Insurer Owes No Coverage Where Insured Failed To Comply With The Policy's Notice Requirement
July, 2010
The Appellate Division, First Department recently determined that an insurer owes no coverage for an environmental contamination cleanup claim because the insured failed to provide timely notice of its claim pursuant to the policy’s terms and conditions. Travelers Indem. Co. v Orange & Rockland Utils., Inc, 2010 NY Slip Op 4254 (1st Dep’t 2010).
Travelers Indemnity Co. (“Travelers”) issued a policy to Orange and Rockland Utilities, Inc. (the “Insured”) that contained a requirement that the Insured provide notice of an accident or occurrence “as soon as practicable.” Travelers Indem. Co. v. Orange & Rockland Utils., Inc., 2009 N.Y. Misc. LEXIS 2617 (N.Y. Sup. Ct. 2009). On April 14, 1995, the Insured notified Travelers of potential environmental liabilities at certain gas plants it owned, including a gas plant in Nyack, New York. Id. at *3. On May 1, 1995, Travelers acknowledged receipt of the Insured’s notice, but did not make a coverage determination and reserved its rights to do so at a later time. Id. On September 20, 2002, seven years after the Insured’s April 14, 1995 notice, Travelers disclaimed coverage because, among other reasons, the Insured failed to provide written notice of any accident or occurrence giving rise to a claim as soon as practicable as required by the express terms of the policy. Id.
Thereafter, Travelers filed suit in the New York County Supreme Court against the Insured seeking a declaration that it owed no coverage to the Insured for environmental contamination cleanup costs at its gas plant in Nyack, New York. Id. at *5. Travelers contended that, pursuant to the terms of the insurance policy, the Insured was required to give notice of pollution liability at the Insured’s gas plant in Nyack, New York approximately 14 years before it was finally given. Id. Travelers contended that the evidence, including an internal memorandum drafted by the Insured’s employee, which warned that “the buried tar and other residue may be coming back to haunt us,” confirmed the Insured’s knowledge of grave environmental problems at the Insured’s gas plants and that notice should have been furnished years earlier. Id. at *7.
The Insured countered that its April 14, 1995 notice was timely and fully complied with the policy’s notice requirements. Id. The Insured explained that a consent order that the Department of Environmental Conservation prepared and forwarded to the Insured on December 27, 1994, provided for investigation, and, if necessary, remediation of sites that were found to be contaminated. Id. at *8. The Insured contended that this was the first time it was apprised of potential remediation obligations with respect to the Nyack site in the event a pollution problem was found to exist. Id. The Insured then notified Travelers, on April 14, 1995, of the possibility of liability at the Nyack plant, nine months before a final consent order was signed requiring the investigation of the Insured’s gas plants. Id.
The trial court denied Travelers’ motion for partial summary judgment on the issue of late notice. Specifically, the trial court found that the record supported the conclusion that the Insured disclosed pertinent facts pertaining to the Nyack gas plant in a timely manner, and that its notice to Travelers was reasonable under the circumstances and that there was no evidence of any material nondisclosure. Id. at *13. Further, the trial court found that the evidence supported the conclusion that the Insured did not have any concrete knowledge that the Nyack gas plant was contaminated at any level necessitating regulatory action before giving notice to Travelers. Id.
The Appellate Division, First Department reversed the trial court’s finding as to late notice, determining that the Insured did not give timely notice under the policy. Specifically, the Appellate Court found that the Insured’s ongoing contacts with environmental regulators about the Nyack site dated back to 1981. Travelers Indem. Co. v Orange & Rockland Utils., Inc, 2010 NY Slip Op 4254 (1st Dep’t 2010). Further, the record on appeal indicated that there was a site inspection by the Environmental Protection Agency (“EPA”) in 1985, yet the Insured never provided any notice to Travelers of these contacts or the questions the EPA raised until 1995. Id. at *2.
Moreover, the Appellate Court explained that the Insured’s argument that it never had actual notice of any pollution was insufficient as many reports, including internal reports of a likelihood of contamination at the Nyack site, as well as inquiries from regulators, placed the Insured on notice. Id. The Appellate Court held that the trial court mistakenly held the Insured to a much more lenient standard for the timing of notice applicable in excess insurance cases. Id. The Appellate Court advised that the standard with regard to a primary liability policy, such as the policy at issue, is simply awareness of a reasonable possibility that the policy will be implicated. Id. Based upon the foregoing, the Appellate Division, First Department reversed the trial court’s finding as to late notice.
Learning Point:
The Appellate Division, First Department adhered to long-established New York case law in recognizing that an insurer owes no coverage where an Insured fails to comply with an insurance policy’s notice requirement.
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