Bankers Trust Co. v. Hartford Acc. & Indem.

• Decision Date: 22 July 1981
• Docket Number: No. 80 Civ. 2782(MEL).,80 Civ. 2782(MEL).
• Citation: 518 F. Supp. 371
• Parties: BANKERS TRUST COMPANY and Great Lakes Realty Corp., Plaintiffs, v. HARTFORD ACCIDENT AND INDEMNITY COMPANY, Defendants.
• Court: U.S. District Court — Southern District of New York

518 F. Supp. 371

BANKERS TRUST COMPANY and Great Lakes Realty Corp., Plaintiffs, v. HARTFORD ACCIDENT AND INDEMNITY COMPANY, Defendants.

No. 80 Civ. 2782(MEL).

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

July 22, 1981.

Moses & Singer, New York City, for plaintiffs; David B. Eizenman, Steven Glaser, New York City, of counsel.

William F. Larkin, New York City, for defendant.

LASKER, District Judge.

This case presents the question whether an insurance policy whose coverage includes damage to the property of third persons but excludes damage to the insured's property, covers work performed on the insured's property in order to prevent damage to the property of third parties.

I.

Bankers Trust Company and Great Lakes Realty Corp. move for summary judgment in their favor for monies allegedly due under two insurance policies issued by Hartford Accident and Indemnity Company for work done to correct a pollution problem caused by a leaking fuel oil pipe located on property adjacent to the East River.

Bankers Trust acquired title to a parcel of real property known as 34-24 Vernon Boulevard, Queens, New York (the "property") by foreclosing on a mortgage it issued to Great Lakes. The property is located in Long Island City on the east shore of the East River, and is bordered on the north by Rainey Park, which is owned by the City of New York. A warehouse which has an oil-fired furnace and oil tanks beneath the boiler room to store the fuel oil is situated on the property.

Plaintiffs procured from Hartford two insurance policies: General Liability Insurance Policy No. 10 CB 41536 (Plaintiffs' Exhibit 1), which was limited to $100,000. coverage, and Umbrella Liability Policy No. 10 HUB 41540 (Plaintiffs' Exhibit 2), which had a $5,000,000. limit. Under both policies, Hartford agreed to pay all sums plaintiffs would become legally obligated to pay for personal injury or property damage to third persons arising from the ownership and control of the property. The policies, the terms of which are set out in the margin,¹ exclude "first party" coverage, that is, they do not insure against damage to the plaintiffs' property.

On June 15, 1977, plaintiffs were orally notified by the United States Coast Guard that the property was suspected to be the source of fuel oil polluting the East River and its shores. Written notification was received two days later, together with direction, pursuant to the Federal Water Pollution Control Act, 33 U.S.C. § 1161, "to remove the pollutant and adequately mitigate its effects" (Plaintiffs' Exhibit 3). Excavation revealed that the source of the leaking fuel was a broken pipe beneath the warehouse on the property.

Clean-up operations ensued. Work was done both off the property (in the East River and Rainey Park), and on the property. The work done in the river consisted of placing a "flotation collar" to contain the oil slick which had developed there. The oil was removed from the river through the use of absorbent "booms" which were collected daily for two years. The contaminated soil in Rainey Park was excavated, and the river bed was "high pressure steam cleaned," forcing the oil there to rise to the surface of the river where it could be absorbed and removed by the booms.

The work done on the property consisted first of "plugging" the broken pipe and pumping out the oil in it. To prevent further oil seepage into the river and its shores, the oil was removed from the soil on the property. Trenches were dug and flooded with water to force the oil into the river where it was collected by the booms. Cylindrical concrete tubes were placed in deep holes and the oil pumped out.

Hartford was notified of the pollution problem and plaintiffs' claims under the policies on June 23, 1977. It subsequently retained the engineering firm John B. Drinan Associates, Inc. to inspect the site and review the work done. After Drinan was retained, the firm was consulted on each step subsequently taken to correct the pollution problem. Drinan concurred that the work was done correctly and that the costs were reasonable. Affidavit of John V. Drinan, sworn to November 20, 1980, p. 2.

Plaintiffs sue to recover their expenses incurred in cleaning the oil out of the river and its shores, and in preventing further seepage by removing the oil from the property.

Hartford does not dispute that the work done to clean up the East River and Rainey Park falls within the policies' coverage. It contends, however, that the work done to remove the oil from the soil in plaintiffs' property is excluded from coverage because it was done to correct damages to plaintiffs' own property and not to property of third persons. Hartford argues further that it cannot be determined how much of the costs should be allocated to the work done on the East River and Rainey Park, as opposed to the work performed on plaintiffs' property.

II.

We agree with plaintiffs that the work done on the property to prevent further oil seepage was as a matter of law within the coverage of the policies. First, it was done to prevent damage to the property of third parties. There is no dispute that the oil seepage was not affecting the use of the property by its owners. Second, Hartford does not dispute plaintiffs' assertion that if the preventive work had not been done, the oil would have continued to seep into the river for a substantial period hereafter, and that plaintiffs — and that ultimately, Hartford — would have had to spend much more to clean up the resulting damage to the river and its shores. Memorandum of Law in Support of Plaintiffs' Motion for Summary Judgment, p. 10; Affidavit of William J. Kelly, Associate Insurance Officer of Bankers Trust Company, ¶ 17, sworn October 17, 1980. Third, it is Hartford's burden to show that the exclusion applies here. Any ambiguity in an insurance policy — and the policies here are ambiguous as to whether they include costs for preventing third party property damage — must be construed against the insurer. Greaves v. Public Service Mutual Insurance Co., 5 N.Y.2d 120, 181 N.Y.S.2d 489, 155 N.E.2d 390 (1959); American Fidelity Fire Insurance Company v. Pardo, 32 A.D.2d 536, 299 N.Y.S.2d 521 (2d Dept. 1969). The insurer also bears the burden to show that an exclusionary clause applies. Sincoff v. Liberty Mutual Fire Insurance Company, 11 N.Y.2d 386, 230 N.Y.S.2d 13, 183 N.E.2d 899 (1962); American Fidelity Fire Insurance Company v. Pardo, 32 A.D.2d 536, 299 N.Y. S.2d 521 (2d Dept. 1969). Fourth, because the policies are ambiguous as applied to this situation, the proper construction is one that yields a reasonable result. Pittsburgh Coke & Chemical Company v. Bollo, 421 F.Supp. 908, 928 (S.D.N.Y.1976), aff'd, 560 F.2d 1089 (2d Cir. 1977); Hong Kong Export Credit Insurance Corp. v. Dun & Bradstreet, 414 F.Supp. 153, 158 (S.D.N.Y.1975); Aron v. Gillman, 309 N.Y. 157, 163, 128 N.E.2d 284 (1955). Here, the reasonable result follows plaintiffs' construction: As noted above, if the policy did not cover this situation, plaintiffs could have allowed the oil to continue to pollute the river and its shores, causing further social damage and damage to third parties, and ironically ultimately costing even Hartford more money.

No New York cases have been cited addressing the question whether an insurance policy covering damage to the property of third persons also covers costs to prevent damage to third persons. Plaintiffs rely mainly on American Economy Insurance Co. v. Commons, 26 Or.App. 153, 552 P.2d 612 (1976), in which the court held that an insurance policy covering property damage covered the costs by the State of Oregon to fight a forest fire on the insured's property (which had already...