Coverage Analysis
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 (2d Circuit)


  An "accident" is "an event or condition occurring by chance or arising from unknown or remote causes."  J.Z.G. Resources, Inc. v. King, No. 92-7128 (2d Cir. February 26, 1993).  In Michaels v. City of Buffalo, 85 N.Y.2d 754, 651 N.E.2d 1232 (1995), the Court of Appeals defined "accident" as requiring some trauma, violence, suddenness or an application of external force.  By contrast, a patient's death due to the mechanical breakdown of an ambulance was found to have resulted from a series of "routine, foreseeable and yet unfortunate events" and was therefore not an "accident."  

  Under the law of New York, an insurer has no obligation to defend a suit that alleges injuries that were either intended or were a substantially foreseeable result of the insured's deliberate conduct.  Federal Ins. Co. v. Cablevision Systems Dev. Co., 637 F.Supp. 1568, 1576 (E.D.N.Y. 1986) and County of Broome v. Aetna Cas. & Surety Co., 146 A.D.2d 337, 540 N.Y.S.2d 620 (3d Dept. 1989).  However, reckless behavior or a calculated risk is an "occurrence" unless the insured intended the resulting harm.  Continental Cas. Co. v. Rapid-American Corp., 80 N.Y.2d 640, 609 N.E.2d 506, 593 N.Y.S.2d 593 (1993).  By contrast, where the insured not only took a calculated risk but acted with virtual certainty that a loss would occur, courts have refused to require coverage. See Continental Grain Co. v. Firemans Fund Ins. Co., 95 CIV 3871 (S.D.N.Y. February 27, 1997)(losses resulting from sale of salvaged grain cargo that insured knew was already tainted).

  The Second Circuit has issued an unpublished opinion affirming a New York District Court’s ruling that an EEOC claim that the insured “engaged in a continuous pattern and practice of sexual harassment of employees” failed to allege an “occurrence” in light of the intentional nature of the acts alleged.  Sidney Frank Importing Co., Inc.  v.  Farmington Casualty  Company, 1999 U.S. App.  LEXIS 28903 (2d Cir.  November 2, 1999).

  An intent to injure may be inferred in cases of sexual assaults against minors, where the insured's conduct is deemed inherently injurious as a matter of law.  The Appellate Division has ruled that sexual assault claims are uninsurable as a matter of law, rejecting the insured's contention that there was a question of fact as to whether the plaintiff's emotional distress was a necessary or consequential result of the insured's act.  In Travelers Ins. Co. v. Stanton, No. 75820 (3d Dept. August 1, 1996), the Appellate Division ruled that "where harm to the victim is inherent in the nature of the act performed, whatever injuries result are, as a matter of law, intentionally caused...."

  However, not all allegations of intentional assaults will preclude coverage.  The Appellate Division ruled in Jubin v. St. Paul Fire & Marine Ins. Co., 653 N.Y.S.2d 454 (3d Dept. 1997) that an insurer had a duty to defend claims by a store clerk that the insured caused her emotional distress by touching her on the side during an argument with her husband and telling her to "lighten up" since the insured claimed that he was only "kidding around" and as his alleged intentional offensive conduct was not of such a character as to inevitably or predictably result in injury.

  An "accident" has been construed as "an event or condition occurring by chance or arising from unknown or remote causes."  Jakobson Shipyard, Inc. v. Aetna Cas. & Sur. Co., 961 F.2d 387 (2d Cir. 1992)(faulty workmanship in carrying out contractual obligations not covered). In Smith Pontiac GMC Truck Center v. Hartford Acc. & Ind. Co., 597 N.Y.S.2d 308 (N.Y. App. 1993), the Appellate Division ruled that an insured's failure to obtain proper title documents did not result from any "accident" but was instead caused by the insured's breach of its contractual undertakings.

  Even the intentional destruction of property will be deemed to constitute an "occurrence" if the conduct was undertaken under the mistaken belief that the acts were authorized. Continental Casualty Co. v. Plattsburgh Beauty & Barber Supply, Inc., 48 A.D. 2d 385, 370 N.Y.S.2d 225 (1975) (wrongful levy deemed covered where insured believed levy was authorized. 
  The Appellate Division has ruled in Agoado Realty Corp. v. United International Insurance Company, 1999 WL 1081538 (1st Dept. November 30, 1999) that allegations that a building manager failed to prevent an intruder from assaulting a building tenant were an “occurrence.”

  A subjective analysis of "expected or intended" was adopted by the Second Circuit in Stonewall Ins. Co. v. Asbestos Claims Mgt. Corp., 73 F.3d 1178 (2d Cir. 1995).

  New York courts have refused to find coverage in intentional tort cases based on theories of negligent entrustment or negligent supervision.  See Cone v. Nationwide Mutual Fire Ins. Co., 75 N.Y.2d 747 (N.Y. 1989) and United States Underwriters Ins. Co. v. Val-Blue Corp., 85 N.Y.2d 821 (1995)("arising out of") as well as Mt. Vernon Fire Ins. Co. v. Creative Housing Limited, 88 N.Y.2d 347, 668 N.E.2d 404, 645 N.Y.S.2d 433 (1996) ("based upon").  In Creative Housing, the Court of Appeals declared that even though the insured's negligence might have been a proximate cause of the plaintiff's injuries, the actual cause in these cases was an assault and therefore excluded.  Earlier, the Second Circuit has ruled that such exclusions did not apply to negligent supervision claims.  Sphere Drake Ins. Co. v. P.B.I. Entertainment, Inc., 30 F.3d 21 (2d Cir. 1994).  But see, Board of Education v. Continental Ins. Co., 604 N.Y.S.2d 399 (N.Y. App. 1994)(allegations that school district knew or should have known that principal was sexually harassing teacher did not describe an "accident," rejecting insured's contention that negligent supervision claims triggered a duty to defend).  See also Mattress Discounters of New York v. U.S. Fire Ins. Co., 674 N.Y.S.2d 106 (2d Dept. 1998)(negligent supervision claims against employer held not to trigger coverage since loss would not have occurred “but for” intentional assault).

  The Appellate Division has ruled 3-2 that an insurer had no duty to defend a law suit by three students who claimed that a school district was negligent in hiring the teacher who sexually assaulted them.  In Sweet Home Central School District of Amherst v. Aetna Commercial Ins. Co., 1999 N.Y. App. Div. LEXIS 7910 (App. Div. July 9, 1999), the majority held that such claims failed to allege a covered “occurrence” as it is “the nature of the underlying acts, not the theory of liability, that governs.”  Two dissenting justices argued that Aetna should have defended as the allegations against the insured were solely for negligence. 

  The Appellate Division ruled in Westchester Fire Insurance Company v. Metropolitan Life Insurance Company, 2001 N.Y. App. Div. LEXIS 1353 (1st Dept. February 8, 2001) that Met Life’s liability insurers had no obligation to defend suit which alleged that Met Life had trained its employees to defraud customers into buying certain life insurance policies.  The court ruled that such claims do not allege an “occurrence” notwithstanding  negligent hiring and supervision claims and that any such claims would in any event be subject to policy exclusions for “professional services.”

  The Appellate Division ruled in Borg-Warner Corp. v. Liberty Mutual Ins. Co., 174 A.D.2d 24, 577 N.Y.S.2d 953 (3d Dept. 1992), further review denied, 600 N.E.2d 632 (N.Y. 1992) that older "accident" policies do not provide coverage for gradually occurring events.  The court held that "accident" language only encompasses sudden events that can be referenced to a "fixed time."  But see,Burroughs Wellcome Co. v. Commercial Union Ins. Co., 632 F.Supp. 1213 (S.D.N.Y. 1986)(pre-1967 insurer of DES manufacturer was obligated to defend claims involving potential ingestion or exposure during policy period based on ambiguity in old "accident" definition that triggered coverage by happening of event, rather than harm, during policy).

  More recently, however, the U.S. Court of Appeals for the Second Circuit has ruled that older “accident” policies cover gradually-developing losses and are not restricted to “big boom” events.  In  Olin Corporation v. INA, 221 F.3d 307 (2nd Cir. 2000), the Second Circuit refused to find that the Court of Appeals’ refusal to hear the Appellate Division’s 1992 ruling in Borg-Warner was an instructive source of New York law.   The court refused to find that the subsequent change in coverage to “occurrences” implied a different meaning for earlier “accident” wordings. 


  Such limited law as presently exists in New York suggests than an insurer need  pay only for that potion of covered property damage that takes place during the policy period.  In the absence of evidence warranting a different allocation, covered damages would be allocated pro rata based on the time that the insurer was on the risk.  Stonewall Ins.  Co.  v.  Asbestos Claims Management Corp., 73 F.2d 1178, 1203 (2nd Cir.  1995).  But see Uniroyal Inc.  v.  Home Ins.  Co., 707 F.Supp.  1368 (E.D.N.Y. 1988) (allocating defense and indemnity costs for Agent Orange claims based upon proportional amount of product delivered by insured in each policy period).  See also Continental Casualty Co.  v.  Rapid American Corp., 80 N.Y.2d 640, 655, 609 N.E.2d 506, 514 (1993) (“when more than one policy is triggered by a claim, pro rata sharing of defense costs may be ordered).  In Reichold, Judge Aurigemmia ruled that costs should be allocated on a time on the risk basis based upon New York law.  The court ruled that New York’s policy of rejecting joint and several liability and only requiring insurers to pay damages attributable to their policy period was in keeping with basis principles of Connecticut insurance law.  

  The Second Circuit has endorsed a time on the risk allocation formula as among both insurers and policyholders.  Stonewall Ins. Co. v. Asbestos Claims Management Corp., 73 F.3d 1178, 1202 (2d Cir. 1995).  In Stonewall, the Second Circuit affirmed Judge Martin's ruling that NGC should bear responsibility for that portion of indemnity that correspondence to periods of time for which it had self-insured.  However, the court disagreed that it was also appropriate to hold the insured responsible for the period of time after 1985 when it was unable to purchase insurance owing to the demand of all liability insurers that such policies include asbestos exclusions.  Given these circumstances the court declared that the insured had not "bargained away coverage" by accepting a policy containing such exclusions as there was no evidence that any bargaining had occurred with respect to such clauses.  73 F.3d at 1203-1204.  

  The Second Circuit has suggested that New York law would require allocation by equal shares except where otherwise provided for under the policies’ respective “other insurance” clauses. Maryland Casualty Company v. W.R. Grace & Company, 2000 U.S. App. LEXIS 15682 (2nd Cir. July 5, 2000).   The court also ruled that one insurer’s settlement with the insured was not an absolute bar to another insurer’s claim for equitable contribution, although it ultimately ruled that the carrier could not recover because the other insurer’s settlement payment was a reasonable amount in light of its exposure and the insured’s claims. 
  Although the Second Circuit’s 1998 ruling in Prudential Lines, 158 F.3d 65 (2d Cir. 1998), in which the court  declared that an insured was only obligated to pay a single policy deductible and need not allocate its loss among multiple years of coverage, seemed to be at odds with Stonewall, subsequent court decisions have declined to find that Prudential Lines meant to overrule Stonewall as there were no uninsured periods in Prudential Lines.  See  USF&G v, Treadwell Corporation, 58 F.Supp.2d 77 (S.D.N.Y. 1999)(rejecting asbestos distributor’s contention that Prudential Lines compels “joint and several” allocation, declaring instead that a “time on the risk” approach should be followed.

  Similarly, in Reichhold Chemicals, Inc.  v.  Hartford Accident & Indemnity Co., Hartford No.  X03-CV 88 0085884S (Conn.  Super. February 11, 1999), a Connecticut trial court declared that New York law mandated a pro rata allocation of the insured’s claims.  Despite Reichhold’s argument that Stonewall had been overruled by the Second Circuit’s subsequent ruling in Prudential, Judge Aurigemma declared that Reichhold’s “pick and choose” theory of allocation would read out of the policy the requirement that damage take place during the policy period, contrary to the law of New York and Connecticut. The court explained Prudential Lines as maintaining a critical attitude towards a theory of “joint and several” allocation and did not change the rule of Stonewall with respect to how allocation should be undertaken where multiple insurers and parties were involved.  The court also rejected Reichhold’s contention that insurance was “unavailable” after 1970 when  pollution exclusions were added to its policy.  Permitting such a contention would defeat the legislative purpose behind the New York statute that required the addition of pollution exclusions in 1970.  “It is unthinkable that the New York courts would allow a polluter to use the existence of a statute designed to discourage pollution as a means to escape an allocation of pollution-related damages for a period of time during which it actively continued to pollute.  “If a Stonewall ‘unavailability of insurance’ argument applies at all in this case, which is doubtful, it does not apply until after 1985, the year in which the Tacoma PCP plant was taken out of operation.”  Spreading the loss among the years in which pollution occurred, the court found that they were below the excess layers insured by the parties and that no coverage was therefore available.

  By and large, New York courts have rejected Keene v. INA on the issue of allocation and have instead ruled that the "injury in fact" approach requires proration among the policies in which injury occurred in proportion to the amount of injury in each year.  Olin Corporation v. INA, 221 F.3d 307 (2nd Cir.  2000);  Uniroyal v. Home Ins. Co., 707 F.Supp. 1368 (E.D.N.Y. 1988) (Agent Orange claims); Abex Corporation v. Maryland Casualty Company, C.A. No. 82-2098 (D.D.C. August 18, 1994).  In Olin, the Second Circuit 

  The Second Circuit has ruled that indemnity claims arising out of the insured's underlying environmental liabilities must be pro-rated on a time on the risk basis.  In Olin Corporation v. INA, 221 F.3d 307 (2nd Cir. 2000), the Second Circuit conceded that its earlier rulingin In Re Prudential Lines had adopted a “joint and several” approach but declared that such an approach was only permitted in cases where the triggered policies were obtained from a single insurer and there is no period of self-insurance with which to deal.  In such circumstances, there is no threat of future litigation seeking contribution and little risk that one insurer may wind up incurring all the loss while it in fact only underwrote a small portion of the risk.  Otherwise, the court ruled that losses should be allocated on a “time on the risk” basis, including a share to the insured for periods of time when the insured could have purchased coverage but failed to do so. The Second Circuit noted the advantages of allocation, notably that it avoids “saddling one insurer with the full loss, the burden of bringing a subsequent contribution action, and the risk that recovery in such an action will prove to be impossible because, for instance, the insurer of other triggered policies is unable to pay.”  Even though allocation results in the insured bearing the risk of any of its insurers’ inability to pay, the court found that “there is logic in having the risk of such defalcation fall on the insured, which purchased the faulting insurer’s policy, rather than on another insurer which was a stranger to the selection process.”  Further, the court ruled that insureds should not be permitted to benefit through allocation for having to absorb losses for periods when it self insured. 

  The Olin court also ruled that the insured must pay those shares allocated to years for which coverage was excluded.  The court declined to find that such exclusions made pollution coverage “unavailable” unlike the facts in Stonewall.  The court ruled that the inquiry is not “ whether an insured was able to continue obtaining coverage for the particular risk in the same policy type, without an exclusion...If coverage under one type of policy becomes unavailable by exclusion, and the insurance customer can but does not buy the excluded coverage separately or in another policy type, it follows that the customer has opted to self-insure.”  This determination is an objective one (i.e. was insurance available in the marketplace) and is not dependent on specific proof that the insured elected not to purchase EIL coverage.

  The New York Court of Appeals suggested in Continental Cas. Co. v. Rapid-American Corp., 80 N.Y.2d 640, 609 N.E.2d 506, 593 N.Y.S.2d 593 (1993) that equity might require a pro rata allocation of defense costs among successive insurers and insureds but stated that insurers may not refuse to provide a complete defense in the first instance on this basis.

  Courts have reached conflicting rules as to how these principles should be applied for toxic tort claims.   In American Empire Ins. Co. v. PSM Ins. Companies, 259 A.D.2d 341, 687 N.Y.S.2d 32 (1999), the First Department ruled that a lead paint claim should be allocated on an “equal shares” basis based upon the “other insurance” clauses in the insurers’ policies.  Other cases following an “equal shares” approach include  USF&G v. Executive Ins. Co., 893 F.2d 517 (2d Cir. 1990) and State of New York v. Blank, 820 F.Supp. 697 (N.D.N.Y. 1993).  

 Since the early 1990s, however, most New York cases has used a “time on the risk” analysis, allocating shares based on the total period of coverage. Lexington Insurance Company v. Combustion Engineering, Inc., N.Y. County No. 600148/97 (N.Y. Sup. November 13, 2000)(declaring that coverage for asbestos BI suits should be triggered based upon an “injury in fact” analysis and should be allocated across all available years of coverage in light of the Second Circuit’s rulings in Stonewall and Olin).

  A federal court in New Jersey applying New York law has since ruled that a policyholder must bear responsibility for defense costs attributable to years before it purchased coverage, as well as years after coverage became unavailable for lead paint claims. In N.L. Industries, Inc. v. Commercial Union Ins. Co., 926 F.Supp. 446 (D.N.J. 1996) Judge Walls rejected the insured's contention that Rapid-American precluded any claim for contribution until such time as the underlying suits had resolved, noting that this made no sense since the duty to defend is triggered by the four corners of the underlying complaint. However, the court refused to permit apportionment based on the inclusion of certain non-covered causes of action.  See Uniroyal, Inc. American Re Insurance Company, Middlesex No. L 8172 94 (N.J. Super. February 19, 1999(rejecting joint and several liability, state trial court holds that New York will use “time on the risk” for pollution claims).

  Allocation of defense costs has not been permitted where there is no ready means of distinguishing between the cost of covered and non-covered claims.  See Regis Radio Corp. v. American Employers Ins. Co., 214 N.Y.S.2d 976, 980 (1961) (no allocation permitted where insured's defense counsel did not have to perform additional or different legal services on uncovered claim).  

  An insurer faced with competing claims by multiple insurers may interplead the policy and have a trial court exercise its equitable jurisdiction to apportion the proceeds.  Morris v.  Flaherty, 242 A.D.2d 9, 672 N.Y.S. 177 (4th Dept.  1998).

  Some New York courts have held that "other insurance" clauses may be used as an equitable means of contribution where the policies are concurrent.  RLI Ins. Co. v. Hartford Accident & Indemnity Co., 980 F.2d 120, 122-23 (2d Cir. 1992).    See also General Accident Ins. Co. v. USF&G, No. 62078 (N.Y. App. October 21, 1993)(pro rating defense costs and indemnity payments in accordance with the "other insurance" terms of their policies)


  New York has both an intermediate appellate court (the Appellate Division of the state Supreme Court and a state Supreme Court (The Court of Appeals).  In New York, a state Supreme Court is the county trial court of general jurisdiction.  The Appellate Division is divided into four departments by geographic region. 


  Unfair or deceptive consumer practices are proscribed by N.Y. Exec. Law § 63(12) (Consol. 1983) and N.Y. Gen. Bus. Law § 349 (Consol. 1980 & Supp.1984).  Unfair claims handling by insurers is regulated under N.Y. Ins. Law §§ 40-d, 2402(2) (Consol. 1980).

  There is no independent cause of action for punitive damages under New York law.  Punitive damages are only awarded in a contract action if the insurer engages in fraud, which requires "an extraordinary showing of a disingenuous or dishonest failure by defendant to carry out its contract."  O'Dell v. New York Property Ins. Underwriting Assoc., 145 A.D.2d 791, 792, cited in Tate v. Metropolitan Life Ins. Co., 186 A.D.2d 859, 587 N.Y.S.2d 813 (1992).  
  Punitive damages may not be awarded for a mere breach of an insurance contract.  However, where recovery is available under a tort theory, punitive damages may be awarded to the extent that the insurer's conduct evinced a "high degree of moral turpitude" and demonstrated "such wanton dishonesty as to imply a criminal indifference to civil obligations."  Walker v. Sheldon, 10 N.Y.2d 401, 404, cited in Rocanova v. Equitable Life Assurance, 83 N.Y.2d 603, 634 N.E.2d 940, 612 N.Y.S.2d 339 (1994).  In Rocanova, the Court of Appeals ruled that Insurance Law Section 2601 does not permit a private statutory cause of action for bad faith.   More recently, the court declared in New York University v. Continental Ins. Co., 87 N.Y.2d 308, 662 N.E.2d 763, 639 N.Y.S.2d 283 (1995) that §2601 does not create a basis for a tort claim independent of the insurance contract so as to justify an award of punitive damages under its ruling in Rocanova.    The Court of Appeals ruled that in order to sustain an action for tort liability against an insurer, as opposed to an action for breach of contract, the insured’s complaint must assert a basis for tort liability that goes beyond the breach of the insurer’s contractual duties.  As the court concluded:

Plaintiff’s claim amounts to nothing more than a claim based on the alleged breach of the implied covenant of good faith and fair dealing, and the use of familiar tort language does not change the cause of action to a tort claim in the absence of an underlying tort duty sufficient to support a claim for punitive damages.  The cause of action is duplicative of the ...cause of action for breach of contract and should have been dismissed.

  The existence of a coverage dispute is a factor to be considered in assessing whether an insurer may be liable for failure to settle within policy limits. Dawn Frosted Meats, Inc. v. INA, 99 A.D.2d 448 (N.Y. App. 1984).

  Where a tort claimant pursued a bad faith claim against a liability insurer based upon an assignment of the insured's coverage rights, he stood in the shoes of the insured and could not recover where the insured's own late notice and misconduct after the accident formed the basis for the insurer's denial of the claim.  Daus v. Lumbermens Mutual Casualty Co., 1997 WL 390362 (N.Y. App. July 10, 1997).

  A claim of bad faith may be sustained where an insurer conducts the defense of a liability claim in "gross disregard" of its insured's interest, even if the insurer had no "sinister motive." Pavia v. State Farm Mutual Automobile Ins. Co., 83 N.Y.2d 779, 633 N.E.2d 480, 611 N.Y.S.2d 126 (1993).   For instance, in  Pinto v. Allstate Insurance Company, No. 98-9356 (2nd Cir. July 26, 2000), the Second Circuit found that Allstate had acted recklessly in failing to accept an offer to settle within limits in a case where (1) its insured’s liability was undisputed; (2) the plaintiff was never deposed; (3) defense counsel had warned that there was a risk of a verdict in excess of the $100,000 limit and (4) the jury had initially attempted to hand down an excess verdict.  

  The Second Circuit also ruled in Pinto that a plaintiff could pursue a claim of bad faith based upon an assignment of rights from a policyholder even if the policyholder was indigent and thus not have paid the judgment, nor suffer any damages as a consequence of the excess verdict.  The court ruled that “to allow an insurer to escape bad faith liability because its insured lacks the ability to pay an excess judgment would introduce a perverse and undesirable incentive into personal liability actions, discouraging rather than encouraging settlement.  Such a role would allow an insurer who has acted in bad faith to reap a windfall because its insured is of limited means, and would ignore the very real harm an excess judgment can work on an insured’s credit and financial future.”  Further, the Second Circuit ruled that the assignment was enforceable even though it had been undertaken pursuant to an actual release rather than a covenant not to execute or sue.  

  Likewise, a federal district court has ruled that a suit for negligently failing to settle within policy limits is not dependent on proof that the plaintiff actually offered to settle for less than policy limits. Hartford Ins.  Co.  v.  Methodist Hospital, 785 F.Supp.  38 (E.D.N.Y. 1992).

  A tort cause of action for bad faith has been rejected in the first-party context. Halpin v. Prudential Ins. Co. of America, 401 N.E.2d 171 (N.Y. 1979).  

  An insurer may not be held vicariously liable for the malpractice of its appointed defense counsel in defending the insured.  Feliberte v. Damon, 527 N.E.2d 261, 265 (N.Y. 1988). 

  Retrospective premiums were held not to constitute a basis for a bad faith claim under New York law in Liberty Mutual Insurance Company v. Thalle Construction Company, 2000 WL 1537908 (S.D. N.Y. October 10, 2000).


  The New York Court of Appeals held that the definition of "bodily injury" was ambiguous in that it failed to make clear whether "bodily" modifies only "injury" or also "sickness or disease."  Lavanant v. General Accident Ins. Co., 79 N.Y.2d 623, 584 N.Y.S.2d 744, 595 N.E.2d 819 (1992).   Claims for emotional distress were also held covered in 670 Apartments Corp. v. The Agricultural Ins. Co., No. 96 CIV 1464 (S.D.N.Y. October 2, 1996)(claims for nausea and dizziness held to allege a claim for "bodily injury").  However, a federal district court has ruled that emotional upset resulting from a financial loss is outside the scope of Lavanant. First Investor's Corp. v. Liberty Mutual Ins. Co., 955 F.Supp. 274 (S.D.N.Y. 1997), aff’d, No. 97-9407 (2d Cir.  August 6, 1998)(investor's suit against fund manager was for economic loss and did not allege a claim for "bodily injury").


  Under New York law, compliance with notice provisions is a condition precedent to coverage.  White v. City of New York,  81 N.Y.2d 955, 615 N.E.2d 216, 598 N.Y.S.2d 759 (1993); Unigard Security Ins. Co. v. North River Ins. Co., 79 N.Y.2d 576, 594 N.E.2d 571 (1992).  Utica Mutual Ins. Co. v. Firemen's Fund Ins. Co., 748 F.2d 118, 121 (2d Cir. 1984).  Thus, non-compliance with a notice provision bars a claim unless the insured can demonstrate that it was not reasonably possible to give notice within the prescribed time limits and that notice was provided as soon as reasonably possible.  See,  Olin Corp. v. INA, 929 F.2d 62, 64 (2d Cir. 1991); State of New York v. Amro Realty Corp., 697 F.Supp. at 103.  See also Commercial Union Ins. Co. v. Int'l Flavors and Fragrances, Inc., 822 F.2d 267, 271 (2d Cir. 1987) and Owen v.  Allstate Ins.  Co., 673 N.Y.S.2d 477 (3d Dept.  1998((18 months delay was unreasonable as a matter of law).  Further, notice must be provided in the form required.  Elkowitz v. Family Mut. Ins. Co., 180 A.D.2d 711, 579 N.Y.S.2d 740 (1992)(oral notice to agent insufficient) and In the matter of The Arbitration Between Progressive Ins. Co., 1997 WL 46975 (App. Div. February 6, 1997)(insurer's actual notice of accident didn't excuse insured's failure to give written notice as required).  However, as discussed below, notice from the tort claimant is permitted by statute.

  The insured’s notice obligations run from the point in time when it is made aware of a claim against it.  Andy Warhol Foundation for the Visual Arts v. Federal Ins. Co., 189 F.3d 208 (2d Cir. 1999)(insured’s awareness of copyright infringement claim by photographer did not trigger notice obligations for separate claim by magazine based on same photo where earlier letter didn’t assert claim on behalf of magazine and where magazine held a separate copyright interest).

  Notice provisions are to "enable insurers to make a timely investigation of relevant events and exercise early control over a claim."  Olin Corp. v. INA, 743 F.Supp. 1044, 1052 (S.D. N.Y. 1990).  Where the insured has already assumed liabilities, the insurer cannot be expect to show how its handling of the defense would have produced a better result.  American Ins. Co. v. Fairchild Industries, 56 F.3d 435, 440 (2d Cir. 1995).

  Unlike many states, New York does not require proof of prejudice; rather, it considers all of the circumstances to determine whether the insured's conduct was reasonable.  Security Mut. Ins. Co. v. Acker-Fitzsimons, 31 N.Y.2d 436, 441 (1972).  The insured has the burden of proof in this respect.  Unigard Security Ins. Co. v. North River Ins. Co., 79 N.Y.2d 576, 584 N.Y.S.2d 290, 594 N.E.2d 571 (1992).  White v. City of New York, supra.

  Some New York courts have required prejudice, however, where the claim does not involve "direct" insurance.  Thus, the New York Court of Appeals ruled in  Unigard Security Ins. Co. v. North River Ins. Co., 79 N.Y.2d 576, 584 N.Y.S.2d 290, 594 N.E.2d 571 (1992) that a reinsurer must prove prejudice to defeat a cedent's claim.  

  A notice requirement may be satisfied by information obtained from a third-party other than the policyholder.  National Union Fire Insurance Company v. INA, 188 A.D.2d 259, 590 N.Y.S.2d 463 (App. Div. 1992).

  Notice to the insurer’s agent was held sufficient in  26 Warren Corp. v. Aetna Cas. & Sur. Co., 676 N.Y.S.2d 173 (1st Dept. 1998).

  The notice required of an injured party to an insurer is measured less rigidly than the notice required of an insured.  Jenkins v. Burgos, 99A.D.2d 217, 221 and G.A. Insurance Company of New York v. Simmes, 84751 (N.Y. App. March 16, 2000).

  In 1997, the New York Court of Appeals resolved a dispute as to whether excess insurers are required to prove prejudice or not.  In American Home Assurance Co. v. International Ins. Co., 90 N.Y.2d 433, 684 N.E.2d 14, 661 N.Y.S.2d 584 (1997), the court overturned the Appellate Division's finding that excess policies were more akin to reinsurance agreements.  To the contrary, the Court of Appeals held that excess insurers have little in common with reinsurers and instead share with primary insurers an important need to receive timely notice to participate in settlement negotiations and other developments that may impact upon their layer of coverage. See also  American Home Assur. Co. v. Republic Ins. Co., 788 F.Supp. 214 (S.D.N.Y. 1992), aff'd, 92-7424 (2d Cir. January 22, 1993).  

  An insured's failure to give timely notice of occurrence may be excused if it had a reasonable and good faith belief in its non-liability.  Merchants Mutual Ins. Co. v. Hoffman, 452 N.Y.S.2d 398, 399 (N.Y. 1982); Beach Haven Apartments v. Allcity Ins. Co., 581 N.Y.S.2d 689 (App. 1992). See also Public Service Mutual Ins. Co. v. Stanley Hollander, No. 57471 (N.Y. App. June 18, 1996)(landlord's receipt of lead abatement notice from City did not put him on notice of a potential "occurrence" involving apartment occupants) and Winstead v. Uniondale Union Free School District, 565 N.Y.S.2d 845, 848 (App. Div. 1991) (triviality of accident led insured to believe he would not be sued).  But see Hudson City School District v. Utica Mut. Ins. Co., 659 N.Y.S.2d 948 (App. Div. 1997)(summary judgment for insurer inappropriate, despite six year delay, where insured held a good faith belief in its non-liablity).  

  In order to be excused, the policyholder’s delay in providing notice of an accident must be “reasonable under the circumstances” and must involve a situation in which no reasonable person would envision possible liability.  Duffin v. Colonial Indemnity Insurance Company, 706 N.Y.S. 2d 559 (Fourth Department 2000).

  The Appellate Division has ruled, however, that an insured’s delay may be justified where a homeowner did not realize that his policy provided liability coverage for off-premises conduct.  In Seeman v. Sterling Insurance Company, 699 N.Y.S. 2d 542 (Third Department 1999), the court declared that the insured’s delay was excusable where he had a good faith belief that his policy did not cover the loss and where he acted with due diligence upon receiving a letter from the injured party’s attorney that advised him to notify his carrier.

  Although this analysis had traditionally been restricted to late notice of an “occurrence,” it was extended to an insured’s failure to give timely hotice of a claim in Reynolds Metals Co.  v.  Aetna Casualty & Surety Co., 696 N.Y.S.2d 563 (3rd Dept. 1999).  The Appellate Division held that the insured’s delay in giving notice of a clean up claim involving its landfill might be excused by the insured’s belief that there was no coverage for claims involving damage to its own property.

  The belief in non-liability must be an objective one, based upon the insured's inquiry into the circumstances of the accident.  White v. City of New York, supra (insured's failure to follow procedures for investigating accident invalidated its excuse that it delayed giving notice due to belief that it was not liable for skull fracture claim); Sparacinovi v. Pawtucket Mutl. Ins. Co.,  50 F.3d 141 (2d. Cir. 1995)(insured had reasonably relied on a statement by its broker that such claims were not covered). For instance, an insured's belief in non-liability was deemed not to be reasonable where there was an accident at the plant that resulted in a full site investigation and policed inquiry.  L'Italia Provisions Corp. v. Interborough Mutual Indemnity Co., 447 N.Y.S.2d 335 (App. Div. 1982).  In Scharf v. Generali-US, No. 514 (App. Div. March 16, 1999), the First Department ruled that a Health Department Order to the insured to abate nuisance did not put the insureds on notice that a particular infant in their building had suffered elevated blood levels and therefore did not trigger the notice obligations under their liability policy.

  On the other hand, an insured's failure to notify its insurer of an incident where a hotel guest jumped from (or was pushed out of) an upper story window was untimely as a matter of law. In Mount Vernon Fire Ins. Co. v. DLRH Assoc., 95 Civ. 3460 (S.D.N.Y. June 5, 1997), the District Court ruled that a policyholder has an obligation to conduct an investigation of the facts giving rise to an occurrence and could not claim that it did not believe that there was any basis for a later liability claim against it where even a cursory investigation by the insured would have established a potential for legal liability.  Likewise, in State of New York v. Ackley, Albany No. L-00066-94 (N.Y.Sup. January 27, 1997), a state trial court rejected the insured's contention that this delay was justified by a good faith belief in its non-liability, noting that the State of New York's claim letter had expressly advised the insured that it was liable for this contamination. 

  An insured may be relieved of its notice obligations under a policy if it has previously received a “blanket denial” of coverage for such sorts of claims. Texaco A/S v.  Commercial Ins.  Co.  of Newark, 160 F.3d 124 (2nd Cir. 1998).

  Insurance Law Section 3420(a)(3) requires that all policies issued or delivered in New York provide that “notice given by or on behalf of the insured, or written notice by or on behalf of the injured person or any other claimant, to any licensed agent of the insurer in this state, with particular sufficient to identify the insured, shall be deemed notice to the insurer.”  New York courts have declared that this statutory provision bars an insurer from claiming late notice where the insurer has received specific actual notice of a claim from another source, whether the injured party, another insurer or some other claimant.  Aetna Cas. & Surety Co.  v.  National Union Fire Ins.  Co.  of Pittsburgh, 1998 WL 334870 (N.Y. App June 25, 1998) “having been statutorily granted an independent right to give notice and recover directly from the insurer, the injured party or other claimant is not to be charged vicariously with the insured’s delay.”  Lauritano v.  American Fidelity Fire Ins.  Co., 162 N.Y.S.2d 553, aff’d 4 N.Y.2d 1028.  
  Further, under Section 3420(d), an insurer must not only give timely notice of a disclaimer of coverage to the insured but also to "the injured person or claimant."  An insured's untimely notice will not defeat a third party's claim against the insurer, as provided for under Section 3420.  State of New York v. American National Fire Ins. Co., 193 A.D.2d 996, 598 N.Y.S.2d 339 (1993). But see State of New York v. Blank, 27 F.3d 783 (2d Cir. 1994). A failure to timely disclaim on the basis of late notice will not create coverage for losses that are not otherwise covered under the policy.  Central General Hospital v. Chubb Group of Insurance Companies, 681 N.E.2d 413, 415 (N.Y. 1997).


  The New York Court of Appeals ruled on May 12, 1994 that abutting property owners' pollution claims did not allege a "personal injury" outside the scope of a pollution exclusion. County of Columbia v. Continental Ins. Co., 83 N.Y.2d 618, 612 N.Y.S.2d 345, 634 N.E.2d 946 (1994).

  Courts have sometimes found a duty to defend, even where the underlying complaint is not expressly based on a covered “offense” so long as the underlying facts were such that a covered claim could have been alleged. See Propis v. Fireman’s Fund Ins. Co., 492 N.Y.S.2d 228 (N.Y. App. Div. 1985)(insurer obligated to defend claim against insured for tortious interference with contract claim under personal injury section of policy because although complaint did not include claim for libel or slander it did contain allegations that insured had communicated with others and that the contacts allegedly damaged plaintiff)
City of Cape May v. St. Paul Fire & Marine Ins. Co., 524 A.2d 882 (N.J. Super. Ct. App. Div. 1987)(malicious interference claim was covered because it was based on “utterance of disparaging material”).
  The Appellate Division has ruled that a claim for trademark infringement may fall within the scope of coverage for advertising injury.  Allou Health & Beauty Care, Inc. v. Aetna Casualty & Surety Company, 703 N.Y.S. 2d 253 (2d Dept. 2000).  


  Insured has initial burden of showing that its claim is within the scope of coverage.  Munzer v. St. Paul Fire & Marine Ins. Co., 538 N.Y.S.2d 633, 145 A.D.2d 193 (3d Dept. 1989). If the insured can demonstrate that its claim is within the grant of coverage, the burden shifts to the insurers to prove the application of a policy exclusion and to show that "the exclusionary clause is subject to no other interpretation except their own." Jakobson Shipyard, Inc. v. Aetna Cas. & Sur. Co., 775 F.Supp. 606 (S.D.N.Y. 1991), aff'd, 961 F.2d 387 (2d Cir. 1992); United National Ins. Co. v. Waterfront Realty Corp., 777 F.Supp. 254 (S.D.N.Y. 1991); Town of Moreau v. Orkin Exterminating Co., 568 N.Y.S.2d 466, 165 A.D.2d 415 (3d Dept. 1991); Cocchi v. National Union Fire Ins. Co. of Pittsburgh, 156 A.D.2d 535, 548 N.Y.S.2d 804 (2d Dept. 1990) and United National Ins. Co. v. Waterfront Realty Corp., 777 F.Supp. 254 (S.D.N.Y. 1991).  "When an exclusion is relied upon to deny coverage, the insurer has the burden of demonstrating that the allegations of the complaint casts that pleading solely and entirely within the policy exclusions and further, that the allegations, in toto, are subject to no other interpretation."  International Paper Co. v. Continental Cas. Co., 35 N.Y.2d 322, 325 (1974).

  The Court of Appeals has ruled that where an insured has the burden of proving the exception to an exclusion since the effect of an exception is to reinstate coverage.  Northville Industries Corp. v. National Union Fire Ins. Co. of Pittsburgh, 89 N.Y.2d 621, 679 N.E.2d 1044, 657 N.Y.S.2d 564 (1997).  See also  Rheem Manufacturing Company v. Home Indemnity Company, 2001 N.Y. App. LEXIS 3879 (1st Dept. April 17, 2001);  Merchants Mutual Ins. Co. v. Allcity Ins. Co., 664 N.Y.S.2d 690 (App. Div. 1997); Borg-Warner Corp. v. INA,  174 A.D.2d 24, 577 N.Y.S.2d 953 (3d Dept. 1992); County of Fulton v. USF&G, 195 A.D.2d 864, 600 N.Y.S.2d 972 (App. Div. 1993); Redding-Hunter, Inc. v. Aetna Cas. & Sur. Co., 615 N.Y.S.2d 133 (N.Y. App. 1994).
  The New York Court of Appeals ruled in Servidone Construction Corp. v. Security Ins. Co. of Hartford, 477 N.E.2d 441 (N.Y. 1985) that where an insurer has breached its duty to defend “the burden of proof will rest with the insurer to demonstrate that the loss compromised by the insured was not within the policy coverage.”

  An insured seeking to recover under a missing policy has the burden of proving the existence and material terms of the policy. Boyce Thompson Institute for Plant Research, Inc. v. INA, 751 F. Supp. 1137 (S.D.N.Y. 1990); Emons Ind. v. Liberty Mut. Fire Ins. Co., 545 F.Supp. 185 (S.D.N.Y. 1982).  The material terms that must be proved include (1) the dates of coverage; (2) policy limits; (3) the location of the insured's premises; (4) the name or identity of the insured; (5) the risk and loss of the insured and (6) the extent of coverage available. 21 Appleman, Insurance Law and Practice {12094 (1980).  See Burroughs Wellcome Co. v. Commercial Union Insurance Co., 632 F. Supp. 1213, 1222 (S.D.N.Y. 1986)(DES claims).  In Boyce Thompson, a federal district court ruled that specimen forms were not persuasive evidence of the contents of a missing policy. 

  Secondary evidence may only be relied upon where the insured demonstrates that it has made a “diligent but unsuccessful search and inquiry for the missing documents.”  Burrough Wellcome, 632 F.Supp. at 1223.

  New York courts are not in agreement as to the requisite standard of proof for missing policy cases.  Some have ruled that the insured must prove the existence and terms by the stricter "clear and convincing" standard.  State of New York and Village of Frankfort v. Liberty Mutual Ins. Co., No. 90-CV-688 (N.D.N.Y.  May 7, 1992) and Maryland Cas. Co. v. W.R. Grace & Co., 88 CIV 2613 (S.D.N.Y. September 15, 1995).   Most New York courts that have addressed the issue have ruled that a policyholder must only prove the existence of a missing policy by a preponderance of the evidence.  Gold Fields American Corporation v Aetna Casualty & Surety Company, 173 Misc. 2d 901, 661 N.Y.S. 2d 948, 949 (1997); Burt Rigid Box, Inc. v. Travelers Property Casualty Corporation, 126 F. Supp. 2d 596 (W.D. N.Y.  2001);   Employers Insurance of Wausau v. Duplan Corporation, 1999 WL 777976 (S.D. N.Y. 1999).


  Choice of laws questions in contract disputes are decided using a "grouping of contacts" approach that looks to the place of (1) contracting (2) negotiation (3) performance (4) the location of the subject matter of the contract and (5) the domicile of the contracting parties. In the Matter of the Arbitration of Allstate Ins. Co., 81 N.Y.2d 219, 613 N.E.2d 936, 597 N.Y.S.2d 904 (N.Y. 1993).  See also Auten v. Auten, 308 N.Y. 155, 124 N.E.2d 99 (1954); Steinbach v. Aetna Cas. & Sur. Co., 81 A.D.2d 382, 440 N.Y.S.2d 637 (1981) and Flintkote Co. v. American Mut. Liability Ins. Co., 103 A.D.2d 501, 480 N.Y.S.2d 742 (1984).  Public policy considerations are generally not considered, since such disputes involve only the private economic interests of the parties.

  New York prefaces its balancing of the factors with the presumption that the applicable law is that of the place where the policy was written as evidenced by the parties' understanding as to the principle location of the insured risk." In the insurance context, the New York courts usually find the parties' understanding of the principal location of the insured risk to be the state in which the policy was written, presumably because that is generally where the insured has its principal place of business. 


  Under New York law, independent counsel is only required where a clear conflict of interest exists between the interests of the policyholder and the insurer, as where counsel's duty to the policyholder would require him to seek to dismiss the action on grounds that would affect the insurer's interests.  Public Service Mutual Ins. Co. v. Goldfarb, 425 N.E.2d 810, 815 (N.Y. 1981). 

  Where a conflict of interest exists, an insurer is required to pay for independent defense counsel of the insured's choosing.   69th Street Garage Associates v. Ticor Title Guaranty Co., 622 N.Y.S.2d 13, 14 (App. Div. 1995).  

  Where an attorney is likely to be a fact witness, the Appellate Division has ruled that it may be disqualified from continuing to represent the insured but that no similar basis exists for precluding the involvement of the law firm as a whole.  Hillcrest Owners, Inc. v. Preferred Mutual Ins. Co., 1996 WL 721482 (2d Dept. December 2, 1996).  
  In Allstate Insurance Company v. American Transit Insurance Company, 977 F. Supp. 197 (E.D. N.Y. 1997), the federal district court ruled that an excess insurer had no direct right of action against defense counsel hired by the primary insurer but could pursue an action for malpractice under a theory of equitable subrogation.  


  The fact that a claimant was made whole by reason of payments from a third party did not provide a basis for the insurer contending that he had not suffered any damages.  Foley v. Manufacturers and Builders Fire Insurance Company of New York, 46 N.E.2d 318 (N.Y. 1897) and Alexandra Restaurant v. New Hampshire Insurance Company, 272 A.D. 346 (N.Y. 1947).

  The Appellate Division has ruled that equitable remedies are not "damages."  Reliance Group Holdings, Inc. v. National Union Fire Ins. Co. of Pittsburgh, 188 A.D.2d 47, 594 N.Y.S.2d 20 (1st Dept. 1993)(no coverage for D&O claim arising out of order directing corporate raider to return wrongfully acquired profits from "greenmail"); Gulf & Western Industries, Inc. v. Seaboard Surety Co., 100 A.D.2d 820, 474 N.Y.S.2d 754 (1984), appeal dismissed, 63 N.Y.2d 675 (1984)(consent decree barring unlawful competition not "damages" although a duty to defend would exist to the extent that compensatory relief was also requested).

  An insurer has a duty to defend its insured in a suit seeking equitable relief if there is a possibility of an award of damages.  Doyle v. Allstate Insurance Company, 1 N.Y. 2d 439, 136 N.E. 2d 484 (1956).  Federal district courts have relied on Doyle in ruling that an action that solely seeks injunctive relief may nonetheless trigger an insurer’s defense obligation based upon boilerplate language in the complaint requesting “such further relief as the court deems just.”  Scottsdale Insurance Company v. R.S.R. Management Company, 2000 U.S. Dist. LEXIS 14160 (E.D. N.Y. September 26, 2000) and Energex Corporation v. Fireman’s Fund Insurance Company, 1997 U.S. Dist. LEXIS 8894 (S.D. N.Y. 1997).  

  While the New York Court of Appeals has not yet ruled on this issue, there is a clear trend, at least among New York's federal courts, toward coverage for cleanup expenses and other "response costs."  See, Avondale Industries v. Travelers Ind. Co., 887 F.2d 1200 (2d Cir. 1989); Fireman's Fund Ins. Cos. v. Meenan Oil Co., 755 F.Supp. 547 (E.D.N.Y. 1991); State of New York v. Amro Realty, 697 F.Supp. 99  (N.D.N.Y. 1988).  But see, County of Broome v. Aetna, 146 A.D.2d 337, 540 N.Y.S.2d 620 (3d Dept. 1989)(costs involved in remedial program not within specific provisions of policy).  


  Insureds may recover their fees if they are sued by their carriers but not if they bring the DJ themselves. Continental Cas. Co. v. Rapid-American Corp., 177 A.D.2d 61, 581 N.Y.S.2d 669,675 (1st Dept. 1992), aff'd on other grounds, 80 N.Y.2d 640, 609 N.E.2d 506, 593 N.Y.S.2d 593 (1993); Mighty Midgets, Inc. v. Centennial Ins. Co., 389 N.E.2d 1080, 1085 (N.Y. 1979).  However, federal courts have ruled that this rule does not extend to an insurer's claimed indemnity obligation.  Puritan Ins. Co. v. Eagle Steamship Co., 779 F.2d 866, 872 (2d Cir. 1985); Employers Mut. Cas. Co. v. Key Pharmaceuticals, 871 F.Supp. 657 (S.D.N.Y. 1994).
  A federal court has also ruled that an insurer may be forced to pay DJ fees, even in a case where it is a defendant, if it acted as the "aggressor" in precipitating the litigation of the coverage dispute. Maestri v. Westlake Excavating Co., No. 93 CV 316 (S.D.N.Y. May 1, 1995).

  New York courts have reached conflicting conclusions with respect to whether an insurer may intervene in the case against its policyholder.  American Home Assurance Company v. Weissman, 434 N.Y.S.2d 410 (App. Div. 1981)(suggesting that special verdict is appropriate for determining allocation) and Kaczmarek v. Shoffstall, 500 N.Y.S.2d 902 (App. Div. 1986)(ruling that insurer cannot resolve coverage issue in the context of the underlying case).
Likewise, in Restor-A-Dent Dental Laboratories v. Certified Alloy Products, 725 F.2d 871, 984 (2d Cir. 1984) the U.S. Court of Appeals for the Second Circuit ruled that a liability insurer could not intervene as a right under Rule 24(a) for the purpose of submitting special interrogatories to the jury. 

  A declaratory judgment can be filed in advance of the resolution of the underlying case.  Cocchi v. National Union Fire Ins. Co. of Pittsburgh, 156 A.D.2d 535, 548 N.Y.S.2d 804 (2d Dept. 1990)(ruling on defense issues not premature;  indemnity question must await outcome of liability suit).

  However, in Maryland Casualty Co. v. W.R. Grace & Co., 88 CIV 2613, 1996 U.S. Dist. LEXIS 2963 (S.D.N.Y. March 12, 1996), Judge Martin ruled that the District Court did not have jurisdiction to rule that there was no coverage for future claims against W.R. Grace under policies issued after Grace had admitted that it had ceased to market asbestos products, since such claims had yet to be filed so as to create a justiciable controversy.


  The rights of third parties to pursue direct actions against liability insurers are set forth under Insurance Law Section 3420(a).  Subsection (2) provides that a plaintiff may pursue an action to recover on a judgment if the judgment remains unsatisfied for thirty days after serving notice of entry.  Further, Subsection (3) provides that [insert materials].

  The Appellate Division has adopted an an expansive view of the rights of injured parties to pursue direct actions against liability insurers.  In Watson v.  Aetna Casualty & Surety Co., 1998 WL 391916 (2d  Dept.  July 13, 1998).  In contrast to First Department cases, such as Clarendon Place and Latoni, the Second Department ruled that an injured party is free to pursue an action for declaratory relief against a liability insurer, even prior to obtaining a money judgment against the insured.  The court interpreted Insurance Law Section 3420(b) as only applying to an action to recover money damages.  Although Section 3420(b) states that a direct action may not be pursued until thirty days after a judgment against the insured has been left unsatisfied, the Appellate Division declared that Insurance Law Section 3420 does not apply to actions for declaratory relief.


   --Claims Manuals

  Such discovery has been held to have no probative value in determining the mutual intent of the parties as reflected in the insurance contracts.  See, Occidental Chem. Corp.. v. Hartford Acc. & Indem. Co., N.Y. Supr., Index No. 41009/80, Amended Mem. and Order at 21-23 (Sept. 28, 1993)

   --Drafting History

   --Other Policyholder Claims

  Discovery held to be irrelevant in Olin Corp. v. Insurance Co. of North America, No. 84 Civ. 1968 (S.D.N.Y. July 10, 1986), aff'd (S.D.N.Y. Dec. 19, 1986)(refusing to order the production of other insured information because the production and subsequent collateral inquiry regarding this information presented an "intolerable waste of the parties' resources.").

   --Reinsurance Information

  Courts have denied discovery of reinsurance information on the grounds that it is irrelevant to the issues in a coverage dispute. Occidental Chem. Corp. v. Hartford Accident & Indem. Co., N.Y. Supr., No. 41009/80 (Sept. 28, 1993); Slater Dev. Corp. v. Aetna Casualty & Sur. Co., N.Y. Supr. No. 3723/91 (Aug. 28, 1992).



  In general, New York courts take a strict "four corners" view of the duty to defend.  Thus, an insurer may not look outside the scope of the complaint in seeking to avoid its claimed defense obligation.     Fitzpatrick v. American Honda, 78 N.Y.2d 61, 575 N.E.2d 90 (1991)(“the courts of this State have refused to permit insurers to look beyond the complaint’s allegations to avoid their obligation to defend”).
 State of New York v. Amro Realty Corp., 936 F.2d 1420, 1426 (2d Cir. 1991).  Accord, Petr-All Petroleum Corp. v. Fireman's Ins. Co. of Newark, N.J., 188 A.D.2d 139, 593 N.Y.S.2d 693 (4th Dept. 1993).  

  However, New York courts have ruled that an insurer cannot ignore known facts that would implicate coverage, even if the pleadings are themselves inadequate to trigger a duty to defend.  Fitzpatrick v. American Honda, 78 N.Y.2d 61, 575 N.E.2d 90 (1991) and in Robbins v. Michigan Millers Mutual Ins. Co., 77490 (App. Div. February 27, 1997).  In Northville Industries Corp. v. National Union Fire Ins. Co., 89 N.Y.2d 621 (1997), the Court of Appeals held that although the insured had the burden of coming forward with proof that the underlying claims fell within the "sudden and accidental" exception to the pollution exclusion, the insured was not restricted to the original complaint and might also base its claim on other responsive pleadings or formal submissions in the current or underlying litigation that would "confirm or clarify the nature of the underlying claims."  

  Finally, a handful of courts have allowed insurers extrinsic facts to defeat coverage. See,  County of Fulton v. USF&G, 600 N.Y.S.2d 972, 195 A.D.2d 864 (3d Dept. 1993).

  In determining whether an insurer has a duty to defend, the court must look to the underlying facts as alleged in the complaint against the policyholder.  However, the court is not required to accept the "legal characterization of the causes of action alleged in the complaint."  County of Colombia v. Continental Ins. Co., 189 A.D.2d 391 (3d Dept. 1993), affirmed 634 N.E.2d 946 (N.Y. 1994).  There is no duty to defend if it can be established "as a matter of law that there is no possible factual or legal basis on which the insurer might eventually be obligated to indemnify its insured under any policy provision.  Allstate Ins. Co. v. Zuk, 78 N.Y.2d 41, 574 N.E.2d 1035, 1037 (1991).  

  An insurer faces a heavy burden in attempting to avoid a duty to defend.  Seaboard Surety v. Gillette Co., 64 N.Y.2d 304, 486 N.Y.S.2d 873, 476 N.E.2d 272 (1984) and Avondale Industries, Inc. v. Travelers Ind. Co., 887 F.2d 1200, 1204 (2d Cir. 1989).  In order to avoid coverage, the insurer must establish that the exclusion is not subject to any other interpretation.  Technicon Electronics Corp. v. American Home Assur.Corp., 74 N.Y.2d 66, 542 N.E.2d 1042 (1989).  In certain cases, however, courts have permitted insurers to "pierce the pleadings" where the actual facts indisputably do not support a claim for coverage.  United National Ins. Co. v. Tunnel, Inc., 988 F.2d 351 (2d Cir. 1993).

  Coverage is triggered by the facts alleged, not the theory of liability under which the plaintiff labels his claim.  Thus, New York courts have refused to find a duty to defend based upon conclusory allegations that the insured "negligently" committed a forcible sexual assault.  Greenberg v. National Chiropractic Mutual Ins. Co., 1996 U.S. Dist LEXIS 9179 (S.D.N.Y. July 3, 1996) and Allstate Ins. Co. v. Mugavero, 79 N.Y.2d 153, 162, 589 N.E.2d 365 (1992).  

  An insurer's obligation to pay defense costs does not arise until a claim is tendered to it.  Smart Style Industries, Inc. v. Pennsylvania General Ins. Co., 930 F.Supp. 159 (S.D.N.Y. 1996); Sucrest Corp. v. Fisher Governor Co., 371 N.Y.S.2d 927, 941 (A.D. 1975)(no duty to reimburse pre-tender defense costs).  However, an insurer cannot thereafter refuse to pay defense costs on the basis that its consent has not yet been given so long as the defense effort is reasonable.

  The duty to defend has been held to extend to an obligation to appeal where reasonable grounds for an appeal exist.  Kaste v. Hartford Accident & Indemnity Co., 170 N.Y.S.2d 614, 5 A.D.2 203 (1958)

  Ordinarily, an insurer's defense obligation does not extend to the prosecution of a direct claim.   Goldberg v. American Home Assurance Company, A.D.2d 409, 439 N.Y.S.2d 2, 4 (1981) and Reynolds v. Hartford Accident & Indemnity Company, 278 F. Supp. 331, 333 (S.D.N.Y. 1967)(insurer has no obligation to bring affirmative claims on behalf of its assured). However, in Smart Style Industries, Inc. v. Pennsylvania General Ins. Co., 930 F.Supp. 159 (S.D.N.Y. 1996), a federal court ruled that a preemptive suit filed by the insured was subject to an insurer's duty to defend since it had been filed to clarify a claim against the insured and was in response to a threat by the defendant to sue it.  Under the circumstances, the court ruled that the insured was actually in a "defensive" posture and thus entitled to a defense.

    The Appellate Division also ruled in Sucrest that the cost of pursuing a third-party complaint was within the scope of the insurer's defense obligation as the same work was required that would have been undertaken in any event to defend the case.

  The New York Court of Claims has ruled that the duty to defend may extend to work performed by the insured's in-house counsel.  Travelers Ins. Co. v. State Ins. Fund, 588 N.Y.S.2d 973 (N.Y. Misc.  1992), aff’d, 642 N.Y.S.2d 867, 227 A.D.2d 208 (1996).

  Where an insurance policy does not impose a duty to defend but provides for the payment of defense costs and is silent with respect to the timing of such payments, the insurer has a duty of contemporaneous reimbursement.  McGuinness v. Employers Reinsurance Corporation, 648 F. Supp. 1263, 1271 (S.D.N.Y. 1986).  

  In general, an insurer who wrongfully refuses to defend a suit against its insured is liable to the insured for the natural consequences of the breach, including sums expended in payment or settlement of the claim, defense costs (including attorneys’ fees and expenses), court costs, and any other costs incurred because of the refusal of the insurer to defend. Sabbeth Industries Ltd. v. Pennsylvania Lumbermens Mut. Ins. Co., 238 A.D.2d 767, 768 (N.Y. App. Div. 3d Dep’t 1997).

  To date, the Court of Appeals has not addressed whether a governmental claim letter is a "suit."  Several state and federal courts have found that EPA Notices of Responsibility or so-called "PRP letters" are the functional equivalent of a law suit.  See, Avondale Industries v. Travelers Ind. Co., 697 F.Supp. 1314 (S.D.N.Y. 1988), affirmed, 887 F.2d 1200 (2d Cir. 1989); Colonial Tanning Corp. v. Home Indemnity Co., 780 F.Supp. 906 (N.D.N.Y. 1991); Kirchner v. Fireman's Fund Ins. Co., No. 90 Civ. 5367 (S.D.N.Y. September 4, 1991).  By contrast, the Appellate Division has ruled that mere claim letters are not a "suit." Carpentier v. Hanover Ins. Co., 670 N.Y.S2d 540 (2d Dept. 1998)(distinguishing between types of letters); Technicon Electronics Corp. v. American Home Assur.Corp., 141 A.D.2d 124, 533 N.Y.S.2d 91 (2d Dept. 1988), affirmed on other grounds, 74 N.Y.2d 66, 542 N.E.2d 1042 (1989).  See also County of Broome v. Aetna Cas. & Sur. Co., Broome County Sup. Ct. No. 86-0342 (N.Y. June 24, 1988), affirmed on other grounds, 146 A.D.2d 337, 540 N.Y.S.2d 620 (3d Dept. 1989), appeal denied, 74 N.Y.2d 614, 547 N.Y.S.2d 848, 547 N.E.2d 103 (1989).

  The Third Department adopted a compromise position in Borg-Warner Corp. v. Liberty Mutual Ins. Co., 174 A.D.2d 24, 577 N.Y.S.2d 953 (3d Dept. 1992), further review denied, 600 N.E.2d 632 (N.Y. 1992), declaring that certain claim letters received by the insured were not "suits" since they sought only voluntary participation and did contain the factors of "coerciveness" and "gravity of imminent consequences" that are the hallmarks of a law suit.  Similarly, Judge John Martin declared in Maryland Cas. Co. v. W.R. Grace & Co., 88 Civ. 4337 (S.D.N.Y. April 29, 1994) that Grace's insurers had no duty to defend certain administrative claim letters stating that the U.S. EPA "may" pursue litigation, as such claims were not sufficiently adversarial to be the equivalent of a "suit" under the Second Circuit's analysis in Avondale.

  In the most recent case to address this issue, the Appellate Division declared in Carpentier v. Hanover Ins. Co.,  670 N.Y.S.2d 540 (2d Dept. 1998) that a claim letter may be a "suit" where it demanded immediate payment of a large specified sum of money and assumed a coercive, adversarial posture with probable and imminent financial consequences to the insured.  However, the Second Department distinguished such letters from earlier communications that the insured had received from the U.S. EPA and the NYDEC for which the insured had been notified that its property would be listed on the registry of inactive hazardous waste disposal sites and which the insured was merely informed of its potential liability and requested to undertake voluntary action to clean up the property. the court held that these sort of communications did not rise to the coercive, adversarial level of "suit" as the subsequent U.S. EPA letter.  

  The issue of whether waste site studies and other costs of investigating or responding to pollution has proved controversial.  In Endicott Johnson Corp. v. Liberty Mut. Ins. Co., 928 F.Supp. 176 (N.D.N.Y. 1996), Judge McAvoy ruled that "to the extent that an expense is primarily attributable to remedial investigations--which address the sources and extent of the contamination, whether environmental damage can be mitigated by controlling the sources, or whether additional action is necessary because of migration of contaminants from the site--the expense will be treated as a defense cost.  To the extent an expense is primarily attributable to feasibility studies--which comprise plans for selecting and implementing the remediation alternative for the site--the expense will be treated as damages to be indemnified.  Finally, to the extent the court cannot determine based on written submissions whether an expense is attributable to RI or FS, the court will have broad discretion to allocate the expense in an equitable manner."


  Waiver is the intentional relinquishment of a known right with both knowledge of its existence and an intention to relinquish it.  Frontier Ins. Co. v. State, 610 N.Y.S.2d 647, 650 (3d Dept. 1994).

  An insurer that wrongfully refuses to defend a suit has the burden of showing that any settlement that its policyholder subsequently enters into is collusive or unreasonable.  However, the insured must first show that the settlement was reasonable in amount given the size of the potential recovery against it and the likelihood of liability.  Luria Bros. & Co. v. Alliance Assur. Co., 780 F.2d 1082, 1091 (2d Cir. 1986).

  An insurer is not strictly liable for even a reasonable settlement if it has a reasonable basis for disputing coverage and need not offer its policy limits. Gordon v. Nationwide Mutual Ins. Co., 30 N.Y.2d 427, 431, 334 N.Y.S.2d 601, 285 N.E.2d 849 (1972).  
  An insurer cannot "waive into coverage."    Zappone v.  Home Ins.  Co., 55 N.Y.2d 131.  Under New York law, the issue of the existence or nonexistence of coverage cannot be waived. Merchants Mutual Ins. Co. v. Allcity Ins. Co., 664 N.Y.S.2d 690 (App. Div. 1997)(pollution exclusion--failure to disclaim coverage in a timely fashion did not expand scope of coverage to include losses that were not otherwise covered) and INA v. Armenia Coffee Corp., 85 F.3d 68 (2d. Cir. 1996).  

  Only defenses to coverage can be waived.  State of New York v. Amro Realty Corp., 936 F.2d 1420, 1431 (2d. Cir. 1991). By contrast, an insurer's delay in raising a coverage defense will not create coverage that did not exist in the first instance.  Presbyterian Hospital v. Aetna Life & Casualty Co., 635 N.Y.S.2d 252, 253 (2d Dept. 1995).  Thus, an insurer’s failure to identify previously undisclosed grounds for declining coverage did not create coverage or was not otherwise provided for under the policy.  Avon  Group, Inc.  v.  National Union Fire Ins.  Co., 235 A.D.2d 347, 653 N.Y.S.2d 115 (1997).  

  These rules do not apply with respect to the issue of timely notice. An insurer that fails to raise the issue of late notice in its disclaimer letter will henceforth be estopped from asserting that as a basis for denying coverage Aetna Casualty & Surety  Co.  v.  National Union Fire Ins.  Co.  of Pittsburgh, 1998 WL 334870 (N.Y. App.  June 25, 1998).  Similarly, coverage may be created by reason of an insured’s failure to promptly disclaim coverage where there is ambiguity in the policy regarding the extent of coverage or the effect of possible exclusions.  Jefferson Ins.  Co.  v.  New York v.  Travelers Indemnity Co., No.  123 (N.Y. October 27, 1998).  Thus, several New York courts have ruled that the failure to specifically enumerate a coverage defense in a denial letter estopps the insurer from later raising that isssue as a defense.  General Accident Ins.  Group v.  Cirucci, 46 N.Y.2d 862, 414 N.Y.S.2d 512, 387 NE2d 223 and Fabian v.  NVAIC, 111 A.D.2d 366. 

  Under Section 3420(d) of the New York State Insurance Law, an insurer must give written notice as soon as is reasonably possible if it intends to disclaim liability or deny coverage "for death or bodily injury arising out of a motor vehicle accident or any other type of accident occurring within this state" under a liability policy delivered or issued in New York.  Whether the insurer's delay is reasonable or not depends on the circumstances of the case as to whether the insurer acted diligently or reasonably in investigating the claim.  

  The Appellate Division ruled in Agoado Realty Corp. v. United International Insurance Company, 1999 WL 1081538 (1st Dept. November 30, 1999) that Section 3420(d) did not estop the insurer from raising the issue of whether an assault claim was an “occurrence” since it related to the grant of coverage and not to any policy exclusion.

 A 27-day delay in denying coverage has not been held to be “unreasonable” under New York Insurance Law, § 3420(d).  Dryden Mutual Insurance Company v. Greaser, 702 N.Y.S. 2d 479 (Fourth Department 2000).  By contrast, a 90 day delay was held to be unreasonable as a matter of law in Mohawk Minden Ins. Co. v. Ferry, 674 N.Y.S.2d 512 (3d Dept. 1998).

  Courts interpreting Section 3420(d) have ruled that insurers whose policies are issued in New York have a statutory obligation for certain claims to promptly advise their insureds if they are going to deny coverage or reserve rights.  Boston Old Colony Ins. Co. v. Lumbermens Mut. Cas. Co., 889 F.2d 1245 (2d Cir. 1989) and Massachusetts Bay Ins. Co. v. Pendleton, 51 N.Y.S.2d 992 (App. Div., 3d Dept. 1990) and New York Central Mutual Fire Ins. Co. v. Markowitz, 537 N.Y.S.2d 571 (Misc. 1989).  

  Section 3420(d) only applies to policies issued in New York.  Ogden Corp. v. Travelers Indemn. Co., 739 F.Supp. 796, 803 (S.D.N.Y. 1989), aff'd, 924 F.2d 39 (2d Cir. 1991).  The Second Department has ruled that the statutory estoppel principles set forth in Insurance Law Section 3420(d) apply to a policy insuring a New York business even though the policy was actually issued in Texas to the insured’s parent corporation.  In American Ref-Fuel Company of Hempstead v. Employers Insurance Company of Wausau, 2000 N.Y. App. Div. LEXIS 3253 (Second Department March 27, 2000), the Appellate Division ruled that the location of the insured and the risk to be insured are determinative of whether a policy shall be deemed to have been “delivered or issued for delivery” in New York.  

  Further, pursuant to the terms of Section 3420(d), the statute only extends to claims for death or bodily injury and does not apply to actions for property damage.  Merchants Mutual Ins. Co. v. Allcity Ins. Co., 1997 N.Y. App. Div. LEXIS 12538 (N.Y. App. December 4, 1997); General Accident Ins. Group v. Cirucci, 387 N.E.2d 223 (N.Y. 1979).   One court has extended the statutory predecessor to Section 3420 (d) to pollution claims involving only property damage.  Kutsher's Country Club Corp. v. Lincoln Ins. Co., 465 N.Y.S.2d 136 (Sup. Ct. 1983).  However, Kutsher's has since been criticized as an inappropriate expansion of the scope of this statute.  Ogden Corp. v. The Travelers Indemnity Co., 739 F.Supp. 796, 804 (S.D.N.Y. 1989).  

  Apart from Section 3420(d), courts may impose an equitable estoppel for any unjustified delay in responding to an insured's claim for coverage. Albert J. Schiff Associates, Inc. v. Flack, 51 N.Y.2d 692, 435 N.Y.S.2d 972, 417 N.E.2d 84 (1980).  Hartford Ins. Co. v. County of Nassau, 46 N.Y.2d 1028, 1029; Utica Fire Ins. Co. v. Spagnolo, 634 N.Y.S.2d 296 (App. Div. 1995) and Nuzzo v. Griffin Technology, Inc., 643 N.Y.S.2d 802 (4th Dept. 1996)(four month delay).  However, non-statutory claims may not expand the scope of coverage. Merchants Mutual Ins. Co. v. Allcity Ins. Co., 1997 N.Y. App. Div. LEXIS 12538 (N.Y. App. December 4, 1997).  Further, the insurer's delay may excused if reasonable or justified.  Stabules v. Aetna Life & Cas. Co., 639 N.Y.S.2d 824 (1st Dept. 1996)(72 day delay excused by breakdown in insurer's computer claims system).  Further, the insured must establish prejudice in order to prevail on such an estoppel claim.

  The Appellate Division ruled in Lehrer McGovern Bobis, Inc. v. Halsey Construction Corp., that an insurer could reasonably resist demands that it reimburse its insured for defense costs until such time as the insured had provided copies of the bills evidencing their expenditures in defense of the underlying action.  


  In general, the purpose of umbrella liability insurance is both to provide excess insurance as well as coverage for areas that may not be covered under the insured's primary coverage.   County of Wyoming v. Erie Lackawanna Railroad Co., 360 F.Supp. 1212, 1221 (W.D.N.Y. 1973), aff'd, 518 F.2d 23 (2d Cir. 1975).  

  New York courts have consistently ruled that an umbrella carrier has no duty to contribute to the payment of a settlement until all applicable primary insurance is exhausted.  Home Ins. Co. v. Liberty Mut. Ins. Co., No. 87 Civ. 0675 (S.D.N.Y. February 18, 1988), State Farm Fire & Cas. Co. v. LiMauro, 65 N.Y.2d 369, 482 N.E.2d 13.  On the other hand, a federal district court has ruled that an excess insurer owed a pro rata share of defense costs corresponding to its indemnity obligation, including costs incurred prior to the date that the underlying policies became exhausted. National Grange Mutual Ins.  Co.  v.  Continental Casualty Co., 650 F.Supp.  1404 (S.D.N.Y. 1986). 

  Various departments of the Appellate Division have ruled that excess insurers have no "drop down" obligation.  See Ambassador Assoc. v. Corcoran, 168 A.D.2d 281, 562 N.Y.S.2d 507 (1990), aff'd mem., (N.Y. 1992) and Steyr-Daimler-Puch A.G. v. Allstate Ins. Co., 543 N.Y.S.2d 538 (3d Dept. 1989).  In American Re-Insurance Co. v. SGB Universal Builders Supply, Inc., 141 Misc.2d 375, 532 N.Y.S.2d 712 (1988), a trial court ruled that an excess policy that defines coverage as excess of "the limits of the underlying insurance, as set forth in the attached Schedule," "the amounts specified" in the primary policy or the insured's "retained limit," will not be required to drop down.   
  The Appellate Division has ruled that insolvent policies are not “collectible” or “available” for the purpose of applying a policy’s “other insurance” clause.  In Re Liquidation of Midland Insurance Company, 269 A.D.2d 50, 709 N.Y.S.2d 24 (1st Dept. 2000).

  An excess insurer's suit for the primary carrier's negligent failure to settle a personal injury case within its policy limits should not have been dismissed where disputed issues of fact remained as to whether it was the primary insurer or the policyholder that controlled the defense of the underlying action.  Certain Underwriters at Lloyd's, London v. Fidelity & Casualty Ins. Co. of New York, 4 F.3d 541 (2d Cir. 1993).

  A federal district court has refused to recognize any tort cause of action by an excess insurer against an insured for failing to settle a claim that it was forced to defend after its primary insurer was declared insolvent. Employers Mut. Cas. Co. v. Key Pharmaceuticals, Inc., No. 91 Civ. 1630 (S.D.N.Y. December 19, 1994).

  Post-judgment interest is not within "ultimate net loss" and is therefore outside the obligations of an excess insurer.  Home Ins. Co. v. American Home Assur. Corp., 902 F.2d 1111 (2d Cir. 1990).

  A following form excess policy will not incorporate the terms of the underlying policy by reference where said terms are in conflict with the express terms of the excess policy.  Home Ins. Co. v. American Home Products Corp., 902 F.2d 1111 (2d Cir. 1990).  


  Under New York law, an insurer may rescind an insurance policy that was issued in reliance upon material misrepresentations.  Republic Insurance Company v. Masters Mates and Pilots Engine Pension Plan, 77 F.3d 48, 52 (2nd Cir. 1996).  In the event of rescission, the insurer must return all premium and other payments received, plus interest.  La Rocca v. John Hancock Mutual Life Insurance Company, 286 N.Y. 233, 36 N.E.2d 126 (1941).  On the other hand, the insurer is entitled to all legal fees and other monies expended in the course of providing coverage under the rescinded policy.  Chicago Insurance Company v. Kreitzer & Vogelman, S.D.N.Y. January 2000).  Section 3105(b) of the Insurance Law provides that a misrepresentation is “material” if it would have affected the underwriting judgment of the insurer such that “had it known the truth it would not have issued the exact same policy it did....”  Bella v. Equitable Life Assurance Society, 887 F.2d 388, 391 (2nd Cir. 1989).  The question of materiality is typically one of fact for resolution at trial.


  The duty to defend "is measured against the allegations of the pleadings but the duty to pay is determined by the actual basis for the insured's liability. Servidone Construction Corp. v. Security Ins. Co. of Hartford, 477 N.E.2d 441 (N.Y. 1985).  


  New York defines an insurance contract as "any agreement or other transaction whereby one party, the insurer, is obligated to confer benefit of pecuniary value upon an other party depending upon the happening of a fortuitous event."  "Fortuitous event" is defined as meaning "any occurrence or failure to occur which is, or is assumed by the parties to be, to a substantial extent beyond the control of either party."  New York Ins. Law Section 1101(a).   

  This definition of fortuity is consistent with the general rule that “that an insured may not obtain insurance to cover a loss that is known before the policy takes effect.”  Stonewall Insurance Company v. Asbestos Claims Management Corp., 73 F.3d 1178, 1214 (2nd Cir. 1995).  On the other hand, New York courts have repeatedly found that detailed specific knowledge of the types of injuries and claims alleged is required in order to avoid coverage on this basis.  See Mount Vernon Fire Insurance Company v. East Side Renaissance Associates, 893 F. Supp. 242, 248 (S.D. N.Y. 1995) and Public Service Mutual Insurance Company v. AYFAS Realty Corp., 234 A.D.2d 226, 651 N.Y.S. 2d 513 (App. Div. 1996).

  In Kent Centre Associates v. Greater New York Mutual Ins. Co., 139 A.D.2d 630, 527 N.Y.S.2d 269 (2d Dept. 1988), the Appellate Division refused to permit coverage under a property policy where conditions necessitating replacement of wall had predated coverage.  However, the 2d Circuit criticized the "known loss" doctrine in the context of pollution claims under a CGL policy in City of Johnstown, N.Y. v. Bankers Standard Ins. Co., 877 F.2d 1146 (2d Cir. 1989).  Despite indications that the insured permitted third parties to continue to dump sludge at its landfill even after receiving notice that these disposal practices were causing contamination, the court found no evidence that the insured had "expected or intended" this pollution.  The Second Circuit held that the "known risk" doctrine was limited to cases of fraud or concealment and did not stand for the proposition that "knowledge of the risk makes the risk uninsurable."  

 In Paramount Communications v. Gibraltar Casualty Company,  613 N.Y.S.2d 910 (N.Y. App. 1994), the Appellate Divisioin declared that the insured's awareness of various product liability claims arising out of a defective design precluded coverage for subsequent claims involving the same defect.  The trial court had ruled that "In order for a risk to be claimed "known", it is not necessary for the insured to know for certain that an event will happen if there is a substantial probability that an event will occur."

  On the other hand, where the insured not only took a calculated risk but acted with virtual certainty that a loss would occur, courts have refused to require coverage. See Continental Grain Co. v. Firemans Fund Ins. Co., 95 CIV 3871 (S.D.N.Y. February 27, 1997)(losses resulting from sale of salvaged grain cargo that insured knew was already tainted).


  Although the law of New York is as inconsistent concerning the issues of "occurrences" as any state, most courts have ruled that the number of "occurrences" is governed neither by the number of persons injured or by the number of acts of negligence committed by the insured.  Nor do New York courts specifically look to the "cause" of the ensuing liabilities.  Rather, New York follows its own rule, that of the "unfortunate event."  

  In assessing whether multiple claims all arise out of one event, New York courts will apply the average person's view of the facts and underlying circumstances giving rise to diverse claims to determine whether they are all part of a single "unfortunate event. Arthur A. Johnson Corp. v. Indemnity Ins. Co. of North America, 7 N.Y.2d 222, 164 N.E.2d 7041, 196 N.Y.S.2d 678 (1959)(collapsing walls at construction site held to result from separate unfortunate events since they were negligently constructed by different individuals at different times).  

  Some of the New York cases following Johnson have added a further requirement that the cause of the injury must be "continuous and not interrupted by other independent causes." Allied Grand Doll Mfg. Co., Inc. v. Globe Indem. Co., 15 A.D.2d 901, 225 N.Y.S.2d 595 (1st Dep't 1962) (water damage caused to many businesses due to an open faucet in insured's business held to be a single accident); Michaels v. Mutual Marine Office, Inc., 472 F.Supp. 26 (S.D.N.Y. 1979) (finding one "event" under Johnson, where damage to ship's deck was caused by the continuous and repeated dropping of "grab buckets" during unloading); Hartford Accident & Indem. Co. v. Wesolowski, 33 N.Y.2d 169, 305 N.E.2d 907, 350 N.Y.S.2d 895 (1973)(applying an occurrence based policy, court held that the continuum between the insured's striking of one car and then ricocheting off and hitting another constituted one occurrence); Home Ins. Co. v. Aetna Co. & Surety Co., 528 F.2d 1388 (2d Cir. 1976), remanded, 1977 Fire & Cas. Cases 9 (S.D.N.Y. 1977)(damage to farm animals caused by incorporation of contaminated resin into insured's feed supplement held to involve multiple "occurrences" since cause of insured's liability was separate sales to third parties); Bethpage Water District v. S. Zara & Sons,  546 N.Y.S.2d 645 (2d Dept. 1989)(diverse claims arising out of insured contractor's negligent backfilling of municipal sewer system all involved exposure to "substantially the same general conditions and therefore only involve the application of a single "occurrence" deductible); Nimey v. Hanover Ins. Co., 199 A.D.2d 1007, 605 N.Y.S.2d 588 (4th Dept. 1993), leave to appeal denied (N.Y. June 9, 1994)(cost of cleaning up gasoline that leaked out of the insured's storage tanks was restricted to a single "accident" limit); Champion International Corp. v. Continental Cas. Co., 400 F.Supp. 978 (S.D.N.Y. 1975), aff'd 546 F.2d 502 (2d Cir. 1976)(sale of insured's defective panels to 26 boat manufacturers which resulted in 1400 separate claims all share one "cause" and therefore constitute a single "occurrence."  Note the that policy contained a "per occurrence" deductible larger than any single claim).  Accord Champion International Corp. v. Liberty Mutual Ins. Co., 701 F.Supp. 409 (S.D.N.Y. 1988).

  In Stonewall Ins. Co. v. Asbestos Claims Mgt. Corp., 73 F.3d 1178 (2d Cir. 1995), the court reversed Judge Martin's ruling that NGC's PD liabilities arose out of a single "occurrence" (the decision to market asbestos-containing products), finding instead that each building installation was a separate "occurrence" for which a separate policy deductible must be paid by NGC. See also Maryland Casualty Co. v. Gerling Konzern Allgemiene Versicherungs Atiengelsellschaft, 128 F.3d 794, 799 (2nd Cir.  1997) (construing “occurrence” as providing a separate deductible provision for each installation of asbestos in a building).    
  In Olin Corp. v. INA, 221 F.3d 307 (2d Cir. 2000), the Second Circuit affirmed  Judge Griesa’s ruling that Olin was responsible for a full self-insured retention in each year for which coverage was otherwise triggered, rejecting the insured's argument that the most that it owed for all policies was a single SIR.

  Consistent with Stonewall, the Second Circuit court ruled that an insured was forced to pay a separate "per occurrence" deductible in a P&I policy for each underlying asbestos claim.for each "occurrence."  In Re: Prudential Lines, 158 F.3d 65 (2d Cir. 1998).  The Second Circuit agreed with the district court that the custom and usage of the parties made clear that the $1,000 “per occurrence” deducible provision in the policies was to be applied separately to each claim.  The court ruled that it was appropriate to consider extrinsic evidence and the conduct of the parties in assessing the scope and meaning of ambiguous policy terms.  Further, the majority declared that New York law would, in any event, likely have resulted in each claim being treated as a separate “occurrence.”  

  Allegations that foster children were subjected to sexual abuse over a period of years was held to involve an occurrence in each year in which the abuse occurred.  Safeguard Ins. Co. v. Angel Guardian Home, 1996 WL 635714 (E.D.N.Y. October 28, 1996).  The court rejected the insurer's contention that the insured's liability arose solely from its negligent placement of children into the foster home.  

  Identifying the "unfortunate event" can be a difficult factual question, the results of which will obviously differ depending upon the nature of the insured's activity and the theory of liability asserted by the underlying claimant.  The "cause" approach to the "number of occurrences" issue presents similar problems.  In Uniroyal, Inc. v. The Home Ins. Co., 707 F.Supp. 1368 (E.D.N.Y. 1988), the court took note of such possible "unfortunate events" as the defective manufacture of dioxin-contaminated herbicides, the delivery of those herbicides to the military, the spraying of the herbicides in Vietnam, and the touching of the herbicide molecules to a particular serviceman's skin.   Finding that the determinant of the insured's liability was the last act over which had exercised any control, Judge Weinstein  concluded that the insured's delivery of herbicide to the military, was "the conceptual point at which Uniroyal set its contaminated herbicides free upon the world to do their damage."  Id. at 1383.  Despite the fact that there were hundreds of deliveries by Uniroyal to the military between October 6, 1966 and March 1, 1968, the court further determined that the deliveries were part of a pervasive policy undertaken by the insured over several years and thus constituted only one occurrence, subject to one deductible.

  Contamination of the insured’s iced tea bottled products were held to arise out of a single”accidental contamination” in National Union Car Insurance Company of Pittsburgh v. The Stroh Companies, 98CIV8428 (S.D.N.Y. March 8, 2000).  Judge Cote ruled that the product recall arising from the discovery of glass shards in a few bottles involved a single “occurrence” and therefore required the insured to contribute only a single “occurrence” deductible.  National Union had originally contended that each bottle was a separate “occurrence” but later modified its position to contend that further discovery was required to determine whether, as the insured contended, the “uninterrupted and continuous cause” was the process of production or whether other factors were a more immediate cause of the contamination problem.

  A federal district court has ruled that the process of dumping at a waste site constituted "repeated exposure to substantially the same general conditions" and therefore ruled that the insured could only claim one "occurrence" per waste site at issue.  Endicott Johnson Corp. v. Liberty Mut. Ins. Co., 928 F.Supp. 176 (N.D.N.Y. 1996).  Similarly, in Consolidated Edison Co. of New York, Inc. v. Employers Ins. of Wausau, 1997 U.S. Dist. LEXIS 18486 (S.D.N.Y. November 21, 1997), Judge Mukasey refused to find that the insured's separate dumping of PCB wastes at two Superfund sites near Kansas City could be aggregated as a single "occurrence."

  Likewise, the Appellate Division ruled in Travelers Casualty & Surety Company v. Certain Underwriters at Lloyd’s, 719 N.Y.S.2d 297 (App. Div. 2000) that a cedent could not aggregate multiple environmental claims for the purpose of a reinsurance cession.  The First Department stated that, “The lower court correctly concluded that [Travelers] cannot meet its burden of establishing a single unifying cause for its separate claims to justify the submission of the policyholder’s distinct claims as a single loss for purposes of the reinsurance policies.”

  In Campbell v. Metropolitan Property and Casualty Insurance Company, No. 2000 WL 297174 (S.D.N.Y. March 20, 2000), aff’d,  No. 007511 (2nd Cir. February 2, 2001) an insurer was ordered to stack the limits of successive liability policies based upon evidence that a tenant had suffered lead poisoning in each of the policies at issue.


  Where multiple policies of insurance are arguably applicable to a loss, New York courts will apply a “functional analysis to separate lines of insurance” reflecting the purpose of the policy by reference to the common sense meaning of the terms that describe the policy’s coverage vis-à-vis other insurance.  Graphic Arts Mutual Ins.  Co.  v.  Bakers Mutual Ins.  Co.  of New York, 45 NY2d 551, 558 and Lumbermans Mutual Casualty Co. v.  Allstate Ins.  Co., 51 N.Y.2d 651, 656.


  The New York Court of Appeals has upheld the exclusion in most material respects, declaring that (1) "sudden" has a temporal meaning (Northville); (2) "accidental" refers to the causes of pollution, not the results (Technicon); (3) an intentional discharge is not "accidental" even if performed by a third party (Powers Chemco); (4) the exclusion cannot be avoided by re-characterizing damage to property resulting from pollution as "personal injury" (County of Columbia) and (5) that the burden of proof with respect to the "sudden and accidental" exception is on the insured (Northville).  However, the court has been reluctant to give effect to the exclusion in cases that are not clearly "environmental" (Rapid-American).

  The Court of Appeals first upheld the exclusion in Technicon Electronics Corp. v. American Home Assur.Corp., 74 N.Y.2d 66, 542 N.E.2d 1042 (1989) and Powers Chemco v. Federal Ins. Co., 74 N.Y.2d 910, 548 N.E.2d 1301 (1989), ruling that deliberate or knowing discharges of waste will not be "accidental" even if the insured was unaware that harm would result and/or where discharges were caused by some third party, rather than the insured.  
  Eight years later, the Court of Appeals ruled in Northville Industries Corp. v. National Union Fire Ins. Co. of Pittsburgh, 89 N.Y.2d 621, 679 N.E.2d 1044, 657 N.Y.S.2d 564 (1997) that "sudden" had a temporal meaning, adopting the majority view that had developed in the interim in lower state and federal courts. See Borg-Warner Corp. v. INA, 174 A.D.2d 24, 577 N.Y.S.2d 953 (3d Dept. 1992), leave to appeal denied, N.Y. 1992); County of Fulton v. USF&G, 600 N.Y.S.2d 972, 195 A.D.2d 864 (3d Dept. 1993); Redding-Hunter, Inc. v. Aetna Cas. & Sur. Co., 615 N.Y.S.2d 133 (N.Y. App. 1994); Amro Realty Corp. v. Atlantic Mut. Ins. Co., No. 93-6046 (2d Cir. June 18, 1993); EAD Metallurgical, Inc. v. Aetna Cas. & Surety Co., 701 F.Supp. 399 (W.D.N.Y. 1988); Ogden Corp. v. Travelers Indemnity Co., 739 F.Supp. 796 (S.D.N.Y. 1989), affirmed, 924 F.2d 39 (2d Cir. 1991); Town of Union v. Travelers Ins. Co., 906 F.Supp. 782 (N.D.N.Y. 1995); State of New York v. Amro Realty, 936 F.2d 420 (2d Cir. 1991) and Technicon Electronic Corp. v. American Home Assurance Corp., 141 A.D.2d 124, 533 N.Y.S.2d 91 (2d Dept. 1988) and Town of Moreau v. Orkin Exterminating Co., 568 N.Y.S.2d 466 (3d Dept. 1991).  But see, Petr-All Petroleum Corp. v. Fireman's Ins. Co. of Newark, 188 A.D.139, 593 N.Y.S.2d 693 (4th Dept. 1993).  

  Between Technicon and Northville, the court had also given broad application to the exclusion in a waste site case where the insured sought to avoid its application on a "personal injury" argument (County of Columbia, supra) but has refused to apply it to indoor toxic exposures, holding in Continental Cas. Co. v. Rapid-American Corp., 80 N.Y.2d 640, 609 N.E.2d 506, 593 N.Y.S.2d 593 (1993) that in such cases there was no discharge into the "atmosphere."  See also  Karroll v. Automergic Chemetals Corp. v. Federal Ins. Co., 600 N.Y.S.2d 101 N.Y. App. 1993)(exclusion only applies to "environmental" claims and therefore did not preclude duty to defend personal injury claim by a bulldozer operator who was accidentally sprayed with sulfuric acid).

  Litigation is likely to persist as to what constitutes a "sudden" discharge.  For instance, a U.S. District Court found that while on-going releases would not be covered, the continuation of an earlier abrupt event would be "sudden."  American Ins. Co. v. Fairchild Industries,  852 F.Supp. 1172 (E.D.N.Y. 1994), aff'd on other grounds, 56 F.3d 435 (2d Cir. 1995).

  Further, given New York's four corners test for the duty to defend, issues will arise as to what sort of facts or allegations of "sudden and accidental" discharges may create a duty to defend.  For instance, in a pre-Northville case, the Second Circuit found a duty to defend, despite giving a temporal meaning to the pollution exclusion, where the underlying allegations do not rule out the possibility of "sudden and accidental" discharges, even where the actual facts would defeat coverage.  State of New York v. Blank, 27 F.3d 783 (2d Cir. 1994) and Avondale Shipyards, supra. However, in an unpublished disposition, the Second Circuit ruled in Amro Realty Corp. v. Atlantic Mut. Ins. Co., 999 F.3d 537 (2d Cir. 1993)(Table) that allegations that waste was "disposed" of imply a purposeful intent to discharge and therefore cannot be "accidental.".
  In light of Northville,  a federal district court reversed a 1995 ruling finding a duty to defend where the evidence as to “sudden and accidental” discharges had been “inconclusive” and ruled instead in Employers Insurance of Wausau v. Duplan Corporation, 1999 U.S. Dist. LEXIS 15368 (S.D.N.Y. September 30,1999) that the insured’s failure to come forward with clear evidence precluded any defense obligation.
  To date, New York courts have refused to adopt a “secondary discharge” theory.  In Employers Insurance of Wausau v. Duplan Corporation, 1999 U.S. Dist. LEXIS 15368 (S.D.N.Y. September 30,1999) , Judge Haight refused to find that coverage could be triggered by  events such as fires and floods that merely  displaced previously discharged materials.  "Secondary discharge" arguments were rejected in the "Love Canal" coverage litigation.  In Occidental Petroleum Corp. v. Hartford Accident & Indemnity Co., Erie Index No. 41009/80 (N.Y. Sup. September 25, 1996), Judge Cain held there was no evidence that the insured's discharges had been into a "secure place of confinement" nor did it appear that New York would recognize such a theory.  Further, the court refused to distinguish between certain policies that precluded coverage for "sudden or accidental" discharges and those that contained conventional "sudden and accidental" language.  In any event, the court ruled that the gradual releases were not "sudden" and that intentional discharges were not "accidental."  

  On December 18, 1996, the New York Court of Appeals decided two appeals in which the Appellate Division refused to apply the "absolute" pollution exclusion.  In Town of Harrison v. National Union Fire Ins. Co., 89 N.Y.2d 308, 675 N.E.2d 829, 543 N.Y.S.2d 75 (1996), the Court of Appeals ruled that the exclusion was not limited to "actual polluters" and plainly precluded any duty to defend claims that the insured had negligently permitted third parties to dump wastes on its property.  The Appellate Division had ruled that such a broad interpretation would interfere with the purpose of the exclusion to force polluters to bear the burden of their actions that caused damage to the environment.  Consistent with its 1989 ruling in Powers Chemco, the Court of Appeals declared that "coverage is unambiguously excluded for claims generated by the dumping of waste materials on to complainants' properties has asserted in all of the underlying complaint, irrespective of who was responsible for these acts." 

 However, a divided court took a more restrictive view of the exclusion in Village of Cedarhurst v. Hanover Ins. Co., 89 N.Y.2d 293, 653 N.Y.S.2d 68, 675 N.E.2d 822) (N.Y. 1996), declaring that damage from a spill of raw sewage from a municipal facility should not be excluded since the damage was caused by the "flooding" effect of the discharges and not because of any contaminating or toxic characteristic of the liquids.  Three dissenting judges argued that raw sewage is clearly a pollutant and that the damage, however caused or characterized, should be excluded as arising out of the discharge of pollutants given the court's "but for" analysis of such terms in other cases.

  Shortly after Cedharhurst, the Appellate Division ruled in Space v. Farm Family Mutual Ins. Co., 652 N.Y.S.2d 357 (3d Dept. 1997) that allegations that a neighbor's well became contaminated as a result of the insured's spread of liquified cow manure on his property as fertilizer was subject to an "absolute" pollution exclusion and in the farm family policy.  The court ruled that the liquid manure was clearly a pollutant or contaminant where, as alleged, the substance had leached into the groundwater and caused contamination on adjoining property.  See also Steuben Contracting, Inc. v. Employers Ins. of Wausau, 975 F.Supp. 479 (W.D.N.Y. 1997) (damage from oil spill clearly had a "polluting" effect).

  Apart from such cases, the exclusion was upheld in Plants and Goodwin, Inc. v. St. Paul Surplus Lines Ins. Co., 99 F.Supp.2d 293 (W.D.N.Y. 2000)(damage to dairy herd from oil spill);  Tartan Oil Corp.  v.  Edward L.  Clark, No.  97-10517 (N.Y. App.  February 1, 1999)(oil spill clean up);  B.U.D. Sheetmetal, Inc. v. Massachusetts Bay Ins. Co., 1998 N.Y. App. Div. LEXIS 2478 (3rd. Dept. March 12, 1998)(workplace exposures); State of New York v. Capital Mutual Ins. Co., 623 N.Y.S.2d 660 (App. Div. 1995)(homeowner's oil spill); White v. Freedman, 643 N.Y.S.2d 160 (2d Dept. 1996)(tenants' exposure to toxic fumes in workplace); Cannon Construction Co. v. Liberty Mut. Ins. Co., 95-06279 (N.Y. App. May 6, 1996)(clean up of water pollution caused by contractor's spill of asphalt sealant from job site); Cortland Pump & Equipment, Inc. v. Firemens Ins. Co. of Newark, N.J., 194 A.D.2d 117, 604 N.Y.S.2d 633 (1993)(leaking tank clean up); Budofsky v. The Hartford Ins. Co., 147 Misc.2d 691, 556 N.Y.S.2d 438 (1990)(site clean up);  Oates v. State of New York, 597 N.Y.S.2d 550 (Ct. Cl. 1993)(lead poisoning claims); Employers Ins. of Wausau v. Trico Technologies, 93 CV 402A (W.D.N.Y. September 12, 1994)(toxic tort exposure to lead smelter fumes); Gotham Ins. Co. v. GLNX, Inc., 92 Civ. 6415 (S.D.N.Y. August 6, 1993)(clean up claims and personal injury actions arising out a train accident that released a cloud of toxic gas);  Modell & Co. v. General Ins. Co. of Trieste, New York County Supreme Court Index #22880/88-001 (N.Y. December 2, 1991), aff'd (N.Y. App. 1993)(dust from job site); Advanced Healthcare Resources, Inc. v. Merchants Ins. Co. of New Hampshire, Suffolk No. 97-1677 (N.Y. Sup. October 1997)(sick building claims); O'Connor v. City of N.Y. Police Department, Bronx County Supreme Court Index No. 18984/87 (N.Y. December 16, 1989) (policeman's claim for exposure to toxic fumes from overturned car);  County of Fulton v. USF&G, Fulton Country Supreme Court No. 17-1-90-280 (N.Y. August 17, 1992), rev'd on other grounds, 600 N.Y.S.2d 972 (App. Div. 1993)(landfill clean up); Colonial Tanning Corp. v. Home Indemnity Co., 780 F.Supp. 906 (N.D.N.Y. 1991)(New Jersey law); Demakos v. The Travelers Ins. Co., 613 N.Y.S.2d 709 (App. Div. 1994) (personal injuries for secondary smoke exposures) and Employers Ins. of Wausau v. Prentiss Drug & Chemical Co., New York County Supreme Court No. 20377/90 (N.Y. July 29, 1992).  However, the Prentiss court also found that the exclusion would not apply to "products liability"-type claims.  

  A federal district court ruled in Steuben Contracting, Inc. v. Employers Ins. of Wausau, 975 F.Supp. 479 (W.D.N.Y. 1997) that the exclusion barred coverage for clean up costs even though some of the spills might have originated off site.  The court declared that the exclusion's dual reference to discharges "at" or "from" the insured's premises was intended to encompass pollution that began off-site.

  Asbestos was held to be a "pollutant" in a first party policy that included carcinogens within its definition. American Heritage Realty Partnership v. Continental Ins. Co., 618 N.Y.S.2d 125 (N.Y. App. 1994).  More recently, the Appellate Division declared that the exclusion should bar coverage under a liability policy for personal injuries allegedly resulting from a contractor's dislodgment of asbestos fibers in the course of removing a furnace from the plaintiff's basement.  In A-1 Oil, Inc. v. Massachusetts Bay Ins. Co., 670 N.Y.S2d 228 (2nd. Dept. 1998) the Appellate Division declared that "asbestos is the type of irritant or contaminant encompassed by the policy's definition of pollutant."  the court declared that the fact that asbestos had been released inside the plaintiff's basement did not bring the claim outside the scope of the exclusion "as indoor air contamination can constitute environmental pollution."  

  However, a number of New York decisions have limited the scope of the exclusion to "environmental" claims and have therefore refused to apply it to products liability claims or toxic torts, particularly those involving indoor exposures.   In  Westview Associates v. Guaranty National Insurance Company, 2000 N.Y. LEXIS 2928 (N.Y. October 26, 2000), the New York Court of Appeals ruled that an umbrella liability insurer had a duty to provide coverage for lead paint claims filed against a property manager, notwithstanding a total pollution exclusion in its policy.   The court found that there was not only no evidence that the insurance company had intended such a broad interpretation of the exclusion but that such an interpretation was illogical since the insurer would not have added a lead paint exclusion to its primary policy had such claims already been excluded under the terms of the pollution clause. 

  Other cases in which New York courts have taken a limited view of the exclusion include  Stoney Run Co. v. Prudential-LMI Ins. Co., 47 F.3d 34 (2d Cir. 1995)(carbon monoxide poisoning claims); Sphere Drake Ins. Co. v. Y.L. Realty Co., 940 F.Supp. 240 (S.D.N.Y. 1997)(lead poisoning claims); Garfield Slope Housing Corp. v. Public Service Mutual Insurance Company, 973 F.Supp. 326 (E.D.N.Y. 1997)(exposure to toxic fumes from carpeting); Lefrak Organization v. Chubb Custom Ins. Co., 942 F.Supp. 949 (S.D.N.Y. 1996)(lead poisoning); N.L. Industries, Inc. v. Commercial Union Ins. Co., 926 F.Supp. 446 (D.N.J. 1996)(lead poisoning); Calvert Ins. Co. v. S&L Realty Corp., 926 F.Supp. 44 (S.D.N.Y. 1996)(indoor exposure to cement fumes from job site);  Republic Franklin Insurance Company v. L&J Realty Corporation, 2001 N.Y. App. Div. LEXIS 1535 (1st Dept. February 13, 2001)(indoor exposure to fumes); Roofers Joint Training Apprentice and Educational Committee of Western New York v. General Accident Insurance Company of America, 2000 N.Y. App. Div. LEXIS 9785 (Fourth Department September 29, 2000)(fumes from hot air gun being used in construction safety demonstration); Karroll v. Automergic Chemetals Corp. v. Federal Ins. Co., 600 N.Y.S.2d 101 (App. 1993)(personal injury caused by accidental spill of sulfuric acid at job site); General Acc. Ins. Co. v. Idbar Realty Corp., 646 N.Y.S.2d 138, 229 A.D.2d 515 (2d Dept. 1996)(lead poisoning claims); Cepeda v. Barveris, No. 96-00480 (App. Div. December 23, 1996)(lead poisoning);  Family Services of Rochester, Inc. v. National Union Fire Ins. Co. of Pittsburgh, PA, 149 Misc.2d 48, 562 N.Y.S.2d 358 (1990)(mis-delivery of fuel oil by insured); Schumann v. State of New York, 160 Misc.2d 802, 610 N.Y.S.2d 987 (N.Y. Ct. Cl. 1994)(lead poisoning caused by welder's inhalation of toxic fumes); Miano v. Hehn, 614 N.Y.S.2d 829 (N.Y. App. 1994)(indoor asbestos abatement); Clarendon Place Corp. v. Landmark Ins. Co., Bronx No. 18039/90 (N.Y. March 16, 1995)(asphyxiation of patrons in nightclub fire).  Similarly, the Appellate Division has ruled that a first party pollution exclusion did not apply to damage to the insured’s blood plasma product that became contaminated after ethylene glycol seeped into it.  Vigilant Ins.  Co.  v.  V.I, Technologies, Inc., 1998 N.Y. App.  Div.  LEXIS 9189 (1st Dept.  August 27, 1998).

  An exclusion for claims "arising out of the ingestion, inhalation or absorption of lead in any form" was held to preclude coverage for lead poisoning claims against a landlord even though plaintiff also alleged a failure to remedy various "dangerous and hazardous" conditions on the premise as the injuries would not have occurred "but for" the lead exposures. Mt. Vernon Fire Ins. Co. v. Jones, 1997 WL 37033 (E.D.N.Y. January 14, 1997).  Lead paint exclusions were also upheld in Cartagena v.  Tang, 260 A.D.2d 337, 687 N.Y.S.2d 666 (2d Dept. 1999) and U.S. Liability Ins.  Co.  v.  McKenzie, No.  96 CV 3981 (E.D. N.Y. February 1, 1999).  However, the existence of such an exclusion was taken as confirmation that a pollution exclusion did not extend to lead claims in  Westview Associates v. Guaranty National Insurance Company, 2000 N.Y.  LEXIS 2928 (N.Y. October 26, 2000).


  An exclusion for “undue familiarity” was held to preclude the obligation of a professional liability insurer to provide coverage to a psychiatrist who was alleged to have engaged in an improper sexual relationship with a patient.  Legion Insurance Company v. Singh, 708 N.Y.S. 2d 183 (3rd Dept. 2000).


  Claims for economic loss held not covered in Jakobson Shipyard, Inc. v. Aetna Cas. & Sur. Co., 775 F.Supp. 606, 614 (S.D.N.Y. 1991), aff'd 961 F.2d 387 (2d Cir. 1992).


  An insurer whose liability policy incepted after a preliminary injunction had been issued against its policyholder did not owe coverage as a matter of public policy for any subsequent tortious conduct. Grumman Systems Support Corp. v. Travelers Ind. Co., 828 F.Supp. 11 (E.D.N.Y. 1993).


  New York Court of Appeals has found that coverage for punitive damages is against public policy.  Home Ins. Co. v. American Home Products Corp., 75 N.Y.2d 196 (1990).  This rule applies equally to punitive judgments from other states.  Zurich Ins. Co. v. Shearson Lehman Bros., 84 N.Y.2d 309 (1994).

  In Soto v. State Farm Ins. Co., 83 N.Y.2d 718, 635 N.E.2d 1222 (1994) the Court of Appeals ruled that an insurer has no duty to indemnify a policyholder for a punitive award, even where the punitive damages were the result of the liability insurer's earlier refusal to settle the claim against its insured within the applicable policy limits.  The court ruled that the public policy of preventing an insured from benefiting by its wrong doing was not undone by the analytically distinct wrong of the insurer's claims handling.


  The Second Circuit has ruled that a cedent could arbitrate numerous discrete environmental liability settlement claims in a single proceeding where they all involved a common calculation/allocation issue.  In Hartford Accident & Indemnity Company v. Swiss Reinsurance American Corporation, No. 00-7149 (2nd Cir. April 16, 2001) the court ruled that the treaties’ arbitration clause for “differences” or “disputes” between the parties extended to all of Hartford’s claims.  Even though some of these settlements had not yet been submitted to Swiss Re for payment, the Second Circuit ruled that they involved actual arbitrable disputes in light of Swiss Re’s interpretation of the treaties.


  Under New York law, courts will first look to the plain and ordinary meaning of a policy term.  If the meaning of the term cannot be deciphered from the contract, the court will look to extrinsic evidence of the contracting intent of the parties.  If patent contractual ambiguity cannot be resolved after consideration of such extrinsic evidence, it will be resolved against the drafter. 

  Policies are not to be interpreted from the point of view of an easily befuddled or mislead consumer but rather based upon the understanding of a person engaged in the insured's course of business.  In Re Ambassador Group, Inc. Litigation, 738 F.Supp. 57, 62-63 (E.D.N.Y. 1990).  

  In New York, where there is no ambiguity, policy interpretation turns on the plain and ordinary meaning of the word.  Johnson v. Travelers Ins. Co., 269 N.Y. 401, 408 (1936). New York courts will not apply contra proferentum as a first means of inter resolving disputes and will only use it if other aids to construction have failed.   Interpetrol Bermuda v. Lloyds' Underwriters, 588 F.Supp. 1199 (S.D.N.Y. 1984) and Schering Corp. v. Home Ins., 712 F.2d 4 (2d Cir. 1983).

  There is no general rule in New York denying sophisticated businesses the benefit of contra proferentem.  Lazard Freres and Company v. Protective Life Insurance Company, 108 F.3d 1531, 1533-34 (2nd Cir. 1997).  On the other hand, New York courts have ruled that the doctrine of contra proferentem does not apply in disputes between two insurers or where the policyholder has acted “akin to an insurance company” because of its sophistication in matters in insurance coverage or involvement in the drafting of policy language.  See U.S. Fire Insurance Company v. General Reinsurance Corporation, 949 F.2d 569, 573 (2nd Cir. 1991); and Loblaw, Inc. v. Employer’s Liability Assurance Corporation, 446 N.Y.S. 2d 743, 745 (Fourth Department 1991).

  In analyzing the meaning of an insurance contract, New York courts will first examine whether the terms of the policy are ambiguous.  Alexander & Alexander Services v. Certain Underwriters at Lloyd’s, 136 F.3d 82, 86 (2nd Cir. 1998).  An ambiguity will be deemed to exist if “more than one meaning when viewed objectively by a reasonably intelligent person who has examined the context of the entire integrated agreement and who is cognizant of the customs, practices, usages and terminology as generally understood in the particular trade or business.”  Lightfoot v. Union Carbide Corporation, 110 F.3d 898, 906 (2nd Cir. 1997).  An ambiguity will not automatically be construed against the drafter, however, if a contrary meeting is evident from the available extrinsic evidence.  On the other hand, “if the extrinsic evidence does not yield a conclusive answer as to the parties’ intent,” a court may apply other rules of contract construction, including the rule of contra proferentem.  McCostis v. Home Insurance Company, 31 F.3d 110, 113 (2nd Cir. 1994).

  Further, a finding of ambiguity will not necessarily result in a determination of coverage if the language was drafted by the insured or inserted at its request.  Standard & Poor's Corp. v. Continental Cas. Co., 718 F.Supp. 1219 (S.D.N.Y. 1989); Metpath, Inc. v. Birmingham Fire Ins. Co., 449 N.Y.S.2d 986 (A.D 1982); and Union Ins. Society of Canton v. William Gluckin & Co., 353 F.2d 946, 951 (2d Cir. 1965), cited in American Home Products Corp. v Liberty Mutual Ins. Co., 565 F.Supp. 1485, 1492 (S.D.N.Y. 1983).  New York does not automatically adopt an insured's interpretation until other attempts to clarify ambiguity have failed.  See Hartford Acc. & Ind. v. Wesolowski, 33 N.Y.2d 169, 172 (1973) and In Re: Prudential Lines, 1996 WL 65674 (Bkr. S.D.N.Y. November 5, 1996). 

  Even where policy terms are reasonable susceptible of more than one interpretation, the ambiguity will not be automatically construed against the insurer if the meaning of the ambiguous policy term an be resolved through resort to extrinsic evidence.  Haber v. St. Paul Guardian Insurance Company, 137 F. 3d 691, 697 (2nd Cir. 1998)..  
  Extrinsic evidence may generally not be relied on to alter the unambiguous terms of a written contract.  Serna v. Pergament Distrib., Inc., 582 N.Y.S.2d 550, 552 (App. Div. 1992); Maryland Cas. Co. v. W.R. Grace & Co., 23 F.3d 617 (2d Cir. 1994).

  Exclusions reduce coverage and operate independently with regard to the insuring agreement. Hartford Accident & Indemnity Co. v. A.P. Reiale & Sons, 228 A.D.2d 935, 644 N.Y.S.2d 442, 443 (App. Div. 1996).  

  A trial judge has recognized the potential viability of  "regulatory estoppel" under New York law but has declined to give it effect in a case where the only evidence of claimed misrepresentations was a letter that ISO sent to the New York Insurance Department seeking approval for an endorsement modifying the exclusion for contractually-assumed liabilities.  In Tozzi v. Long Island Railroad Co., No. 96-546 (N.Y. Supr. October 29, 1996), the Nassau County Supreme Court declared that regulatory estoppel was appropriate, even absent any detrimental reliance by the insured, in order to prevent insurers from taking positions concerning policy language that was contrary to two positions adopted before regulatory authorities.  However, the court held that the record here was far too scanty, in contrast to the administrative hearings and other claimed misrepresentations concerning the pollution exclusion that were discussed by the West Virginia Supreme Court in Joy Technologies and the New Jersey Supreme Court in Morton.


  In Hymowitz v. Eli Lilly & Co., 73 N.Y.2d 487, 539 N.E.2d 1069 (1989), the Court of Appeals adopted "market share" liability for DES claims. Earlier, in Bichler v. Eli Lilly & Co., 55 N.Y.2d 571 (1982), the court had adopted a concert of action theory for DES claims, holding that drug companies could be held liable if they  (1) had explicitly agreed not to test DES adequately; (2) had consciously paralleled each other in failing to test DES adequately as a result of some implied understanding; or (3) had acted independently of each other in failing to test, but each of their independent actions had the effect of substantially aiding or encouraging the others' failure to test.  Similarly, In Re "Agent Orange" Product Liability Litigation, 597 F.Supp. 740 (E.D.N.Y. 1984), affirmed in part, 818 F.2d 226 (2d Cir. 1987), Judge Weinstein created a rebuttable inference of liability.  

  Market share claims have been rejected in suits against lead paint manufacturers.   Brenner v. American Cyanmid Company, 699 N.Y.S. 2d 848 (App. Div. 1999).

  In a case now pending on appeal in the U.S. Court of Appeals for the Second Circuit, a federal district court in New York applied market share liability theories to claims against gun manufacturers.  Hamilton v. Accu-Tek, 62 F. Supp. 2d 802 (E.D. N.Y. 1999).  On August 16, 2000, the Second Circuit certified the issue to the New York Court of Appeals

  "Market share" was rejected as a theory of liability for asbestos claims in 201 East 86th Street Corp. v. Combustion Engineering, Inc., 821 F.Supp. 125 (S.D.N.Y. 1993).  Similarly, in Rastelli v. Goodyear Tire & Rubber Co., 79 N.Y.2d 289 (1992), the Court of Appeals refused to apply a "concert of action" theory to claims against multi-piece tire rim manufacturers.

  A theory of enterprise liability was adopted by a federal court in Hall v. E.I. du Pont De Nemours & Co., Inc., 345 F.Supp. 353 (E.D.N.Y. 1972), wherein six blasting cap manufacturers who comprised virtually the entire blasting cap industry had adhered to an industry-wide standard with regard to the safety features of blasting caps and had delegated many safety functions to their trade association and that there had been industry-wide cooperation in the design and manufacture of the blasting caps.  The court warned against the application of the enterprise or industry-wide liability theory to a large, decentralized industry, however.


  New York follows the majority rule that the time of an "occurrence" is when the claimant sustains actual damage and not when the act or omission that caused such damage was committed.  Holmes Protection of New York, Inc. v. National Union, 543 N.Y.S.2d 459 (1st Dept. 1989)(installation of defective fire alarm did not cause property damage until fire broke out).

  To date, the New York Court of Appeals has not conclusively addressed this issue in the context of latent injury claims.  However, the court strongly suggested in Continental Cas. Co. v. Rapid-American Corp., 80 N.Y.2d 640, 609 N.E.2d 506, 593 N.Y.S.2d 593 (1993) that it would follow the "injury in fact" analysis proposed by the Second Circuit in American Home Products Corp., 748 F.2d 760 (2d. Cir. 1984).

  Rapid-American was subsequently held by the Second Circuit to limit coverage for asbestos building claims to the policy year in which the insured's products were installed. Maryland Cas. Co. v. W.R. Grace & Co., 4 F.3d 185 (2d Cir. 1993), as reconsidered, 23 F.3d 617 (2d Cir. 1994).  The court reversed a lower court's use of a "discovery" trigger but also declined to adopt the "continuous trigger" that W.R. Grace had requested in the absence of any suggestion that the continued presence of asbestos caused any new damage to the buildings.  
 As yet, there is no suggestion that New York will follow a “triple trigger” approach.   In June 2000, the First Department of the Appellate Division of the New York Supreme Court has ruled that coverage for asbestos bodily injury claims is limited to those policies in effect during the period of actual inhalation or exposure.  The court ruled in In Re Liquidation of Midland Insurance Company, 269 A.D.2d 50, 709 N.Y.S.2d 24 (1st Dept.   2000) that New York courts would not follow Keene in also requiring coverage during the period of “exposure in residence” or “manifestation.”  Furthermore, the court ruled that the most that an insurer should owe for a continuing exposure was a single “occurrence” limit.  Finally, the court seemed to adopt a “horizontal exhaustion” analysis of the obligations of excess insurers, declaring that language in the Midland excess policy stating that it was excess to other valid and collectible insurance encompassed  not only the primary policies in the year that the Midland coverage was in effect but also earlier and later primary policies, including self-insured periods that must be exhausted before the excess insurer’s contractual obligations are triggered.

  On the other hand,  the Illinois Supreme Court has interpreted New York law as permitting an “installation” trigger.   In Travelers Insurance Company of Illinois v. Eljer Manufacturing, Inc., 2000 Ill. LEXIS 1712 (Ill. December 1, 2000), the court ruled that diminution in the value of a building due to the presence of defective plumbing fixtures may give rise to coverage under policies controlled by New York law even if the defect has not yet caused the fixtures to malfunction or leak.  The court rejected this proposed “installation” trigger for other policies that are controlled by Illinois law, however, since the incorporation of a defective component into a larger whole does not result in “property damage” until the component caused physical injury to the surrounding property.  

  While such rulings confirm a trend in New York towards an "injury in fact" trigger, prior lower courts rulings have adopted a variety of different (and often contradictory) "trigger" theories, depending on the facts of a given case (and the need for coverage). See, Cortland Pump & Equipment, Inc. v. Firemens Ins. Co. of Newark, N.J., 194 A.D.2d 117, 604 N.Y.S.2d 633 (1993)("actual injury" trigger for well water contamination claims); Allstate v. Colonial Realty Co., 468 N.Y.S.2d 800 (Sup. Ct. 1983) ("exposure" theory applied to lead paint poisoning case); American Motorists Ins. Co. v. Squibb, 95 Misc.2d 222, 406 N.Y.S.2d 658 (1978) ("manifestation" theory adopted for DES claims--court rejects "exposure" trigger); National Cas. Ins. Co. v. City of Mount Vernon, 128 A.D.2d 332, 515 N.Y.S.2d 267 (App. Div. 1987)(court applies "continuous trigger" to false imprisonment claims, triggering coverage if some injury occurred during policy period) and Autotronic v. Aetna, 89 App. Div. 401, 456 N.Y.S.2d 504 (3d Dept. 1982) (holding that on-going exposure to toxic fumes triggers successive policies).  See also Schering Corp. v. Home Ins. Co., 544 F.Supp. 613 (E.D.N.Y. 1982), reversed and remanded, 712 F.2d 4 (2d Cir. 1983)(2d Circuit reversed trial court's use of a dual exposure/manifestation trigger and remands for further findings as to the parties' contractual intent).  In United States Liability Ins. Co. v. Farley, 626 N.Y.S.2d 238 (N.Y. App. 1995) a "post-manifestation" claim for lead poisoning was held to trigger a liability insurer's duty to defend since "the insurance policy does not specifically exclude coverage for injuries sustained during the policy period in instances where the injured person sustained similar injuries prior to the inception date of the policy."    Accord, 670 Apartments Corp. v. The Agricultural Ins. Co., No. 96 CIV 1464 (S.D.N.Y. October 2, 1996).

  New York's federal courts have taken a somewhat more consistent approach in recent years based upon the so-called "injury in fact" or "actual injury" approach for latent injury coverage claims.  As enunciated by the Second Circuit in American Home Products Corp., 748 F.2d 760 (2d. Cir. 1984) coverage is triggered when an underlying claimant suffers actual injury, whether or not that injury is discovered then or later.  This principle has since been applied in several environmental coverage disputes based upon New York law.  Abex Corp. v. Maryland Cas. Co., 790 F.2d 119 (D.C. Cir. 1986)(asbestos claims); State of New York v. Amro Realty, 697 F.Supp. 99 (N.D.N.Y. 1988), affirmed in part, reversed in part, 936 F.2d 1420 (2d Cir. 1991)(toxic waste); Uniroyal v. Home Ins. Co., 707 F.Supp. 1368 (E.D.N.Y. 1988) (Agent Orange claims) and Olin v. INA, 603 F.Supp. 445 (S.D.N.Y. 1985) (DDT).  See also Ethicon, Inc. v. Aetna Cas. & Surety Corp., 688 F.Supp. 119, 127 (S.D.N.Y. 1988)(court refuses to apply "continuous trigger" to malicious prosecution claims).

  An injury in fact analysis has also been adopted by the Second Circuit.  In Stonewall Ins. Co. v. National Gypsum Co., 73 F.3d 1178 (2d Cir. 1995), the court ruled that coverage would arise in any year in which actual injury could be shown to have occurred.  Based on evidence asbestosis is a chronic and progressive disease, the court ruled that such claims were subject to a "continuous trigger."  the court further ruled that Judge Martin had not erred in finding that a different trigger might apply to cancer claims, due to the different process of injury, but remanded the case to the District Court to clarify his ambiguous analysis.  

  Coverage may be triggered by the occurrence of any injury for which the insured is legally liable, even if caused by another party's product for which the insured may be jointly and severally liable.  Stonewall Ins. Co. v. National Gypsum Co., 73 F.3d 1178 (2d Cir. 1995).

  The Second Circuit has similarly refused to find that an "injury in fact" trigger would restrict the policyholder to a single year of coverage.  See NGC, supra and Maryland Cas. Co. v. W.R. Grace & Co., 4 F.3d 185 (2d Cir. 1993).  Similarly, in E.R. Squibb & Sons, Inc. v. Accident and Casualty Ins. Co., 241 F.3d 154  (2d Cir.  2001)(DES claims), the Second Circuit held that "injury in fact is an on-going matter, not an instantaneous single event."  Accord, Stone & Webster Mgt. Co. v. Travelers Ind. Co., 1996 U.S. Dist. LEXIS 4852 (S.D.N.Y. April 15, 1996).

  In E.R. Squibb,  Squibb’s excess insurers had argued that  the onset of disease for squamous cell cancer and the ovarian, breast and testicular cancers did not result in any bodily injury until puberty and that “no physical evidence associated with exposure to DES in utero had any bearing on the subsequent development of the cancer,” the Second Circuit ruled that “injury in fact can also include, in appropriate circumstances, the inevitable pre-disposition to illness or disability as a result of cell mutation caused by DES.”   Finally, the court ruled that Squibb could also obtain coverage for its third generation (DES grandchildren) claims under its pre-1976 policies, even though none of these children were born by 1976.   As with the District Court, which  had ruled that such claims related back to any second generation claim that had triggered an earlier policy since “once there is an occurrence within the policy period the insurer can be liable for injuries resulting from that occurrence that take place in subsequent periods,” the Second Circuit declared that the third generation claims were, in effect, consequential damages, likening these claims to actions in which relatives have brought claims for loss of consortium arising out of the bodily injury suffered by family members.     

  Under an ‘actual injury” analysis, where the claim against an insured is for pollution of an acquifer, coverage is triggered when pollutants actually reach the acquifer, not the earlier date when surface soil contamination occurs. Employers Insurance of Wausau v. Duplan Corporation, 1999 U.S. Dist. LEXIS 15368 (S.D.N.Y. September 30,1999).  Judge Haight also ruled that a corporation could not obtain coverage for the pollution liabilities of a predecessor entity under policies issued prior to the date that the subsidiary had been acquired by the insured.
  The Appellate Division adopted a "post-manifestation" trigger for lead poisoning claims, ruling in General Acc. Ins. Co. v. Idbar Realty Corp., 646 N.Y.S.2d 138, 229 A.D.2d 515 (2d Dept. 1996), that even though the tenant's lead-related injuries were diagnosed as early as 1984, the plaintiff's continued exposure to lead dust after the initial on-set of symptoms could have result in new or additional injuries or aggravated old ones sufficient to require coverage under a 1987 policy.  See also Cepeda v. Barveris, No. 96-00480 (App. Div. December 23, 1996).

  However in N.L. Industries, Inc. v. Commercial Union Ins. Co., 926 F.Supp. 446 (D.N.J. 1996), Judge Walls ruled that a 1988 insurer had no duty to contribute to the defense of a lead poisoning claimant whose injuries were diagnosed in 1983.

  Coverage for lead poisoning has also been held to arise under “pre-manifestation” policies.  In Campbell v. Metropolitan Property and Casualty Insurance Company, 2000 WL 297174 (S.D.N.Y. March 20, 2000), the U.S. District Court concluded that the lead exposures resulted in “interference with the synthesis of heme” that results in injury to red blood cells and which occurs seven to ten days after exposure to lead paint.  Accordingly, even though lead poisoning had not been diagnosed until its last policy, the court ruled that the pre-diagnosis policies were triggered.  These findings were affirmed by the Second Circuit.

  Allegations that foster children were subjected to sexual abuse over a period of years was held to involve an occurrence in each year in which the abuse occurred.  Safeguard Ins. Co. v. Angel Guardian Home, 1996 WL 635714 (E.D.N.Y. October 28, 1996). 

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