Northville Industries Corp. v. National Union Fire Ins. Co. of Pittsburgh, Pa.

• Decision Date: 29 December 1995
• Citation: 218 A.D.2d 19,636 N.Y.S.2d 359
• Parties: NORTHVILLE INDUSTRIES CORPORATION, Respondent-Appellant, v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA., et al., Appellants-Respondents, et al., Defendants.
• Court: New York Supreme Court — Appellate Division

Page 359

636 N.Y.S.2d 359

218 A.D.2d 19

NORTHVILLE INDUSTRIES CORPORATION, Respondent-Appellant, v. NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA., et

al., Appellants-Respondents, et al., Defendants.

Supreme Court, Appellate Division,

Second Department.

Dec. 29, 1995.

[218 A.D.2d 21] Cozen and O'Connor, New York City (Sheldon Karasik and Peter M. Papasavas, of counsel), for appellants-respondents National Union Fire Insurance Company of Pittsburgh, Pa., American Home Assurance Company, Illinois National Insurance Company, Insurance Company of State of Pennsylvania, Landmark Insurance Company, and Lexington Insurance Company.

Siff Rosen, P.C., New York City (Ignatius John Melito and John Volpe, of counsel), for appellant-respondent Hartford Accident and Indemnity Company.

Wilson, Elser, Moskowitz, Edelman & Dicker, New York City (Richard S. Oelsner and Blaze D. Waleski, of counsel), for appellants-respondents Continental Insurance Company and Pacific Insurance Company.

Paul, Weiss, Rifkind, Wharton & Garrison, New York City (Martin London, Maria T. Vullo, Michael P. Bowen, and Anderson, Kill, Olick & Oshinsky, P.C. [Jerold Oshinsky], of counsel), for respondent-appellant.

Stephan A. Bitterman, Sloatsburg, and Fox & Fox, Newark, N.J. (Robert J. Rohrberger, of counsel), for LPT Realty Corp., Gussack Realty Company, and Pearl River Shop Right Associates, Inc., amicus curiae (one brief filed).

Before SULLIVAN, J.P., and O'BRIEN, COPERTINO and KRAUSMAN, JJ.

SULLIVAN, Justice Presiding.

In Technicon Elecs. Corp. v. American Home Assur. Co., 74 N.Y.2d 66, 544 N.Y.S.2d 531, 542 N.E.2d 1048, the Court of Appeals discussed the meaning of the term "accidental" as employed in the standard "sudden and accidental" discharge exception to the pollution exclusion clause of a comprehensive general liability insurance policy. The present appeals and cross appeal now provide us with an opportunity to analyze the "sudden" component of that phrase. In so doing, we conclude that the discharges of gasoline in this case were not "sudden" so as to qualify under the exception.

FACTUAL BACKGROUND

The facts underlying this controversy are essentially undisputed. The plaintiff, Northville The primary coverage policies issued by National Union and Hartford contained the following pollution exclusion clause and qualifying "sudden and accidental" exception thereto:

Industries Corporation (hereinafter Northville), owns and operates facilities for the storage and distribution of petroleum products at terminals in Holtsville and East Setauket, New York. Both terminals include storage tanks and extensive networks of above-ground and underground pipelines and pumps through which petroleum products are transported. Over the years it has been conducting business, Northville has contracted with various [218 A.D.2d 22] insurers to provide it with primary or excess comprehensive general liability policies. Insofar as relevant to these appeals, the defendants National Union Fire Insurance Company of Pittsburgh, Pa. (hereinafter National Union) and Hartford Accident and Indemnity Company (hereinafter Hartford) issued, inter alia, several primary liability insurance policies to Northville. The defendants Continental Insurance Company (hereinafter Continental) and Pacific Insurance Company (hereinafter Pacific) issued excess general liability policies to Northville which also covered portions of the period in question.

"This insurance does not apply

* * * * * *

"(f) to 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 gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any water course or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental " (emphasis supplied).

The Continental and Pacific excess coverage policies contained similar language, as follows:

"It is understood and agreed that this insurance does not apply to bodily injury, personal injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials, oil or other petroleum substance or derivative (including any oil refuse or oil mixed with waste) or other irritants, contaminants or pollutants into or upon land or the atmosphere, but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental.

* * * * * *

"It is further understood and agreed that in no event shall coverage provided by this policy for contamination and pollution be broader than that provided by the underlying insurances set forth in the schedule of underlying insurance" (emphasis supplied).

In October 1986, Northville discovered gasoline contamination in the groundwater beneath its Holtsville terminal while installing monitoring wells to comply with new licensing requirements of the New York State Department of Environmental Conservation (hereinafter the DEC). Northville retained environmental engineers to locate the source of the gasoline discharge. Shortly thereafter, Northville and the engineers determined that approximately 750,000 gallons of gasoline had leaked through an improperly installed elbow in an underground piping system. Two malfunctioning check valves in the piping were also detected. As a result of the leak, a gasoline plume and a larger "dissolved product plume" migrated beyond the Holtsville terminal and underneath neighboring properties. In reporting the incident to a local legislator, an officer of Northville wrote as follows:

"On October 21, 1986 gasoline was discovered in three * * * monitoring wells located on the southern perimeter of the [Holtsville] terminal. Subsequent investigation of the source of the gasoline concluded in finding an underground leak in a piping network connected to the terminal's vapor recovery system. Since the leaking connection was installed in 1976, it is quite possible that gasoline had been leaking since the time of the installation of that piping network " (emphasis supplied).

In November 1987, also as a result of complying with DEC licensing requirements, gasoline was discovered in the groundwater Several lawsuits were subsequently commenced against Northville by affected property owners. According to the allegations of Northville, it notified, inter alia, National Union, Hartford, Continental, and Pacific (hereinafter collectively referred to as the insurers) of the pending lawsuits, but each of the appellant insurers failed or refused to defend and/or indemnify Northville with regard to these claims. It appears that Northville settled at least some of these underlying actions at its own expense. Accordingly, Northville commenced the instant action, inter alia, for a judgment declaring that the insurers were obligated to defend and indemnify it with regard to the underlying claims. The insurers separately cross-moved for summary judgment dismissing the complaint insofar as asserted against them, contending, among other things, that coverage was barred by the pollution exclusion clauses set forth in their policies issued to Northville. Northville similarly moved for partial summary judgment declaring that National Union and Hartford were liable to pay all expenses incurred by Northville in the defense of various underlying actions.

beneath the East Setauket terminal. The source of the contamination was traced to a small "pin-hole" leak which was caused by internal corrosion in a pipe which had been installed in 1968 to carry gasoline to a truck loading rack. An estimated 1.2 million gallons of gasoline was released through this "pin-hole" leak but, as a Northville official explained, the loss "occurred slowly enough and over a sufficiently long period of time to be undetectable by [Northville's] inventory control system". As in the case of the Holtsville leak, an underground plume of gasoline and gasoline components migrated from the East Setauket terminal to neighboring properties.

The Supreme Court issued an order and judgment which, inter alia, granted the insurers' cross motions to the extent of determining that they had no duty to indemnify Northville for claims arising out of the East Setauket contamination, but denied the cross motions with respect to indemnification for the Holtsville claims, on the ground that a triable question of fact existed with respect to that issue. The court reasoned that the "sudden and accidental" exception to the pollution exclusion clauses in the policies clearly did not apply to the East Setauket contamination because the leak in that instance had been the product of corrosion, which the court characterized as "a gradual natural process occurring over a long period of time". However, the court found that an issue of fact existed with respect to whether the Holtsville leak was "sudden", since it was possible that the leak occurred abruptly but remained undetected for many years. The court further granted Northville's motion to the extent of determining that National Union and Hartford were required to pay all costs of investigation and defense of the Holtsville and East Setauket claims. The court concluded that National Union and Hartford were required to defend Northville as to all claims because "when the leaks were initially discovered, no one knew for certain whether the release or discharge of gas was sudden and abrupt". We now modify the order and judgment to declare that the insurers have no obligation to defend or indemnify Northville in connection with either the Holtsville or the East Setauket incidents.

LEGAL ANALYSIS

The Duty to Defend/Indemnify

It is by now a familiar and settled principle that an insurer's duty to defend is "exceedingly broad" (Colon v. Aetna Life & Cas. Ins. Co., 66 N.Y.2d 6, 8,...