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New York v. Blank

ELR Citation: 24 ELR 21215
Nos. Nos. 93-7952 et al., 27 F.3d 783/(2d Cir., 06/13/1994)

The court holds that pollution exclusion clauses in three comprehensive general liability insurance policies do not relieve insurers of their duty to defend a pesticide company and its president in a suit by the state of New York under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) and state law. Applying New York law, the court first holds that the pollution exclusion clauses in the policies do not relieve the insurers of their duty to defend. Construing the policies strictly in favor of the insured, the court holds that although the "sudden and accidental" exception to the pollution exclusion clauses unambiguously excludes from coverage intentional discharges, the insurers failed to show that no reasonable possibility of coverage exists for the damages and conduct alleged in the state's underlying complaint. The court holds that the complaint sufficiently alleges "accidental" discharges because it contains general allegations and language usually associated with allegations of negligence, and is not expressly limited to allegations of intentional conduct. Also, because the complaint is not limited to allegations of continuous discharge, it sufficiently alleges "sudden" discharges. The court next holds that one of the policies, which insured the company's president only in his individual capacity and as a sole proprietor, insures him in his corporate capacity as the sole proprietor of the company. Although the company was legally organized as a corporation rather than a sole proprietorship, the court holds that the president can be characterized as a sole proprietor because he was also the sole shareholder and treasurer.

The court next holds that an insurer joined by another insurer as a fourth-party defendant does not have a duty to defend the company and its president because the insurer did not receive prompt notice of claims as required under the policy. The court holds that the insured's failure to provide notice within a reasonable time without a valid excuse for delay is a complete defense to a complaint by the insured to compel the insurer to bear the costs of defense. Further, a successive insurer who brings a fourth-party complaint against a previous insurer for contribution to the costs of defense must itself provide the earlier insurer with reasonable notice of the claim if the insured has not. Because the later insurer did not notify the earlier insurer of the claims until 10 months after discovering the possibility of coverage by the earlier insurer—nearly two years after the state issued its complaint—the later insurer failed to provide reasonable notice. The court holds that the later insurer's good-faith belief that it had no duty to defend does not excuse its failure to provide notice. Also, the earlier insurer need not show that it was prejudiced by the later insurer's failure to provide notice. Finally, because the earlier insurer is not liable for contribution, the court reapportions the costs of defense equally between the two remaining insurers.

Counsel for Plaintiff
Edward Hayum
Sheft & Sheft
909 Third Ave., New York NY 10022
(212) 688-7788

Counsel for Defendants
Jean F. Gerbini
Whiteman, Osterman & Hanna
One Commerce Plaza, Albany NY 12260
(518) 487-7600

Before Meskill and Altimari, JJ.