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Avondale Industries, Inc. v. Travelers Indemnity Co.

decided: October 18, 1989.


Travelers Indemnity Company appeals from a judgment of the United States District Court for the Southern District of New York (Conboy, J.) entered on December 7, 1988 that granted plaintiffs-appellees, Avondale Industries, Inc. and Ogden Corporation, summary judgment and declared that appellant had a duty to defend appellees in private actions and administrative proceedings initiated against plaintiffs in the State of Louisiana. Partial final judgment was entered pursuant to Fed. R. Civ. P. 54(b).

Newman, Cardamone, and Winter, Circuit Judges.

Author: Cardamone

CARDAMONE, Circuit Judge,

Millions of tons of hazardous waste generated yearly are stored, deposited, recycled or dumped, and eventually escape infusing lakes, streams and underground waters; this toxic material finally comes into contact with unprotected people who are its victims. When its source is identified, the question becomes who is to clean it up and who is to pay for the damages it caused. According to a recent study by the Rand Corporation, in the last eight years only 34 of the 1,175 most egregious toxic waste dumps were cleaned -- and of the dumps cleaned, polluters paid less than one-tenth of the cost. See N.Y. Times, Sept. 10, 1989, at A32, col. 1. This appeal confirms that the vast carelessness that created the conundrum of hazardous waste, which has continued for decades, will not be quickly or easily remedied. One facet of the problem is presented in this case: whether an insured may rely upon its insurer to defend it in litigation arising from claims that the insured improperly disposed of its toxic waste.

Appellant Travelers Indemnity Company (Travelers) appeals from a December 7, 1988 judgment of the United States District Court for the Southern District of New York (Conboy, J.), entered pursuant to a memorandum opinion and order dated October 19, 1988 granting partial summary judgment in a declaratory judgment action instituted by appellees Avondale Industries, Inc., a former subsidiary of Ogden Corporation (collectively appellee or Avondale). The judgment declared that Travelers had a duty to defend Avondale in private litigation in Louisiana and in a public administrative proceeding instituted against it by the State of Louisiana stemming from Avondale's disposal of hazardous waste products. Partial final judgment was entered in favor of Avondale pursuant to Rule 54(b) of the Federal Rules of Civil Procedure.


Avondale is in the business of building and repairing commercial and U.S. Navy ships in New Orleans, Louisiana. As a part of its operations, it removes oil and chemical wastes from the holds and fuel tanks of the ships and barges it services. These petroleum products and chemical compounds, stored by it in holding tanks, were from 1975 to 1979 blended and sold to Combustion, Inc. Combustion transported the salvage oil from Avondale's plant to an oil recycling facility it owned near Baton Rouge, Louisiana. There, Combustion processed and resold the "salvage oil" that Avondale had sold it. The recycling facility and dump site at Denham Springs, Louisiana is the subject of the present litigation. This litigation was commenced by a series of lawsuits brought by persons residing near the Denham Springs facility who claimed personal injury and property damage caused by pollutants emanating from the dump site.

Travelers insured Avondale from 1975 to 1984 under a comprehensive general liability insurance policy that provided

[Travelers] will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury or property damage to which this policy applies caused by an occurrence, . . . and [Travelers] shall have the right and duty to defend any suit against the insured seeking damages on account of such injury or damage, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient. . . .

The policy also contained the following "pollution exclusion" and "sudden and accidental" exception to the exclusion:

[Coverage shall not apply] to bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, . . . [or] toxic chemicals . . . into or upon land, the atmosphere or any watercourse or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental. (emphasis supplied).

In 1986, Avondale was one of a number of defendants named in the many private damage actions brought as a result of the waste site owner's allegedly tortious operations. These complaints asserted that defendants' containment measures were "insufficient;" that defendants "generated" hazardous substances; that defendants were culpable for the "escape" of hazardous materials. Importantly, there are no specific claims as to how the waste allegedly was discharged or escaped into the environment, or that Avondale -- or any other defendant for that matter -- intentionally or knowingly polluted the waste site in Louisiana.

Additionally, in January 1986, Avondale received a letter from the office of the Attorney General of Louisiana, issued at the request of the Louisiana State Department of Environmental Quality (DEQ). The DEQ letter notified Avondale of the Department's intention "to take immediate action to bring about the prompt and thorough cleanup of a hazardous waste site in Livingston Parish, commonly known as the Combustion, Inc. Oil Recycling Facility and to recover all costs of remediation expended by the State . . . at that site." The letter noted that appellee was a "potentially responsible party" and demanded that it provide information with respect to the types of substances disposed, the location of disposal at the site, as well as certain names and dates. The DEQ letter also notified Avondale that willful disregard of the DEQ requests would result in potential penalties of up to $25,000 for each day that the information was not received, and the waiver of certain defenses available under Louisiana law. Finally, the letter made a "demand" that Avondale "submit a plan for remedial action at the site . . . or . . . pay to the Secretary the full costs of a remedial action" incurred by the State. The letter also required appellee, and other potentially responsible parties, to attend a meeting or face having a suit instituted against it by the Department.

Avondale notified Travelers of these developments and invoked the insurer's contractual duty to defend it in both the private and public actions. When Travelers was unresponsive, Avondale turned to the courts.


Avondale instituted this diversity action pursuant to 28 U.S.C. ยง 2201 (1982) seeking a judgment against Travelers declaring that it is contractually obligated to defend and indemnify Avondale in the underlying private and administrative proceedings. Upon appellee's motion for partial summary judgment on its duty to defend claim, Judge Conboy held that Travelers' duty to defend extended to both the DEQ proceeding and the private lawsuits. See Avondale Indus., Inc. v. Travelers Indem. Co., 697 F. Supp. 1314, 1316-18 (S.D.N.Y. 1988) (private suits); id. at 1318-20 (DEQ action). Avondale subsequently moved ...

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