State of N.Y. v. Blank

Decision Date13 June 1994
Docket NumberNos. 1092-1094,D,s. 1092-1094
Citation27 F.3d 783
Parties24 Envtl. L. Rep. 21,215 STATE OF NEW YORK, Plaintiff, v. Walter T. BLANK and Abalene Pest Control Service, Inc., and Orkin Exterminating Company, Inc., Defendants. Walter T. BLANK and Abalene Pest Control Service, Inc., Third-Party Plaintiffs-Appellees, v. NEW YORK STATE DEPARTMENT OF ENVIRONMENTAL CONSERVATION, New England Marine Contractors, Inc., Third-Party Defendants, National Union Fire Insurance Company of Pittsburgh, Pennsylvania, Capital Mutual Insurance Co., Third-Party Defendants-Appellants. CAPITAL MUTUAL INSURANCE CO., Fourth-Party Plaintiff-Appellee-Cross-Appellant, v. NEW YORK MUTUAL UNDERWRITERS, Commercial Mutual Insurance Company, formerly known as Cooperative Fire Insurance Company of Catskill, New York, Security Mutual Fire Insurance Company, and Sterling Insurance Company, Fourth-Party Defendants-Appellants-Cross-Appellees. ockets 93-7952, 93-9002 and 93-9004.
CourtU.S. Court of Appeals — Second Circuit

Sheldon Karasik, New York City (Sheft & Sheft, of counsel), for third-party defendant-appellant Nat. Union.

Alan J. Pierce, Syracuse, NY (Hancock & Estabrook, of counsel), for third-party defendant-appellant and fourth-party plaintiff-appellee-cross-appellant Capital Mut.

Jean F. Gerbini, Albany, NY (Philip H. Gitlen, Whiteman Osterman & Hanna, of counsel), for defendants-third-party plaintiffs-appellees Walter T. Blank and Abalene Pest Control Service, Inc.

Michael J. Lonergan, Albany, NY (Bouck, Holloway, Kiernan and Casey, of counsel), for fourth-party defendants-appellants-cross-appellees N.Y. Mut. Underwriters, Commercial Mut. Ins. Co., Security Mut. Fire Ins. Co., and Sterling Ins. Co.

Before: OAKES, MESKILL and ALTIMARI, Circuit Judges.

OAKES, Senior Circuit Judge:

I. Background

In March 1987, employees of the New York State Department of Environmental Conservation ("the DEC") discovered pesticides buried at 10274 Saratoga Road, Fort Edward, Town of Moreau, Saratoga County, New York ("the site"). This discovery led to several lawsuits including this one, commenced by the State of New York on February 16, 1988, against the following defendants: Abalene Pest Control Service, Inc. ("Abalene"), the owner and operator of the site until December 31, 1986; Walter T. Blank, the president, treasurer, and sole shareholder of Abalene; and Orkin Exterminating Co., Inc. ("Orkin"), the owner of the site since January 1, 1987. 1 New York alleged, inter alia, that, from 1972 until December 31, 1986, Abalene and Blank were the owner and occupier of a site contaminated by toxic chemicals. New York claimed that the defendants were liable for the pollution of the site pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), 42 U.S.C. Secs. 9601-9675 (1988 & Supp. IV 1992), New York State environmental statutes, 2 and New York State common law.

On April 14, 1988, Abalene and Blank brought a third-party complaint against DEC and DEC's Contractor, New England Marine Contractors ("NEMC"), alleging that any contamination of the site was due to the negligence of DEC and NEMC in excavating and removing the pesticides that were found there. The third-party complaint also named as third-party defendants Abalene's insurer, National Union Fire Insurance Company of Pittsburgh, Pa. ("National Union"), 3 and Blank's insurer, Capital Mutual Insurance Company ("Capital Mutual"). Abalene and Blank sought to hold these insurers liable for the cost of their defense and for indemnification of any damages imposed in the underlying action.

On February 13, 1989, the district court awarded Blank partial summary judgment and held Capital Mutual liable for Blank's defense. The district court denied without prejudice Abalene and Blank's motion for summary judgment against National Union for failure to prove the terms and conditions of the National Union policies. On October 3, 1990, the district court entered an order denying Capital Mutual's motion for reconsideration and affirming its order of February 13, 1989. New York v. Blank, 745 F.Supp. 841, 853 (N.D.N.Y.1990). The district court also granted Abalene summary judgment against National Union, declaring National Union liable for the cost of Abalene's defense. Id. On October 10, 1991, the district court denied an additional summary judgment motion by National Union and Capital Mutual and ordered the two insurers to provide a defense. Capital Mutual and National Union entered into a stipulation dated January 28, 1991, under which each insurer was to pay 50% of all defense costs.

In 1992, Capital Mutual filed a fourth-party complaint against another insurer, New York Mutual Underwriters ("NYMU") alleging that NYMU also insured Blank and seeking contribution from NYMU for defense costs and indemnification of Blank. On May 5, 1993, the district court granted summary judgment on the fourth-party complaint in favor of Capital Mutual and ordered NYMU to pay half of Capital Mutual's share of the total defense costs. New York v. Blank, 820 F.Supp. 697, 709 (N.D.N.Y.1993). On August 12, 1993, the district court re-allocated defense costs as follows: National Union, 66.66%; Capital Mutual, 16.66%; and NYMU, 16.66%.

II. Jurisdiction

The district court had jurisdiction pursuant to 28 U.S.C. Sec. 1331 (1988) and 42 U.S.C. Sec. 9613 (1988). On August 20, 1993, pursuant to Fed.R.Civ.P. 54(b), the district court entered as final judgments for appeal the orders concerning the insurers' duty to defend and the allocation of defense costs. 4 National Union, Capital Mutual, and NYMU filed timely notices of appeal on August 31, 1993; September 17, 1993; and September 10, 1993, respectively. This court has jurisdiction pursuant to 28 U.S.C. Sec. 1291 (1988).

III. Discussion

Each of the insurers challenges the district court's orders on the ground that the allegations of the underlying complaint fall within a pollution exclusion clause contained in each of the policies. In addition to this common argument, each insurer raises other arguments. Capital Mutual argues that the district court incorrectly determined that Blank's policy with Capital Mutual obliged Capital Mutual to defend Blank because the complaint names Blank "in his corporate capacity" whereas the policy insures Blank "in his individual capacity." NYMU argues that the district court incorrectly determined that NYMU was obliged to defend Blank because Blank failed to comply with conditions precedent to NYMU's duty to defend. National Union argues that even if it was obliged to defend Abalene, defense costs should have been allocated evenly amongst the three insurers.

A. Applicable Law and the Standard of Review

This appeal involves the interpretation of insurance policies implicated by an action brought pursuant to CERCLA. In such a case, the interpretation of insurance policies is governed by state law. Olin Corp. v. Consolidated Aluminum Corp., 807 F.Supp. 1133, 1140 (S.D.N.Y.1992) (citing United States v. Kimbell Foods, 440 U.S. 715, 728-29, 99 S.Ct. 1448, 1458-59, 59 L.Ed.2d 711 (1979)), aff'd in part, vacated in part, 5 F.3d 10, 14-15 (2d Cir.1993) (expressly approving district court's analysis of applicability of state law); see also City of Johnstown v. Bankers Standard Ins. Co., 877 F.2d 1146, 1148 (2d Cir.1989).

We review the district court's interpretation of applicable state law de novo. Olin Corp., 5 F.3d at 14 (applying de novo review of summary judgement award in a case brought pursuant to CERCLA). In ascertaining the applicable state law, we "look to the decisional law of the ... state, as well as to the state's constitution and statutes." Travelers v. 633 Third Assocs., 14 F.3d 114, 119 (2d Cir.1994). Where the law of the state is "uncertain or ambiguous, the job of the federal courts is carefully to predict how the highest court of the ... state would resolve the uncertainty or ambiguity." Id. (citing Minotti v. Lensink, 798 F.2d 607, 610-11 (2d Cir.1986)); see also In re Eastern and Southern Districts Asbestos Litig., 772 F.Supp. 1380, 1389 (E. & S.D.N.Y.1991) (predicting New York law), rev'd on other grounds, In re Brooklyn Navy Yard Asbestos Litig., 971 F.2d 831 (2d Cir.1992). We will, of course, give greatest weight "to the pronouncements of the New York Court of Appeals." Travelers, 14 F.3d at 119. But where there is "no decision by th[e state's highest] court then federal authorities must apply what they find to be the state law after giving 'proper regard' to relevant rulings of other courts of the State." Commissioner of Internal Revenue v. Estate of Bosch, 387 U.S. 456, 465, 87 S.Ct. 1776, 1782, 18 L.Ed.2d 886 (1967). Finally, we may also consider relevant cases from other jurisdictions. Travelers, 14 F.3d at 119; Leon's Bakery, Inc. v. Grinnell Corp., 990 F.2d 44, 48 (2d Cir.1993) (federal court may consider all sources used by the highest court of the state, including decisions of other jurisdictions).

B. The Insurers' Duty to Defend
1. Pollution Exclusion Clauses

Each of the insurers argues on appeal that the alleged discharge of pesticides at the site was not "sudden and accidental." As such, the insurers argue, the allegations fall within the "pollution exclusion" clauses contained in each insurer's policy. Therefore, the insurers conclude, they are obliged neither to defend nor to indemnify Abalene and Blank.

It is well settled that "[e]xclusions from insurance policy coverage are given strict constructions." Kimmins Indus. Serv. Corp. v. Reliance Ins. Co., 19 F.3d 78, 81 (2d Cir.1994). In addition, "[e]xclusionary clauses are given the interpretation most beneficial to the insured." M.H. Lipiner & Son, Inc. v. Hanover Ins. Co., 869 F.2d 685, 687 (2d Cir.1989). Further, the insurer bears the burden of proving that an exclusion applies. Continental Casualty Co. v. Rapid-American Corp., 80 N.Y.2d 640, 654, 593 N.Y.S.2d 966, 973, 609 N.E.2d 506,...

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