Keyspan Gas East Corporation, Respondent, v Munich Reinsurance America, Inc., et al., Defendants, and Century Indemnity Company, Appellant.
2016 NY Slip Op 05945
Appellate Division, First Department
September 1, 2016
143 AD3d 86
Gische, J.
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431. As corrected through Wednesday, November 16, 2016
O‘Melveny & Myers LLP, Washington, D.C. (Jonathan D. Hacker of the District of Columbia bar and the Maryland bar, admitted pro hac vice, and Anton Metlitsky of counsel), and Boutin & Boutin, P.L.L.C., Carmel (John L. Altieri of counsel), for appellant.
Covington & Burling LLP, New York City (Jay Smith and Mark Gimbel of counsel), for respondent.
Gische, J.
This is an insurance coverage dispute involving long-term, gradual environmental property damage caused by pollution from manufactured gas plants (MGPs) owned by plaintiff and/or its predecessors (collectively Keyspan). Hazardous waste from the MGPs leached into groundwater over a protracted period of time. The New York Department of Environmental Conservation (NYDEC) made claims against Keyspan, requiring it to assume the costs of
We are called upon to decide an issue of first impression in New York State appellate courts, concerning the proper allocation, under the Century insurance policies, of risk of loss attributable to a continuous harm occurring, in part, during periods when liability insurance was unavailable in the marketplace. Keyspan contends, and the motion court agreed, that the pro rata allocation analysis set forth by the Court of Appeals in Consolidated Edison Co. of N.Y. v Allstate Ins. Co. (98 NY2d 208 [2002]) should be refined to require that the insurer assume the allocated risk for losses occurring during periods when liability insurance was unavailable in the marketplace. Century argues that under a pro rata allocation of risk, Keyspan, the insured, should be held accountable for losses attributable to periods of time when it could not, and consequently did not, purchase insurance. Although we believe that, in accordance with the Court of Appeals’ decision in Con Edison, the insurance policies in this case warrant a pro rata allocation of risk, Con Edison left unanswered the specific question posed on this appeal.1 For the reasons set forth below, we answer the question by holding that under the insurance policies at issue, Century does not have to indemnify Keyspan for losses that are attributable to time periods when liability insurance was otherwise unavailable in the marketplace.
Keyspan has operated two MGPs,2 located respectively in Rockaway Park, Queens, and Hempstead, Long Island, since the early twentieth century. These (and other) MGP sites are contaminated with numerous hazardous wastes (predominantly tar) that have leached into the surrounding groundwater and soil. Although exactly when contamination of these sites began is disputed, and the amount of environmental damage that occurred in any given year cannot be precisely ascertained, it is clear that the contamination was continuous and gradual, occurring
In 1995, NYDEC sought to hold Keyspan strictly liable for the resulting pollution, requiring it to pay for the investigation and cleanup of these sites (see
Keyspan brought this action for a declaratory judgment seeking indemnification for the costs of the environmental cleanup compelled by NYDEC. On Century‘s motion for summary judgment, the motion court held generally that a pro rata time on
We begin our analysis with a review of the existing New York insurance law applicable to injuries that are continuous and occur over a period of years. These injuries frequently implicate multiple, sequential insurance policies, as well as periods of no insurance. The legal challenges raised in these cases occur because it is impossible to precisely determine what injury or damage took place during a particular policy period or during periods of no insurance. While the occurrence of some injury during the policy period will usually trigger coverage under the
Con Edison (98 NY2d at 208) and the very recent Court of Appeals decision in Matter of Viking Pump, Inc. (27 NY3d 244 [2016]) make it abundantly clear that the predominant consideration in the Court‘s analysis of these issues is the language of the particular insurance policy. These cases are in accord with well established precedent holding that when determining a dispute over insurance coverage, courts are required to look first at the language of the policies involved (Roman Catholic Diocese of Brooklyn v National Union Fire Ins. Co. of Pittsburgh, Pa., 21 NY3d 139, 148 [2013]). Con Edison and Viking Pump both concerned insurance claims made for injuries that occurred over a period of time and across policy periods. Con Edison, as here, involved a claim for indemnity in
Where a pro rata allocation is warranted, courts applying New York law have approved the use of a time on the risk allocation formula (see e.g. Roman Catholic Diocese, 21 NY3d 139 [plaintiff sought indemnification for claim of long-term ongoing sexual molestation by a priest; Court of Appeals approved time on the risk proration of liability among the insurers]; Con Edison, 98 NY2d 208; Serio v Public Serv. Mut. Ins. Co., 304 AD2d 167 [2d Dept 2003] [time on the risk applied to allocate damages in personal injury lead-paint case, as opposed to equal apportionment]; Olin Corp. v Insurance Co. of N. Am., 221 F3d 307 [2d Cir 2000] [applying New York law using a pro rata time on risk formula to determine insurer‘s liability to indemnify for ongoing and progressive damage from pollution]; Stonewall Ins. Co. v Asbestos Claims Mgt. Corp., 73 F3d 1178
Pro rata allocation typically includes apportioning some part of the risk to the policyholder in connection with periods of no insurance. Policyholders will usually be required to bear the financial burden of periods when it could have, but chose not to, obtain insurance (Stonewall, 73 F3d at 1203). The rationale underlying this allocation is that these periods of no-insurance (or going bare) reflect a decision by the insured to assume or retain a risk, since it could have, but chose not to, purchase insurance to ameliorate its risk. The same rationale applies to periods of self-insurance and/or insufficient insurance, which reflect deliberate decisions by the insured (id. [proration to the insured is “appropriate as to years in which (the insured) elected not to purchase insurance or purchased insufficient insurance, as demonstrated by the exhaustion of its policy limits“]). Any rule to the contrary would disincentivize parties to acquire insurance when available, to cover and spread risk, and otherwise achieve cost efficiencies in the marketplace (see Owens-Illinois, Inc. v United Ins. Co., 138 NJ 437, 472-473, 650 A2d 974, 992 [1994] [“Because insurance companies can spread costs throughout an industry and thus achieve cost efficiency, the law should, at a minimum, not provide disincentives to parties to acquire insurance when available to cover their risks“]). While the proration to the insured rule may be subject to exceptions,8 the motion court‘s general ruling allocating
New York appellate courts, however, have not expressly ruled on the question presented here, which is: When the reason for the period of no insurance is that the insured could not have obtained insurance even if it had wanted to, is the risk attendant to the unavailability of insurance in the marketplace allocable to the existing, triggered insurance policies or to the insured? This coverage dispute is not unique to New York. Courts that have considered this issue, both in trying to predict New York law and in other states dealing with the same or similar insurance policy language as here, have come to different conclusions, employing different
Stonewall (73 F3d 1178) and Olin (221 F3d 307), both Second Circuit Court of Appeals cases seeking to apply New York law, have determined that an exception to proration to the insured should be made in situations where insurance is not available in the marketplace (see also RT Vanderbilt Co., Inc v Hartford Acc. & Indem. Co., 2014 WL 1647135, 2014 Conn Super LEXIS 699 [2014]). Clearly, the general justification for proration to the insured, i.e., encouraging the purchase of insurance to spread risk, does not hold when there is no insurance to be had. This unavailability exception to the rule of proration to the insured largely has its genesis in the New Jersey case of Owens-Illinois (138 NJ 437, 650 A2d 974). The New Jersey Supreme Court, unable to find the answers to allocation in the language of the policies there at issue, looked to public interest factors for guidance, including, insofar as is relevant here, providing incentives for parties to engage in responsible conduct, avoiding disincentives to the acquisition of insurance and creating incentives that will tend to minimize the recurrence of the problems presented in the case before it (138 NJ at 471, 650 A2d at 992). In accordance with these principles, the court held:
“A fair method of allocation appears to be one that is related to both the time on the risk and the degree of risk assumed. When periods of no insurance
reflect a decision by an actor to assume or retain a risk, as opposed to periods when coverage for a risk is not available, to expect the risk-bearer to share in the allocation is reasonable” (138 NJ at 479, 650 A2d at 995 [emphasis supplied]).
Other courts have taken a contrary view of the issue (see Sybron Transition Corp. v Security Ins. of Hartford, 258 F3d 595 [7th Cir 2001] [applying New York Law]; Boston Gas Co. v Century Indem. Co., 454 Mass 337, 371, 910 NE2d 290, 315 [2009] [expressly declining to adopt unavailability exception “because to do so would contravene the limitation of coverage in the . . . policies to liability attributable to property damage during the policy periods“]; Crossmann Communities of N.C., Inc. v Harleysville Mut. Ins. Co., 395 SC 40, 66 n 16, 717 SE2d 589, 602 n 16 [2011] [rejecting unavailability exception as “exceed(ing) the trial court‘s authority, as the effect is to shift losses from one policy period to another in order to create coverage where none was purchased“]; Midamerican Energy, Co. v Certain Underwriters at Lloyd‘s London, 2011 WL 2011374 [Iowa Dist Ct 2011] [” ‘unavailability’ exception disproportionately allocate(s) damage(s) to insurers for periods of time when no coverage was agreed to or bargained for“]; Bradford Oil Co. v Stonington Ins. Co., 190 Vt 330, 342, 54 A3d 983, 991 [2011] [in rejecting the availability exception the court concluded “that the reason for the absence of effective insurance is not determinative” and it is “not consistent with a pure time-on-the-risk methodology“]; AAA Disposal Sys., Inc. v Aetna Cas. & Sur. Co., 355 Ill App 3d 275, 288, 821 NE2d 1278, 1290 [2005], lv denied 213 Ill 2d 553, 829 NE2d 786 [2005] [“it would be unfair to allocate the damages occurring during the uninsured period to an insurer that did not agree to provide coverage during that time“]). A general concept underlying these decisions is that the policies themselves did not provide coverage for the disputed periods, and the overall effect of passing that risk on to the insurance companies would be to provide free insurance coverage to the policyholders for those periods of no insurance. Some of these cases pointed out the problem with the concept of unavailability and to what extent it is a function of economic feasibility; i.e., does the cost of covering the risk at the time insurance is sought exceed the anticipated cost of the perceived risk (Sybron, 258 F3d at 600).
Turning now to the language of the insurance contracts at issue in this case, the parties stipulated that the terms and conditions of the policies at issue9 are as follows:
Two of the policies (No. XBC-41176 effective 1967-1968; No. SRL-2220 effective 1968-1969) state that the policy applies to “property damage . . . which occurs anywhere during the policy period.”
The policies also have slight differences as to how “occurrences” are defined: Policy XCP-1200 defines an occurrence as “either an accident or a continuous or repeated exposure to conditions which result during the policy period in injury to or destruction of property.” Policies XBC-1097 and XBC-40530 define occurrence as “either an accident happening during the policy period or a continuous or repeated exposure to conditions which . . . causes injury to or destruction of property during the policy period.” XBC-41176 and SRL-2220 state that “[o]ccurence, as respects property damage, means an accident, including injurious exposure to conditions, which results, during the policy period, in property damage . . . .”
While these policies are not identical to those in Con Edison, and not every policy that Century issued to Keyspan contains the exact same language, they are substantially similar to those in Con Edison, and the variations among Century‘s own policies from year to year are not significant enough to affect a holistic analysis of them. None of the policies contain the anti-stacking provisions that were at issue in Viking Pump (27 NY3d 244).
We find that the policy language supports a conclusion that the unavailability exception to proration to the insured does not apply. As with the policies in Con Edison, the “all sums” policy language in the policies at bar is qualified by other
Keyspan alternatively raises certain policy arguments in support of its position, claiming
Accordingly, the order of the Supreme Court, New York County (Saliann Scarpulla, J.), entered October 22, 2014, which, to the extent appealed from, denied defendant Century Indemnity Company‘s motion for partial summary judgment declaring that Century is not responsible for any part of the costs of cleanup for periods of time when insurance was unavailable before 1953 and after 1986, should be unanimously reversed, on the law, without costs, and the motion granted, and it should be so declared.
Mazzarelli, J.P., Friedman and Moskowitz, JJ., concur.
Order, Supreme Court, New York County, entered October 22, 2014, reversed, on the law, without costs, the motion granted, and it is declared that defendant Century Indemnity Company is not responsible for any part of the costs of cleanup for periods of time where insurance was unavailable before 1953 and after 1986.