The opinion of the court was delivered by: McCURN, Chief Judge.
MEMORANDUM-DECISION AND ORDER
In February of 1988, the State of New York initiated this
action pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act ("CERCLA"), as well as state
statutory and common law, for the remediation of pollution at
a site located in the Town of Moreau, South Glens Falls, New
York. The State alleged that the site was the location from
which first Abalene Pest Control Service Inc. ("Abalene"), and
later Orkin Exterminating Company Inc. ("Orkin"), distributed
pesticides. Walter Blank, who was allegedly Abalene's former
owner and president, has been joined as a defendant in this
suit along with Abalene and Orkin. The dispute
presently before the court concerns third-party actions by
Blank and Abalene against Capital Mutual Insurance Company
("Capital Mutual") and the National Union Insurance Company of
Pittsburgh ("National Union") for defense and indemnification
with respect to the first-party action.*fn1
On February, 9, 1989, this court signed an order granting
third-party plaintiff Walter Blank partial summary judgment
declaring and adjudging Capital Mutual liable to provide Blank
with a defense to the first-party action. That order was based
upon a January 24, 1989, bench decision. The January 24, 1989
bench decision, as well as this memorandum-decision and order,
are largely concerned with the effect of pollution exclusion
clauses, contained in the insurance policies, on the insurers'
duty to supply a defense and indemnification. The February 9th
order also denied, without prejudice to renew, Blank's and
Abalene's motion for partial summary judgment declaring that
National Union had a duty to provide a defense. The court
denied that motion on the ground that the insureds' had not
provided complete evidence concerning the terms and conditions
of the National Union policies — preferring that discovery be
permitted into the existence of full copies of the policies
before undertaking the task of reviewing secondary evidence of
The court requested that Walter Blank and Capital Mutual
first attempt to resolve amongst themselves the question of the
amount of attorneys' fees properly due as defense costs. This
failed. A dispute arose between Blank and Capital Mutual both
as to the amount of defense costs and, once again, Capital
Mutual's duty to provide a defense.
On October 3, 1989, a second round of motions and
cross-motions were argued before this court. Third-party
plaintiff Blank moved for an order directing Capital Mutual to
comply with the court's February 9, 1989, order to provide
Blank with a defense in the first-party action and to pay for
defense costs incurred to date. Blank also moved for an order
finding Capital Mutual in violation of § 349 of the New York
State General Business Law entitling Blank to an award of
attorneys' fees and damages. Both Blank and Abalene have also
moved for summary judgment declaring and adjudging National
Union liable to them for all costs, expenses and attorneys'
fees incurred in defending the first-party action.
Third-party defendant Capital Mutual cross-moved pursuant to
Rules 60(b)(2) and (6) of the Federal Rules of Civil Procedure
for an order relieving Capital Mutual from this court's order
of February 9, 1989, and for summary judgment declaring that
Capital Mutual has no duty to defend or indemnify Walter Blank.
Capital Mutual, in the alternative, has raised numerous
objections to the amount of defense costs requested by Blank.
Capital Mutual has also cross-moved for an order disqualifying
the law firm of Whiteman, Osterman & Hanna from engaging in any
further representation of Walter Blank in this action.
II. LEGAL BACKGROUND AND FACTUAL CONCLUSIONS
Both Capital Mutual and National Union rely on pollution
exclusion clauses contained in their policies to relieve them
of the duty to defend or indemnify the insureds. In the time
since this court issued its February 9, 1989, order, both the
New York State Court of Appeals and the Second Circuit have
issued decisions clarifying the circumstances under which the
pollution exclusion clause operates to relieve an insurer of
its duty to defend or indemnify. See Technicon Electronics v.
American Home, 74 N.Y.2d 66, 544 N.Y.S.2d 531, 542 N.E.2d 1048
(Ct.App. 1989); Powers Chemco, Inc. v. Federal Ins. Co., 74
N Y2d 910,
549 N.Y.S.2d 650, 548 N.E.2d 1301 (Ct.App. 1989); Avondale
Industries, Inc. v. Travelers Indemnity Company, 887 F.2d 1200
(2nd Cir. 1989), reh'd denied, 894 F.2d 498 (2nd Cir. 1990)
(per curiam), cert. denied, ___ U.S. ___, 110 S.Ct. 2588, 110
L.Ed.2d 269 (1990); EAD Metallurgical, Inc. v. Aetna Cas. &
Sur. Co., 905 F.2d 8 (2nd Cir. 1990). A review of the current
case law and findings by this court concerning the predicate
facts of this case will assist in sharpening the precise legal
issues and eliminating preliminary disputes.
The well settled New York law concerning the duty of an
insurer to defend was recently summarized by the Second
An insurer's duty to defend and indemnify are
separate and distinct, and the former is broader
than the latter. . . . The duty to defend rests
solely on whether the complaint in the underlying
action contains any allegations that arguably or
potentially bring the action within the protection
purchased. . . . So long as the claims alleged
against the insured rationally may be said to fall
within the policy coverage, the insurer must come
forward and defend. . . .
New York courts have held, in addition, that an
insurer seeking to avoid its duty to defend bears
a heavy burden. "[B]efore an insurance company is
permitted to avoid policy coverage, it must . . .
establish[ ] that the exclusions or exemptions
apply in the particular case, and that they are
subject to no other reasonable interpretation." .
. . To avoid the duty therefore the insurer must
demonstrate that the allegations in the underlying
complaints are "solely and entirely" within
specific and unambiguous exclusions from the
Consequently, [an insurer] can be excused from
its duty to defend only if it can be determined as
a matter of law that there is no possible basis in
law or fact upon which the insurer might be held
to indemnify [the insured].
Avondale Industries, 887 F.2d at 1204-05 (citations omitted).
Or, as stated somewhat differently by the New York Court of
The duty to defend insureds — long recognized as
broader than that to indemnify — is derived from
the allegations of the complaint and the terms of
the policy. If the complaint contains any facts or
allegations which bring the claim even potentially
within the protection purchased, the insurer is
obligated to defend. . . . Moreover, when an
exclusion clause is relied upon to deny coverage,
the insurer has the burden of demonstrating that
the "allegations of the complaint cast that
pleading solely and entirely within the policy
exclusions, and, further, that the allegations, in
toto, are subject to no other interpretation."
Technicon Electronics v. American Home, 74 N.Y.2d at 73-74, 544
N YS.2d at 533, 542 N.E.2d at 1049-50 (citation omitted)
(quoting International Paper Co. v. Continental Casualty Co.,
35 N.Y.2d 322, 325, 361 N.Y.S.2d 873, 875, 320 N.E.2d 619,
620-21 (Ct.App. 1974)) (emphasis in original). "This duty [to
defend] includes the defense of those actions in which
alternative grounds are asserted, some within and others
without the protection purchased." Lionel Freedman, Inc. v.
Glens Falls Ins. Co., 27 N.Y.2d 364, 368, 318 N.Y.S.2d 303,
305, 267 N.E.2d 93, 94 (Ct.App. 1971). It is also well settled
that because the duty to defend is broader than the duty to
indemnify, a finding by a court that there is no duty to defend
automatically means that there is no duty to indemnify. EAD
Metallurgical, 905 F.2d at 11.
B. The Pollution Exclusion Clause
Significantly, since this court issued its February 9, 1989,
order, the highest court of New York has also found that the
standard industry pollution exclusion clause is unambiguous. As
stated in Powers Chemco: "the exception to the exclusion for
liability arising from pollution is not operative unless the
occurrence in question was both `sudden' and `accidental.'" 74
N Y2d at 911, 549 N.Y.S.2d at 651, 548 N.E.2d at 1302 (quoting
Technicon, 74 N.Y.2d at 75, 544 N.Y.S.2d at 533, 542 N.E.2d at
1050) (emphasis in original). "Intentional discharges
of waste, leading to the ultimate pollution of the environment
. . . cannot be considered `accidental.'" Id.
It is now equally clear that New York law requires courts to
focus on the type of pollution occurrence alleged as opposed to
the culpability of the insured. In Powers Chemco the New York
Court of Appeals addressed the argument that the pollution
exclusion clause only applies to actual, as opposed to
innocent, polluters. The Powers Chemco Court relieved an
insurance company of the duty to indemnify by virtue of the
pollution exclusion clause even though it was the insured's
predecessor, as opposed to the insured itself, who was alleged
to have buried, dumped, and discharged pollutants into the
environment. The Court stated:
We also reject plaintiff's contention that since
it was not the actual polluter but merely inherited
the problem from the prior landowner, the pollution
exclusion clause cannot bar its present insurance
claim. Simply put, there is nothing in the language
of the pollution exclusion clause to suggest that
it is not applicable when liability is premised on
the conduct of someone other than the insured. . .
. As we noted in Technicon, the exclusion clause is
"unambiguously plain and operative" . . . and
represents only a single discrete exception to the
insurer's obligation to indemnify under the policy.
Powers Chemco, 74 N.Y.2d at 911, 549 N.Y.S.2d at 651, 548
N.E.2d at 1302 (emphasis added).
C. The Insurance Policies
Capital Mutual issued a comprehensive general liability
policy, effective February 28, 1985, to January 1, 1987, to
Walter Blank in his individual capacity. The Capital Mutual
policy contained the standard industry pollution exclusion
clause which read:
It is agreed that the insurance does not apply to
bodily injury or property damage arising out of
the discharge, dispersal, release, or escape of
smoke, vapors, soot, fumes, acids, alkalies, toxic
chemicals, liquid or gases, waste materials or
other irritants, contaminants or pollutants 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.
National Union insured Abalene under comprehensive general
liability policies from September 15, 1978, to ...