1970s CGL Policies Deemed to Contain New York's Then Statutory Pollution Exclusion

CGL – STATUTORY POLLUTION EXCLUSION – SUDDEN AND ACCIDENTAL DISCHARGE
Travelers Indem. Co. v. Orange & Rockland Util., Inc.
(Sup. Ct., New York Co., decided 8/18/2009)

In an effort to to make corporate polluters bear the costs of their own polluting activities, in 1971, the New York State Legislature amended then-New York Insurance Law § 46 (later recodified as § 1113) to exclude commercial liability coverage for liability arising out of intentional and gradual pollution:

Policies issued to commercial or industrial enterprises providing insurance against the legal liabilities specified in this subdivision shall expressly exclude therefrom liability arising out of pollution or contamination caused by the discharge, dispersal, release or escape of any pollutants, irritants or contaminants into or upon land, the atmosphere or any water course or body of water unless such discharge, dispersal, release or escape is sudden and accidental.

Eleven years later, in 1982, New York's legislature repealed the 1971 amendment to address a different public policy -- preventing corporate polluters from avoiding cleanup liability by filing for bankruptcy. 

From approximately 1852 until 1965, Orange & Rockland Utilities Company and its predecessor companies owned and operated eight MGPs -- manufactured gas plants -- located in Orange County and Rockland County, New York.  Travelers insured ORU under CGL policies issued between 1970 and 1978.  None of those Travelers policies contained a pollution exclusion that tracked the language of the statutory pollution exclusion.  Travelers brought this declaratory judgment action to determine its responsibility, if any, to pay ORU's costs of investigating and remediating pollution at the MGP sites.

Travelers contended that even though its 1970s policies did not contain a pollution exclusion, the statutory pollution exclusion must be deemed to be included in those policies.  ORU disagreed and also argued that questions of fact regarding whether the pollution was sudden and accidental -- an exception to the statutory pollution exclusion -- precluded summary judgment.

New York County Supreme Court Justice Eileen Bransten agreed with Travelers and granted summary judgment with respect to all eight ORU MPG sites under the 1970s Travelers policies:

New York courts have repeatedly recognized that the Statutory Pollution Exclusion, by operation of law, applies to all insurance policies issued during the period it was in effect (see e.g., Consolidated Edison of New York, Inc. v American Home Assur. Co., Supreme Ct, NY County, November 6,2003, Cahn, J., Index No. 600527/01; Consolidated Edison Co. of New York, Inc. v Allstate Ins. Co., Supreme Ct, NY County, December 4, 2002, Gammerman, J., Index No. 600142/98). Thus, although the 1970's Travelers Policies either do not contain pollution exclusion clauses or the pollution exclusion clauses fail to track the same language as the Statutory Pollution Exclusion, the statutory language nonetheless is deemed to be included in the policies.

The evidence shows that the contamination at the MGPs began at the outset of operations and spanned over a period of many decades. The Statutory Pollution Exclusion, in effect from 1971 through 1982, by its plain terns, provided that gradual pollution was uninsurable as a matter of public policy and excluded it from coverage during that period. ORU and its predecessors owned and operated the MGP sites from approximately 1858 to 1965. During that period, the MGPs used coal and related products to manufacture and produce gas for light and heat. As a byproduct of the process, quantities of tars, oils, waste water, and benzene were produced and were often dumped on-site, or were discharged into nearby water bodies, buried and/or otherwise discharged into the environment as part of normal operations. ORU’s expert submission fails to controvert that the pollution at the MGPs was the result of more than 100 years of continuous operations and the ongoing migration of that contamination. There is no set of facts under which such events can possibly be construed as “sudden and accidental” (see, Consolidated Edison of New York, Inc. v American Home Assur. Co., Supreme Ct, NY County, November 6, 2003, Cahn, J., Index No. 600527/01; Consolidated Edison Co. of New York, Inc. v Allstate Ins. Co., Supreme Ct, NY County, December 4, 2002, Gammerman, J., Index No. 600142/9S).  Accordingly, the Statutory Pollution Exclusion precludes coverage for ORU’s claims under the 1970’s Travelers Policies.

The Travelers 1970’s Policies each fall within the period during which, by statute, pollution, other than pollution resulting from “as sudden and accidental” event, was uninsurable. With respect to the one multi-year policy, which was in effect before the effective date of the Statutory Pollution Exclusion, the court concludes that, in light of the strong public policy, the Statutory Pollution Exclusion may be read into the policy (accord American Ins. Co. v Fairchild Indus., Inc., 852 F Supp 1173 [ED NY 1994], affd 56 F3d 435 [2d Cir 1995]).

Although ORU asks that this decision be limited to the Nyack MGP, the issue of whether the Statutory Pollution Exclusion applies to the policies is not site or policy specific.