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United States District Court, Southern District of New York

June 5, 1990


The opinion of the court was delivered by: Robert P. Patterson, Jr., District Judge.


By Opinion and Order dated February 26, 1990, 731 F. Supp. 143, the Court granted plaintiffs' motion for a rehearing and reconsideration of the Court's grant of summary judgment in favor of defendant The Travelers Indemnity Company ("Travelers").*fn1 The parties appeared for reargument on March 7, 1990. The Court is asked to reconsider its holding, following Technicon Electronics Corp. v. American Home Assurance Co., 74 N.Y.2d 66, 542 N.E.2d 1048, 544 N.Y.S.2d 531, reconsideration den., 74 N.Y.2d 893, 547 N.E.2d 105, 547 N YS.2d 851 (1989), that the "sudden and accidental" exception to the Travelers policy's "pollution exclusion" clause does not apply in this case.

The Court has considered plaintiffs' arguments that the decision to grant partial summary judgment to Travelers was incorrect, and has considered the New York Court of Appeals and Second Circuit decisions relevant to this issue handed down since the Court's earlier decision. See EAD Metallurgical, Inc. v. Aetna Casualty & Surety Co., 905 F.2d 8 (2d Cir. 1990); Avondale Industries, Inc. v. Travelers Indemnity Co., 887 F.2d 1200 (2d Cir. 1989), reh'g denied, 894 F.2d 498 (2d Cir. 1990) (per curiam); Powers Chemco, Inc. v. Federal Insurance Co., 74 N.Y.2d 910, 548 N.E.2d 1301, 549 N.Y.S.2d 650 (1989); A. Meyers & Sons Corp. v. Zurich American Insurance Group, 74 N.Y.2d 298, 545 N.E.2d 1206, 546 N.Y.S.2d 818 (1989). The Court concludes that its earlier holding that the underlying complaint "cannot reasonably be read as claiming that the discharges from Luria's facility were accidental," or sudden, is still correct.

1. Travelers' Duty to Defend

The panels in EAD and Avondale reached opposite conclusions based on their analyses of the different allegations in the respective complaints. In Avondale, the insured was one of 70 defendants in the underlying action, and was not the operator of the polluted site but was alleged only to have sold salvage oil to the operator of the site, who transported it to the site and stored it. The complaint charged all of the defendants with insufficient containment measures, with generating hazardous waste, with knowledge of the presence of toxins, and with culpability for escape of hazardous materials. The court found the complaint "did not allege how the discharge escaped, nor what Avondale did to contribute to the seepage," 887 F.2d at 1205.

In EAD, by contrast, there were specific allegations that the insured, through the operation of its plant, "caused the release" of wastes "by disposing or arranging for the disposal of" the wastes into sewer lines, and alleged that the insured acted "wrongfully, willfully and illegally . . . by causing, implementing, creating, generating, injecting and inflicting radioactive contamination."*fn2 Similarly, in Powers Chemco, it was alleged that the insured buried, dumped and discharged pollutants into the environment.

In Avondale, the Circuit Court distinguished Technicon and held it was not clear that the insured had "continuously and intentionally polluted," and there were no other allegations that "clearly negate[d]" the possibility that the discharges were "sudden and accidental." This holding is consistent with decisions of other courts in interpreting the duty to defend under the "sudden and accidental" exception, in cases of discharge from underground tanks. See, e.g., Colonie Motors, Inc. v. Hartford Acc. & Indem. Co., 145 A.D.2d 180, 538 N YS.2d 630, 632 (3d Dep't 1989). The EAD panel, relying on Powers Chemco, held that the underlying complaint left "no question that, unlike the defendants in Avondale, appellants are alleged to have 'continuously and intentionally polluted.'" The Court further stated that, "[a]s in Powers Chemco the present pollution damage, 'resulting from purposeful conduct, cannot be considered 'accidental.'" At 11.

Factually, this case falls between Avondale and EAD.*fn3 The underlying complaint alleges that Luria's "scrap metal processing and storage operations, and LURIA'S other industrial operations" on the site "proximately caused hazardous substances to be released onto the subject property and contaminate the soil of the subject property," and that "said contamination occurred continuously during the years 1950 through 1983." Unlike the complaint in Avondale, these allegations tend to negate the possibility that the discharges were both sudden and accidental; but unlike EAD and Powers Chemco, there are no specific allegations of the exact manner in which the discharges occurred, the nature of the contaminating materials, or that the insured acted intentionally, although there is no dispute that Luria's scrap metal processing and storage operations and other industrial operations constituted intentional conduct.

On this motion, plaintiffs assert that, in addition to Luria's continuous scrap metal processing and storage operations, there were in fact other, unspecified causes of the pollution of the site in question including leakage from underground storage tanks, lined sludge from cesspools, and buried drums. If anything has been made clear by the recent case law, however, it is that, in determining the insurer's duty to defend, the Court must only consider the allegations of the complaint.*fn4 In EAD and Avondale, which were both written by Judge Cardamone, the Second Circuit reiterated that the duty to defend is triggered by "'any allegations [in the underlying complaint] that arguably or potentially bring the action within the protection purchased' or a 'reasonable possibility' that coverage exists." EAD, at 11 (quoting Avondale). See also A. Meyers & Sons Corp., 545 N.E.2d at 1208, 546 N.Y.S.2d at 820 ("The duty of a liability insurer to defend an action . . . is determined by the allegations in the complaint"); Servidone Const. Corp. v. Security Ins. Co., 64 N.Y.2d 419, 477 N.E.2d 441, 444, 488 N.Y.S.2d 139, 142 (1985) ("The duty to defend is measured against the allegations of the pleadings"). Thus, an insured's claim that it is able to show that some portion of the pollution at the site may have been caused by a sudden and accidental discharge is essentially irrelevant if the complaint cannot reasonably be read as alleging that one or more of the discharges were sudden and accidental. The complaint here charges that the contamination occurred continuously during the years 1950 through 1983, and there are no allegations in the instant complaint that arguably or potentially bring the action within the protection purchased.

Plaintiffs assert that the complaint is not inconsistent with a scenario in which numerous sudden accidents caused the pollution at the site. As a preliminary matter, the Court notes that this is true of the complaints in EAD, Powers Chemco and Technicon, in which the courts held there was no duty to defend. While it is always true that what actually occurred conceivably could have involved a sudden and accidental discharge, the duty to defend, as noted above, is based on a reasonable interpretation of the allegations of the complaint.

Having drawn all reasonable inferences from the complaint in this case in favor of plaintiffs, the Court reiterates its earlier holding that "[c]ontinuous discharges caused by intentional operations over a thirty-three year period cannot be construed to be accidental." 739 F. Supp. 796, 799. Furthermore, the Court sees no reasonable interpretation of the word "sudden" that comports with an allegation that the "contamination occurred continuously during the years 1950 through 1983."*fn5 In particular, this allegation of continuous contamination is inconsistent with plaintiffs' contention that the contamination may have been the result of one or more sudden discharges or escapes. See United States Fidelity and Guaranty v. Star Fire Coals, Inc., 856 F.2d 31 (6th Cir. 1988) (court finds it "impossible" to characterize discharges of coal dust on an ongoing basis for seven or eight years as "sudden"). Because of this allegation, this Court, unlike the district court in Avondale, is unable to say that the pollutants "may have . . . escaped in a single incident," 697 F. Supp. 1314, 1317 (S.D.N.Y. 1988), and therefore reiterates its prior holding that the complaint cannot reasonably be read as alleging that the contamination occurred as a result of "sudden" discharges.*fn6

Plaintiffs also argue that Travelers has represented to plaintiffs and to insurance regulators that the "sudden and accidental" language in its policies is equivalent to "unexpected and unintended" and covers gradual discharges, and that there are issues of fact with respect to the allegedly unique way Travelers construes the words "sudden and accidental." The Court did not deal with this argument in its previous opinion because the Technicon decision made clear that the "sudden and accidental" exception to the pollution exclusion clause is unambiguous. See also Powers Chemco, 548 N.E.2d at 1302, 549 N.Y.S.2d at 651. Where the relevant terms of a contract are unambiguous, the intent of the parties is established from those terms alone, and resort to extrinsic evidence is unnecessary. See Rothenberg v. Lincoln Farm Camp, Inc., 755 F.2d 1017, 1019 (2d Cir. 1985).

In their reply brief in support of their motion for a rehearing and reconsideration, plaintiffs argue for the first time that two equitable doctrines, equitable estoppel and judicial estoppel, should be invoked by the Court to prevent Travelers from arguing that "sudden and accidental" does not mean "unexpected and unintended." These legal arguments are not properly raised at this late date. Motions for reargument are for the purpose of notifying the court of "matters or controlling decisions which counsel believes the court has overlooked," Local Civil Rule 3(j), not raising legal theories counsel failed to raise previously. See also Natural Resources Defense Council, Inc. v. United States Environmental Protection Agency, 705 F. Supp. 698, 701-02 (D.D.C.) ("Rule 59(e) motions are not vehicles for bringing before the court theories or arguments that were not advanced earlier"), vacated, 707 F. Supp. 3 (D.D.C. 1989); Sims v. Mme. Paulette Dry Cleaners, 105 Lab.Cas. (CCH) ¶ 34,845 at 44,648, 1986 WL12511 (S.D.N Y 1986) ("it is not the intention of Rules 52(b) and 59 to allow parties to relitigate old matters or to present their case under new theories"). See also Nassau-Suffolk Ice Cream, Inc. v. Integrated Resources, Inc., 683 F. Supp. 452, 454 (S.D.N Y 1988) (motions under Rule 60(b) are "not a substitute for appeal and may not be used to relitigate the basis of the prior order."). Plaintiffs had ample opportunity previously to proceed on these equitable theories but did not do so. For this reason, plaintiffs' motion is denied.

Moreover, equitable estoppel is inappropriate here. Plaintiffs argue that Travelers should be equitably estopped from asserting a position inconsistent with statements allegedly made by a Travelers employee to plaintiffs that there is little difference between "sudden and accidental" and "unexpected and unintended." However, application of the doctrine of equitable estoppel requires, inter alia, a showing by the insured of "(1) lack of knowledge of the true facts; (2) reliance on the conduct of . . . the party to be estopped; and (3) a prejudicial change in position." Stutelberg v. Farrell Lines, Inc., 529 F. Supp. 566, 569 (S.D.N.Y.), aff'd, 697 F.2d 297 (2d Cir. 1982). Plaintiffs have not argued that they relied on the alleged statements or that they made any prejudicial change in their position.*fn7

Plaintiffs' argument that the doctrine of judicial estoppel should be applied to prevent Travelers from taking a position in this case inconsistent with positions it has taken in other matters is also not only untimely but unsubstantiated. Specifically, plaintiffs argue that Travelers obtained approval of its pollution exclusion clause in West Virginia because of a letter by Richard Reeves of Travelers to the West Virginia Insurance Commissioner dated August 3, 1970, in which Mr. Reeves stated his belief that the results of the phrases "sudden and accidental" and "not expected or intended" are the same. The Court does not believe that this circumstance rises to the level of "playing fast and loose with the courts," the evil judicial estoppel is meant to address. Edwards v. Aetna Life Ins. Co., 690 F.2d 595, 598-99 (6th Cir. 1982) (quoting Scarano v. Central R. Co., 203 F.2d 510, 512-13 (3d Cir. 1953)); see also Long Island Lighting Co. v. Transamerica Delaval, Inc., 646 F. Supp. 1442, 1447 (S.D.N.Y. 1986). The phrase "sudden and accidental" as used in this context has been the subject of extensive litigation and judicial interpretation by the courts since 1970, including the New York Court of Appeals. The Court is not inclined to depart from the interpretation given to this language by the New York Court of Appeals by invoking the doctrine of judicial estoppel here.*fn8

2. Travelers' Duty to Indemnify

Finally, plaintiffs argue, again for the first time, that the absence of a duty to defend plaintiffs in the underlying action does not necessarily resolve the question of Travelers' duty to indemnify. Travelers argues that, since the duty to indemnify is narrower than the duty to defend, where there is no duty to defend, summary judgment is appropriate with respect to both defense and immunity.

In Travelers Ins. Co. v. Waltham Industrial Laboratories Corp., 883 F.2d 1092 (1st Cir. 1989), the First Circuit was faced with a situation similar to the one presented here: there was no duty to defend based on the allegations of the complaint, and the underlying case had been settled. The court noted that the duty to indemnify is determined by the actual facts, rather than the pleadings. The insured had raised an issue of fact as to whether one instance of pollution at the site, which was not within the scope of the underlying complaint, was sudden and accidental. The court inferred that the expense of curing this unpleaded contamination "was a factor considered in the settlement" of the underlying case, and therefore held that summary judgment as to the duty to indemnify was inappropriate.

Here, the underlying case has also been settled, but plaintiffs do not suggest, nor could one infer from the record on these cross-motions for summary judgment, that the settlement resolved matters outside the pleadings for which Travelers owes a duty to indemnify. This is not to say that Travelers is not required to indemnify plaintiffs if they indeed have become liable for sudden and accidental discharges which are otherwise covered by the policies. But that is not the question presented by the summary judgment motions before the Court. Here, the Court holds that Travelers had no duty to defend the underlying case and, since there was no allegation that plaintiffs have become liable for any sudden and accidental occurrences in addition to those alleged in the complaint, Travelers has no duty herein to indemnify plaintiffs for amounts they paid pursuant to that settlement.

Accordingly, plaintiffs' motion is denied.


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