Travelers Indem. Co. v. Northrup Grumman Corp., 16 Civ. 8778 (LGS)

• Decision Date: 24 September 2019
• Docket Number: 16 Civ. 8778 (LGS)
• Citation: 413 F.Supp.3d 224
• Parties: The TRAVELERS INDEMNITY CO., et al., Plaintiffs, v. NORTHRUP GRUMMAN CORP., et al., Defendants.
• Court: U.S. District Court — Southern District of New York

413 F.Supp.3d 224

The TRAVELERS INDEMNITY CO., et al., Plaintiffs,

v.NORTHRUP GRUMMAN CORP., et al., Defendants.

16 Civ. 8778 (LGS)

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

Signed September 24, 2019

Lynn Katherine Neuner, Robert Harrison Arnay, Summer Craig, Mary Beth Forshaw, Simpson Thacher & Bartlett LLP, New York, NY, Michael David Kibler, Simpson Thacher & Bartlett LLP, Los Angeles, CA, for Plaintiffs.

Georgia Kazakis, Cyril Djoukeng, Elliott Schulder, Daniel Russell, Jr., Kevin Barnett, Margaret H. Brennan, Richard Laird Hart, Timothy Dezso Greszler, Edward H. Rippey, Seth Adam Tucker, Covington & Burling LLP, Washington, DC, Peter Benjamin DeWitt Duke, Teresa T. Lewi, Covington & Burling LLP, New York, NY, for Defendants.

OPINION AND ORDER

LORNA G. SCHOFIELD, District Judge:

Plaintiff Travelers Insurance Indemnity Company ("Travelers") moves for a declaration on summary judgment that it is not obligated to cover any natural resource damages claim ("NRD Claim") against Defendant Northrup Grumman Corporation ("Grumman") by the State of New York. Travelers argues that Grumman did not give timely notice of a claim or occurrence, which are prerequisites to coverage. For the reasons below, the motion is granted.

I. BACKGROUND

This background narrative construes disputed facts, as required, in favor of Grumman, the non-moving party. See Anderson v. Liberty Lobby, Inc. , 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) ; accord Soto v. Gaudett , 862 F.3d 148, 157 (2d Cir. 2017). The issue on this motion is whether Travelers must cover any NRD Claim pertaining to the Bethpage Facility (the "Facility") or Bethpage Community Park (the "Park") (collectively, the "Bethpage Area"). Familiarity is assumed with the Bethpage Area events, which are discussed in a related summary judgment opinion. See Travelers Indem. Co., et al. v. Northrop Grumman Corp., et al. , No. 16 Civ. 8778, 413 F.Supp.3d 263, 2019 WL 4572761 (S.D.N.Y. Sept. 20, 2019) (" Romano Travelers Opinion").

A. Regulatory Context of NRD Claims

The federal Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. § 9601 et seq. , empowers states to bring NRD Claims, which are claims for monetary damages used to restore or compensate for damaged natural resources. Under CERCLA, only designated "trustees" can assert NRD Claims on behalf of a state, against responsible parties.

The New York State Department of Environmental Conservation ("NYSDEC") became a CERCLA trustee on November 30, 1987. Before the designation, only the New York state Attorney General ("NYAG") pursued NRD Claims, none of which were against Grumman. NYSDEC's authority to bring NRD Claims exists alongside its authority to order environmental "remediation" or cleanup actions, under both CERCLA and New York statutes. NYSDEC considers NRD Claims to be "residual" to remediation, because the agency will only assert such claims when "injuries or service losses remain after remedial efforts are complete." Before bringing an NRD Claim, a trustee may conduct a natural resource damage assessment ("NRDA") to determine the necessity of an NRD claim.

B. The Insurance Policies

All insurance policies, relevant to Travelers' coverage of an NRD Claim, have a notice of claim provision: "If claim is made or suit is brought against the insured, the insured shall immediately forward to the company every demand, notice, summons or other process received by him or his representative." Failure to comply with this provision precludes coverage.

The policies also contain notice of occurrence provisions, although the Majority Primary Policies, Minority Primary Policies and Umbrella Policies, defined in the Romano Travelers Opinion, 413 F.Supp.3d at 268–70, 2019 WL 4572761, at *1-2, have distinct provisions. While the Majority Primary Policies require notice of events that result in injury, the Minority Primary Policies and Umbrella Policies require only notice of injury itself.

C. Grumman's and NYSDEC's Interactions

Around the 1980s, NYSDEC and Grumman began communicating about remediation activity in the Bethpage Area. The parties dispute whether and at what point NYSDEC asserted an NRD Claim against Grumman.

a. The 1983 Letter

On December 6, 1983, NYSDEC sent Grumman a letter (the "1983 Letter"), notifying Grumman that it might have liability under CERCLA. Grumman forwarded the letter to its insurance broker, but the broker did not successfully deliver the letter to Travelers.

The letter is on NYSDEC letterhead and signed by a NYSDEC official. Its subject line, "Site 130003 - Grumman Aerospace Corp. Bethpage," referred to a sludge drying bed at the Facility. In a public registry, NYSDEC classified the site as "2a," meaning that NYSDEC had "insufficient data" to rate the severity of the site, but had not yet identified any groundwater violation. The letter provides:

In accordance with the provisions of [CERCLA], [NYSDEC] has determined that you may be responsible for the release or threatened release of hazardous substances at the above-referenced site. As a potentially responsible party, you may be liable for the present and future costs of response, removal and remediation and for damages to the natural resources of the State of New York at and around the referenced site.

In view of the foregoing, this letter constitutes a claim by the State of New York pursuant to 42 U.S.C. § 9612(a) for all costs, damages and claims recoverable now and in the future under federal and state law, including CERCLA. Unless, in a timely fashion, all investigative, removal and remedial work necessary at the site and its environs is performed and unless the State is reimbursed for all damages to its natural resources and for all past, present and future response, removal and remediation costs, this claim will not have been satisfied. In such event, the State of New York may hold you liable and subject to New York's claims under federal and state law through legal action."

At the time, the referenced provision, 42 U.S.C. § 9612(a) (1980), required advance notice of an intent to assert CERCLA claims.

b. Remediation Activity in the 1980s-2010s

In late 1987, NYSDEC expanded "Site 130003" to include the "entire 600 acre Bethpage complex." NYSDEC reclassified the site as "2," meaning that the site posed a "significant threat to the public health or environment." NYSDEC then divided the Bethpage Area into three operable units ("OUs") for investigation: OU1 refers primarily to Facility soil, OU2 refers to groundwater at and around the Facility and OU3 to the Park.

On October 25, 1990, Grumman entered into a consent order with NYSDEC (the "1990 Consent Order"), which mandated a "remedial investigation/feasibility study" ("RI/FS") of Facility contamination. The parties entered into three more consent orders in May 2005, May 2014 and April 2015, which required respectively an RI/FS for the Park, Park cleanup and Facility groundwater cleanup. Each consent order expressly reserved NYSDEC's right to assert NRD claims against Grumman in the future.

NYSDEC also issued Records of Decision ("RODs"), setting out findings on Bethpage Area contaminations and the agency's selected remedies. Two RODs in 1995 and 2001 discuss Facility cleanup remedies, and an ROD in 2013 discusses Park remedies.

On May 23, 2019, NYSDEC published a proposed Amended ROD that supplements the prior RODs on groundwater remedies.¹ After a public comment period, NYSDEC intends to publish a final Amended ROD.

c. Communications regarding Potential NRD Claims

At the same time that NYSDEC and Grumman communicated about remediation, they also communicated about potential NRD Claims.

For example, at an August 2000, meeting, NYSDEC proposed that it would never pursue any NRD Claims against Grumman, if Grumman agreed to implement certain remediation activities. Two weeks later, NYSDEC withdrew this suggestion, because it "would be giving away too much, i.e., the value of the NRD claim[.]"

At an October 28, 2011, meeting, NYSDEC said that, if Grumman did not consider a cleanup remedy that NYSDEC proposed, the agency could bring an NRD Claim instead. A NYSDEC official stated that the NRD Claim would be worth $300 million, but did not substantiate the figure.

On August 3, 2016, NYSDEC sent Grumman a letter, entitled "Notice of Intent to Perform a Natural Resources Damages Assessment" (the "NRDA Notice Letter"). The letter states that NYSDEC, as "natural resource trustee, has concluded its preliminary investigation of potential injuries to groundwater resources under its trusteeship that may have occurred as a result of releases/discharges of hazardous substances at, or from" the Facility. "Currently implemented and planned response actions will not sufficiently remedy the injury to groundwater[.]" Grumman may be "liable for the subsequent natural resource damages relating to these releases."

In a July 21, 2017, letter, responding to Grumman's third-party subpoena in this action, NYSDEC clarified that the NRDA Notice Letter did not actually assert an NRD Claim: "The letter from [NYS]DEC dated August 3, 2016 ... which Travelers characterizes as a claim, is by its plain terms not a claim. Rather, by its plain language it is merely an invitation to ... participate in the NRD assessment process." "[D]eclin[ing] the invitation" would not result in "enforcement proceedings or penalties" against Grumman. The letter also stated that NYSDEC had never asserted an NRD Claim. Grumman informed Travelers of the July 21, 2017, letter, and filed a copy in this case.

On May 23, 2019, Governor Cuomo issued a press release (the "Press Release") which accompanied NYSDEC's proposed Amended ROD. The release states that NYSDEC "will soon [ ] releas[e] a Natural Resource Damages report under the federal Superfund law [CERCLA] that determines that groundwater was substantially impacted and needs to be restored."

Grumman filed a letter in this action on May 28, 2019, regarding the Press Release. The...