CON ED v. Allstate Ins. Co.

• Decision Date: 02 May 2002
• Citation: 746 N.Y.S.2d 622,774 N.E.2d 687,98 N.Y.2d 208
• Parties: CONSOLIDATED EDISON COMPANY OF NEW YORK, INC., Appellant, v. ALLSTATE INSURANCE COMPANY et al., Respondents. (And a Third-Party Action.) CONSOLIDATED EDISON COMPANY OF NEW YORK, INC., Appellant, v. CERTAIN UNDERWRITERS OF LLOYD'S, LONDON, et al., Respondents, et al., Defendants. (And a Third-Party Action.)
• Court: New York Court of Appeals Court of Appeals

98 N.Y.2d 208

774 N.E.2d 687

746 N.Y.S.2d 622

CONSOLIDATED EDISON COMPANY OF NEW YORK, INC., Appellant, v. ALLSTATE INSURANCE COMPANY et al., Respondents. (And a Third-Party Action.)

CONSOLIDATED EDISON COMPANY OF NEW YORK, INC., Appellant, v. CERTAIN UNDERWRITERS OF LLOYD'S, LONDON, et al., Respondents, et al., Defendants. (And a Third-Party Action.)

Court of Appeals of the State of New York.

Argued March 12, 2002.

Decided May 2, 2002.

Dickstein, Shapiro, Morin & Oshinsky LLP, New York City (David L. Elkind, Jerold Oshinsky and Joseph F. Fields of counsel), and Richard W. Babinecz for appellant.

Stroock & Stroock & Lavan LLP, New York City (Robert Lewin, James A. Shifren, Kevin J. Curnin and Joseph E. Strauss of counsel), for Travelers Indemnity Company, respondent. Mendes & Mount, LLP, New York City (John G. McAndrews, Dean J. Vigliano, Robert P. Firriolo and William P. Lalor of counsel), for London Market Insurers, respondent.

Luce, Forward, Hamilton & Scripps LLP, New York City (Thomas R. Newman, Mitchell L. Lathrop, Huhnsik Chung and Christine Megna of counsel), for St. Paul Fire & Marine Insurance Company, respondent.

Wilson, Elser, Moskowitz, Edelman & Dicker LLP, New York City (Richard E. Lerner and Thomas W. Hyland of counsel), for Home Insurance Company, respondent. Melito & Adolfsen P.C., New York City (Robert F. Walsh and Jennifer A. Schaefer of counsel), for New England Insurance Company and another, respondents.

Carl F. Patka, Albany, and Lawrence G. Malone for Public Service Commission of the State of New York, amicus curiae.

McCarter & English LLP, Newark, New Jersey (Gita F. Rothschild, R. Nicholas Gimbel and Alissa Pyrich of counsel), and Anderson Kill & Olick, P.C., New York City (R. Mark Keenan and Mark Grabowski of counsel), for United Policyholders, amicus curiae.

Vedder, Price, Kaufman & Kammholz, New York City (John H. Eickemeyer of counsel), and Wiley Rein & Fielding LLP, Washington, D.C. (Laura A. Foggan, Dale E. Hausman and Kimberly M. Melvin of counsel), for Insurance Environmental Litigation Association, amicus curiae.

Judges SMITH, LEVINE, CIPARICK, WESLEY, ROSENBLATT and GRAFFEO concur.

OPINION OF THE COURT

Chief Judge KAYE.

Central to this appeal by an insured against its insurers are two important law questions: first, whether the insured (or the insurers) should have the burden of proving that the damage was (or was not) the result of an "accident" or "occurrence" within the meaning of the policies, and second, how any liability should be allocated. This case presents something of a time capsule in that nineteenth century technology polluting twentieth century properties will have significant twenty-first century financial ramifications. For approximately 60 years— from 1873 to 1933—Consolidated Edison's corporate predecessors owned and operated a manufactured gas plant in Tarrytown, New York. The site was later sold to Anchor Motor Freight, Inc. In 1995, Anchor notified Con Edison that, during an investigation it was conducting pursuant to Department of Environmental Conservation (DEC) requirements, it discovered contamination at the site. Anchor alleged that the manufactured gas plant caused the contamination and demanded that Con Edison participate in the investigation and remediation.

After its own investigation, Con Edison entered into an agreement with the DEC to clean up the site, and commenced this declaratory judgment action against 24 insurers that had issued it general liability policies between 1936 and 1986, demanding defense and indemnification for environmental damages arising from the contamination caused by the Tarrytown plant. The policies that were the subject of the complaint were issued in layers, and provided for a self-insured retention in the amount of $100,000 per year from 1936 to 1961, and $500,000 per year from 1961 to 1986. Con Edison's total coverage in excess of the retention ranged between $2 million and $49.5 million during each of the relevant years.

Defendant Travelers Indemnity Company, which provided coverage for liability in excess of $20 million from 1964 to 1970, moved for dismissal on the ground that, as to it, the claim was nonjusticiable. Travelers argued that where there is both continuous, progressive property damage and successive insurance, liability should be allocated pro rata among the insurers. Applying a pro rata allocation to damage estimates most favorable to Con Edison, Travelers contended that its excess insurance policies would not be reached in any given policy year. Nineteen other defendants cross-moved to dismiss the complaint against them on the same ground. In response, Con Edison argued against pro rata allocation, asserting that it should be permitted to allocate all liability to any defendant for any one year it elects within the coverage period.

Supreme Court dismissed the action as against Travelers and 13 other defendant insurers who sought dismissal for nonjusticiability, and dismissed the action as against certain policies issued by Century Insurance Company, Home Insurance Company, New England Insurance Company, St. Paul Fire and Marine Insurance Company and Employers Insurance of Wausau on the same ground. The court ruled that only for the purposes of determining the motion to dismiss, it would prorate the damages and dismiss all policies that would not be reached by that method. The court took the highest projection of damages by Con Edison's expert ($51 million), divided by the number of years named in the complaint (50), and thus determined that policies that attach at levels above $1.1 million were nonjusticiable because they would not be reached even if Con Edison prevailed at trial. As the court stated:

"Here, we have policies from 24 insurers that can be called upon to answer for the claim, all of which are overlapping. The damages cannot be attributed to any specific year or years because there is no documentation nor are there any witnesses that address specific discharges. What is known is that the damages for later years is less than earlier years, because the amount of pollution has diminished over time. Under the circumstances * * * it would be inequitable to put the parties to the expense of trying claims under excess policies issued in later years, when those policies would not be reached if pro rata allocation is applied."

The court added, "[t]his necessarily is not the formula that I will use at trial since both the plaintiff and the defendants should have an opportunity to explore the issue of allocation to the plaintiff based upon a complete record and then the formula can be modified to conform to the proof." Con Edison appealed from that order.

In the meantime, all remaining defendants except Home, Lloyd's and St. Paul settled, and the case proceeded to trial as to those defendants. At trial, Con Edison contended that because the coverage language requiring an "accident" or "occurrence" operated to exclude coverage for intended damage, the burden of proving the damage was intended should be assigned to the insurers. The Trial Judge disagreed:

"The problem I see with that is the burden of the policy holder to establish that the damage was caused by an accident. It seems to me that the opposite of accidental is intentional, so it seems to me that I think that this is not an exclusion being asserted by the insurance company but a claim being asserted by the policy holder. I think the policy holder has the burden of proof to establish an accident did in fact occur, that is that the damage was not an intentional act. I will so charge the jury."

The jury found that there was property damage at the site during the years that the three defendants' policies were in effect, but that the property damage was not the result of an "accident" or "occurrence," and thus there was no coverage. Con Edison appealed, arguing that the court erred in assigning it the burden of establishing that the property damage was the result of an "accident" or "occurrence."

Both as to allocation and as to burden of proof, the Appellate Division affirmed. In light of the jury verdict in favor of the insurers, the Appellate Division held that the appeal from the pretrial order dismissing claims against several of the insurers was moot as to all of the policies similar in language to those that went to trial, and to the extent the language of some of the policies was different the trial court properly prorated the damages over the 50-year period. We now affirm.

Burden of Proof

Generally, it is for the insured to establish coverage and for the insurer to prove that an exclusion in the policy applies to defeat coverage (see Northville Indus. Corp. v National Union Fire Ins. Co., 89 NY2d 621, 634 [1997]; Technicon Elec. Corp. v American Home Assur. Co., 74 NY2d 66, 73-74 [1989]). Is the issue before us, then, a matter of coverage (placing the burden on Con Edison to establish an accident or occurrence) or a matter of exclusion (placing the burden on the insurers to establish that the resulting property damage was intended)? The answer to that question centers on the language of the policies.

The Lloyd's, St. Paul and Home policies that were the subject of the trial contained substantially similar language. The Lloyd's policies, in effect from 1936 to 1944, open with an undertaking to pay Con Edison's liability "for damage to or destruction of property of others * * * caused by accident occurring during the period * * *." "Accident" is defined as "an accident or series of accidents arising out of one event or occurrence." The St. Paul policies, in effect from 1944 to 1961, also provide in the opening paragraph for indemnification for liability "by reason of damage to or destruction of property arising from or growing out of any accident occurring during the period * * *." "Accident" is defined as "each and every accident or event or series of accidents or events arising from the same...