Title: Lenders' liability and ultra-hazardous activities

Authors: Gérard Mondello

Addresses: Université Cote d'Azur, GREDEG, UMR 7321, CNRS, 250, rue Albert Einstein, 06560, Valbonne, Sophia Antipolis, France

Abstract: The amendments made to the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) in 1996 reinforced the exemption of lenders that finance ultra-hazardous activities. Then, they become involved in liability only if they manage or own polluting activities. The paper compares strict liability and negligence rule in an agency model of vicarious liability type, and proposes to restore lenders as principal by applying negligence rules to them while operators would resort to a strict liability rule. This scheme leads the lender to propose to the borrower the most favourable loan level that induces the latter to provide the socially optimal security level.

Keywords: strict liability; negligence rule; moral hazard; judgement-proof; lenders; risky activities.

DOI: 10.1504/IJRAM.2022.128703

International Journal of Risk Assessment and Management, 2022 Vol.25 No.1/2, pp.1 - 20

Received: 29 Jul 2020
Accepted: 08 Jan 2021
Published online: 02 Feb 2023 *