Estee Lauder Inc. v. Onebeacon Ins. Grp., LLC, Index No. 602379/05

• Decision Date: 09 February 2015
• Docket Number: Index No. 602379/05
• Citation: 2015 NY Slip Op 32592 (U)
• Court: New York Supreme Court
• Parties: ESTEE LAUDER INC., Plaintiff, v. ONEBEACON INSURANCE GROUP, LLC (successor in interest to CGU INSURANCE, f/k/a EMPLOYERS GROUP OF INSURANCE COMPANIES, EMPLOYERS COMMERCIAL UNION INSURANCE CO. OF AMERICA and COMMERCIAL UNION INSURANCE COMPANY), ONEBEACON INSURANCE COMPANY and ONEBEACON AMERICA INSURANCE COMPANY, Defendants.

2015 NY Slip Op 32592(U)

ESTEE LAUDER INC., Plaintiff, v. ONEBEACON INSURANCE GROUP, LLC(successor in interest to CGU INSURANCE,f/k/a EMPLOYERS GROUP OF INSURANCE COMPANIES,EMPLOYERS COMMERCIAL UNION INSURANCE CO.OF AMERICA and COMMERCIAL UNION INSURANCE COMPANY),ONEBEACON INSURANCE COMPANYand ONEBEACON AMERICA INSURANCE COMPANY, Defendants.

Index No. 602379/05

SUPREME COURT OF THE STATE OF NEW YORK COUNTY OF NEW YORK: IAS PART 35

February 9, 2015

DECISION/ORDER

Motion Seq. 021 and 022

Hon. Carol R. Edmead, J.S.C.:

MEMORANDUM DECISION

Plaintiff Estee Lauder Inc. ("Estee Lauder") commenced this insurance declaratory judgment action to compel defendants OneBeacon Insurance Group, LLC,¹ OneBeacon Insurance Company and OneBeacon America Insurance Company (together, "OneBeacon") to pay defense costs and indemnify it for underlying claims brought against Estee Lauder arising from the alleged dumping of hazardous wastes in two landfills on Long Island.

OneBeacon now moves to amend its Answer to reassert several affirmative defenses (motion sequence 002), and for summary dismissal of the complaint based on such affirmative defenses (motion sequence 001) as a result of the Court of Appeals' recent decision in Key-Span Gas East Corporation v Munich Reinsurance America, 23 NY3d 583 [2014] ("Key-Span")).²

Factual Background

This action arises from an insurance policy allegedly issued to Estee Lauder by Employers' Liability Assurance Corp., Ltd ("ELAC") in 1968 (the "Policy") (Amended Complaint, ¶¶16-17). OneBeacon allegedly assumed the obligations of ELAC imposed by the Policy (Amended Complaint, ¶¶19-21). The Policy obligated the carrier to defend and reasonably settle any claims asserting that the Estee Lauder was potentially responsible for "property damage" inflicted during the term of the Policy, i.e., September 18, 1968 to September 18, 1971 (Amended Complaint, ¶26).

In 1998, Estee Lauder signed tolling agreements whereby New York State agreed to "forgo" the commencement of an action to recover costs from Estee Lauder for the hazardous waste disposals at the Blydenburgh and Huntington Landfill (the "Landfills") until 1999, while the State further investigated the matter (the "1998 Tolling Agreements").³

In 1999, the State specifically identified Estee Lauder as a potentially responsible party ("PRP") concerning the hazardous waste disposals at the Landfills (collectively, the "Landfill PRP Claims"). In 2001, the State filed a Federal Court action⁴ seeking recovery of costs it incurred to remediate the Blydenburgh Landfill; a third-party action was filed against Estee Lauder in that action (together, the three claims are referred to as the "Environmental Claims").

When Estee Lauder tendered the defense of the Environmental Claims (Amended Complaint, ¶¶ 31, 40, and 48), OneBeacon declined to defend or settle the three claims(Amended Complaint, ¶¶ 35, 41, and 49). As a result, this declaratory judgment action ensued.

Estee Lauder amended its complaint in June 2005 (the "First Amended Complaint"), and in September 2005, OneBeacon interposed the following four affirmative defenses, which are collectively referred to herein as the "Late Notice" defenses:

FOURTH AFFIRMATIVE DEFENSE

OneBeacon is not liable to Plaintiff to the extent that there has been a failure to perform or comply with any of the obligations or conditions that may be contained in the alleged insurance policy allegedly issued by ELAC, including, but not limited to, the notice and cooperation requirements.

EIGHTH AFFIRMATIVE DEFENSE

OneBeacon has no contractual duty to defend or obligation to defend and/or reimburse defense costs and/or to indemnify Plaintiff.

TWENTY-FIRST AFFIRMATIVE DEFENSE

Coverage under the alleged ELAC insurance policy is available only to an insured under the alleged ELAC insurance policy. To the extent that Plaintiffs First Amended Complaint asserts claims for defense or reimbursement of defense costs and/or recovery of losses sustained by entities and/or persons who do not qualify as insureds under the alleged ELAC insurance policy, there is no coverage.

THIRTY-EIGHTH AFFIRMATIVE DEFENSE

OneBeacon is not liable to Plaintiff to the extent that Plaintiff has failed to comply with the notice requirements of the alleged ELAC insurance policy. To the extent that OneBeacon was not provided with timely and proper notice as required by the alleged ELAC insurance policy with respect to the alleged occurrences, claims or suits alleged in Plaintiffs First Amended Complaint, OneBeacon is not liable to defend or indemnify Plaintiff.

As relevant herein, OneBeacon previously moved to dismiss the amended complaint on the ground of Estee Lauder failed to provide prompt notice of the Environmental Claims. Estee Lauder cross moved to dismiss OneBeacon's Late Notice defenses (Decision, p. 2).

By order dated December 11, 2006, the Court granted OneBeacon's motion and dismissed the complaint on the ground that Estee Lauder violated the notice provisions of the alleged Policy by providing late notice of the Environmental Claims.

On appeal, the First Department held that OneBeacon waived any defenses based on late notice, and thus, was obligated to pay the "reasonable and necessary" costs Estee Lauder incurred in defending the Environmental Claims (the "First Department Decision").⁵ Citing Matter of Firemen's Fund Ins. Co. of Newark v Hopkins (88 N.Y.2d 836, 837, 644 N.Y.S.2d 481, 666 N.E.2d 1354 [1996]),⁶ the First Department declared that "[a]n insurer must give written notice of disclaimer on the ground of late notice as soon as is reasonably possible after it learns of the accident or of grounds for disclaimer of liability, and failure to do so precludes effective disclaimer" (62 A.D.3d at 35).

Thereafter, in May 2012, OneBeacon filed an Amended Answer to Estee Lauder's Third Amended Complaint, omitting the Late Notice Defenses.

On June 10, 2014, the Court of Appeals issued its decision in Key-Span, which addressed an insureds' (similar) claim that their insurers had a duty to defend and indemnify them forenvironmental damage claims arising from gas plant sites. The Court of Appeals specifically stated, in a footnote, that:

To the extent [the First Department Decision] Estee Lauder Inc. v OneBeacon Ins. Group, LLC, 62 A.D.3d 33, 873 N.Y.S.2d 592 (1st Dept.2009), cited by the Appellate Division here, and other Appellate Division cases hold that Insurance Law § 3420(d)(2) applies to claims not based on death and bodily injury (see Hotel des Artistes, Inc. vGeneral Acc. Ins. Co. of Am., 9 A.D.3d 181, 193, 775 N.Y.S.2d 262 [1^st Dept.2004] . . . those cases were wrongly decided and should not be followed.

In support of its instant motion to amend, OneBeacon contends that Key-Span effectively overruled the First Department Decision, and that the question of whether OneBeacon was required to defend or indemnify Estee Lauder is once again before the Court. Leave to amend should be freely granted, and denied if there is no showing of prejudice or surprise from any delay or if the amendment is palpably improper. Estee Lauder cannot demonstrate a sufficient level of prejudice, as it has not been hindered in contesting OneBeacon's previously asserted Late Notice Defenses, and such affirmative defenses are valid.

In opposition, Estee Lauder argues that OneBeacon's issuance of correspondence disclaiming coverage on selective grounds and concealing the "late notice" ground constitutes a constructive waiver of such "late notice" defense by operation of common law, irrespective of whether the underlying claim is for bodily injury or property damage. The First Department's Decision held that such conduct constituted a waiver pursuant to New York common law, and such Decision is law of the case, which this Court must follow. The underlying suit did not allege bodily injury, and the First Department did not cite Section 3420; instead, the First Department stated that its "conclusion" was the same one it reached in another case, which case involved a property damage claim; the First Department then also cited to another case whichapplied the common law in a property damage case. Further, Key-Span did not address the issue before the First Department, to wit: whether an insurer waives "late notice" by issuing a disclaimer letter that discloses some grounds to deny coverage while concealing the "late notice" ground. And, unlike OneBeacon herein, the insurer in Key-Span first disclaimed on the "late notice" ground. Key-Span did not affirmatively overturn the First Department Decision in its entirety, but overruled said Decision only "to the extent" that the First Department declared that the mere passage of time is sufficient to compel a finding of waiver in a case that is not a bodily injury matter subject to Section 3420. Thus, Key-Span left standing the already established body of caselaw holding that a New York insurer who issues a disclaimer disclosing only some coverage defenses is deemed to have waived all known but concealed coverage-forfeiture defenses (such as "late notice.")

Key-Span also did not address or change caselaw holding that a defendant who withdraws, during discovery, a forfeiture defense is deemed conclusively to have waived whatever rights it had to further litigate the merits of such defense. When OneBeacon amended its answer in 2011 omitting the Late Notice Defenses after its claims handler gave certain testimony, such omission constitutes a waiver of same.

Consequently, the proposed Late Notice Defenses lack merit because (1) they were waived by OneBeacon's voluntary withdrawal of same, more than 26 months after the First Department ruled, and (2) OneBeacon's claims handler testified that both of the Landfill PRP claims were "made" and "noticed" to Estee Lauder in "1999" (and not "1998" as OneBeacon originally argued in its 2006 summary judgment motion) and thus, such claims were noticed within a reasonable time (two months) to OneBeacon in mid-May 1999....