Avondale Industries, Inc. v. Travelers Indem. Co.

• Decision Date: 19 October 1988
• Docket Number: No. 86 Civ. 9626 (KC).,86 Civ. 9626 (KC).
• Citation: 697 F. Supp. 1314
• Parties: AVONDALE INDUSTRIES, INC. and Ogden Corporation, Plaintiffs, v. The TRAVELERS INDEMNITY COMPANY, Defendant. The TRAVELERS INDEMNITY COMPANY, Third-Party Plaintiff, v. COMMERCIAL UNION INSURANCE COMPANY, Highlands Insurance Company, American Motorists Insurance Company, and National Union Fire Insurance Company, Third-Party Defendants.
• Court: U.S. District Court — Southern District of New York

697 F. Supp. 1314

AVONDALE INDUSTRIES, INC. and Ogden Corporation, Plaintiffs, v. The TRAVELERS INDEMNITY COMPANY, Defendant.

The TRAVELERS INDEMNITY COMPANY, Third-Party Plaintiff, v. COMMERCIAL UNION INSURANCE COMPANY, Highlands Insurance Company, American Motorists Insurance Company, and National Union Fire Insurance Company, Third-Party Defendants.

No. 86 Civ. 9626 (KC).

United States District Court, S.D. New York.

October 19, 1988.

Ed Joyce, Hugh N. Fryer, Fryer Ross and Gowen, New York City, for plaintiffs.

Emily Levine, Rivkin, Radler, Dunne and Bayh, Uniondale, N.Y., for Commercial Union Fire Ins. Co.

J. Portis Hicks, Drinker, Biddle and Reath, New York City, for American Motorists Ins. Co.

Seth A. Ribner, Simpson, Thacher and Bartlett, New York City, for Travelers Indem.

Levy, Bivona and Cohen, New York City, for Nat. Union Fire.

MEMORANDUM OPINION AND ORDER

CONBOY, District Judge:

Plaintiffs brought the instant action for a declaratory judgment, pursuant to 28 U.S.C. section 2201 (1982), that the defendant is obligated to defend and indemnify plaintiffs under comprehensive general liability ("CGL") insurance policies issued by defendant to plaintiffs,¹ covering the period 1975-1984. See Complaint para. 6. Plaintiff Avondale currently is a defendant in at least fourteen private damage actions in Louisiana stemming from third parties' allegedly tortious operation of a hazardous or toxic waste disposal or storage site (the "site") in that state. Avondale is involved because it contracted with one of the operators of the site to sell the operator, during the period December 1975 to October 1979, "salvage oil," defined as "oil, residual fuel, cargo and other materials." See Affidavit of R. Dean Church, executed Oct. 5, 1987, at paras. 4, 6. The private damage actions allege that Avondale's salvage oil contributed in an unspecified manner to the creation of the pollution at the site.

Avondale also seeks defense and indemnification for actions being taken by the Louisiana Department of Environmental Quality ("DEQ") to clean up the site. See Complaint Ex. B.

Jurisdiction is predicated on diversity of citizenship between plaintiffs, Delaware corporations having their principal places of business in Massachusetts (Avondale) and New York (Ogden), and defendant, a Connecticut corporation having its principal place of business in Connecticut. See 28 U.S.C. § 1332(a)(1) (1982). The action is before the court on plaintiffs' motion for partial summary judgment, pursuant to Fed.R.Civ.P. 56(a), that defendant is obligated to defend them in both the private actions and the process initiated by the State of Louisiana.

LEGAL ANALYSIS

The court applies New York law to the contracts between plaintiffs and defendant.² "The duty of the insurer to defend the insureds rests solely on whether the complaints against the insureds allege any facts or grounds which bring the actions within the protection purchased." Seaboard Surety Co. v. Gillette Co., 64 N.Y.2d 304, 310, 476 N.E.2d 272, 275, 486 N.Y.S.2d 873, 876 (1984) (emphasis added); see National Grange Mutual Ins. Co. v. Continental Casualty Ins. Co., 650 F.Supp. 1404, 1408 (S.D.N.Y.1986) ("Even if some of the allegations of the underlying complaint are clearly outside the scope of the coverage contained in the policy, the insurer is obligated to defend unless the allegations as a whole preclude coverage."); Utica Mutual Ins. Co. v. Cherry, 38 N.Y.2d 735, 736-37, 343 N.E.2d 758, 758, 381 N.Y.S.2d 40, 40 (1975) (mem.) (insurer's duty to defend triggered where underlying complaint asserts alternative grounds for relief, and only some of those grounds are within the policy's coverage), aff'g 45 A.D. 2d 350, 353, 358 N.Y.S.2d 519, 522 (2d Dep't 1974). "The duty to defend arises not from the probability of recovery but from its possibility, no matter how remote. Any doubt as to whether the allegations state a claim covered by the policy must be resolved in favor of the insured as against the insurer." George Muhlstock & Co. v. American Home Assurance Co., 117 A.D. 2d 117, 122, 502 N.Y.S.2d 174, 178 (1st Dep't 1986).

A. The Private Lawsuits

The eight underlying complaints provided to the court, see Complaint Ex. C-G; Plaintiffs' Motion For Partial Summary Judgment Ex. L-N,³ allege, in substance, the following relevant facts: the site operator operated the site from the 1960s until at least 1982; Avondale was one of many companies whose waste products were disposed of at the site; and, the site contains hazardous or toxic waste. Significantly, there are no allegations as to how the waste escaped or seeped, nor as to Avondale's culpable actions that contributed to the occurrence. While Avondale may have continuously generated these waste products, it does not follow necessarily, and the private actions certainly have not alleged, that Avondale continuously, by its own actions or through the actions of an agent, intentionally polluted.⁴ All of Avondale's products may have been properly stored, and escaped in a single incident. This is a factual matter that will be determined at the trial(s) of the underlying actions.

For purposes of this motion only, the court assumes that defendant's offered construction of the meaning of the word "sudden" in plaintiffs' policies is correct. See American Motorists Ins. Co. v. General Host Corp., 667 F.Supp. 1423, 1428 (D.Kan.1987) ("Even if `sudden' is not limited to an instantaneous happening, it still must be on brief notice, and must be unexpected. No use of the word `sudden' or `suddenly' could be consistent with an event which happened gradually or over an extended time, nor could it be consistent with an event which was anticipated or predictable."). Contra Broadwell Realty Servs. v. Fidelity & Casualty Co., 218 N.J.Super. 516, 530-36, 528 A.2d 76, 83-86 (App.Div.1987) (rejecting argument that "sudden" has a temporal meaning, and holding that it means only "unexpected and unintended"). Even under this more restrictive view, there is a question of fact whether the dispersal of Avondale's waste product comes within the policies. See discussion supra at 1316-17.

The existence of factual disputes, material to the issue of indemnification, in the underlying private lawsuits requires the court to hold that as a matter of law, the defendant has failed to demonstrate "that there is no possible factual or legal basis on which the insurer might eventually be obligated to indemnify the insureds under any provision contained in the policies." Villa Charlotte Bronte, Inc. v. Commercial Union Ins. Co., 64 N.Y.2d 846, 848, 476 N.E.2d 640, 641, 487 N.Y.S.2d 314, 315 (1985) (mem.). The defendant's assertion that Avondale was an active, continuous polluter is a conclusion that is not established on the underlying pleadings. The matter outside the pleadings submitted by the defendant is irrelevant to the determination of its duty to defend; such matter is relevant only to its duty to indemnify.

The defendant argues that summary judgment is inappropriate because there is an extant factual dispute as to the parties' intent in drafting the pollution exclusion clause to the insurance contracts, citing Olin Corporation v. Insurance Company of North America, 603 F.Supp. 445 (S.D.N. Y.1985), and County of Broome v. Aetna Casualty & Surety Company, slip op. (N.Y.Sup.Ct. June 24, 1988). Each of those cases denied motions for partial summary judgment because a factual question existed whether the insurer was obligated under the policy to indemnify the insured. See Olin Corp., 603 F.Supp. at 448-49; County of Broome, slip op. at 11. However, the Circuit Court of Appeals for the District of Columbia has held that the holdings of Olin Corporation and County of Broome are "simply inconsistent with New York law." Abex Corp. v. Maryland Casualty Co., 790 F.2d 119, 129 n. 44 (D.C.Cir.1986) (applying New York law) (discussing Olin Corp.); see, e.g., Villa Charlotte Bronte, Inc., discussed supra at 1317. The court declines to follow Olin Corporation and County of Broome. "Only disputes over facts that might affect the outcome of the suit under the governing substantive law will properly preclude the entry of summary judgment." Anderson v. Liberty Lobby, 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986). "Whether the parties intended Travelers sic policies to provide limited pollution coverage for sudden, accidental primary discharges of pollutants or some broader insuring obligation that extends to Avondale's continuous waste disposal activity," see Defendant's Memorandum of Law in Opposition, at 39, is immaterial to resolving the question of the defendant's duty to provide the plaintiffs with a defense, because the underlying complaints are so ambiguous that a claim within the purchased coverage is alleged under the more restrictive interpretation.

The court concludes that the defendant is obligated to provide a defense for the plaintiffs in the private lawsuits.

B. The Department of Environmental Quality Demand

The policies of insurance contain the standard section on liability, including the following relevant language: "The insurer shall have the right and duty to defend any suit against the insured seeking damages because of bodily injury or property damage on account of such injury or damage." The defendant raises two objections to plaintiffs' request that it defend them with respect to the administrative process begun by the Louisiana Department of Environmental Quality to clean up the site. First, the defendant claims that cleanup costs are not "damages," so that the policies provide no coverage. Second, the defendant argues that the administrative process is not a "suit" that it is required to defend.

1. Whether the proceeding by the Louisiana DEQ raises any claim coming within the policies' coverage as damages

The cases are split on the question whether waste site cleanup costs constitute "damages" under CGL policies, or whether...