The insurance company of an underwear manufacturer has agreed to pay $42.5 million to clean up contamination at four industrial facilities in a suit with the Department of Justice on behalf of EPA and other agencies. The four sites, formerly owned by the manufacturer, are located in Michigan, New Jersey, and Tennessee.

"Insurers should take note that they may be liable for the cost of cleaning up their bankrupt clients' environmental messes," said Granta Nakayama, assistant administrator for EPA's Office of Enforcement and Compliance Assurance. "EPA will keep pursuing companies who pollute the environment."

The company filed for bankruptcy in 1999, and the court set up two trusts to receive and distribute the company's remaining assets, including its environmental insurance policies. The trusts subsequently tried to collect environmental cleanup costs from the insurance provider under the insurance policy, which covered response costs and natural resource damages under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA). The insurance company denied coverage and then brought a suit seeking to confirm that it was not obligated to pay the trusts for these costs.

Under the settlement agreement, the insurance company will make an initial $30 million payment plus interest from May 15, 2007, and 10 annual payments of $1.25 million to the underwear company's trusts. Most of the money will be used to clean up contamination at the hazardous waste sites.