New York Law Review

Tag: environmental contamination

  • KeySpan Gas East Corp. v. Munich Reinsurance America, Inc., 23 N.Y.3d 582 (2014): Scope of Insurance Law § 3420(d)(2) Disclaimer Requirement

    KeySpan Gas East Corp. v. Munich Reinsurance America, Inc., 23 N.Y.3d 582 (2014)

    Insurance Law § 3420(d)(2), requiring timely disclaimer of liability, applies only to death and bodily injury claims arising from accidents, not to environmental contamination claims; for non-qualifying claims, common-law waiver and estoppel principles apply to determine the validity of a disclaimer.

    Summary

    KeySpan Gas East Corp. sought a declaration that its insurers had a duty to defend and indemnify it for environmental damage at former manufactured gas plant (MGP) sites. The insurers argued late notice of the potential claims. The Appellate Division applied Insurance Law § 3420(d)(2), requiring a disclaimer “as soon as reasonably possible.” The Court of Appeals reversed, holding that Section 3420(d)(2) applies only to death or bodily injury claims, not environmental damage claims. The Court remitted the case to the Appellate Division to determine if the insurers waived their late-notice defense under common-law principles.

    Facts

    Long Island Lighting Company (LILCO) notified its excess insurers, including Munich Reinsurance, in October and November 1994 about “environmental concern[s]” at retired MGP sites in Bay Shore and Hempstead. LILCO mentioned potential regulatory action and a property damage claim. Between 1995 and 1996, LILCO provided supplemental information to the insurers, including notice of a formal demand from the New York State Department of Environmental Conservation (DEC) to investigate and remediate the sites. The insurers reserved their rights but did not formally disclaim coverage. KeySpan acquired LILCO’s rights through assignment.

    Procedural History

    KeySpan commenced a declaratory judgment action in September 1997. The insurers asserted late notice as a defense and moved for summary judgment. Supreme Court granted summary judgment for the Bay Shore site but denied it for the Hempstead site, finding a question of fact regarding the reasonableness of the notice delay. The Appellate Division modified, finding that LILCO’s notice was untimely as a matter of law for both sites, but declined to award summary judgment to the insurers because of a potential waiver of their right to disclaim coverage based on late notice. The Court of Appeals granted leave to appeal.

    Issue(s)

    Whether Insurance Law § 3420(d)(2) applies to environmental contamination claims, thus requiring an insurer to disclaim coverage “as soon as reasonably possible” after learning of grounds for disclaimer.

    Holding

    No, because Insurance Law § 3420(d)(2) applies only to insurance cases involving death and bodily injury claims arising out of a New York accident and brought under a New York liability policy.

    Court’s Reasoning

    The Court of Appeals reasoned that the Appellate Division erred in applying the strict timeliness standard of Insurance Law § 3420(d)(2) to this case. The statute’s plain terms limit its application to cases involving death and bodily injury claims. The court emphasized that the statute was enacted to “aid injured parties” by encouraging prompt resolution of liability claims (citing Allstate Ins. Co. v Gross, 27 NY2d 263, 267 [1970]). Because the environmental contamination claims did not involve death or bodily injury, Section 3420(d)(2) was inapplicable. The court stated, “Where, as here, the underlying claim does not arise out of an accident involving bodily injury or death, the notice of disclaimer provisions set forth in Insurance Law § 3420 (d) are inapplicable” (citing Vecchiarelli v Continental Ins. Co., 277 AD2d 992, 993 [4th Dept 2000]). The Court directed the Appellate Division to consider the issue of waiver under common-law principles, requiring a clear manifestation of intent to abandon the late-notice defense, rather than the heightened standard of Section 3420(d)(2). The Court cited Fundamental Portfolio Advisors, Inc. v Tocqueville Asset Mgt., L.P., 7 NY3d 96, 104 (2006), among other cases, regarding the elements of common law waiver. The court explicitly disapproved of appellate division cases to the contrary, stating: “To the extent Estee Lauder Inc. v OneBeacon Ins. Group, LLC (62 AD3d 33 [1st Dept 2009]), cited by the Appellate Division here, and other Appellate Division cases hold that Insurance Law § 3420 (d) (2) applies to claims not based on death and bodily injury… those cases were wrongly decided and should not be followed.” This makes the case significant because it clarifies and restricts the application of Section 3420(d)(2).

  • Consolidated Edison Company of New York, Inc. v. Allstate Insurance Company, 98 N.Y.2d 208 (2002): Burden of Proof and Allocation in Continuous Damage Insurance Claims

    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.”

  • Commerce Holding Corp. v. Board of Assessors, 88 N.Y.2d 724 (1996): Environmental Contamination and Property Valuation

    Commerce Holding Corp. v. Board of Assessors, 88 N.Y.2d 724 (1996)

    Environmental contamination that demonstrably depresses a property’s market value must be considered when assessing real property taxes.

    Summary

    Commerce Holding Corp. sought a reduction in the assessed value of its property due to severe subsurface contamination caused by a former tenant’s metal plating operations, which led to its designation as a Superfund site. The central issue was whether this environmental contamination should factor into the property’s valuation for tax purposes. The New York Court of Appeals held that environmental contamination must be considered if it negatively impacts the property’s market value. The court also upheld the lower court’s methodology of subtracting the total remaining cleanup costs from the property’s value in an uncontaminated state.

    Facts

    Commerce Holding Corp. owned industrial property in Babylon, NY. A former tenant’s metal plating operations caused severe subsurface contamination. The property was designated a Superfund site in 1986, making Commerce strictly liable for cleanup costs under CERCLA. From 1986 to 1991, the Town of Babylon assessed the property’s value between $1.5 million and $2.6 million annually. Commerce challenged these assessments, arguing for a reduction to account for the environmental contamination.

    Procedural History

    Commerce filed annual tax certiorari proceedings under RPTL Article 7 to review assessments for tax years 1986-87 through 1991-92; these were later consolidated. Supreme Court adopted Commerce’s expert’s analysis, subtracting the total remaining cost to cure the contamination from the property’s base value each year. The Appellate Division affirmed this decision. The Town of Babylon appealed, and the New York Court of Appeals affirmed the Appellate Division’s order.

    Issue(s)

    1. Whether environmental contamination should be considered when valuing property for tax assessment purposes.

    2. Whether it was legal error to deduct the total remaining cleanup costs each year from the property’s value, rather than only the amount actually expended that year.

    Holding

    1. Yes, because the “full value” requirement of property valuation for tax purposes, as mandated by the New York State Constitution, necessitates considering any factor affecting a property’s marketability.

    2. No, because the court found the methodology employed, which used the income capitalization approach combined with a downward environmental adjustment based on outstanding cleanup costs, acceptable in this specific case.

    Court’s Reasoning

    The Court of Appeals emphasized that the constitutional principle of property valuation requires assessments not to exceed full value, which is typically equated with market value. Therefore, any factor affecting a property’s marketability, including environmental contamination, must be considered. The Court rejected the Town’s argument that this would shift cleanup costs to taxpayers, stating that the constitutional mandate of full value cannot be overridden by environmental policy concerns.

    The Court acknowledged the lack of a universally accepted methodology for valuing contaminated properties and endorsed a flexible approach that adapts traditional techniques to account for environmental contamination. Factors to consider include Superfund status, extent of contamination, cleanup costs, property use, financing ability, potential third-party liability, and post-cleanup stigma.

    Regarding the methodology used, the Court found no error in deducting the total remaining cleanup costs each year, as this provided a reasonable measure of the reduced amount a buyer would pay for the contaminated property. The court also noted that Commerce’s expert testified that the estimated cleanup costs were present value estimates, and the Town failed to introduce any evidence to the contrary. The court stated, “while property must be assessed at market value, there is no fixed method for determining that value… Any fair and nondiscriminating method that will achieve that result is acceptable”.

    The Court quoted the State Board of Equalization and Assessment, stating that the policy argument against assessment reduction “runs afoul of the requirement found in… New York’s Constitution, that real property may not be assessed at more than its full (fair market) value”.