Century Indem. Co. v Keyspan Corp.Annotate this Case
Decided on May 7, 2007
Supreme Court, New York County
Century Indemnity Company, Plaintiff,
Keyspan Corporation, et al
Brooklyn Union Gas Company, Plaintiff,
American Home Assurance Company, et al., Defendants.
For Century Indemnity Company:
White and Williams, LLP
By: Robert F. Walsh, Esq.
One Penn Plaza
150 W. 34th Street, Suite 3508
New York, New York 10119
White and Williams, LLP
1800 One LIberty Place
Philadelphia, PA 19103
Siegal, Napierkowski & Park, Esqs.
By: Martin F. Siegal, Esq.
Lawrence A. Nathanson, Esq.
533 Fellowship Road, Suite 120
Mt. Laurel, New Jersey 08054
For Brooklyn Union Gas Company:
Dickstein & Shapiro, LLP By: David L. Elkind, Esq.
Edward Tessler, Esq.
Joseph F. Fields, Esq.
1177 Avenue of the Americas
New York, New York 10036
Erin L. Webb, Esq. (admitted pro hac vice)
Jennifer L. Rasile, Esq. (admitted pro hac vice)
1825 Eye Street NW
Washington, DC 20006
John E. Reilly, Esq.
One MetroTech Center
Brooklyn, New York 11201
Michael D. Stallman, J.
In these actions joined for trial, an excess insurer seeks a judgment declaring that excess insurance policies issued to an energy utility and its predecessors do not provide coverage for the defense, investigation and cleanup costs related to manufactured gas plant (MGP) sites that may pose an environmental hazard. The insurer, Century Indemnity Company (Century), moves for partial summary judgment in both actions against Brooklyn Union Gas Company (Brooklyn Union) for a declaration that notice was sent late to Century with respect to four MGP sites, known as the Coney Island, Greenpoint, Citizens Works, and Clifton Sites.
Brooklyn Union was formed in 1895, from the consolidation of seven gas companies, some of which began operating in Brooklyn in 1860.[FN2] As Brooklyn Union grew in the 1950s, it acquired other gas companies which owned the MGP sites at issue in this action, where coal and related products were used to manufacture gas for light and heat.
Each of the four sites has similarly long histories. Brooklyn Union's predecessor, Brooklyn Borough Gas Company (Brooklyn Borough) manufactured gas at the Coney Island site, located at Neptune Avenue and Shell Road in Brooklyn, from 1907 to 1951. According to Brooklyn Union, the plant was converted into a natural gas facility in 1951 (although some gas was still made until 1958), and the MGP was demolished in 1960.
Since 1895, Brooklyn Union has owned the Citizens Works a/k/a Carroll Gardens site, located at Smith and Fifth Streets in Brooklyn, adjacent to the Gowanus Canal. The site had a MGP facility in operation from 1860 to 1964, and the facility was demolished from 1964 to 1965.Since 1925, Brooklyn Union has owned the Greenpoint site, bounded by Maspeth Avenue, Vandervoort Avenue, Lombardy Street and Newtown Creek in Brooklyn. The Greenpoint site was constructed to produce coke to be used as a feed stock for both gas and steel manufacturing, with the byproduct of manufactured gas. Brooklyn Union continues to own the site, where it operates a liquified natural gas plant.
For about a hundred years, gas was manufactured at the Clifton site, located on Staten Island, from 1857 until 1957, when Brooklyn Union acquired the stock of the previous owner of the site, New York & Richmond Gas Company.[FN3] The MGP structures at the Clifton site were demolished from 1957 to 1959.
According to Brooklyn Union, Century and its predecessors were leading insurers of New York gas utilities for more than 50 years. In the 1940s, 1950s, and 1960s, Century and its predecessors issued first layer excess liability policies to Brooklyn Union.
The various policies had the following notice provisions (policy periods and limits as indicated):
Policy P 84739/XWC-219 (Feb. 18, 1941 - Feb. 18, 1946; limits of $1 million in excess of $100,000, per accident):
The Insured, upon the occurrence of any accident that appears reasonably likely to involve liability on the part of the Company, shall give immediate written notice thereof to the Company.... Such notice shall contain particulars sufficient to identify the Insured and also the fullest information obtainable at the time. The Insured shall give like notice, with full particulars, of any claim made on account of such accident (emphasis supplied).
Policy XPL-3661 (Nov. 30, 1951 - June 1, 1963; limits of $500,000 in excess of $100,000, per accident from November 30, 1951 to November 30, 1954, and limits of $1 million in excess of $100,000, per accident from November 30, 1954 to June 1, 1963):
[*3]Upon the happening of an occurrence or accident that appears reasonably likely to involve liability on the part of the company written notice shall be given by or on behalf of the insured to the company ... as soon as practicable. Such notice shall contain particulars sufficient to identify the insured and also the fullest information obtainable at the time. The insured shall give like notice, with full particulars, of any claim made on account of such occurrence or accident (emphasis supplied).
Policy XPL-5910 (June 1, 1963 - July 1, 1965; limits of $1 million in excess of $100,000, per occurrence): Upon the happening of an occurrence reasonably likely to involve the company hereunder, written notice shall be given as soon as practicable to the company ... after knowledge hereof by the insurance department of the insured. Such notice shall contain particulars sufficient to identify the insured and further information as requested by the company. The insured shall give like notice of any claim made on account of such occurrence (emphasis supplied).
Policy XCP 3511 (July 1, 1965 - July 1, 1968; limits of $20 million in excess of $100,000, per occurrence): The Insurance Department of the insured, upon learning of any occurrence which in its judgment is likely to result in a claim or claims in excess of the retained limit, shall give notice as soon as practicable to the company... (emphasis supplied).
Three additional excess liability policies, SRL 2221 (from July 1, 1968-July 1, 1969), XPL 3513 (from January 23, 1951-January 23, 1957), and XCP 1166 (from January 23, 1957-June 1, 1959) contain notice provisions which mirror the provisions in policies XCP 3511 or XPL-3611. These three policies have limits of either $1 million in excess of $100,000, per accident or $500,000 in excess of $100,000, per accident.
According to Brooklyn Union, Century also issued first layer excess liability insurance policies to Brooklyn Union from 1939 to 1941 and 1946 to 1951, but copies of those policies are missing. Brooklyn Union maintains that the relevant terms of those allegedly missing policies are similar to the terms of the policies that the parties have located.
Associated Electric & Gas Insurance Services (AEGIS) also issued Brooklyn Union a claims-first-made excess liability policy for the period from July 1, 1990 to July 1, 1991. AEGIS provides coverage for certain types of damage caused by an occurrence for which a claim is first made against Brooklyn Union, during the policy period or during any discovery period, or about which a "notice of circumstances" is given to AEGIS during the policy period or during any discovery period. Under the policy, "notice of circumstances" means "written notice by the INSURED to the COMPANY of any occurrence or circumstances, which appear likely to give rise to a CLAIM against the INSURED."
In 1976, Congress enacted the Resource Conservation and Recovery Act (42 USC §§ [*4]6901 et. seq.), also known as RCRA. In 1980, Congress enacted the Comprehensive Environmental Response and Liability Act (42 USC §§ 9601-9675), commonly referred to as CERCLA. On the federal level, CERCLA and RCRA are the main laws which govern the investigation and cleanup of sites contaminated with hazardous substances, and the management of hazardous substances.
As required under CERCLA, Brooklyn Union gave notice to the United States Environmental Protection Agency (EPA) in 1991 of the existence of several of its former MGP sites, because of prior storage on those sites of coal tar wastes containing substances classified as hazardous waste under federal law. The notices stated that based upon the information it had, Brooklyn Union believed that releases to the environment were unlikely. The notices did not result in any action from the EPA.
On the state level, as authorized under RCRA, the New York State Department of Environmental Conservation (NYSDEC) maintains a registry of Inactive Hazardous Waste Disposal Sites in the State of New York. See Environmental Conservation Law § 27-1305 (1); see also 6 NYCRR Part 375. In April 1991, NYSDEC sent Brooklyn Union a position paper indicating that coal tar, the primary byproduct of the gas manufacturing process, was not itself considered a hazardous waste under New York law.[FN4] The paper noted that, nonetheless, most coal gasification sites were heavily contaminated, may pose a threat to the environment and should be tracked. As a result, NYSDEC would correspond with utilities to identify all the sites and determine the need for investigation and remediation. In July 1992, NYSDEC allegedly indicated again that, until certain changes in its testing requirements were implemented, NYSDEC would not push for any action at MGP sites unless there was an obvious impact or release from the site. Thus, even in the early 1990's, NYSDEC had apparently taken no actions with respect to Brooklyn Union's MGP sites.
In December 1984, Stone & Webster Engineering Corp, an environmental consultant, issued a report that recommended that the Citizens Works site not be used as a development by the New York City Housing Partnership, noting that it was a MGP site from the 1860s until the 1960s. The report stated, "The site has many environmental and engineering problems, including recent illegal dumping, its long-term use (100 years) as a chemical facility involving hazardous substances, numerous subsurface foundations and piles remaining in place, and an adjoining heavily polluted canal. Consequently, based on our review and analyses, we cannot conclude that the site would be environmentally safe, suitable, or desirable for future occupants at the proposed housing and recreational development."
In 1987, an environmental consultant hired by Brooklyn Union, Arthur D. Little, Inc. [*5](ADL), reported contaminants below the water table at the Greenpoint Site. By a letter dated May 21, 1991 to Brooklyn Union's counsel, ADL recommended "further preliminary characterization of contamination at the facility" for an outline of future activities related to developing remediation plans at the Greenpoint site.
In 1989, Brooklyn Union asked ADL to review test chemical analyses of soil samples taken from the Clifton site. According to Brooklyn Union, ADL's study indicated that there was no contamination found at the Clifton site at a level requiring reporting to federal, state, or local authorities.
In 1989, the City of New York Department of Environmental Protection (NYCDEP) discovered soil and groundwater contamination at the Coney Island site. By a letter dated January 31, 1990 to Brooklyn Union, NYCDEP noted the presence of polynuclear aromatic hydrocarbons, volatile organic compounds, and metals associated with the previous use of the site as coal gasification plant at the Coney Island site. NYCDEP requested that guards be placed at the site, that the site be permanently fenced off as soon as possible, and requested a plan for capping the site with Bentonite or equivalent material. Accompanying the NYCDEP letter was a report by a Brooklyn Union consultant, Roy Weston, who estimated the cost for removal of contaminated soil for off-site disposal and possible groundwater remediation at $8 million. Brooklyn Union's minutes from a February 1990 meeting with NYCDEP state that NYCDEP considered capping to be the best alternative for ensuring the safety of the community, but NYCDEP would consider alternatives to capping the site that would provide an equivalent amount of protection to the community. NYCDEP believed that some areas of the site would have to be capped in any case, but that if Brooklyn Union could come up with a protective method that did not include capping, NYCDEP would review it.
In September 1990, Roux Associates, Inc. prepared an environmental report for NYSDEC on the Citizens Works site, and the report found soil and ground water contaminated with organic and inorganic chemicals. Roux Associates, Inc. concluded that "[t]he principal source of ground-water and soil contamination at the site is coal tar and derivatives from the coal gasification facility." The report recommended further investigation and determination of proper remediation. The report generated publicity, and it was discussed at a community meeting in November 1990 that Brooklyn Union attended, where it obtained a copy of the report.
On June 21, 1991, Brooklyn Union sent AEGIS a "Notice of Circumstances" regarding 13 MGP sites, including the Coney Island, Greenpoint, Citizens Works, and Clifton sites. The notice states that all four sites were placed on the State registry of Inactive Hazardous Waste Sites and that Brooklyn Union believes that the sites may pose an environmental hazard which could result in the future imposition of cleanup liability by government authorities or adjacent owners.[FN5] In addition, with respect to the Coney Island site, the notice states that "[a]t the request of the City of New York, studies have recently been conducted by the Company regarding the potential exposure to contaminants to children playing on the ball field." With respect to Citizens Works, the notice indicates that NYSDEC performed a study of the property and is [*6]currently involved in a Phase II study and has reportedly identified Brooklyn Union as a potentially responsible party for the property. However, with respect to all four sites, Brooklyn Union stated that it had not received notice of cleanup and was not making a claim, but rather was giving notice of circumstances and reserving the right to make claims in the future.
In response to Brooklyn Union's notice, on July 19, 1991, AEGIS sent separate responses for each site, asking Brooklyn Union to place its other insurers on notice, if it had not already done so. On March 17, 1992, Brooklyn Union notified the New York State Public Service Commission (PSC) that it had "put its insurance carriers on notice regarding the potential for future cost recovery from them."
On January 11, 1993, the City of New York gave Brooklyn Union a Notice of Intent to Bring Suit, pursuant to RCRA and CERCLA, with respect to Brooklyn Union's Coney Island site, based upon contamination resulting from waste materials from coal tars. On February 3, 1993, Brooklyn Union gave Century a notice of claim regarding the Coney Island site and notice of circumstances regarding the Greenpoint, Citizens Works and Clifton sites, as well as nine other former MGP sites.
By letter dated March 17, 1993 to Brooklyn Union, Century acknowledged receipt of Brooklyn Union's letter, and stated that it will investigate the matter "under a complete reservation of rights until all appropriate information can be obtained and reviewed," and raised the issue, among other issues, "whether notice of the claim was given in accordance with the terms of the policies."
On July 9, 2001, Century commenced an action against Keyspan Corporation (Keyspan),[FN6] Brooklyn Union, and nine insurance companies, seeking, among other things, a judgment declaring that Brooklyn Union's costs incurred in connection with the defense, investigation, and cleanup of 15 former MGP sites are not covered under excess liability insurance policies that Century issued to Brooklyn Union and its predecessors.
The same day, Brooklyn Union commenced its own action against Century and seven other insurance companies in Supreme Court, Kings County, seeking a judgment declaring that its costs incurred in connection with the defense, investigation, and remediation of its former MGP sites are covered under certain excess liability policies issued by Century and other insurers. That action has been transferred to New York County as Brooklyn Union Gas v American Home Insurance Co., Sup Ct, NY County, Index No. 403087/2002, and is now joined for trial with Century's action.
In February 2003, Century moved for partial summary judgment in Brooklyn Union's action (Action # 2) on the third cause of action of Brooklyn Union's third amended complaint, which alleges, among other things, that Century failed to respond timely to Brooklyn Union's demands for coverage. In support of its motion, Century contended that, on numerous occasions, it notified Brooklyn Union that it had no obligation to indemnify Brooklyn Union until the underlying primary insurance and self-insured retentions had been exhausted, and requested information relevant to that matter. Brooklyn Union submitted evidence that it had spent $4 million in cleanup costs for the Coney Island site, and was facing $34 million in additional costs, [*7]and that, therefore, Century knew that the $100,000 self-insured retentions had been exhausted. Century argued that, under Consolidated Edison Co. of New York v Allstate Ins. Co. (98 NY2d 208 ), Brooklyn Union's costs must be prorated over the period of time that the alleged property damage took place. While Century asserted that the property damage occurred years before the first excess policy was issued to Brooklyn Union, it argued that the self-insured retentions under each excess policy might not have been met if Brooklyn Union's costs were prorated in accordance with Consolidated Edison Co. of New York.
By decision dated June 24, 2003, the Court (Gans, J.) denied Century's motion, reasoning that, "it is not clear, from the record currently before the court, whether pro rata allocation applies here. It is equally unclear what impact pro rata application would have on Brooklyn Union's self-insured retention, if it does apply, since relevant details regarding contamination at the sites have not been presented to the court."
To establish that Brooklyn Union's notice to Century is late as a matter of law, Century must demonstrate that Brooklyn Union unreasonably delayed, as a matter of law, in notifying Century after Brooklyn Union's duty to notify arose. Here, the parties dispute when Brooklyn Union's duty to notify arose. Century argues that Brooklyn Union's duty to notify Century about all four sites arose in June 1991, when Brooklyn Union gave notice to AEGIS. Brooklyn Union argues that the duty to notify arose only as to the Coney Island site in January 1993, when NYCDEP notified Brooklyn Union of its intent to sue regarding the Coney Island site. As to the other sites, Brooklyn Union maintains that the duty to notify has yet to arise. Nevertheless, Brooklyn Union asserts that it was acting "with an overabundance of caution" when it gave notice to Century of the potential liability of the other sites. See Opp. Mem. at 30.
"The duty to give notice arises when, from the information available relative to the accident, an insured could glean a reasonable possibility of the policy's involvement." Paramount Ins. Co. v Rosedale Gardens, Inc., 293 AD2d 235, 240-241 (1st Dept 2002); see also Red Apple Supermarkets, Inc. v North River Ins. Co., 182 F3d 901 (2d Cir 1999). Century's insurance policies, which require notice when it appears "reasonably likely" or "likely" that Century's excess policies would be reached, means that the duty to notify arises upon a "reasonable possibility" that the policy at issue would be involved, "based on an objective assessment of the information available." Christiania General Ins. Corp. of New York v Great American Ins. Co., 979 F2d 268, 276 (2d Cir 1992).[FN7] It "does not require a probability much [*8]less a certainty that the policy at issue will be involved." Ibid. However, "mere speculation, rumor, or remote contingencies far removed from the particular policy" are insufficient to trigger the notice requirement; rather, the standard is one of reasonableness. Christiania General Ins. Corp. of New York, 979 F2d at 275.
Century argues that Brooklyn Union had a duty to notify all excess insurers when it notified AEGIS, citing Consolidated Edison Co. of New York, Inc. v Allstate Insurance Co. (Sup Ct, NY County, May 30, 2000, Gammerman, J., Index No. 600142/98). Century maintains that the "Notice of Circumstances" that Brooklyn sent to AEGIS is prima facie evidence that Brooklyn Union gleaned, with a reasonable possibility, that its excess policies would be reached. Century also relies on reports indicating contamination at the four sites that were prepared in 1984, 1987, and 1991, by Brooklyn Union's environmental consultants.
Brooklyn Union maintains that it gave notice to AEGIS because the AEGIS policy was a "claims-first-made" policy, whereas Century's policies are "occurrence-based policies." Brooklyn Union also contends that AEGIS specifically requested early notification, and that, if anything, the notification might have been premature. Brooklyn Union seems to argue that its decision to notify AEGIS was therefore driven more by the fact that the AEGIS policy was coming to an end, as opposed to a determination that AEGIS's excess policy would be reached.
Brooklyn Union indicates that, even in August 1994, more than a year after it gave notice Century, Century stated, "To date, Brooklyn Union has not provided us with any information to indicate that the primary coverage underlying XCP 143540, or underlying any other [Century] policies at issue, has been eroded as a result of the exposure emanating from the alleged losses." Elkind Opp. Affirm., Ex 17. Century's own expert testified at his deposition that, as late as June 20, 1995, Century had not determined whether the retained limit of the policies had been exhausted (see id., Ex 19 [Heinze EBT], at 65-66), which Century's expert attributes to the Brooklyn Union's failure to address Century's requests for information. Id., Ex 20. Thus, Brooklyn Union's argument goes that, with the discovery provided in these actions to date, if Century itself cannot determine that its policies will be reached, then Century cannot argue that, as a matter of law, Brooklyn Union had sufficient information to determine otherwise. Century argues that its own determinations are irrelevant to the issue of notice.
Century's reliance on Consolidated Edison Co. of New York, Inc. v Allstate Insurance Co. is misplaced. There, Justice Gammerman ruled that Consolidated Edison's notice to two excess insurers, for claims of environmental contamination attributed to a MGP in Tarrytown, New York, was untimely as a matter of law. The Court reasoned that, "[w]here an insured provides notice on the same claim to some similarly situated insurers and does not provide notice to others, the insured has not met its burden of reasonableness as to the later notified insurers (citations omitted)." Id. at 11. Here, Century has not shown that AEGIS and Century are similarly situated insurers, such that Brooklyn Union's decision "can only be viewed as an election to look to one source rather than another for reimbursement." Power Auth. v Westinghouse Elec. Corp., 117 AD2d 336 (1st Dept 1986). The AEGIS policy and Century policies do not provide coverage for the same periods, and the notice provisions of the policies are not the same. As Brooklyn Union points out, to accept Century's argument would lead to the [*9]conclusion that, as a matter of law, notice to one excess insurer triggers a duty to notify all excess insurers.
Turning to the other arguments, the legal framework governing the timeliness of notice to excess insurers does not fit well in cases involving environmental contamination, where, as here, liability for cleanup is based in large measure on the involvement of a regulatory agency. One must keep in mind that, in the context of summary judgment, the "reasonable possibility" that an excess policy will be involved must be demonstrated as a matter of law. Put differently, Century must demonstrate such a reasonable possibility exists with a certainty that would warrant judgment as a matter of law.
However, a regulatory agency's investigation and discovery of contamination does not necessarily lead to liability for remediation or cleanup. A regulatory agency's approach to environmental contamination may be unsettled, or may evolve gradually over time. A question arises, then, as to the degree of likelihood of regulatory agency action that would constitute "a reasonable possibility" as a matter of law. History and hindsight invariably color the assessment of the agency's approach, and so the possibility that an agency would have imposed cleanup liability may appear more likely in hindsight than when the events themselves unfolded. To find, as a matter of law, that there was "a reasonable possibility" that a regulatory agency would impose remediation runs the risk of second-guessing a regulatory agency's approach.
In addressing the level of certainty required for a finding of "a reasonable possibility" as a matter of law, Brooklyn Union apparently contends that Century must demonstrate more than reasonable possibilities. According to Brooklyn Union, Century must prove that Brooklyn Union actually knew of (1) environmental contamination causing property damage (2) during Century's policy periods that (3) would give rise to liability (4) in excess of $100,000 for each policy year, all prior to its notice to Century in February 1993. Opp. Mem. at 24. According to Brooklyn Union, it was reasonably likely that it would be held liable for damage to a third-party's property only in January 1993, when the City of New York sent Brooklyn Union a "notice of intent to bring suit" for the Coney Island site.
As Century points out, Brooklyn Union sets the standard of proof too high, because Brooklyn Union does not take into account "the reasonable possibility" of property damage from environmental contamination that would involve Century's excess policies. Such a reasonable possibility could occur in a variety of ways, with less than actual knowledge: (1) a reasonable possibility exists for property damage, and the cleanup costs imposed by the regulatory agency for such damage are certainly known to reach the excess policies; (2) the property damage is certain, while a reasonable possibility exists that the regulatory agency will impose cleanup, the costs of which will certainly reach the excess policies; or (3) the property damage is certain and the regulatory agency will impose remediation, while a reasonable possibility exists that the costs of remediation will reach the excess policies.
However, it becomes very difficult to determine whether a "reasonable possibility" exists as a matter of law if the evidence of environmental contamination is unclear, if the likelihood that a regulatory agency will impose cleanup is uncertain, and if the extent of remediation is not then known.
The Court of Appeals's decision in Consolidated Edison Co. of New York v Allstate Ins. [*10]Co. (98 NY2d 208, supra) apparently adds yet another layer of complexity in this inquiry. There, Consolidated Edison sought to recover defense and indemnification costs from its insurers for environmental damages arising from contamination from a MGP plant that Con Edison's predecessors owned and operated for 60 years. On a motion to dismiss, the Supreme Court ruled that it would prorate the damages and dismiss the action as against all insurers whose policies would not be reached when damages are prorated. The court took the highest projection of damages by Con Edison's expert, and then divided it by the number of years named in the complaint (i.e., the "time-on-the-risk" method).
On the issue of allocation, the Court of Appeals stated,
"Where, as here, an alleged continuous harm spans many years and thus implicates several successive insurance policies, courts have split as to whether each policy is liable for the entire loss, or whether each policy is responsible only for a portion of the loss. This is a matter of first impression for this Court, though federal courts have predicted New York's answer [citations omitted]." Consolidated Edison Co. of New York , 98 NY2d at 221.
The Court held that "pro rata allocation under these facts, while not explicitly mandated by the policies, is consistent with the language of the policies." The Court indicated that it was impossible to determine the extent of the property damage that resulted from an occurrence within a particular policy period. Ibid. To the extent that Century has already argued that pro rata allocation must be taken into account to determine whether Century has a duty to indemnify Brooklyn Union for its losses, pro rata allocation must therefore be factored into the analysis of whether Brooklyn Union had a duty to notify Century.
Whether the cleanup costs should be prorated over successive policy years makes it difficult for an insured to glean, with a reasonable possibility, that its excess policies will be reached. Even if the cleanup costs are known, calculating pro rata allocation depends heavily on facts that would indicate the full extent of the property damage, and the number of years and policies over which costs must be prorated.
Given all of the difficulties, the uncertainties, and the previously unsettled questions of law presented, this Court must grapple with the question of the degree of uncertainty which would nevertheless permit a finding, as a matter of law, that, as of June 1991, Brooklyn Union gleaned "a reasonable possibility" that Century's excess policies were involved. Reynolds Metals Co. v Aetna Cas. & Sur. Co. (259 AD2d 195 [3d Dept 1999]) and Long Island Lighting Co. v Allianz Underwriters Ins. Co. (24 AD3d 172, supra) illustrate the difficulty in applying the standards of notice to excess insurers in environmental contamination cases.
Reynolds Metal Co. presented the issue of whether Reynolds Metals Company (Reynolds) had given timely notice to its excess insurers regarding its possible liability for contamination of the St. Lawrence River from its operation of an aluminum reduction plant. In 1982, NYSDEC notified Reynolds that it classified a landfill and lagoon near Reynolds's plant as possible hazardous waste disposal sites for inclusion in the State's Superfund Program, because of possible groundwater contamination. In December 1983, NYSDEC notified Reynolds that it was a "potentially responsible party," liable for present and future costs of response, removal, and remediation for the release or threatened release of hazardous substances at the landfill and lagoon, and to "its environs," including "the natural resources of the State of New York at and [*11]around the referenced site." Reynolds Metal Co., 259 AD2d at 199. In January 1984, NYSDEC notified Reynolds that the waste disposal locations were classified with a rating that signified that action at the two sites might be deferred, because they did not present a significant threat to public health or to the environment. In 1985, Reynolds negotiated permits for the landfill and a new lagoon, which including consenting to an order to perform an environmental investigation of its aluminum plant. Early drafts of the consent order noted the presence of PCB contaminated sediment in the St. Lawrence River. In September 1987, NYSDEC informed Reynolds that it was a potential responsible party for the contamination of the St. Lawrence-Grosse River system. In June and July 1988, Reynolds notified its excess insurers of the potential liability.
The lower court found, as a matter of law, that Reynolds was required to give notice of an occurrence or occurrences no later than December 1986. The Appellate Division reversed, reasoning that, although plaintiff was first notified in December 1982 that the lagoon and landfill were being classified as possible hazardous waste dispose sites, no such contamination was confirmed at either site, and NYSDEC did not classify the two sites as posing a significant threat to public health. Reynolds Metal Co., 295 AD2d at 202. As to the consent order, the Court noted that no remediation was specifically ordered, and there was no requirement of an investigation of the St. Lawrence River. The Court also noted that NYSDEC's notice in September 1987 did not require remediation of any third-party property, and no evidence indicated that plaintiff had any actual estimates for cleanup costs prior to its service of the notices in the summer of 1988. Therefore, the Court concluded that the excess insurers failed to tender evidence that excess insurance coverage would be implicated, thus requiring notice to the excess insurers.
Long Island Lighting Co. stands in contrast to Reynolds Metal Co. This case involved environmental contamination at the Syosset landfill. Century Indemnity and other insurers took the position that Long Island Lighting Company (LILCO)'s duty to notify its excess insurers arose in 1990, when the EPA first informed LILCO that it was a potentially responsible party in connection with the future investigation and remediation of the landfill, and LILCO attended an EPA meeting concerning the landfill. See Long Island Lighting Co. v Allianz Underwriters Ins. Co. (Sup Ct, NY County, Dec. 30, 2003, Gammerman, J., Index No. 604715/1997, affd 24 AD3d 172, 173 [1st Dept 2005]). In the previous year, the EPA requested information from LILCO concerning wastes disposed into the landfill. LILCO did not give notice to its insurers until March 1994, five weeks after a lawsuit was filed against LILCO.
The Supreme Court rejected the insurers' position that the duty to notify the excess insurers was triggered in 1990, when the EPA informed LILCO that LILCO was a potentially responsible party. It noted, "by the end of 1990, the situation remained fluid. There was no definitive action, by either EPA or the Town of Oyster Bay, evidencing a level of compulsion or formality that would necessitate notice." Id. at 14. Nevertheless, the Supreme Court held that LILCO's notice was untimely. Prior to notifying its insurers, LILCO had received a letter from a plaintiff's lawyer threatening a lawsuit regarding the landfill in September 1993, six months earlier. Id. The court rejected LILCO's argument that there was a "reasonable possibility" that the excess policies in question would not be reached, because LILCO failed to offer evidence that the timing of its notice resulted from a "deliberate determination" to that effect. Id. By a 3-2 decision, the Appellate Division affirmed the Supreme Court's decision. Long Is. Lighting. Co., [*12]24 AD3d 172, appeal dismissed 6 NY3d 844 (2006) (appeal dismissed sua sponte on finality grounds).
By itself, the "Notice of Circumstances" letter dated June 21, 1991 from Brooklyn Union to AEGIS is insufficient to establish that Brooklyn Union's duty to notify its excess carriers was triggered as to the Coney Island, Greenpoint, Clifton, and Citizens Works sites in June 1991. Although the letter does state that "cleanup liability may be imposed in the future," the letter does not recite the facts that would establish, as a matter of law, that Brooklyn Union gleaned, with a reasonable possibility, that its excess policies would be reached, as opposed to referring to remote contingencies that would not trigger a duty to notify. Therefore, the Court must objectively assess the information which was available to Brooklyn Union at the time it sent notice to AEGIS.
The record indicates that Brooklyn Union was aware of possible environmental contamination at the Greenpoint, Clifton, and Citizens Works sites since the late 1980s, from reports prepared by Roux Associates, Inc., Stone & Webster Engineering Corp., and ADL. However, there was little, if any, regulatory involvement with respect to the three sites, especially as to the Greenpoint and Clifton sites. The fact that Brooklyn Union was aware that the City received recommendations not to build housing at the Citizens Works site is an inadequate basis for finding that the duty to notify was triggered, particularly in light of the other sources of contamination at the site. The Stone & Webster report noted concrete waste products and miscellaneous building wastes, auto bodies, and "several 55-gallon and 5-gallon drums of undetermined origin . . . . Numerous barrel lids, some with names of chemical companies printed clearly across the top, were found near a dumpster at the northeast corner of the vacant lot." Liebs Aff., Ex 32 at 7.
Information about remediation costs purportedly available to Brooklyn Union comes from a handbook of general information and case histories of MGP sites in Iowa, Pennsylvania, Minnesota, Plattsburgh, New York, the United Kingdom, and a confidential site, published in the mid-1980s by a trade group. Information also comes from a computer program distributed to Brooklyn Union in 1990, which Century assumes that Brooklyn Union must have used to calculate its costs for the Coney Island site. Century does not submit any remediation cost estimates specific to the Greenpoint, Clifton, or Citizens Works sites, and does not submit evidence of any remediation plans for these sites.
In short, the evidence of the involvement of regulatory agencies does not establish, as a matter of law, a reasonable possibility that these agencies were imposing or about to impose cleanup liability upon Brooklyn Union for the Greenpoint, Clifton, or Citizens Works sites as of June 1991. In the absence of any specific plans by regulatory agencies requiring remediation for these sites, any costs of remediation would not be within the realm of reasonable possibility. Therefore, Century has not met its burden of demonstrating that Brooklyn Union's duty to notify Century of potential claims involving the three sites arose when Brooklyn Union gave notice to AEGIS.
With respect to the Coney Island site, regardless of whether NYCDEP "demanded" or "requested" that further investigation be conducted and the site be capped, it was clear that at least some remediation would likely be required. The Executive Summary of the Weston report [*13]states, in pertinent part:
"[c]onstruction of the proposed district garage would almost certainly require site remediation. The most likely form of remediation would include excavation and off-site disposal of contaminated soils, coupled with capping of some contaminated areas. It is highly likely that a groundwater cleanup, involving recovery of free product at a minimum, would also be required." See Nathanson Aff., Ex 23.
The Weston report projected remediation costs as high as $8 million. Brooklyn Union contends that Weston's study extrapolated extensively on limited data, and Weston performed a qualitative risk assessment focusing primarily on the risk from cyanide, which was never found at the Coney Island site. See Liebs Aff. ¶24, Liebs Aff. Ex 22. However, Brooklyn Union does not dispute the presence of other contaminants at the Coney Island site.
Nevertheless, Century fails to establish, as a matter of law, that, as of June 1991, a "reasonable possibility" existed that its excess policies would be reached as a result of any liability Brooklyn Union faced for the Coney Island site, given a prior decision in one of these actions (Action #2) in February 2003. Justice Gans ruled that a question of fact exists as to whether cleanup costs for the Coney Island site should be prorated, which is now law of the case. See Section I.D., supra. Whether pro rata allocation is necessary was an unsettled question of law when Brooklyn Union notified AEGIS in June 1991. The $8 million cost estimate is not sufficient to establish, as a matter of law, that Century's policies would be reached, because the cost estimate does not account for pro rata allocation, which Justice Gans ruled is a question of fact. On this motion, Century does not take into consideration that, if remediation costs are prorated, then there may not have been a reasonable possibility in June 1991 that its excess policies would be reached.[FN8] The MGP at the Coney Island site existed for over 50 years, and Brooklyn Union disputes the $8 million remediation cost estimates. Although Century also submits Brooklyn Union's own costs projections, which place remediation costs between $12.56 million for capping alone, and $78.55 million for full remediation, those cost projections are undated. See Nathanson Aff., Ex 19.
Century has not established, as a matter of law, that, in June 1991, Brooklyn Union could glean, with a reasonable possibility, that the excess policies that Century and its predecessors issued to Brooklyn Union and its predecessors would be reached, based on any liability Brooklyn Union faced arising from the Coney Island, Greenpoint, Clifton, and Citizens Works sites.
Accordingly, it is hereby
ORDERED that the motion for partial summary judgment by Century Indemnity Company (Seq. 010 in 603405/01, and Seq. 016 in 403087/02) is denied; and it is further [*14]
ORDERED that both actions shall continue.
Dated: May 7, 2007ENTER:
New York, NY
Footnote 1: This decision is issued under the official caption, which names Keyspan Corporation as a party. However, Century Indemnity Company has discontinued the action as against Keyspan, and Keyspan should have been removed from the official caption pursuant to a so-ordered stipulation and order dated December 31, 2002, signed by Justice Gans. See Appendix 1 for the agreed-upon captions. Apparently, the official captions have not been changed. Neither have the parties been consistent in use of the correct captions in the papers submitted to the Court since the so-ordered stipulation. To effect a change in the official captions, the parties must serve another copy of the so-ordered stipulation on the Trial Support Office of the Court, at 60 Centre St Rm 300. The discrepancy between the official captions and the so-ordered stipulation might create problems with entry of any decisions or judgment.
Footnote 2:See Liebs Affirm., Ex 16.
Footnote 4:According to NYSDEC's Division of Environmental Enforcement, the agency could not consider coal tar gasification wastes to be hazardous wastes unless and until new methods of testing were promulgated (i.e., the Toxicity Characteristic Leaching Procedure [TCLP]). See Liebs, Aff, Ex 1 [Memorandum from Michael J. O'Toole, Jr. to Edward O. Sullivan, Deputy Commissioner, dated March 5, 1991].
Footnote 5:According to Brooklyn Union, the Greenpoint site was never included in the Registry of Inactive Hazardous Waste Sites. See Liebs Aff. ¶ 4. The Coney Island, Citizens Works and Clifton sites were allegedly "delisted" from the registry in the early 1990s. Ibid.
Footnote 6:The parties have since agreed to discontinue the action as against Keyspan. See note 1, supra.
Footnote 7: Contrary to Brooklyn Union's argument, Long Island Lighting Co. v Allianz Underwriters Ins. Co. (24 AD3d 172 [1st Dept 2005]) did not articulate a legal standard different from the standard in Paramount Ins. Co. v Rosedale Gardens, Inc. In stating that the plaintiff in Long Island Lighting Co. failed to give notice "upon the happening of an occurrence reasonably likely' to involve the policies, the Court was referring to the language from the policies at issue in Long Island Lighting Co., which is apparent upon review of the lower court's decision. See Opp. Mem., Ex E. Long Island Lighting Co. therefore does not depart from the "glean with a reasonable possibility" standard articulated in Paramount Ins. Co. v Rosedale Gardens, Inc., especially given that Long Island Lighting Co. cited Christiania General Ins. Corp. of New York with approval.
Footnote 8: That is not to say that pro rata allocation must be based on a known or proven amount of damages, because pro rata allocation occurs long after notice is given to the insurers whose policies are involved. However, if pro rata allocation, using even the highest range of estimates of remediation, revealed that excess policies would not be involved, then it cannot be said as a matter of law that a reasonable possibility exists that the excess policies would be reached.