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Olin Corp. v. Insurance Co. of N. Am.

ELR Citation: 31 ELR 20042
Nos. Nos. 98-7687(L), -7753(XAP), 221 F.3d 307/51 ERC 1332/(2d Cir., 08/17/2000)

The court affirms a district court decision finding the insurer of a former pesticide manufacturing plant liable for only $11,297 of the approximate $4 million the manufacturer spent remediating soil and groundwater contamination at the plant. The manufacturer owned the plant from 1950 to 1968, over which time pesticides contaminated the soil. The U.S. Environmental Protection Agency (EPA) ordered the manufacturer to conduct soil remediation and excavation. A state environmental agency later ordered the manufacturer to conduct groundwater remediation, but because the soil remediation corrected problems associated with groundwater contamination, it subsequently determined that groundwater remediation was unnecessary. The manufacturer was insured by the insurance company from 1956 to 1973, and under the insurance policies at issue, the insurer would indemnify the manufacturer for all damages caused by accident. A jury determined that the only accidental injury to soil at the site occurred in 1956 and 1957, but that accidental injury to groundwater occurred in each year from 1958 to 1971. Moreover, the district court held that because EPA only ordered the manufacturer to remediate soil contamination and not groundwater contamination, the manufacturer could only recover the costs it incurred remediating soil. Unfortunately for the manufacturer, it spent $3.7 million remediating soil and only $362,000 remediating groundwater. Both the manufacturer and the insurer appeal.

The court first holds that the district court properly held that under New York law, "accident" includes unintended damage that occurs over a long period of time. The court also holds that there is no distinction under the policies between the terms "accident," which was used in early policies, and "occurrence," which was used in later policies. Under the policies, an occurrence was defined as an accident. The court further holds that even if the term "accident" is ambiguous, the district court did not abuse its discretion in excluding an insurance underwriter's testimony because his testimony was unlikely to be of significant help to the district court in attempting to discern the meaning of the early policies' language.

The court next upholds the district court's finding that the manufacturer's liability arising out of EPA's order to remove soil at the site was incurred because of injury to soil, not groundwater, and that except for the years 1956 and 1957, the manufacturer's injury to soil was not caused by accident and, thus, was not covered by the insurance policies. Likewise, the district court's finding that the manufacturer's $3.7 million expense was imposed for soil rather than groundwater damage does not contradict the jury's special verdict in violation of the Seventh Amendment. Further, because EPA never issued an order addressing the groundwater at the site and never asserted any claim against the manufacturer for the unintentional groundwater injury, the manufacturer could not have incurred the soil removal costs as a reasonable settlement with EPA of a groundwater claim.

The court next holds that the district court properly prorated the cost resulting from liability over all the years in which the jury found injury to have occurred, with the manufacturer paying for liability apportioned to any year it did not have applicable insurance. Although the policies' language is inconclusive, public policy and equitable considerations clearly indicate allocation rather than a joint and several approach as the proper method to use to determine liability under the policies. Moreover, during the years in which the manufacturer did not have applicable insurance, insurance was generally available to cover the risk of gradual pollution. The court further holds that the district court properly applied the policies' $100,000 deductible to each annual policy that was triggered rather than prorating the deductible over the triggered years. When multiple policies are triggered and liability is allocated to each, each policy's deductible is applicable. Last, the court holds that the manufacturer did not forfeit insurance coverage by failing to properly notify the insurer of its claims.

Counsel for Plaintiff
Stephen A. Dvorkin
Dickstein, Shapiro, Morin & Oshinsky
1177 Avenue of the Americas, 41st Fl., New York NY 10036
(212) 835-1400

Counsel for Defendant
Paul R. Koepff
O'Melveny & Myers
Citicorp Center
153 E. 53d St., New York NY 10022
(212) 326-2000

Before Oakes and McLaughlin, JJ.