Argonaut Ins. Co. v Travelers Ins. Co.
Annotate this CaseDecided on January 5, 2005
Supreme Court, New York County
ARGONAUT INSURANCE COMPANY, BALTICA- SCANDANAVIA REINSURANCE CO. OF AMERICA, INC., COMMERCIAL UNION INSURANCE COMPANY, EMPLOYERS MUTUAL CASUALTY COMPANY, FACTORY MUTUAL INSURANCE COMPANY, FINANCIAL INDEMNITY COMPANY, GENERALI (U.S. BRANCH) f/k/a GENERAL INSURANCE COMPANY OF TRIESTE AND VENICE, GENERAL STAR NATIONAL INSURANCE COMPANY f/k/a THE MONARCH INSURANCE COMPANY OF OHIO, GREAT AMERICAN INSURANCE COMPANY, HIGHLANDS INSURANCE COMPANY, HIGHLANDS UNDERWRITERS INSURANCE COMPANY, HORACE MANN INSURANCE COMPANY, NAC REINSURANCE CORPORATION, NATIONAL AUTOMOBILE & CASUALTY INSURANCE COMPANY, NATIONWIDE MUTUAL INSURANCE COMPANY, NORTHWESTERN NATIONAL INSURANCE COMPANY, PUBLIC SERVICE MUTUAL INSURANCE COMPANY, REPUBLIC INDEMNITY COMPANY OF AMERICA and UNDERWRITERS REINSURANCE COMPANY, Plaintiffs,
against
TRAVELERS INSURANCE COMPANY, Defendant.
124063/2000
Attorneys for the Plaintiffs
Nicoletti Gonson & Spinner LLP
546 Fifth Avenue, 20th Floor
New York, New York 10036
By: Gary R. Greenman, Esq.
Attorney for the Plaintiff Northwestern National Insurance Co.
Katherine L. Billingham, Esq.
7985 Washington Woods Drive
Centreville, Ohio 45459
(937) 433-4120
Attorneys for the Defendant Travelers Insurance Company
LeBoeuf, Lamb, Greene & McRae, LLP
125 West 55th Street
New York, New York 10019
(212) 424-8000
By: John Nonna, Esq. and Richard J. Cairns, Esq.
Helen Freedman, J.
Plaintiffs, other than National Automobile & Casualty Insurance Company and Northwestern National Insurance Company (NNIC), move for summary judgment, pursuant to CPLR 3212, declaring that they have no obligation to reimburse defendant, their reinsured, for any portion of a settlement paid by defendant to its insured, Witco Corporation, formerly Witco Chemical Company, Inc. and/or Witco Chemical Corporation (that entity, under any name, Witco), in connection with various environmental pollution claims. Plaintiff NNIC separately cross-moves for the same relief, adopting the motion brought by the other plaintiffs.
FACTUAL ALLEGATIONS[*2]
Defendant Travelers Insurance Company (Travelers) issued insurance policies to Witco, which provided primary liability coverage for the period from January 1, 1962 through April 1, 1973 (the Primary Policies), and umbrella excess coverage for the period from July 11, 1964 through April 1, 1973 (the Excess Policies). Plaintiffs' agent, Agency Managers Limited (AML), issued certain reinsurance contracts to Travelers (the Reinsurance Certificates), covering a portion of Travelers' obligations under the Excess Policies, for the period from July 21, 1964 through April 1, 1973. AML subsequently filed for bankruptcy, and plaintiffs thereafter appointed ROM Reinsurance Management Co., Inc. (ROM) as their agent, in AML's place.
Various non-parties asserted claims against Witco, for damages arising from environmental pollution at approximately 140 separate sites located throughout the United States. Witco sought coverage for those claims from Travelers, under the Primary and Excess Policies, and, in several declaratory judgment actions, Witco and Travelers litigated the extent of the coverage Travelers was obligated to provide. Witco and Travelers entered into a settlement agreement in 1995 (the Settlement Agreement), pursuant to which Travelers agreed to pay Witco $50 million (the Settlement Amount), in exchange for a release from all liability under the Primary and Excess Policies.
Travelers notified ROM that it wanted reimbursement, under the Reinsurance Certificates, in connection with its payment of the Settlement Amount, and its costs of litigating the declaratory judgment actions against Witco (the DJ Expenses). For purposes of its reimbursement claim, Travelers allocated the Settlement Amount to the Excess Policies and the Reinsurance Certificates on the basis that the environmental pollution claims against Witco constituted a "single occurrence."
The complaint asserts five causes of action seeking a judgment declaring that: (1) Travelers is not entitled to reimbursement, under the Reinsurance Certificates, because it breached its contractual obligation to furnish ROM with relevant information and records; (2) Travelers must provide ROM with such information and records; (3) Travelers' reimbursement claim does not fall within the scope of the Reinsurance Certificates' coverage; (4) Travelers is not entitled to reimbursement, because its allocation of the Settlement Amount and the DJ Expenses among the Excess Policies and the Reinsurance Certificates was unreasonable and made in bad faith; and (5) Travelers is not entitled to reimbursement, because it breached its duty to act in good faith with respect to the Reinsurance Certificates.
DISCUSSION
The moving plaintiffs (the Reinsurers) argue that they are entitled to a judgment declaring that they have no obligation to reimburse Travelers for any portion of the Settlement Amount, on the grounds that: (1) for purposes of Travelers' reimbursement claim, Witco's environmental coverage claims constituted "multiple occurrences" rather than a "single occurrence"; and (2) if the Settlement Amount is allocated to the Excess Policies and the Reinsurance Certificates on a multiple-occurrence basis, then Travelers will be unable to satisfy its per-occurrence, per-year retentions under those policies, so as to be entitled to any reimbursement from the Reinsurers. The Reinsurers' motion is denied, because they have conclusively established only the first ground of their argument, and not the second.
The Reinsurers have adequately established that, under the Excess Policies and the Reinsurance Certificates, Witco's environmental coverage claims constituted multiple [*3]occurrences. Travelers asserts two theories as bases for its contention that the claims constituted a single occurrence: (1) the theory that all of the environmental pollution claims relating to all of Witco's sites arose from a "common cause" or "common origin," namely, the failure of Witco's management to implement company-wide procedures to assure that operations and waste disposal were conducted in an environmentally sound manner; and (2) the theory that a single Witco site, Perth Amboy, "represented 100% of [Travelers'] reasonably evaluated exposure for all of the [Witco] sites involved in" the actions settled by Travelers' payment of the Settlement Amount.
As the Reinsurers correctly argue, both the relevant policy language and the relevant case law mandate rejection of Travelers' "common cause" or "common origin" theory as a basis for aggregating all of the Witco claims into a single occurrence. Travelers and the Reinsurers agree that the question of what constitutes an occurrence under the Reinsurance Certificates is governed by the meaning ascribed to that term in the Excess Policies. The Excess Policies covering the period from 1964 through 1970 provide, in relevant part:
G. Occurrence. "Occurrence" means, as respects property damage, (1) an accident, or (2) continuous or repeated exposure to conditions which results in injury to or destruction of tangible property, including consequential loss resulting therefrom, during the policy period. All damages arising out of such exposure to substantially the same general conditions shall be considered as arising out of one occurrence.
The Excess Policies covering the period from 1971 through 1973 provide similarly that, "[f]or purposes of determining the limit of [Travelers'] liability and the retained limit, all damages arising out of continuous or repeated exposure to substantially the same general conditions shall be considered as arising out of one occurrence".
The damages which arose from environmental pollution at Witco's approximately 140 sites throughout the United States cannot properly be aggregated into one occurrence because the damages arising at each site resulted from exposure to the particular conditions existing at that site, and not from some "general conditions" that were "substantially the same" at all of the different sites (see Consolidated Edison Co. of New York, Inc. v Employers Ins. of Wausau, 1997 WL 727486, *1-*2, *5-*6 [SD NY, Nov. 21, 1997] [applying New York law, and construing a definition of "one occurrence" that is substantially the same as the definition contained in the Excess Policies in this action]). The cause of the damages, in the case of any particular claim, was not the failure by Witco's management to implement environmentally-sound, company-wide procedures but, rather, the separate environmental pollution which occurred at the site involved in the claim.
The foregoing construction of the language in the Excess Policies, defining the term occurrence, is consistent with the case law of New York which, in determining the number of occurrences for insurance purposes, generally requires a court to "look to the event for which the insured is held liable" (in this instance, the actual pollution of the specific site which is the subject of a given claim), and "not [to] some point further back in the causal chain" (e.g., to a prior management failure which may have resulted in pollution at all of the company's sites) (Stonewall Ins. Co. v Asbestos Claims Mgt. Corp., 73 F3d 1178, 1213 [2d Cir 1995] [citing Arthur A. Johnson Corp. v Indemnity Ins. Co., 7 NY2d 222, 230 (1959)]; Endicott Johnson Corp. [*4]v Liberty Mut. Ins. Co., 928 F Supp 176, 181 [ND NY 1996]).
The rejection of Traveler's "common cause" or "common origin" theory in this case is also consistent with the Court of Appeals' holdings in Travelers Cas. and Sur. Co. v Certain Underwriters at Lloyd's of London (96 NY2d 583 [2001]). In that case, the Court of Appeals rejected Travelers' attempts to aggregate multi-site environmental pollution claims into a single loss or occurrence in two instances, for purposes of reinsurance claims: in one instance, plaintiff alleged that all of the claims against a company resulted from the "common origin" of a company-wide waste disposal practice; and, in the record, plaintiff alleged that all of the claims against a company shared the "common origin" of the company's managerial failure in the implementation and enforcement of a company-wide environmental policy (see id. at 590-592, 595).[FN1]
Documentary and testimonial evidence also precludes Travelers' attempt to aggregate the Witco environmental claims into a single occurrence on the basis that "Travelers' ... exposure at Perth Amboy ... represented 100% of its reasonably evaluated exposure for all of the [Witco] sites involved in" the actions settled by Travelers' payment of the Settlement Amount. Travelers' goal in negotiating the Settlement Agreement was concededly to obtain a "global" settlement, which released it from liability in connection with environmental claims relating to all Witco sites, and not just the Perth Amboy site. The Settlement Agreement (1) made no specific reference to the Perth Amboy site, (2) provided for the dismissal of four pending litigations, involving numerous Witco sites, and (3) provided that, in consideration for Traveler's payment of the Settlement Amount, Witco would release Travelers from all claims under the Primary and Excess Policies, relating to all Witco sites.
Travelers initially billed its reinsurance claim to the Reinsurers by means of a letter dated November 27, 1995, written by John Miller, the director of reinsurance at Travelers who handled its claim for reinsurance reimbursement for the Witco settlement. That letter clearly indicates that Travelers paid the Settlement Amount to eliminate its exposure not only with respect to Perth Amboy, but also with respect to Witco's other sites. The letter notes, by way of background, that four different legal actions had been commenced, involving Travelers and Witco, which "identified and put at issue property damage coverage for approximately 140 Witco ... sites". The letter then states that, under the Settlement Agreement: "Travelers obtained a complete release of all environmental pollution ..."; "[a]ll Environmental Pollution Claims, [*5]known or unknown, [were] resolved"; and "[a]ll existing environmental coverage litigation [would] be dismissed with prejudice".
In discussing the Settlement Agreement, the letter indicates that Witco had evaluated Travelers' exposure as being approximately $500 million for all Witco sites, but only approximately $75 million for the Perth Amboy site. Moreover, despite the $75 million figure associated with Travelers' exposure for Perth Amboy, the letter notes that, "[f]or purposes of the Witco negotiations Travelers evaluated its exposure based on the total occurrence limits potentially available to [Witco]" at $204.5 million per occurrence "and not on a site-by-site basis". Accordingly, the letter states that "Travelers obtained a complete release of all environmental pollution [claims] at a 75.55% discount of its $204.5 million per-]occurrence exposure with the $50,000,000 Settlement Agreement ...".
Thereafter, the letter clearly sets forth the "common cause" or "common origin" theory as the basis for Travelers' billing of the Settlement Amount to the Reinsurers on a single-occurrence basis, noting that "Travelers' treatment of the loss in this manner is consistent with the line of U.S. cases which finds a single occurrence in a company-wide practice even though the resulting injuries were widespread in time and place ..." [emphasis added]. The letter does not mention the Perth Amboy theory as a basis for Travelers' billing of the Settlement Amount to the Reinsurers as a single occurrence, although it does state that: "[i]t was Travelers' evaluation that a $50,000,000 settlement would be justified by the exposure at the Perth Amboy site alone" [emphasis added]. Moreover, Traveler's reliance upon the "common cause" or "common origin" theory, as the basis for aggregating its exposure with respect to all Witco sites into a single occurrence, belies its current contention that "100%" of the exposure eliminated by the Settlement Agreement was attributable to the Perth Amboy site.
By letter dated July 14, 1997, Miller sought to modify the allocation of the Settlement Amount to the Excess Policies and the Reinsurance Certificates, for purposes of Travelers' reinsurance reimbursement claim. This letter, also, indicates that Travelers paid the Settlement Amount to eliminate its exposure with respect to all Witco sites, and not just Perth Amboy. The letter states that Travelers has discovered two additional Primary Policies which it had issued to Witco, covering the years 1962 and 1963, in addition to the nine Primary Policies upon which Travelers' allocation had previously been based. The letter notes that certain expenses associated with the Perth Amboy site would not be reallocated, but would "continue to be evenly allocated over nine (9) policy periods, 01/01/64 - 04/01/72," "because Witco's use of PCB's at the [Perth Amboy] site did not commence until 1964". However, the letter also states that "Travelers will be submitting a revised bill to reflect a reallocation of the $50,000,000 indemnity portion of the Witco environmental settlement to all admitted policies, including the '62 and '63 policies". The letter's recognition that expenses which applied only to Perth Amboy should not be reallocated to include the Primary Policies for 1962 and 1963, coupled with its statement that the Settlement Amount would be reallocated to include the Primary Policies for 1962 and 1963, clearly indicates Travelers' understanding that the Settlement Amount was not paid to eliminate Travelers' exposure solely with respect to the Perth Amboy site.
When Miller was asked at his deposition whether Travelers had "ever take[n] the position in connection with [its reinsurance] claim that Perth Amboy was the single occurrence for the claim", he replied, "We did not bill Perth Amboy as a single occurrence". [*6]
Based on the foregoing Travelers' attempt to allocate the Settlement Amount to the Excess Policies and the Reinsurance Certificates on a single-occurrence basis, by contending that the Settlement Amount was wholly attributable to Witco's site at Perth Amboy, is unsustainable in that it has failed to establish either its single occurrence, theory either based on a common cause or Perth Amboy as the sole cause (see Travelers Cas. and Sur. Co. v Certain Underwriters at Lloyd's of London, 277 AD2d 100, 100 [1st Dept 2000], affd 96 NY2d 583 [2001]).
Travelers argues that the Reinsurers are barred from challenging its allocation of the Settlement Amount to the Excess Policies and Reinsurance Certificates on a single-occurrence basis by the "follow-the-settlements" or "follow-the-fortunes" doctrine, because the allocation was made in good faith, reasonable, and within the applicable policies. Each of the Reinsurance Certificates contains a "follow-the-settlements" clause to the effect that: "[a]ll claims involving this reinsurance, when settled by [Travelers], shall be binding on the Reinsurers, who shall be bound to pay their proportion of such settlements ...".
However, Travelers' argument based upon the follow-the-settlements doctrine is without merit. While that doctrine precludes a reinsurer from "second guess[ing] the good faith liability determinations made by its reinsured ...," the Reinsurers here "are not contesting Travelers' settlement decisions based on the underlying policies" (Travelers Cas. and Sur. Co. v Certain Underwriters at Lloyd's of London, 96 NY2d at 596 [citation and internal quotation marks omitted]). Rather, the Reinsurers' challenge is to Travelers' allocation of the Witco settlement on a single rather than multiple-occurrence basis, and purported failure to comply with its per-occurrence, per-year retention obligations, with the alleged result that Travelers would be able to obtain reimbursement from the Reinsurers in excess of their agreed-to exposure under the terms of the Reinsurance Certificates. The Reinsurers' challenge to Travelers' single-occurrence allocation is, therefore, not barred by the follow-the-settlements clause contained in the Reinsurance Certificates, because such a clause does not alter or override the other terms of a reinsurance contract, or obligate a reinsurer to indemnify a reinsured for payments in excess of the reinsurer's agreed-to exposure (see id. at 596-597).
However, the Reinsurers are not entitled to summary judgment declaring that they have no obligation to reimburse Travelers for any portion of the Settlement Amount, because they have failed to establish that if the Witco settlement is allocated to the Excess Policies and the Reinsurance Certificates on a multiple-occurrence basis Travelers will be unable to satisfy its per-occurrence, per-year retentions under those policies, so as to be entitled to any such reimbursement. The Reinsurers assert that, in order for Travelers to satisfy those retentions, it would have to establish that Perth Amboy constituted a single occurrence, and that more than 70% of the Settlement Amount was attributable to its exposure in connection with Perth Amboy. The Reinsurers assert that Travelers cannot establish that because only 23.6% of the Settlement Amount was attributable to Perth Amboy.
However, even assuming, merely arguendo, the validity of the premise of the Reinsurers' argument (i.e., that in order to be entitled to any reimbursement, Travelers must show that more than 70% of the Settlement Amount was attributable to Perth Amboy), the Reinsurers have failed to establish that more than 70% of the Settlement Amount was not attributable to Perth Amboy. In support of their contention that only 23.6% of the Settlement Amount may be attributed to Perth Amboy, the Reinsurers have submitted a copy of a chart, which was allegedly prepared [*7]from information provided by Witco. The chart purports to set forth Witco's estimate of its own costs associated with each of approximately 25 of its sites, and to show the percentage of the total cost represented by the cost for certain of the sites. The chart was allegedly prepared by Paul Thomson, who was retained by ROM to handle Traveler's reinsurance claim and is not dispositive here. The Reinsurers have not shown precisely how the numbers in the chart were derived.[FN2] Moreover, the Reinsurers have not shown that by Witco's cost estimates of the environmental claims associated with its various sites, are representative of Travelers' actual exposure. Indeed, the Reinsurers have submitted documents and deposition transcripts, in support of their motion, which include statements to the effect that Witco sought damages of $76 million in connection with the Perth Amboy site, and that Travelers' potential exposure for all of the Witco sites other than Perth Amboy might be as low as $10 million. Based upon those numbers, Travelers' exposure for the Perth Amboy site might represent more than 88% of the exposure for which Travelers paid the Settlement Amount, thus entitling it to serve recovery.
CONCLUSION AND ORDER
For the foregoing reasons, it is hereby
ORDERED that the motion for summary judgment brought by plaintiffs, other than National Automobile & Casualty Insurance Company and Northwestern National Insurance Company, and the cross motion for summary judgment brought by plaintiff Northwestern National Insurance Company, are both denied.
Parties shall appear for a conference on January 25, 2005, at 9:30 a.m. in room 208 at 60 Centre Street, New York, New York.
Dated: January 5, 2005
ENTER: _________________________
Helen E. Freedman, J.S.C.
Appearances
Attorneys for the Plaintiffs
Nicoletti Gonson & Spinner LLP
546 Fifth Avenue, 20th Floor
[*8]
New York, New York 10036
By: Gary R. Greenman, Esq.
Attorney for the Plaintiff Northwestern National Insurance Co.
Katherine L. Billingham, Esq.
7985 Washington Woods Drive
Centreville, Ohio 45459
(937) 433-4120
Attorneys for the Defendant Travelers Insurance Company
LeBoeuf, Lamb, Greene & McRae, LLP
125 West 55th Street
New York, New York 10019
(212) 424-8000
By: John Nonna, Esq. and Richard J. Cairns, Esq.
Footnotes
Footnote 1:In a prior decision concerning this case, relating to the issue of arbitrability, the Appellate Division, First Department noted that "[Travelers] is understandably desirous of having the viability of its single occurrence theory decided in an arbitral forum, the theory having already been decisively rejected in court (Travelers Cas. & Sur. Co. v Certain Underwriters at Lloyd's, 96 NY2d 583) ..." (Argonaut Ins. Co. v Travelers Ins. Co., 295 AD2d 235, 236 [1st Dept 2002]).
The Court of Appeals' holding in Travelers Cas. and Sur. Co. v Certain Underwriters at Lloyd's is not dispositive of whether Travelers may claim a single occurrence, for purposes of its reinsurance claim in this case, inasmuch as the policy language being construed by the Court of Appeals is different from the policy language at issue here, (see Travelers Cas. and Sur. Co. v Certain Underwriters at Lloyd's of London, 96 NY2d at 589, 591).
Footnote 2:The Reinsurers have not submitted copies of any single document or set of documents, created or provided by Witco, from which the numbers in the chart have obviously been derived. Some, but not all, of the numbers appear to be the same as those set forth in one of the exhibits appended to the Reinsurers' moving papers, which the Reinsurers identify as "information summaries produced by Witco pursuant to court order" in the action entitled Aetna Cas. and Sur. Co. v Witco Chem. Corp., Sup Ct, NY County, Index No. 118985/1993 (see Greenman Affirm., ¶ 64 and Ex. 12).
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