New York Law Review

Tag: Hanover Insurance

  • Incorporated Village of Cedarhurst v. Hanover Insurance, 89 N.Y.2d 293 (1996): “Arising Out Of” Pollution Exclusion

    Incorporated Village of Cedarhurst v. Hanover Insurance, 89 N.Y.2d 293 (1996)

    Under New York law, an “absolute” pollution exclusion clause in an insurance policy bars coverage for damages “arising out of” the discharge or release of pollutants, even if the underlying complaint does not specifically allege that the damages were causally connected to the polluting quality of the substance, as long as a but-for causal connection exists.

    Summary

    The Incorporated Village of Cedarhurst sought a declaratory judgment that Hanover Insurance had a duty to defend and indemnify it in two underlying lawsuits stemming from sewage overflows. Hanover disclaimed coverage based on pollution exclusion clauses in its policies. The New York Court of Appeals held that the pollution exclusion clauses applied because the underlying claims arose out of the discharge of sewage, which is a pollutant, and a but-for causal connection existed, regardless of whether the complaints specifically alleged damages resulting from the polluting nature of the sewage. The court focused on the broad “arising out of” language in the exclusion.

    Facts

    The Village of Cedarhurst experienced sewage overflows resulting in two separate lawsuits: one by Longwood Associates and another by Yules and Kenney. Longwood Associates claimed property damage from the sewage overflow. Yules and Kenney alleged property damage and personal injuries sustained while attempting to stop the sewage influx into their basement and rescue belongings. Hanover Insurance, the Village’s insurer, denied coverage for both lawsuits, citing pollution exclusion clauses in the primary and umbrella insurance policies.

    Procedural History

    The Village sued Hanover seeking a declaration that Hanover had a duty to defend and indemnify it in the underlying actions. Supreme Court granted summary judgment to the Village. The Appellate Division affirmed, holding that the term “waste” in the pollution exclusion clause was ambiguous as to whether it included raw sewage. Hanover appealed to the New York Court of Appeals.

    Issue(s)

    Whether the pollution exclusion clauses in the Village’s insurance policies unambiguously apply to the underlying lawsuits stemming from sewage overflows, thereby relieving Hanover of its duty to defend and indemnify the Village.

    Holding

    No, the pollution exclusion clauses unambiguously apply because the underlying claims arose out of the discharge of sewage, which is a pollutant, and a but-for causal connection exists, regardless of whether the complaints specifically alleged damages resulting from the polluting nature of the sewage.

    Court’s Reasoning

    The Court of Appeals reversed the Appellate Division, holding that the pollution exclusion clauses were unambiguous and applicable. The court emphasized that the term “arising out of” in an exclusion clause is broad and requires only a but-for causal connection. Here, the underlying lawsuits would not have existed “but for” the sewage overflows. The court defined sewage as a “contaminant” and a “waste” within the ordinary meaning of the policy language. The court cited numerous state and federal environmental laws that classify sewage as a pollutant. The court distinguished its holding from Continental Cas. Co. v. Rapid-American Corp., 80 N.Y.2d 640 (1993), noting that the discharge of raw sewage into streets and buildings constitutes the type of broadly dispersed environmental pollution that the pollution exclusion clauses were intended to cover. Judge Levine dissented, arguing that the majority’s reasoning was unpreserved, and that the pollution exclusion clauses unambiguously applied facially and in context because sewage is a toxic contaminant and its release falls squarely within the exclusion. The dissent noted that other courts have generally held that sewage is covered under standard insurance policy pollution exclusion clauses. The dissenting opinion emphasized the language of the policies, excluding damages “arising out of” the release of pollutants, and finding a but-for causal connection. The dissent also directly refuted the Appellate Division’s conclusion, stating that there was no ambiguity as to whether sewage constitutes “waste”.

  • Central General Hospital v. Hanover Insurance Co., 49 N.Y.2d 950 (1980): Arbitration Award Vacatur Based on Newly Discovered Evidence

    49 N.Y.2d 950 (1980)

    Newly discovered evidence is not a valid ground for vacating an arbitration award under CPLR 7511(b), particularly in compulsory arbitration scenarios like those arising from New York’s no-fault insurance law, where judicial review is limited to instances of irrationality, bad faith, or violation of public policy.

    Summary

    Central General Hospital sought arbitration to recover payment from Hanover Insurance under New York’s no-fault law. Hanover claimed payment was made but couldn’t produce a canceled check. The arbitrator ruled for the hospital, awarding attorney’s fees. Later, Hanover found the check and sought to vacate the award based on newly discovered evidence. The Supreme Court granted the vacatur, but the Appellate Division reversed, reinstating the award (reduced to only attorney’s fees by consent). The Court of Appeals affirmed, holding that newly discovered evidence is not a ground for vacating an arbitration award under CPLR 7511(b) and finding no basis to disturb the arbitrator’s decision, especially given the limited judicial review applicable to compulsory no-fault arbitrations.

    Facts

    Central General Hospital, as assignee of Karla Brandstetter, claimed Hanover Insurance failed to pay a bill under New York’s no-fault law (Insurance Law, Article 18).

    Hanover asserted payment was remitted but couldn’t produce the canceled check as proof.

    The arbitrator granted Hanover an extension to locate the check, but it remained unfound.

    The arbitrator ruled in favor of the hospital, awarding the unpaid bill amount plus attorney’s fees under Insurance Law § 675(1).

    A month later, Hanover found the canceled check.

    Procedural History

    Hanover brought a proceeding in Supreme Court to vacate the arbitration award based on newly discovered evidence (the canceled check).

    Special Term (Supreme Court) granted Hanover’s application to vacate the award.

    The Appellate Division reversed the Supreme Court’s decision and reinstated the arbitration award, reduced to the attorney’s fee amount by consent of the hospital.

    The Court of Appeals affirmed the Appellate Division’s order.

    Issue(s)

    Whether newly discovered evidence constitutes a valid basis for vacating an arbitration award under CPLR 7511(b), specifically in the context of compulsory arbitration under New York’s no-fault insurance law.

    Holding

    No, because CPLR 7511(b) does not list newly discovered evidence as a ground for vacating an arbitration award, and judicial review of compulsory arbitration under New York’s no-fault law is limited to instances of irrationality, bad faith, or violation of public policy, none of which were present here.

    Court’s Reasoning

    The Court of Appeals stated that the discovery of new evidence is not among the grounds for vacating an arbitration award under CPLR 7511(b), citing Kwasnik v Willo Packing Co., 61 A.D.2d 791 (1978); Matter of Ganser [New York Tel. Co. of Amer.], 41 A.D.2d 914, aff’d, 34 N.Y.2d 717 (1974); and Matter of Mole [Queens Ins. Co.], 14 A.D.2d 1 (1961).

    The court emphasized that because the arbitration was compulsory under the no-fault law (Insurance Law § 675(2)), judicial intervention is limited. The court referenced Matter of Levine v Zurich Amer. Ins. Co., 49 N.Y.2d 907, 908-909 (1980), and other cases to underscore the restricted scope of review.

    The Court found no irrationality in the arbitrator’s requirement for proof of payment via a canceled check, nor in the decision favoring the hospital when such proof was not provided. The court found no question as to the good faith of the award or any alleged violation of constitutional rights or strong public policy, referencing Matter of Furstenberg v Aetna Cas. & Sur. Co., 49 N.Y.2d 757, 759 (1980).

    The court concluded, “We can perceive no irrationality in an arbitrator’s demand that payment be proved by exhibiting a canceled check or in his decision in favor of the hospital when such proof was not presented.”