ELR Citation: ELR 20392
No(s). 88-0255 L (D.R.I. Jan 24, 1990)

The court holds that under New York law, the New York Department of Environmental Conservation's (NYDEC's) letters to an insured company discussing cleanup of groundwater contamination at a hazardous waste site do not rise to the level of a suit that would trigger the insurer's duty to defend. A metal finishing company sought reimbursement from the insurer when its property was partially destroyed by fire, but failed to make any claim under the insurance policy for cleanup of groundwater pollution and contaminants, including trichloroethylene, used in metal finishing processes. More than 10 years later, NYDEC requested the company to submit a remedial cleanup plan, and the company in turn sought money from the insurer to clean the contaminated property. The insurer canceled the insurance policy, and the company filed a diversity suit alleging that the insurer in bad faith refused to defend NYDEC's cleanup order. The court holds that the NYDEC's letter requesting the company to submit a remedial cleanup plan did not constitute a "suit." NYDEC's correspondence requested voluntary participation before resort to the statutory procedures that could include initiation of an adversarial suit. The letter did not threaten court action or penalties. Nor did it include the words "demand" or "order." Contrary case law holding that a state agency's letter triggers the insurer's duty to defend is distinguishable because it was based on a threat of immediate action. Moreover, New York law provides for notice and an opportunity for a hearing before NYDEC has authority to implement a cleanup order. The court next holds that the insurer owed no duty to indemnify the insured company because the insurer did not expend any actual cleanup costs. The court also holds that the insurance contract may not be rescinded due to the insurer's alleged fraudulent attempt to induce settlement when it stated that it would settle a claim arising from fire loss without consulting an outside adjuster. Finally, the court holds that insurer's cancellation of the insurance policy did not proximately cause the insured's property value to decrease. Instead, the discovery of groundwater contamination below the plant caused the diminution in real estate value.

Counsel for Plaintiffs
Hugh N. Fryer, Edward M. Joyce, John P. Gasior
Fryer, Ross & Gowen
551 Fifth Ave., New York NY 10176
(212) 286-0099

Counsel for Defendant
Kenneth P. Borden, Linda E. Buffardi
Higgins, Cavanagh & Cooney
The Hay Bldg., 123 Dyer St., Providence RI 02903
(401) 272-3500