Consolidated Edison Company of New York, Inc. v. Allstate Insurance Company, 98 N.Y.2d 208 (2002)
In cases involving continuous property damage spanning multiple insurance policy periods, the insured bears the initial burden of proving that the damage resulted from an “accident” or “occurrence” during each policy period to trigger coverage; and when the damage is continuous and spans multiple policy periods, liability is allocated pro rata among the insurers based on the time each policy was in effect.
Summary
Consolidated Edison (Con Edison) sought insurance coverage for environmental contamination stemming from a manufactured gas plant operated by its predecessors. The contamination spanned decades and multiple insurance policies. The New York Court of Appeals addressed two key issues: who bears the burden of proving that the damage was the result of an “accident” or “occurrence” under the policies, and how liability should be allocated among multiple insurers across different policy periods. The Court held that Con Edison had the burden to prove the damage resulted from an accident or occurrence and that liability should be allocated pro rata among the insurers based on the time each policy was in effect. This decision provides a framework for allocating responsibility in long-term environmental damage cases with successive insurance policies.
Facts
From 1873 to 1933, Con Edison’s predecessors operated a manufactured gas plant in Tarrytown, NY, later selling the site to Anchor Motor Freight, Inc. In 1995, Anchor discovered contamination and notified Con Edison, claiming it originated from the gas plant. Con Edison agreed with the Department of Environmental Conservation (DEC) to clean up the site and sued 24 insurers for defense and indemnification under general liability policies issued between 1936 and 1986.
Procedural History
Travelers Indemnity Company moved for dismissal, arguing the claim was nonjusticiable because pro rata allocation would not reach its excess insurance policies. The Supreme Court dismissed claims against Travelers and other insurers, prorating damages and dismissing policies that would not be reached. A jury found that the property damage was not the result of an accident or occurrence under the policies of the remaining defendants (Home, Lloyd’s, and St. Paul). The Appellate Division affirmed both rulings. The Court of Appeals granted further review.
Issue(s)
1. Whether the insured (Con Edison) or the insurer bears the burden of proving that the property damage was (or was not) the result of an “accident” or “occurrence” within the meaning of the insurance policies.
2. Whether liability for continuous property damage spanning multiple policy periods should be allocated jointly and severally or pro rata among the insurers.
Holding
1. No, because the insured has the initial burden of proving that the damage was the result of an “accident” or “occurrence” to establish coverage under the policies.
2. Pro rata, because pro rata allocation, while not explicitly mandated by the policies, is consistent with policy language that provides indemnification for liability incurred as a result of an accident or occurrence “during the policy period”.
Court’s Reasoning
Regarding the burden of proof, the Court emphasized that insurance policies implicitly exclude coverage for intended or expected harms. Insurance Law § 1101(a)(1) defines “insurance contract” as dependent upon the happening of a fortuitous event. The court noted, “[a]ny language providing coverage for certain events of necessity implicitly excludes other events.” Requiring the insured to prove an “accident” or “occurrence” incentivizes early detection and places the burden on the party with better access to facts surrounding the discharge. The Court distinguished cases where policies explicitly defined “accident” or “occurrence” as “unintended or unexpected,” but rejected the argument that coverage terms acted as exclusions shifting the burden to the insurer. The court stated, “[t]hus, the requirement of a fortuitous loss is a necessary element of insurance policies based on either an ‘accident’ or ‘occurrence.’ The insured has the initial burden of proving that the damage was the result of an ‘accident’ or ‘occurrence’ to establish coverage where it would not otherwise exist.”
On allocation, the Court rejected joint and several allocation, finding it inconsistent with the policies’ language. The court explained that Con Edison’s claim of gradual, continuous damage made it impossible to tie an accident to a specific policy period. The Court reasoned, “[c]ollecting all the indemnity from a particular policy presupposes ability to pin an accident to a particular policy period.” Prorating liability acknowledges the uncertainty regarding what occurred during specific policy periods. While different methods of proration exist, the Court upheld the trial court’s use of the “time-on-the-risk” method for determining justiciability. The Court concluded, “[p]ro rata allocation under these facts, while not explicitly mandated by the policies, is consistent with the language of the policies.”