartford Iron.

But the pollution has continued. As recently as last month, Hartford Iron notified IDEM of PCB-contaminated storm water discharging from the scrap-yard gate onto Division Street before emptying into a city sewer inlet.

Valley Forge's environmental contractor, August Mack, designed and operates a "defective, one-of-a-kind system" to collect and treat the contaminated water, Hartford Iron reported to IDEM. An integral part of the system is to direct runoff to city streets bordering the junk yard.

"August Mack attempts, but routinely fails, to re-capture the runoff after it discharges to the street … " Hartford Iron reported. "August Mack's system then fights gravity, in a labor-intensive process prone to human error, to store the collected water in an unauthorized and un-permitted tank farm along Chestnut Street. August Mack then filters the diluted water in a rented trailer designed for ground water, not storm water, treatment systems."

Valley Forge and Hartford Iron have been locked in litigation, first in state court and now in federal court, for five years.

In Chicago, Brandon Davis, a spokesman for Valley Forge parent CNA — the country's eighth-largest commercial insurance writer and the 14th-largest property and casualty company — declined to comment for this story, saying, "CNA does not comment on claim matters or matters involving litigation."

Hartford Iron's lawyer, Mark Shere, Indianapolis, told The Star Press the insurance company agreed in 2012 to take responsibility for halting the illegal storm water discharges "and they failed. They got that wrong. And instead of fixing it, they turned around and hired some lawyers to sue Hartford Iron and put those same lawyers in charge of dealing with IDEM, dealing with Hartford Iron's insurance claim. That's what we've been up against ever since."

Shere calls the storm water collection/treatment system that discharges contaminated water to city streets and then "sucks the water out of the street" a "crazy" process because "of course once the water is in the street some goes the direction you don't want," "there are going to be mechanical failures," "they're fighting gravity," and "sometimes it rains too much to keep up with, so yes regular violations have occurred since December 2012."

Meanwhile, seven years after Hartford Iron signed the agreed order with IDEM to clean up the site, IDEM last month sued Hartford Iron in Blackford County court for ignoring the agreement.

Shere says August Mack has refused to remove its tank farm and other equipment to allow the installation of IDEM-approved storm water controls.

"Hartford Iron just wants to do what IDEM wants done, and they want their insurance company to pay for it, and the insurance company has said over and over they would pay for it, and then the insurance company takes control and messes things up, tries to do it on the cheap, which turns out to be the most expensive way possible," Shere said. "It's wrong to let the contaminated water run in the street. A lot of effort and money have been spent to suck up all of the storm water out of the street, which works most of the time, but that  still leaves us a bunch of violations and millions of dollars of wasted money. That's where we are."

August Mack plans to spend $2.3 million at Hartford Iron in 2016 alone.

Jamie B. Dameron, an attorney appointed by CNA/Valley Forge to represent Hartford Iron, has told IDEM that since June of 2014 she has been informing the insurance companies "of the need to build an effective storm water management system at the Hartford Iron site to stop the ongoing discharge of untreated storm water to public streets and to replace the existing tank farm."

But Hartford Iron has been unable to do so because the tank farm and other equipment is in the way and CNA has not been paying contractors —  including Dameron's law firm —  other than August Mack, according to Dameron.

In January of 2014, Valley Forge sued Hartford Iron in Judge Miller's court in the northern district of Indiana for breach of contract, complaining that the scrap yard has:

•  placed arbitrary restrictions on access to the site.

•  accused environmental consultants of "trespassing,"

•  unilaterally demanded new "rules" for environmental consultants, which seeks to wrest control of the cleanup from Valley Forge.

• refused to correspond with one of Valley Forge's attorneys.

• insisted on having Shere be reimbursed as defense counsel even though Valley Forge has the right to select  the scrap yard's defense counsel.

However, Judge Miller has ruled that, when it filed the breach of contract lawsuit, Valley Forge created a conflict of interest that prevents it from controlling the defense and the remediation.

In a  situation where Valley Forge would be allowed to control Hartford Iron's defense attorney —  an attorney who might have to choose a defense that furthers the financial interest of Valley Forge or Hartford Iron, rather than both — "the accepted practice has long been for the insurer to pay for independent defense counsel and exercise no control," the judge ruled.

For similar reasons, the judge ruled that Valley Forge has no right to control the remediation free from interference by Hartford Iron.

Meanwhile, IDEM is also taking enforcement action against Hartford Iron for a spill four months ago of about 110 gallons of diesel fuel from a portable generator that was being used for the storm water collection/treatment system, Hartford Iron says the insurance company's contractor is to blame for the spill.

Records indicate aggregate insurance coverage from the CNA companies of more than $15 million for the site from 1975 to 2000.

"Canvassing the neighborhood around Hartford Iron to get permission from residents to test their soil, it was amazing how many people over the past 30 years have suffered some type of cancer or neurological problems," Eric Evans, president of Blackford County Concerned Citizens, told The Star Press. "We have obtained a grant to do some individual, independent testing to determine whether the contamination has spread beyond the confines of that facility in the middle of a residential area."

The citizen groups is convening a community meeting on Oct. 22 to which it plans to invite Shere as well as government officials, health experts, economic development leaders, brownfield experts and others to see if "maybe we can find some solution," Evans said.

"IDEM pretty much took the position that they couldn't do anything until the federal lawsuit is resolved and they need to just wait until that's done," Evans added. "We viewed that as kind of a lame excuse. We felt IDEM maybe just dropped the ball. In defense of IDEM, like a lot of government agencies, they are under-funded and understaffed. We've decided to try to take this from a negative to a positive, so we are putting together this community discussion."

Contact Seth Slabaugh at (765) 213-5834.