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Employers Ins. of Wausau v. Duplan Corp.

ELR Citation: 30 ELR 20001
Nos. No. 94 Civ. 3143, (S.D.N.Y., 09/28/1999)

The court holds that under New York law, insurers are not obligated to defend and indernnify a clothing manufacturer from private and government damage claims stemming from contamination at the manufacturer's New York and Virgin Islands facilities. The manufacturer acquired the two facilities from separate companies, but the alleged contamination occurred during the manufacturer's ownership. In 1981, the manufacturer declared bankruptcy, reorganized, liquidated, and formed a successor trust to satisfy contingent liabilities.

The court first holds that the pollution exclusion clause in each of the manufacturer's policies precludes the insurers' duty to defend and indemnify. A previous district court required the insurers to defend because the insurers could not demonstrate that the alleged pollution did not fall within the sudden and accidental exception to each policies' pollution exclusion clause. A subsequent New York decision, however, required the insured to prove that the alleged pollution fit within the sudden and accidental exception. The alleged disposal at both sites was intentional, long-lasting, and therefore manifestly not sudden and accidental under New York law. Moreover, the manufacturer could not show that an issue of fact exists as to whether the alleged pollution could have been sudden and accidental.

The court then holds that the manufacturer cannot rely on regulatory estoppel as a basis for nullifying the pollution exclusion clause. Because the policies' pollution exclusion clause is clear and unambiguous, the court lacks authority under New York law to admit extrinsic evidence of insurance industry representations that the policies would cover intentional discharge despite inclusion of the pollution exclusion. Moreover, regulatory estoppel is unavailable for intentional disposal of pollutants.

The court next holds that the owners of the clothing manufacturer qualify as insureds under one insurer's policies, and, therefore, the insurer must defend the owners from claims against them personally for activities at the Virgin Islands facility. The language of the policy plainly covers officers and directors for liability arising from acts taken while serving in their corporate role. Although the claims against the owners seek personal Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) operator liability, individuals liable under CERCLA are still entitled to insurance coverage for claims where they are a party due to their role as a corporation's officer or director. All of the claims against the owners could fit under any common and reasonable definition of an officer's duties. Similarly, the court holds that the insurer cannot escape its duty to defend the manufacturer based on the argument that an occurrence of property damage at the Virgin Islands facility did not occur during the insurance period. Although the policy allegedly covering the occurrence period is lost, an insurance broker confirmation is sufficient to determine that the insured issued the manufacturer a policy for the relevant period. Further, the contamination of the aquifer at the site is the injury-in-fact that triggers coverage under New York law, and such contamination arguably could have occurred during the policy period. The court, however, does hold that the insurer need not defend the successor trust from claims against it. The manufacturer's reorganization did not include one company's assets, which included the policy at issue. Therefore, the trust has no standing to assert rights under the policy.

The court then declares that one insurer is not obligated to defend or indemnify the manufacturer in connection with the New York claims. The insurer issued some of its policies before the manufacturer acquired the New York facility and such policies do not cover activities before that date. The coverage limits of other policies have been exhausted, and the pollution exclusion clause in the remaining policies precludes coverage. Last, the court allows an insurer to amend its answer to the complaint because the insurer did not constructively waive its right to assert all defenses.

[Related cases in this litigation are published at 27 ELR 21494 and 28 ELR 21296.]

Counsel for Plaintiff
Dale C. Christensen Jr.
Seward & Kissel
One Battery Park Plaza, New York NY 10004
(212) 574-1200

Christopher J. Carney
Ford, Marrin,Esposito, Witmeyer & Gleser
Wall Street Plaza, New York NY 10005
(212) 269-4900

Counsel for Defendants
Robert L. Tofel
Tofel & Partners
780 Third Ave., New York NY 10017
(212) 752-0007