Opinion
Index 603405/01
07-16-2018
Century Indemnity Company, Plaintiff, v. Brooklyn Union Gas Company, Defendant. BROOKLYN UNION GAS COMPANY, Plaintiff, v. CENTURY INDEMNITY COMPANY and MUNICH REINSURANCE AMERICA, INC.,
O'Melveny & Meyers, LLP, New York, New York (Jonathan Rosenberg, Tancred Schiavoni, and Leah Godesky of counsel and Daniel Petrocelli, Los Angeles, California, pro hac vice) and Boutin & Altieri, PLLC, Fairfield, Connecticut (John Altieri, Jr. and Robert Firrilo of counsel and Kieran Alitieri pro hac vice), for Century Indemnity Company. Covington & Burling, LLP, New York, New York, and Washington, DC (William F. Greaney, Jay T. Smith, Eric C. Bosset, and Michael Lechliter of counsel), for Brooklyn Union Gas Company. Landman, Corsi, Ballaine, & Ford, P.C., New York, New York (Michael L. Gioia of counsel), for Munich Reinsurance America, Inc.
Unpublished Opinion
O'Melveny & Meyers, LLP, New York, New York (Jonathan Rosenberg, Tancred Schiavoni, and Leah Godesky of counsel and Daniel Petrocelli, Los Angeles, California, pro hac vice) and Boutin & Altieri, PLLC, Fairfield, Connecticut (John Altieri, Jr. and Robert Firrilo of counsel and Kieran Alitieri pro hac vice), for Century Indemnity Company.
Covington & Burling, LLP, New York, New York, and Washington, DC (William F. Greaney, Jay T. Smith, Eric C. Bosset, and Michael Lechliter of counsel), for Brooklyn Union Gas Company.
Landman, Corsi, Ballaine, & Ford, P.C., New York, New York (Michael L. Gioia of counsel), for Munich Reinsurance America, Inc.
GERALD LEBOVITS, J.
Because the parties rely on sealed exhibits and sealed moving and opposition papers, this decision shall also be sealed.
This decision was unsealed pursuant to this court's order of March 22, 2022.
Century Indemnity Company (Century) moves for partial summary judgment against Brooklyn Union Gas Company (Brooklyn Union) on certain issues regarding Century's Policies and the Citizens, Fulton, and Metropolitan Manufactured Gas Plants (MGPs). Century seeks partial summary judgment on the following discrete issues: (1) that there are no more than three occurrences at the three MGPs for which Brooklyn Union can seek coverage; (2) that Brooklyn Union is entitled to no coverage for its costs investigating and remediating soil on its own property; (3) that term limits, rather than annual limits, apply to four multi-year Century policies and one multi-year policy renewal; (4) that Century did not waive and is not estopped from asserting its right to deny Brooklyn Union coverage on the ground that Brooklyn Union's notice with respect to the occurrences at the three MGPs was late; and (5) that Century has no obligation to cover $6.5 million in Metropolitan costs that Brooklyn Union agreed voluntarily to reimburse to a third party.
By stipulation and order of the parties dated December 17, 2013, and so-ordered by the court on January 2, 2014, all papers filed, served, or entered only in the action Century Indemnity Co. v Brooklyn Union Gas Co. (603405/2001) are deemed to have been filed, served, or entered in the action Brooklyn Union Gas Co. v Century Indemnity Co., et al. (403087/2002).
Background
Century submitted a statement of undisputed material facts (hereinafter referred to as "Century Statement"), and Brooklyn Union submitted a response to century's statement of undisputed material facts in relation to this motion (hereinafter referred to as "Brooklyn Union Statement"). The court sets forth the following facts on which both parties agree.
Brooklyn Union and its predecessor companies owned and operated the Citizens, Fulton, Metropolitan, and other MGPs. (Century Statement, ¶ 11; Brooklyn Union Statement at 11.) The former sites of the Citizens, Fulton, and Metropolitan MGPs are all located adjacent to the Gowanus Canal in Brooklyn. (Century Statement, ¶ 12; Brooklyn Union Statement at 11.) The Citizens MGP site produced gas at times from approximately 1860 to 1963. (Century Statement, ¶ 12.a; Brooklyn Union Statement at 11.) The Fulton MGP produced gas at times between 1880 and 1928. (Century Statement, ¶ 12.b; Brooklyn Union Statement at 11.) The Metropolitan MGP produced gas between 1871 and 1928. (Century Statement, ¶ 12.c; Brooklyn Union Statement at 12.)
MGPs produced gas through several different processes, including coal-carbonization, carbureted-water-gas ("CWG"), or oil-gas. (Century Statement, ¶13; Brooklyn Union Statement at 12.) The Citizens, Fulton, and Metropolitan MGPs all used a type of CWG process to produce gas for most of their operating periods. (Century Statement, ¶ 14; Brooklyn Union Statement at 12.) The CWG process produces tar and oil as byproducts. (Century Statement, ¶ 16; Brooklyn Union Statement at 13.) Tar and oil migrated into the subsurfaces at the Citizens, Fulton, and Metropolitan MGPs through leaks and spills from equipment and pipes. (Century Statement ¶¶ 24, 29, 34; Brooklyn Union Statement at 15, 17, 19.) The tar in the subsurfaces then migrated through the soil and groundwater and some chemical constituents of tar dissolved and then formed plumes of groundwater contamination. (Century Statement, ¶¶ 25, 30, 35; Brooklyn Union Statement at 16, 18, 20.) Some of this tar further migrated into the Gowanus Canal sediments. (Century Statement, ¶¶ 26, 31, 36; Brooklyn Union Statement at 16, 18, 20.) The migration of tar through the subsurfaces and into Gowanus Canal sediments continued for decades and continues today. (Century Statement, ¶¶ 27, 32, 37; Brooklyn Union at 17-20.)
The CWG process also produced wastewater containing tar and oil. (Century Statement, ¶ 20; Brooklyn Union at 14.) The Citizens, Fulton, and Metropolitan MGPs discharged wastewater from the CWG process directly into the Gowanus Canal during their operating periods. (Century Statement ¶¶ 23, 28, 33; Brooklyn Union Statement at 15, 17, 19.)
The Cleanup
Citizens
On July 19, 2002, Brooklyn Union entered into a Voluntary Cleanup Agreement (VCA) with the New York State Department of Environmental Conservation (NYSDEC) that required Brooklyn Union to investigate the nature and extent of the contamination at the Citizens site. (Affirmation of Leah Godesky, Esq. in Support of Plaintiff Century Indemnity's Motion for Partial Summary Judgment on Certain Issues Regarding Century's Policies and the Citzens, Fulton, and Metropolitan Manufactured Gas Plants ["Godesky Aff."], Ex. 26 [filed under seal].) On April 23, 2007, Brooklyn Union executed a VCA with NYSDEC outlining the cleanup remedies NYSDEC prescribed for Citizens. (Id., Ex. 29.) These remedies included soil removal, removal of some contaminated structures, and construction of a subsurface barrier wall "to prevent further movement of the remaining material off site and into the Gowanus Canal." (Id. at 2-3.) ()
Fulton
In August 2007, Brooklyn Union and NYSDEC executed a Modification to Order on Consent and Administrative Settlement, adding the Fulton site to an Order on Consent and Administrative Settlement of March 4, 2007. (Affidavit of Michael E. Lechliter ["Lechliter Aff."], Ex. Q [filed under seal].) The March 2007 order required Brooklyn Union to investigate and, if necessary, remediate MGP contamination at the sites covered by the order. (Godesky Aff., Ex. 33.) In July 2015, NYSDEC issued a Record of Decision setting forth its prescribed clean-up remedies for the Fulton site. (Id., Ex. 36.) These remedies included soil removal and constructing a subsurface barrier wall to prevent migration of coal tar into the Gowanus Canal. (Id. at 17, 20.)
Metropolitan
On March 15, 2001, the United States Postal Service (USPS) entered into a VCA with NYSDEC for a portion of the former Metropolitan site owned by USPS. (Id., Ex. 38.) FC Gowanus Associates, LLC, a developer, acquired the premises and assumed USPS's obligations under the VCA on November 1, 2002. (Id., Ex. 41.) On February 27, 2002, before the USPS sold the property to FC Gowanus, Brooklyn Union entered into a Remediation and Reimbursement Agreement with FC Gowanus to reimburse FC Gowanus "for its past and future investigation and remediation costs, legal fees, expert fees, and other related costs in connection with the Premises...." (Id., Ex. 40.) Brooklyn Union paid FC Gowanus $6.5 million under the agreement without seeking Century's consent. (Century Statement, ¶ 107; Brooklyn Union Statement, at 39.)
In August 2007, Brooklyn Union and NYSDEC added the Metropolitan site to the Order on Consent and Administrative Settlement of March 4, 2007 by means of a Modification Order, mentioned above with respect to the Fulton site. (Lechliter Aff., Ex. Q.) The March 2007 order required Brooklyn Union to investigate and, if necessary, remediate MGP contamination at the sites covered by the order. (Godesky Aff., Ex. 33.) NYSDEC has not yet selected a final cleanup for the Metropolitan site. (Century Statement, ¶ 113; Brooklyn Union Statement, at 54.) Gowanus Canal
On October 24, 2005, Brooklyn Union entered into an Order on Consent with NYSDEC to investigate the nature and extent of MGP contamination in the Gowanus Canal by the Citizens, Metropolitan, and Fulton MGPs. (Godesky Aff., Ex. 45.) The investigations pursuant to this agreement revealed a "complex mixture of hydrocarbons from many sources. Petroleum products dominated the shallow sediments and tars dominated the deeper sediments." (Godesky Aff., Ex. 46.) The Environmental Protection Agency ("EPA") placed the Gowanus Canal on its National Priorities List on March 2, 2010. (Godesky Aff., Ex. 49 at 7.) The EPA identified the Citizens, Metropolitan, and Fulton sites as a source of contamination in the Gowanus Canal. (Id.) Regulators determined that this contamination was the result of both wastewater the MGPs released directly into the Gowanus Canal and contaminants migrating from the MGPs' subsurfaces into the canal's sediments. (Id.) The EPA's Record of Decision for the cleanup of the Gowanus Canal ordered a combination of dredging, capping, excavating, and solidifying of the contaminated canal sediments, as well as constructing barrier walls to prevent further tar migration from the MGP sites into the canal. (Id., Ex. 51.)
The Insurance Claims and Litigation
Brooklyn Union entered into six excess insurance contracts with Century for the Citizens, Fulton, and Metropolitan MGP sites covering February 18, 1941 through July 1, 1969. (Godesky Aff., Exs. 1 & 2.) These policies covered losses in excess of defendant's $100,000 self-insured retention. The policies had per-occurrence limits ranging from $500,000 to $20 million. (Godesky Aff., Ex. 1 at MAR0038, MAR0035, MAR0082, MAR0101, MAR0110; Ex. 2 at CEN-009564 and Stipulation and Agreement, ¶ 6.)
Brooklyn Union first notified Century on February 3, 1993 of occurrences at the Citizens, Fulton, and Metropolitan MGPs, as well as other MGPs it owned and operated, that were likely to involve Century's policies. (Godesky Aff., Ex. 54.) Between 1993 and 2001, Brooklyn Union and Century exchanged correspondence and Century investigated Brooklyn Union's claims. (See Id., Exs. 54, 55, 56, 57, 58, 59, 60, 65, 67, 70; Lechliter Aff., Exs. L, M.)
On July 9, 2001, Brooklyn Union filed a declaratory judgment action in Kings County Supreme Court against Century and other insurers seeking coverage for Brooklyn Union's MGP cleanup claims (Index No. 403087/02). Century filed an action against Brooklyn Union in New York County Supreme Court on July 9, 2001 for a declaratory judgment that the Century policies do not cover Brooklyn Union's MGP claims (Index No. 603405/01). The cases were consolidated on March 4, 2002 in New York Supreme Court. (Godesky Aff., Exh. 4.)
In or around summer 2012, the parties agreed to complete discovery and prepare for trial regarding the "Citizens MGP, the Fulton MGP, the Metropolitan MGP, and the Gowanus Canal." (Godesky Aff., Ex. 11; Century Statement, ¶ 64; Brooklyn Union Statement at 29.)
Analysis
Century seeks partial summary judgment under CPLR 3212 (e) on five separate grounds to narrow forthcoming trial issues. CPLR 3212 (e) provides that "summary judgment may be granted as to one or more causes of action, or part thereof, in favor of any one or more parties, to the extent warranted, on such terms as may be just." Partial summary judgment is a means to preserve judicial resources by "promptly settling issues which can be disposed of as a matter of law." (Janos v Peck, 21 A.D.2d 529, 531 [1st Dept 1964].) Only "those issues of law and fact which may not be determined on the basis of undisputed facts" will be preserved for trial. (Id.)
The court will consider each of these five grounds in turn to determine whether Century has shown that no material issues of fact exist and whether it is entitled to judgment as a matter of law with respect to that point. The court finds that Century has shown no material issue of fact regarding the first, third, and fifth grounds and with regard to estoppel in the fourth grounds. Partial summary judgment is granted on these grounds. The court finds that Century has not shown that no material issues of fact exist regarding the second grounds and the issue of waiver in the fourth grounds. Partial summary judgment is denied on these grounds.
(1) No more than three occurrences for which Brooklyn Union can seek coverage Century's motion for partial summary judgement on this issue is granted.
Century argues that, under each policy, Brooklyn Union can only recover up to the per-occurrence policy limits for three occurrences for the Citizens, Fulton, and Metropolitan sites. It argues that contamination of the Gowanus Canal cannot be treated as a separate, fourth occurrence allowing for an additional per-occurrence policy limit. Instead, it claims, the contamination of the Gowanus is part of the occurrences at each of the three sites. Brooklyn Union argues that there are four separate occurrences - one at each of the three MGPs and one at the Gowanus Canal - enabling it to recover up to four per-occurrence limits under each policy.
In determining what constitutes a single occurrence under an insurance policy, the court must first look to the language of the policy to see if there is any grouping language. (Consol. Edison Co. of NY v Allstate Ins. Co., 98 N.Y.2d 208, 221-222 [2002].)
Policies XPL5910, XCP3511, and SRL2221, spanning 1963 to 1969, contain identical language providing that "[a]ll damages arising out of... exposure to substantially the same general conditions shall be considered as arising out of one occurrence." (Godesky Aff., Ex. 1 at MAR0085, MAR0103, MAR0113.) The policies define "occurrence" as "an accident happening during the policy period or a continuous or repeated exposure to conditions which unintentionally causes injury to or destruction of property during the policy period." (Id.) Under nearly identical policy language, the First Department has found that "exposures emanating from the same location at a substantially similar time" constitute a single occurrence. (Mt. McKinley Ins. Co. v Corning, 96 A.D.3d 451, 452 [1st Dept 2012] [denying summary judgment on question of whether each one of thousands of claims arising out of manufacture and distribution of two products containing asbestos is a separate occurrence].)
The other three Century policies do not contain the above-quoted grouping language. Where no grouping language is included in a policy, New York courts have adopted the "unfortunate event" test. Under this test, courts consider whether there is a close temporal and spatial relationship between the incidents giving rise to injury or loss and whether the incidents can be considered part of the same causal continuum without intervening factors. (Appalachian Ins. Co. v Gen'l Elec. Co., 8 N.Y.3d 162, 171-172 [2007] [finding multiple occurrences where claims were for asbestos exposure from turbines installed at 22, 000 facilities around the country].)
Courts in other jurisdictions have applied the unfortunate events test under New York lawful in cases of long-term environmental contamination. These cases are useful for illustration purposes. In Consolidated Edison Company, Inc. v Employers Insurance of Wausau, (1997 WL727486 [SDNY 1997]), the court found two separate occurrences when two different types of contaminants were disposed at two different sites, two miles apart, in different states. In Endicott Johnson Corporation v Liberty Mutual Insurance Company, (928 F.Supp. 176, 178 (ND NY 1996]), the court considered a situation in which a corporation over the course of many years disposed of hazardous materials at a landfill in one town and sent barrels for cleaning and repurposing at a location in another town, where they were washed and contaminants entered the groundwater. The court found that the contamination at the landfill and the contamination at the barrel facility were two separate occurrences under the policy because of the sites' physical separation. (Id. at 181.) In the General Electric Company v Lines (2010 WL 2486722 [Mass Super Suffolk County 2010]), a Massachusetts court applying New York law found a single occurrence when a plant located on the Housatonic river caused the pollution of the soil and groundwater on the plant's property and the pollution of the adjacent river and lake because they "occurred continuously over the same time period with no intervening agent" and they bore "a close temporal and spatial relationship and can be viewed as part of the same causal continuum." (Id.)
The following facts are undisputed in the present case. First, each of the three MGPs is directly contiguous to the Gowanus Canal. Second, the damage at the MGP sites was caused by leaks and spills of oil and tar from MGP equipment and pipes. Third, the damage to the Gowanus Canal was partly caused by the contaminants from the leaks and spills from the equipment and pipes on MGP property that migrated from the MGP sites through the subsurface. Fourth, the MGPs also released water containing oil and tar from wastewater pipes flowing into the canal, causing further contamination of the canal.
The court must decide whether these facts support a finding that "the Gowanus Canal contamination and associated EPA Superfund claim arose out of 'substantially the same general conditions' as the contamination and cleanup at the three MGPs that border and discharged into the Gowanus Canal." (Plaintiff Century Indemnity's Memorandum of Law in Support of its Motion for Partial Summary Judgment on Certain Issues Regarding Century's Policies and the Citizens, Fulton, and Metropolitan Manufactured Gas Plants ["Century's Memorandum of Law"], at 16 [filed under seal].) Century argues that there are at most three separate occurrences that could trigger coverage under each of its policies, one at each of the three MGP sites. It argues that the contamination of the Gowanus Canal is not a separate, fourth occurrence, but rather is a part of each of the three MGP occurrences.
Brooklyn Union argues that the pollution of the Gowanus Canal is a separate, fourth occurrence, triggering an additional per-occurrence limit under the Century policies. It also argues that there were intervening factors in the pollution of the Gowanus, such as discharges from other industrial facilities into the canal and disturbances once the pollution entered the canal, such as a "flushing tunnel, vessel traffic and propeller wash, dredging, and other disturbances." (The Brooklyn Union Gas Company's Memorandum of Law in Opposition to Century Indemnity Company's Motion for Partial Summary Judgment on Certain Issues ["Brooklyn Union's Memorandum in Opposition"], at 7 [filed under seal].)
The court finds that the contamination of each MGP property and the Gowanus Canal as a result of MGP operations had a close temporal and spatial relationship as contemplated under both Mt. McKinley and Appalachian. Under the "unfortunate events" test set forth in Appalachian, the court must also determine whether the incidents can be considered part of "the same causal continuum without intervening factors." (Appalachian, 8 N.Y.3d at 172.) The intervening factors Brooklyn Union cites all took place after the occurrence at issue here: the release of contaminants into the soil and the Gowanus Canal. Under all six Century policies, the damages caused by each MGP to its own property and the adjacent Gowanus Canal constitute one occurrence. The damage to the Gowanus Canal is not a separate, fourth occurrence.
(2) No coverage for costs of investigating and remediating soil on Brooklyn Union's own property Century's motion for partial summary judgment on whether Brooklyn Union can recover its costs for remediation of soil on its own property is denied. Questions of fact remain about the purpose of remediating the soil on Brooklyn Union's own property.
Century argues that Brooklyn Union is not entitled to coverage for the investigation and remediation of soil on the premises of the three MGPs. According to Century, its policies contain exclusions for coverage for damage to Brooklyn Union's own property. Brooklyn Union claims that the "own property" exclusion does not apply to the soil remediation because the soil remediation was aimed, at least in part, at protecting the groundwater, a public resource, and the Gowanus Canal, third-party property.
All six Century policies contain exclusions for damage to the insured's own property. Policy XPL-3661 provides that no coverage exists for "injury to or destruction, including the loss of use, of (1) property owned, occupied by or used by or rented to the insured...." (Godesky Aff., Ex. 1 at MAR0039.) The other policies include similar language. (Id., Ex. 1 at MAR0082, MAR0101, MAR0111 and Ex. 2 at CEN009566 and Stipulation and Agreement ¶ 6.)
When a policy contains an "own property" exclusion, the court must examine the nature of the damage and consider "whether [activity on the policyholder's own property] was necessary to stop ongoing and imminent damage to property belonging to another." (Castle Vill. Owners Corp. v Greater NY Mut. Ins. Co., 64 A.D.3d 44, 50 [1st Dept 2009].) The Court of Appeals has said that courts should give policy exclusions a "strict and narrow construction, with any ambiguity resolved against the insurer." (Bell Painting Corp. v TIG Ins. Co., 100 N.Y.2d 377, 383 [2003].) The Third Department held in a case involving a home heating oil spill on the insured's property that the "own property" exclusion in an insurance policy did not apply, stating "[t]here is no question but that the fuel oil entered the groundwater, or at the very least threatened to [.]" (State v New York Cent. Mut. Fire Ins. Co., 147 A.D.2d 77, 79 [3d Dept 1989] [emphasis added].)
Century does not dispute that the claims for costs for investigating groundwater conditions or installing barrier walls fall outside of the own-property exclusion. These actions were necessary to stop ongoing and imminent damage to the property of another. Century concedes that "groundwater is a natural resource falling outside owned-property exclusions." (Century's Memorandum of Law at 21.) Century also concedes that although the Brooklyn Union is installing the barrier wall on its "own property," it is necessary "to prevent tar seepage into the Gowanus Canal, i.e. third-party property." (Id.)
Century argues that it is not responsible for the costs Brooklyn Union incurred in investigating and remediating its own soil because it says these measures are not designed to cure "imminent and recurring" damage to groundwater or the Gowanus Canal. (Id. at 21-22.) Century asserts that "following soil excavation, the groundwater at the Three MGPs will remain contaminated for the foreseeable future, as tar in subsurfaces' deeper levels... continues dissolving into groundwater." (Id. at 22.)
Brooklyn Union argues that the soil-related costs are to "abate or mitigate damage to groundwater and to stop the migration of tar outside the footprints of the former MGP sites." (Brooklyn Union's Memorandum in Opposition at 17.) In support of this position, Brooklyn Union submitted an expert report stating that the soil remediation ordered by NYSDEC aimed at protecting groundwater and off-site property "by removing and isolating source materials." (Lechliter Aff., Ex. DD at 37, 46, 56.)
Brooklyn Union raises an issue of fact regarding the purpose of the soil remediation and whether it was "necessary to stop ongoing and imminent damage to property belonging to another." (Castle Vill. Owners Corp., 64 A.D.3d at 50.) If it was necessary for this purpose, the own-property exclusion may not apply and Brooklyn Union may be entitled to coverage for its soil remediation costs. Summary judgment is denied on this point and the issue reserved for the trier of fact.
(3) Term limits, not annual limits apply to multi-year policies Century's motion for summary judgment is granted on this issue.
Century argues that the per-occurrence limits in any of its policies with a policy period of longer than one year apply for the entire policy period; they are not annual per-occurrence limits. Brooklyn Union argues that this issue is academic, but that the per-occurrence limits should apply annually.
The court must first consider whether the question is academic, as Brooklyn Union suggests. A question is academic "when it appears that 'the rights of the parties cannot be affected by [its] determination.' Any determination by a court in resolving such a question would be purely advisory." (Town of Islip v Cuomo, 147 A.D.2d, 56, 65 [2d Dept 1989].) The court finds that the question is not academic because the rights of the parties will be affected by the court's determination. The court is likely to apply a pro rata method to allocate liability. Under this method, the policy period will affect the amount of recovery.
The courts calculate insurance liability according to one of two allocation methods: the "all sums" method or the "pro rata" method. Under the "all sums" method, an insured could "collect its total liability-'all sums'-under any policy in effect during the... years that the property damage occurred, up to that policy's limit." (ConEd, 98 N.Y.2d at 222.) The insurer can then seek indemnity from other insurers for their shares of the liability. This is also known as the "joint and several" approach. (Id.) Under the pro rata method, liability is distributed across policies and policy periods and each insured is assigned a proportionate share of liability. (Id. at 222-223.)
To determine the method of allocation, courts first look to the language of the policy. The ConEd case, like this case, involved cleanup of environmental contamination that occurred over a number of years and under numerous successive insurance policies. (Id. at 215-216.) The court examined the policy language and applied a pro rata method: the policy provided coverage for "all sums" incurred for "'occurrences' as defined herein happening during the policy period." (Id. at 222 [emphasis in original].) The policy further defined "occurrence" as "an event, or continuous or repeated exposure to conditions, which causes injury, damage or destruction during the policy period. All such exposure to events resulting from substantially the same general conditions during the policy period shall be deemed one occurrence." (Id. [emphasis in original].)
In the case of In Re Viking Pump (27 N.Y.3d 244, 264 [2016]), the court found that the "all sums" method should be applied in a case dealing with asbestos exposure that occurred over time and triggered multiple policy periods. The policies provided coverage for "all sums" incurred for an "occurrence," defined as "personal or bodily injury which occurs during the policy period." (Id. at 252 [emphasis in original].) The court distinguished this case from the ConEd case based on the policy language. Unlike the policies in ConEd, the policies at issue in the Viking Pump case either contained "non-cumulation" and "prior insurance" clauses or "followed the form" of policies with such language. An example of such a clause is the following:
"[i]f the same occurrence gives rise to personal injury, property damage or advertising injury or damage which occurs partly before and partly within any annual period of this policy, the [sic] each occurrence limit and the applicable aggregate limit or limits of this policy shall be reduced by the amount of each payment made by [Liberty Mutual] with respect to such occurrence, either under a previous policy or policies of which this is a replacement, or under this policy with respect to previous annual periods thereof." (Id.)
The court in Viking Pump noted that the purpose of a non-cumulation clause is to limit an insurer's liability in a situation of long-term or continuous loss covering multiple policy periods by preventing an insured from recovering up to the per-occurrence policy limit under each successive policy. (Id. at 259.) The court reasoned that if it applied the pro rata approach where the policies contained non-cumulation clauses, the non-cumulation clause would be unenforceable. (Id. at 260.) A result that renders a clause in a policy unenforceable goes against the principle of contract interpretation that a policy must be interpreted so as to "leave[] no provision without force and effect" and avoid surplusage. (Id. at 257.) Therefore, the Court held that "all sums allocation is appropriate in policies containing such provisions." (Id. at 264.)
The Century policies at issue in this case are all similar to one another in their provisions relating to coverage. For example, policy XPL-3661 provides that
"The company hereby agrees to indemnify the insured for ultimate net loss in excess of the retained limits hereinafter stated, subject to the limitations, conditions and other terms of this policy, which the insured may sustain by reason of the liability imposed upon the insured by law, or assumed by the insured under contract or agreement: (b) Property Damage Liability. For damages because of injury to or destruction of property, including the loss of use thereof, caused by accident." (Godesky Aff., Ex. 1, MAR0037 [emphasis added].)
The policy specifies that "[t]his policy applies only to occurrences or accidents which happen during the policy period." (Id. at MAR0038 [emphasis added].) Policy XPL-3661 contains an "other insurance" clause:
"If other valuable and collectible insurance with any other insured is available to the insured covering a loss also covered by this policy, other than insurance that is in excess of the insurance afforded by this policy, the insurance afforded by this policy shall be in excess of and shall not contribute with other such insurance. If the insured carries other insurance with the company covering a loss also covered by this policy, other than underlying insurance of which the insurance afforded by this policy is in excess, the insured must elect which policy shall apply and the company shall be liable under the policy so selected and shall not be liable under any other policy." (Id., Ex. 1 at MAR0043.)
Policies P-84739, XPL-572, XPL-5910, XCP-3511, and SRL-2221 contain similar or identical "other insurance" clauses. (Id., Ex. 2 at CEN009568, Ex. 1 at MAR0087, MAR0104, MAR0114.)
Brooklyn Union asserts that the "all sums" allocation method applies in this case because the "other insurance" clauses in the Century policies are non-cumulation clauses. It argues that Century itself has taken the position in previous litigation that virtually identical clauses are non-cumulation clauses. (Lechliter Aff., Ex. R.) Thus, this court should follow the holding in the Viking Pump case cited above and apply the "all sums" method. Under this method, the insured would be limited to one per-occurrence limit for any given occurrence, "regardless of whether the policies contain annual per occurrence limits or only a single limit over the full policy term." (Brooklyn Union's Memorandum in Opposition at 21.)
In its reply, Century argues that the "other insurance" clauses in its policies are not non-cumulation clauses because they relate to policies that were in force contemporaneously with the policy at issue and prevent double recovery for a single time period. The other insurance clauses do not refer to prior or subsequent time periods, as the non-cumulation clauses in Viking Pump. (Plaintiff Century Indemnity Company's Reply Memorandum of Law in Further Support of Its Motion for Partial Summary Judgment on Certain Issues Regarding Century's Policies and the Citizens, Fulton, and Metropolitan Manufactured Gas Plants ["Century's Reply Memorandum"] at 11 [filed under seal].) It argues that the case referred to by Brooklyn Union is from Pennsylvania and that Century's position in that case is not inconsistent with its position here. (Id. at fn 17.) Therefore, it argues that this court should apply the pro rata method.
The court finds that the "other insurance" clauses in Century's policies do not constitute non-cumulation clauses under New York law. "Other insurance" clauses "apply when two or more policies provide coverage during the same period, and they serve to prevent multiple recoveries from such policies[.]" (ConEd, 98 N.Y.2d at 223.) Non-cumulation clauses "prevent stacking, the situation in which 'an insured who has suffered a long-term or continuous loss which has triggered coverage across more than one policy period... wishes to add together the maximum limits of all consecutive policies that have been in place during the period of loss'[.]" (Viking Pump, 27 N.Y.3d at 259.) Because the policies do not contain non-cumulation clauses, the pro rata allocation method is appropriate.
In applying the pro rata approach, courts in different jurisdictions are divided on how to approach the issue of when coverage is triggered in continuous exposure cases, adopting various tests including the "continuous trigger" theory, advocated by Brooklyn Union. The continuous trigger theory suggests that "courts may reasonably treat the progressive injury or damage as an occurrence within each of the years of a... policy." (Spaulding Composites Co., Inc. v Aetna Cas. and Sur. Co., 176 N.J. 25, 33 [2003].) New York has adopted a different test, however, known as the injury-in-fact test. (See Cont. Cas. Co. v. Rapid-Am. Corp., 80 N.Y.2d 640, 651 [1993]; Cont. Cas. Co. v Emp'rs Ins. Co. of Wausau, 60 A.D.3d 128, 142 [1st Dept 2008].) The injury-in-fact test asks when the injury actually began. (Cont. Cas. Co., 80 N.Y.2d at 651.) In a situation like this one, in which the damage occurred over a number of years, it is difficult if not impossible "to determine the extent of the property damage that is the result of an occurrence in a particular policy period." (ConEd, 98 N.Y.2d at 224.) In ConEd, the Court "prorated liability based on the amount of time the policy was in effect in comparison with the overall duration of the damage." (Id.)
The policy periods of the six Century policies fall into three categories. The first category, which includes P-84739, XPL-572, XPL-5910, and XCP-3511, were multi-year policies. The policy period of P-84739 was from February 18, 1941 "until cancelled as provided in the policy." (Godesky Aff., Ex. 2 at CEN009523.) The policy in force until February 18, 1946 (Century Statement, ¶ 2.a; Brooklyn Union Statement at 3) Brooklyn Union and Century stipulated that XPL-572 "was initially issued on or about February 18, 1946 and, in exchange for annual premiums, was in effect until cancelled effective November 30, 1951." (Id., Ex. 2, Stipulation and Agreement, at ¶ 6.) The policy period for XPL-5910 was from June 6, 1963 "until cancelled." (Id., Ex. 1 at MAR0091.) It was cancelled on July 1, 1965 (Id. at MAR0096.) XCP-3511 had a policy period from July 1, 1965 "until cancelled as in the policy provided." (Id. at MAR0097.) It was in force until July 1, 1968. (Century Statement, ¶ 2.d; Brooklyn Union Statement at 4.) In the second category is XPL-3661, which ultimately covered 11.5 years between November 30, 1951, and June 1, 1963. Its initial policy period was one-year from November 30, 1951 to November 30, 1952. It was later renewed for periods of one year at a time, except that it was renewed for a two-year policy period from November 30, 1959, to January 1, 1962. (Id. at MAR0070.)
SRL-2221 was a policy covering July 1, 1968, to July 1, 1971. (Id. at MAR0188.) It was cancelled effective July 1, 1969. (Id. at MAR0119.) It is undisputed that the policy period for SRL-2221 was one year.
Century seeks a determination that the four multi-year policies and the two-year renewal period for XPL-3661 are subject to the per-occurrence limit for each policy period, rather than annual per-occurrence limits.
Brooklyn Union argues that the policies in question were renewed annually and that under New York law, "each renewal is deemed a new policy with its own per-occurrence limit." (Brooklyn Union's Memorandum in Opposition at 22.) It claims that there is no difference between a policy issued for one year and renewed annually, like XPL-3661, and a policy with no end date that the parties have the right to cancel at any time. (Id. at 24.) Finally, Brooklyn Union argues that the policies are ambiguous about whether annual or term limits apply, and that ambiguities must be resolved in favor of the insured. (Id. at 24.)
The court finds that each year under the multi-year policies and the two-year renewal of policy XPL-3661 does not constitute a separate policy with a separate per-occurrence limit. The cases Brooklyn Union cites for its proposition that that each annual renewal is a new policy are distinguishable from the case at hand because the insurance policies in those cases were initially one-year policies renewed each year. (See Fid. & Guar. Ins. Underwriters, Inc. v Jasam Realty Corp., 540 F.3d 133, 136 [2d Cir 2008]; Moore v Metro. Life Ins. Co., 33 N.Y.2d 304, 311 [1973]; Natl. Union Fire Ins. Co. of Pittsburgh, PA v Farmington Cas. Co., 1 Misc.3d 671, 672 [Sup Ct, NY County 2003].) As explained above, the policies in question in this case provide either the specific dates of the policy period or provide that the policy period would be from the initial date until their termination date. They were not "renewed" annually. All the policies also specifically provide in their cancellation clauses that if the policies were to be cancelled, "the effective date of cancellation stated in the notice shall become the end of this policy period." (Godesky Aff., Ex. 1 at MAR0044, MAR0089, MAR0106 and Ex. 2, CEN009569.)
For the foregoing reasons, the court finds that the issue of policy periods is not academic because it may affect the number of per-occurrence limits for which Century is liable. Nor are the policies ambiguous. The per-occurrence limits in the four multi-year policies and the two- year policy renewal of XPL-3661 apply for the entire policy period; they are not annual per-occurrence limits.
(4) Century did not waive and is not estopped from asserting its right to deny Brooklyn Union coverage on the ground that Brooklyn Union's notice of occurrences at the three MGPs was late Century's motion for partial summary judgment on this issue is denied with respect to waiver because it involves issues of fact. Partial summary judgment is granted on the issue of estoppel because Brooklyn Union has introduced no evidence or arguments to demonstrate that it relied to its detriment on Century's conduct.
In Amrep Corporation v American Home Assurance Company (81 A.D.2d 325, 329 [1st Dept 1981]), the First Department defined waiver as "an intentional relinquishment of a known right with full knowledge of the facts upon which the existence of the right depends.... Waiver and estoppel are ordinarily questions of fact for trial." (Id. [citations omitted].) The court cannot infer that a defense is waived "simply as a result of the passage of time." (Travelers Indem. Co. v Orange and Rockland Util., Inc., 73 A.D.3d 576, 577 [1st Dept 2010].) But a waiver may be inferred when facts in the record indicate that the insurer was aware of the defense, "yet manifested an intent not to assert" it. (Long Island Lighting Co. v Am. Re-Ins. Co., 123 A.D.3d 402, 404-405 [1st Dept 2014]; accord KeySpan Gas E. Corp. v Munich Re. Am., Inc., 23 N.Y.3d 583, 591 [2014].)
Century argues that "[t]he record here contains no evidence from which a jury could find that Century 'clearly manifested an intent to abandon' its right to deny coverage based on Brooklyn Union's failure to provide timely notice of the Three MGPs' occurrences." (Century's Memorandum of Law at 25 [citation omitted].) Century states that it reserved its right to assert a late-notice defense in numerous communications with Brooklyn Union from 1993, but that it was not until documents were produced in discovery after the filing of the declaratory judgment actions that it became aware of Brooklyn Union's pre-1993 knowledge of its potential liabilities. (Id. at 26.) Century also argues that Brooklyn Union offers no evidence that it relied to its detriment on Century's conduct, "a necessary element of estoppel." (Id. at 27.)
Brooklyn Union argues that Century's motion on this issue is premature and based on disputed facts. (Brooklyn Union's Memorandum in Opposition at 26.) It asserts that "the waiver question will turn in substantial part on what information Century relies upon to assert that notice was late, when Century became aware of that information, and what Century did or did not do once it had that information." (Id. at 26, citing Long Island Lighting Co., 123 A.D.3d at 403.) It also argues that "waiver presents a quintessential question of fact for a jury to decide, because it turns on the intent of a third party, which is unsuited for summary judgment." (Id. at 27, citing Amrep Corp., 81 A.D.2d at 329.) Brooklyn Union does not address the issue of estoppel.
This court finds that Brooklyn Union has raised a material issue of fact about when Century knew it had a potential late-notice defense and whether Century manifested an intent not to assert it, for example, by raising other defenses while failing to raise the late-notice defense. (E.g. New York v AMRO Realty Corp, 936 F.2d 1420, 1431 [2d Cir 1991].) The court finds that because Brooklyn Union has raised no arguments or evidence regarding estoppel, Century is entitled to partial summary judgment that it is not estopped from asserting a late-notice defense.
(5) Century has no obligation to cover $6.5 million in Metropolitan costs that Brooklyn Union agreed voluntarily to reimburse Century's motion for partial summary judgment is granted on this issue.
Each of the six insurance policies includes language that obligates Brooklyn Union to obtain Century's consent before agreeing to settle a claim voluntarily. Policy XPL 3661 provides that" ultimate net loss' as used in this policy, shall mean the sum actually paid in cash in the settlement or satisfaction of losses for which the insured is liable, either by adjudication or compromise with the written consent of the company." (Godesky Aff., Ex. 1 at CEN000405.) The other policies contain similar provisions, known as "consent-to-settle" provisions. (Id. at CEN009567, CEN00196, CEN001265, CEN001172; Ex. 2, Stipulation and Agreement, ¶ 6.)
Consent-to-settle provisions such as the ones in the Century policies are conditions precedent to coverage, meaning that if the insured fails to comply with these provisions, the insurer may deny coverage. (See J.P. Morgan Sec. Inc. v Vigilant Ins. Co., 53 Misc.3d 694, 697 [Sup Ct, NY County 2016].) The exception to this rule is when an insurer repudiates liability under the policy." A repudiation of liability by an insurance company excuses the insured from further performance on his part of the conditions of the policies.'" (Raymond v Allstate Ins. Co., 94 A.D.2d 301, 305 [1st Dept 1983], quoting Beckley v. Otsego County Farmers Co-op. Fire Ins. Co., 3 A.D.2d 190, 194 [3d Dept 1957].)
The Appellate Division, First Department, noted in Seward Park Housing Corporation v Greater New York Mutual Insurance Company (743 A.D.3d 23, 30-31 [1st Dept 2007]) that repudiation of liability and disclaimer of coverage are not the same thing. Repudiation of liability excuses an insured from further performance of conditions precedent under the policy; disclaimer of coverage does not excuse such performance. (Id. at 30.)
In Seward, the First Department noted that "New York courts have been reluctant to find repudiation of liability in insurance cases." (Id.) A true repudiation requires an anticipatory breach, such as when an insurer "immediately and summarily" rejects an insured's claims and proofs of loss. (Id. at 32.) The insurer in that case had "spent the better part of a year" on investigating the claim and conducted ten EBTs before denying the claim in a detailed letter that made "reference to policy provisions and exclusions." (Id.) On those facts, the Court held that there was no repudiation of the contract and that the insured was not relieved of its duties to comply with policy conditions. (Id.)
On February 27, 2002, Brooklyn Union entered into a Remediation and Reimbursement Agreement with FC Gowanus Associates, LLC (FC Gowanus), a property developer and a subsequent owner of a portion of the Metropolitan site. (Godesky Aff., Ex. 40) Under the agreement, Brooklyn Union agreed to reimburse FC Gowanus for up to $6.5 million in environmental costs. Brooklyn Union did not seek or obtain Century's consent before executing this agreement. (Century Statement, ¶ 107; Brooklyn Union Statement, at 39.)
Century argues that it has no obligation to cover the $6.5 million that Brooklyn Union agreed voluntarily to reimburse FC Gowanus for the settlement agreements because Brooklyn Union did not seek Century's consent before making this agreement. Century claims that although "Brooklyn Union will likely argue that it was relieved of its contractual obligation to obtain Century's consent because Century 'repudiated' the policies" that it did not repudiate the policies. (Century's Memorandum of Law at 28.) Rather, it conditionally disclaimed coverage after many years of investigating the claims and conducting discovery.
Brooklyn Union argues that it was relieved of its duty to seek Century's consent to engage in a settlement with FC Gowanus in 2002 because Century had repudiated liability for environmental cleanup costs when it filed its declaratory judgment action in 2001. Brooklyn Union asserts that it is entitled to judgment as a matter of law under CPLR 3212(b) that it had no obligation to seek Century's consent prior to resolving the FC Gowanus claim.
Century spent years communicating with Brooklyn Union and investigating its MGP claims before filing a declaratory judgment action in this case. Brooklyn Union submits no evidence upon which a jury could conclude that Century "immediately and summarily" rejected Brooklyn Union's claims or committed an anticipatory breach of its insurance contracts as contemplated under Seward. Century disclaimed coverage; it did not repudiate liability. Brooklyn Union was obligated to seek Century's consent before entering any agreement to settle unless Century had repudiated liability. Because Century did not repudiate liability, it is not liable for the $6.5 million in cleanup costs that Brooklyn Union voluntarily paid to FC Gowanus without first consulting Century.
Accordingly, it is hereby
ORDERED that Century Indemnity Company's motion for partial summary judgment is granted on the first issue, relating to the number of occurrences; and it is further
ORDERED that Century Indemnity Company's motion for partial summary judgment is denied on the second issue, relating to soil remediation on Brooklyn Union Gas Company's own property, as material questions of fact remain; and it is further
ORDERED that Century Indemnity Company's motion for partial summary judgment is granted on the third issue, relating to term limits versus annual limits; and it is further
ORDERED that Century Indemnity Company's motion for partial summary judgment is granted in part and denied in part on the fourth issue: granted with respect to estoppel and denied with respect to waiver, as material questions of fact remain; and it is further
ORDERED that Century Indemnity Company's motion for partial summary judgment is granted on the fifth issue, regarding Brooklyn Union Gas Company's voluntarily reimbursement of Metropolitan costs; and it is further
ORDERED that this decision and order is to be filed under seal pursuant to the Protective Order of the Supreme Court dated February 1, 2002.