Allstate Ins. Co. v. Klock Oil Co.

• Decision Date: 08 April 1980
• Citation: 73 A.D.2d 486,426 N.Y.S.2d 603
• Parties: ALLSTATE INSURANCE COMPANY, Respondent, v. KLOCK OIL COMPANY (a/k/a Clock Oil Company), Appellant, and Theodore Lunn and Greta Lunn, et al., Defendants.
• Court: New York Supreme Court — Appellate Division

Page 603

426 N.Y.S.2d 603

73 A.D.2d 486

ALLSTATE INSURANCE COMPANY, Respondent, v. KLOCK OIL COMPANY (a/k/a Clock Oil Company), Appellant and Theodore Lunn and Greta Lunn, et al., Defendants.

Supreme Court, Appellate Division, Fourth Department.

April 8, 1980.

Brennan, Centner, Palermo & Blauvelt, Rochester, for appellant (John Clapper, III, Rochester, of counsel).

Sullivan, Gough, Skipworth, Summers & Smith, Rochester, for respondent (William V. Gough, Rochester, of counsel).

Before SIMONS, J. P., and HANCOCK, CALLAHAN, WITMER and MOULE, JJ.

CALLAHAN, Justice.

Defendant, Klock Oil Co. (Klock), appeals from a judgment of the Supreme Court, Monroe County, declaring that plaintiff, Allstate Insurance Co., did not have a duty to defend or indemnify Klock in a pending action. In 1971 Klock had installed and thereafter maintained a gasoline storage tank at an automobile dealership. In 1974 an adjoining landowner complained that a gasoline leak allegedly emanating therefrom was affecting his property. Klock ceased using the tank and drained its contents to alleviate any further damage. Several inground tests conducted to determine whether the tank was leaking proved to be inconclusive. Upon removal of the tank for testing, it was found to be without leaks.

The landowner sued Klock and Gray-Raycheff Dodge Agency Inc., the auto dealership. Webaco Oil Co., also sued by the landowner in a separate action alleging similar negligent installation and maintenance of a gasoline storage tank, instituted a third-party action against Klock. Plaintiff's claim against Klock was based upon a defective condition due to negligent installation and maintenance of the tank resulting in escape of gasoline therefrom. Upon receipt of the complaint framed in negligence and seeking damages caused by percolation through the soil of gasoline allegedly leaked from defendant's storage tank, Allstate, Klock's insurer, disclaimed. Allstate's refusal to defend in the landowner's action and in a third-party action commenced by Webaco Oil Co. was founded upon a pollution exclusion clause contained in the Klock business package insurance policy. The exclusion provided that Allstate is not obligated to defend or indemnify for "bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gasses, contaminants or pollutants into or upon the land ; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental".

The pollution exclusion is statutorily mandated (Insurance Law, § 46, subds. 13, 14) and reflects a public policy in New York to encourage a cleaner environment by eliminating the opportunity for industry to spread the risk of loss it causes by pollution. Public policy does not forbid enforcement of the insurance contract, however (Messersmith v. American Fidelity Co., 232 N.Y. 161, 166, 133 N.E. 432, 433), and Allstate has the burden to prove its entitlement to the exclusion (International Paper Co. v. Continental Cas. Co., 35 N.Y.2d 322, 327, 361 N.Y.S.2d 873, 876, 320 N.E.2d 619, 622). Where the terms of an insurance policy are ambiguous or are subject to more than one reasonable construction, the policy must be construed most favorably to the insured and strictly against the insurer (Farm Family Mut. Ins. Co. v. Bagley, 64 A.D.2d 1014, 409 N.Y.S.2d 294). This is particularly so as to ambiguities found in an exclusionary clause (Lipton, Inc. v. Liberty Mut. Ins. Co., 34 N.Y.2d 356, 361, 357 N.Y.S.2d 705, 707, 314 N.E.2d 37, 39).

The complaint framed in negligence alleges that gasoline "escaped". The question remains then whether ...