The opinion of the court was delivered by: Sand, District Judge.
Plaintiff Olin Corporation ("Olin") seeks in this action,
inter alia, a declaratory judgment that various defendant
insurance companies have a duty to defend and indemnify Olin in
connection with certain events involving mercury contamination
allegedly caused by Olin's former chlor-alkali plant in
Saltville, Virginia. See First Amended Complaint, ¶¶ 60-65,
82-85 (Counts IV and VII). We consider now the motions for
partial summary judgment brought by Olin's primary and excess
insurance carriers on the grounds that Olin breached the notice
provisions of the various insurance policies by providing late
notice as a matter of law. We grant those motions.
From 1954 to 1972, Olin and its predecessors operated a
chlor-alkali plant in Saltville, Virginia that produced
chlorine from salt using a mercury cell process. As part of
that process, mercury-contaminated wastes were deposited into
muck ponds and later seeped into the immediately adjoining
North Fork of the Holston River.
In 1970, the Virginia State Water Control Board ("VSWCB")
and the Virginia State Health Department conducted fish and
sediment sampling in the Holston River and discovered mercury
contaminations in excess of the FDA-approved limit. As a
result, Virginia placed a ban on fishing in the North Fork.
Olin also received correspondence from environmental groups
in 1970 expressing concern over mercury discharges.
In 1972, Olin closed its Saltville plant and donated most
of the land, other than the settling ponds, to the State of
Virginia and the Town of Saltville. As part of its deed of
gift, Olin agreed to demolish the chlorine plant, to deed the
settling ponds to the Town of Saltville at a later date, to
"remove the soil along the river bank between the river and
the building and [to] cover the area completely with fresh
soil," and to give the Town of Saltville $600,000 over the
next four years for a "Planning, Salvage, Reclamation and
Development Project" and the "Town Operating Budget." Olin
continued to monitor the mercury contamination in the river
on a monthly basis and in 1975 recorded an unexplained
increase in mercury levels. In June 1975, the VSWCB required
Olin to obtain a permit imposing limitations and requirements
on the continuing mercury "discharges" from the muck ponds.
At Olin's request, Hunton & Williams, a Virginia law firm,
prepared a 86-page memorandum dated October 6, 1976 analyzing
Olin's "potential liability" for "past and continuing
`discharges' of mercury." The memorandum concluded that
notwithstanding Olin's conveyance of the plant site to the
Town of Saltville, "Olin could probably be held liable under
common law nuisance theory, the Refuse Act, and the Virginia
SWCL [State Water Control Law] for the mercury pollution in
the North Fork of the Holston River and the `discharges' from
the chlor-alkali plant site."
In March 1978, Hunton & Williams provided Olin with a
supplemental memorandum "to enable Olin to assess its
potential exposure and liability in the threatened proceedings
by the State Water Control Board and in any other proceedings
arising out of the [Saltville] situation." (emphasis supplied).
That analysis concluded:
Olin appears to be liable under the Federal
Water Pollution Control Act (FWPCA), the Refuse
Act and the State Water Control Law (SWCL) for
discharging from a point source (i.e., the
outfalls) without a permit.
Olin's potential liability for mercury
discharges into the Holston River under the
nuisance theory may have increased since 1976 as
a result of (a) increased quantities of mercury
which have entered the river and (b) more
stringent regulatory standards which could make
Olin's discharges a nuisance per se.
The supplemental memorandum noted that "[t]here are several
recent statutory developments which, while not yet effective,
will increase Olin's potential liability in the future,"
pointing to the amendments to the FWPCA which "provide for
the recovery of costs up to $50 million for cleanup and
mitigation of discharges of hazardous substances." The
memorandum also stated: "Olin will likely be subject to
requirements under the Resource Conservation and Recovery Act
(RCRA) once EPA promulgates regulations implementing the Act.
The muck ponds probably constitute hazardous waste facilities
which, under EPA's draft regulations for ponds and lagoons,
must meet stringent standards." As to the size of Olin's
potential liability, the memorandum stated that the EPA draft
standards require that "liners be used for hazardous waste
ponds which prevent seepage of wastes from the facility" and
that under a nuisance theory, "a court may be willing to
impose such drastic measures as ordering Olin to seal the
muck ponds to prevent seepage or, alternatively, allowing the
state to carry out such measures and requiring Olin to
reimburse the costs."
Starting in 1978, an interagency task force, comprised of
the VSWCB, the Virginia State Attorney General's Office, the
Virginia and Tennessee Departments of Public Health, the
Tennessee Valley Authority, and the United States
Environmental Protection Agency ("EPA"), conducted several
detailed studies to assess the existence and extent of
mercury contamination of the North Fork. Initially, Olin was
not cooperative, and "the State threatened legal action for
damages and cleanup of the site." See Affidavit of Paul R.
Koepff dated January 9, 1990 ("Koepff Aff."), Ex. 5 at 31.
Then, starting in 1979, Olin, with the concurrence of the Task
Force, instituted a multi-phase mercury abatement and
monitoring program. In October 1979, Olin rip-rapped the bank
at the old plant site to stop the continuing erosion; that
project cost $400,000. See id. at 32. During the summer of
1982, Olin rip-rapped a portion of the river bank downstream,
adjacent to muck pond 5; that project cost $240,000.
The undisputed facts indicate that Olin was aware of the
potential high costs of remediation. In late 1980, Olin
estimated that it would cost $25 to $30 million to remove the
mercury from pond 5 and dispose of it in a secure landfill.
See Koepff Aff., Ex. 5 at 15. In an October 1982 memorandum,
the Task Force discussed several abatement alternatives,
including "the total removal of all contaminated soils and muck
with proper burial at an approved disposal site" at a cost of
over $210 million. See Koepff Aff., Ex. 5 at 34. Although that
alternative was rejected, partly because of its high cost, Olin
was informed of the potential magnitude of the clean-up
problem.
[T]he Board reserves the right to initiate
appropriate judicial action to abate any
substantial and imminent endangerment to the
public health or the environment that exists,
arises, or may come to its attention because of
the presence of mercury related to Olin's former
operations at Saltville.
The EPA had been involved with the Task Force negotiations
that began in 1978 and had concurred with the 1982 Consent
Decree. However, in 1982, the EPA began to take independent
action against Olin. In the Spring of 1982, Olin "learned
informally" that Saltville would be included on the CERCLA
list of most hazardous sites and in October 1982, "learned
more definitely that Saltville would be listed." See Koepff
Aff., Ex. 12. By letter dated January 17, 1984, the EPA
notified Olin that "[t]he old Olin site in Saltville, Virginia
has been included by the EPA on the National Priorities List of
Superfund sites" and enclosed a draft Remedial Action Master
Plan (RAMP) for Olin's comments. See id., Ex. 13. The EPA
issued the final RAMP in July 1984, which identified a range of
possible long-term remedial measures from no action to any
combination of the following remedial alternatives: surface
capping, groundwater barriers, chemical stabilization,
groundwater collection and treatment and/or surface water
diversion and collection. See id., Ex. 2. On June 30, 1987, the
EPA issued its Record of Decision which recommended "upgradient
storm water control by construction of ditches, berms and
swales and detoxification of contaminated material in art
onsite pond." See Koepff Aff., Ex. 15 at 100.
Olin also annually informed its outside auditors of the
Saltville mercury problem. In a December 1980 memorandum to
its auditors, Olin classified the Saltville problem as
"threatened litigation or administrative proceedings
involving $1,000,000 or more." See Reply Affidavit of Paul R.
Koepff dated April 30, 1990 ("Koepff Reply Aff."), Ex. 37. Olin
again told its outside auditors in December 1981 that the
Saltville claims constituted "threatened litigation." See
Koepff Reply Aff., Ex. 38. In its January 1982 report, Olin
told its auditors: "At one time, [the Saltville] matter was
close to litigation. Current expectations are that the matter
will ultimately be settled through administrative negotiations
[with the Task Force]." See Koepff Reply Aff., Ex. 39.
Notice to Olin's Insurers
On March 31, 1983, Olin wrote to its insurance broker,
Johnson & Higgins, "to advise that Olin is hereby making a
claim to its primary and excess insurers for indemnification
in respect of property damage arising out of the escape of
mercury from its mercury cell chlor-alkali plant . . . in
Saltville, Virginia." See Koepff Aff., Ex. 9. That letter
explained that "[f]or a substantial period of time, Olin has
been negotiating with various federal and state agencies on how
to address the problem." Olin stated that in response to
threatened litigation by the Task Force, it undertook a variety
of remedial projects that cost $4,580,000. Olin's letter was
forwarded by the insurance broker to Olin's primary and excess
insurers by cover letter dated April 12, 1983. See id. Olin
filed this action for declaratory judgment on July 1, 1983.
Federal courts sitting in diversity jurisdiction must apply
the choice of law rules of the forum state. Klaxon v. Stentor
Electric Mfg. Co., 313 U.S. 487, 61 S.Ct. 1020, 85 L.Ed. 1477
(1941). New York law requires courts to apply the law of the
jurisdiction "which has the most significant contacts with the
matter in dispute." Auten v. Auten, 308 N.Y. 155, 160,
124 N.E.2d 99 (1954); Fleet Messenger Service, Inc. v. Life Ins.
Co. of N. America, 315 F.2d 593, 596 (2d Cir. 1963) (applying
Auten
to an insurance contract). In cases involving insurance
contracts, New York courts have looked principally to the
following factors: the location of the insured risk; the
insured's principal place of business; where the policy was
issued and delivered; the location of the broker or agent
placing the policy; where the premiums were paid; and the
insurer's place of business. See Golotrade Shipping &
Chartering, Inc. v. Travelers Indem. Co., 706 F. Supp. 214, 218
S.D.N.Y. 1989) (principal place of business of insured;
location of insurance broker; where policy delivered; where
premiums paid); Ethicon, Inc. v. Aetna Casualty and Surety Co.,
688 F. Supp. 119, 123-24 (S.D.N.Y. 1988) ("state which the
parties understood would be the principal location of risk";
where policies issued; principal place of business and state of
incorporation of the insured); McGinniss v. Employers
Reinsurance Corp., 648 F. Supp. 1263, 1267 (S.D.N.Y. 1986)
(residence of insured; place where policy issued); American
Re-Insurance Co. v. SGB Universal Builders Supply, Inc.,
141 Misc.2d 375, 532 N.Y.S.2d 712, 715 (N.Y. Sup. Ct. 1988) (where
policy issued, delivered and paid for; location of agent).
Here, the risks covered by the insurance policies were not
confined to any one principal location. Over the entire
period from 1955 to 1974, the negotiations, underwriting,
issuance, execution and delivery of the various policies took
place in New York. See Koepff Aff., ¶ 36 & Ex. 16; Affidavit of
Bernard A. Buge, Jr. dated April 27, 1990 ("Buge Aff."), ¶ 10;
Hanover's Reply Memorandum in Support of its Motion for Partial
Summary Judgment at 5-6. Prior to 1970, Olin was headquartered
in New York City; after 1970, Olin maintained offices in New
York City. Olin's insurance broker, Johnson & Higgins, is
located in New York. Olin only argues that since it moved its
principal place of business to Connecticut, in 1970,
Connecticut has more significant contacts since any recovery
will flow to Olin in Connecticut. However, other courts have
applied New York law to disputes involving insurance contracts
even though the insured's principal place of business was
located outside of New York. See International School Services,
Inc. v. Northwestern Nat'l Ins. Co., 710 F. Supp. 86, 88-89
(S.D.N.Y. 1989) (insured's principal place of business was New
Jersey; contract negotiated and entered into in New York);
Schering Corp. v. Home Ins. Co., 544 F. Supp. 613, 618 (E.D.N Y
1982), rev'd on other grounds, 712 F.2d 4 (2d Cir. 1983)
(policies issued and signed in New York; insurer's principal
place of business is New York); Parlato v. Interport Trucking
Co., 540 F. Supp. 1051, 1053 (E.D.N.Y. 1982) (insured was New
Jersey corporation; broker resided in New York; insured
maintained office in New York). We find that for each of the
insurance policies involved in this dispute, the significant
aspects of contract formation and performance occurred in New
York. New York has the most significant contacts with the
dispute, and we will apply New York law.
Moreover, we note that Olin did not raise this choice of
law issue in connection with the prior motion practice in
this case. Olin previously relied on New York law in its
papers submitted to this Court, and this Court's prior
decision was based on New York law. See Olin Corp. ...