AVONDALE INDUSTRIES v. TRAVELERS INDEM.

The opinion of the court was delivered by: Conboy, District Judge:

This is an insurance coverage case. Avondale Industries, Inc. and its former corporate parent, Ogden Corporation (collectively "Avondale", except where noted), brought this diversity action seeking a declaration that The Travelers Indemnity Company ("Travelers") has a duty to defend and to indemnify Avondale pursuant to several Comprehensive General Liability policies written by Travelers. Avondale seeks coverage for fourteen private actions and a State administrative proceeding (collectively, the "underlying actions") brought against Avondale as a result of the escape of petroleum and chemical pollution from a waste oil dump and reclamation facility in Louisiana to which Avondale shipped waste oil containing various hazardous chemicals. Partial summary judgment has been entered in this action previously, declaring that Travelers has a duty to defend the underlying actions. Avondale Industries, Inc. v. Travelers Indem. Co., 697 F. Supp. 1314 (S.D.N.Y.), partial judgment entered, 123 F.R.D. 80 (1988), aff'd, 887 F.2d 1200 (2d Cir. 1989), reh'g denied, 894 F.2d 498 (2d Cir.), cert. denied, ___ U.S. ___, 110 S.Ct. 2588, 110 L.Ed.2d 269 (1990).

Travelers impleaded the four third-party defendants — other insurers which wrote Comprehensive General Liability ("CGL") policies for Avondale covering different time periods than Travelers' policies — and now moves for partial summary judgment against them, seeking a declaration that they must share in the costs of Avondale's defense.*fn1 The four third-party defendants — Commercial Union Insurance Company ("Commercial Union" or "CU"), Highlands Insurance Company ("Highlands"), American Motorists Insurance Company ("AMICO"), and National Union Fire Insurance Company ("National Union" or "NU") — have cross-moved for a declaration that they have no obligation to defend or indemnify Avondale or to contribute to Travelers' expenses in defending the underlying actions. For the reasons discussed below, we grant in part and deny in part Travelers' motion, grant the motions of Commercial Union, Highlands, and National Union, and deny the motion of AMICO.

I. Factual Background*fn2

Avondale Shipyards, Inc.*fn3 operated at its Louisiana yards a facility that removed oil and chemical residue from barges. Prior to 1968, the waste oil and chemicals were incinerated at the shipyard. After 1968, the waste was sold or given to truckers who trucked it off site. Starting in December 1975, Avondale contracted with Maysville Oil Company for Maysville to pick up and dispose of Avondale's waste oil. This arrangement evidently continued in force until 1979. (Levin Affid., Ex. C; Sweet Affid., Ex. M.)

Meanwhile, from 1961 to 1977 Earl Dubose owned and operated a waste oil dump and reclamation/recycling facility in Denham Springs, Louisiana ("the Site"). (Levin Affid., Ex. D.) In December 1977, Dubose sold the facility to Combustion, Inc. (Sweet Affid., Ex. M) which continued to operate it until May 1982. Combustion also acquired Maysville Oil Company, which thereupon brought to the Site for processing the waste oil it collected.

The Site was the subject of several inspections by State and Federal environmental regulatory authorities, in response to complaints from the Site's neighbors. The Federal EPA conducted "potential hazardous site" inspections in 1981 and 1984. (Sweet Affid., Exs. C-E.)

On January 3, 1986, the Louisiana Attorney General, acting at the request of the Louisiana Department of Environmental Quality, sent to Avondale, among others, a "potentially responsible party" letter, in connection with the clean-up of the Site (the "LADEQ letter" or "PRP letter"). The letter notified its recipients that the Secretary of the DEQ "has determined that there is a discharge or disposal that has occurred at [the Site] which presents an imminent and substantial endangerment to health or the environment," and that "[w]e have reason to believe that you are a potentially responsible party under the provisions of Louisiana Revised Statute 30:1149.41 through 1149.50." The letter demanded that the PRP provide the DEQ with "all information on hazardous substances disposed of or discharged . . . by you at this site," including dates and manner of disposal, "submit a plan for remedial action at the site . . . or pay . . . the full costs of a remedial action" to be undertaken by DEQ, and attend an upcoming meeting, all under the express threat of a lawsuit and administrative fines. (Monteleone Affid., Ex. E.)

Thereafter, between July 1986 and June 1988, fourteen private lawsuits, eventually consolidated, were commenced in Louisiana State court.*fn4 The private actions, together encompassing the claims of hundreds of plaintiffs (not including class action plaintiffs) seeking over $17 billion in damages, each name some 70 to 80 defendants, including Avondale, and assert claims for damages for personal injury, wrongful death, and injury to property under theories of negligence and strict liability. (July 1990 Ribner Affid., Ex. B.) While there are some minor differences among the complaints, all allege that the Combustion, Inc. Site has been operating from the mid-1960s,*fn5 and none attempt to differentiate among the defendants in their allegations.*fn6 The vague and open-ended allegations set out in the margin are typical of the language used in the underlying private actions.*fn7

Avondale received a complaint in one of the private actions no later than August 20, 1986. Five actions were filed between July and September 1986, and nine others were filed between December 1986 and June 1988. Avondale first notified Travelers of a "potential claim" on March 20, 1986, in response to the LADEQ letter. On October 17, 1986, Avondale notified Travelers of the first five private actions, forwarding copies of the complaints, and followed up with this lawsuit, commenced in December 1986. Avondale did not, however, notify Commercial Union, National Union, AMICO, or Highlands, until March, 1987, at approximately the same time as the four insurers were impleaded by Travelers in this action.

Avondale purchased a series of primary comprehensive general liability insurance policies from the five insurers involved in this action. There is no dispute that the coverage periods ran as follows:

Highlands: January 1, 1970 to January 21, 1971.

It is not clear from the record before us whether Avondale at any time has made a demand for coverage from any of the third-party defendants.

Travelers now seeks contribution from the third-party defendants pursuant to the equitable rule that where "several insurers bind themselves to the same risk and one insurer pays the whole loss, the one so paying has a right of action against his coinsurers for a ratable proportion of the amount paid by him. . . ." Zurich-American Ins. Co. v. Atlantic Mutual Ins. Co., 139 A.D.2d 379, 387, 531 N.Y.S.2d 911, 916 (1st Dep't 1988), aff'd, 74 N.Y.2d 621, 541 N.Y.S.2d 970, 539 N.E.2d 1098 (1989). Travelers also relies on its contractual rights as subrogee to Avondale's claims against the third-party defendants. Travelers Reply Mem. at 2 n. 1.*fn8

II. Discussion

A. Choice of Law

In our earlier decision, we held that New York law applies to the Travelers policies under consideration in this action, but reserved judgment on any other policies that might come to be in issue. Avondale Industries, Inc. v. Travelers Indem. Co., 697 F. Supp. at 1316 and n. 2. Commercial Union and Highlands now contend that their contracts should be governed by Louisiana law. AMICO contends that New York law applies to its policies. AMICO Memo. at 5 n. 6. National Union does not expressly address the issue, but seems to assume that New York law applies to its policies. No party contests the choice of law selection advocated by any other party as applicable to its policies.

Sitting in diversity, we apply the choice of law rules of the forum state, New York. In insurance coverage actions, "New York generally gives controlling effect to the law of the jurisdiction which has the greatest interest in the matter. Important factors in making this determination are, for example, location of the insured risk, residence of the parties, and where the contract was issued and negotiated." Munzer v. St. Paul Fire & Marine Ins. Co., 145 A.D.2d 193, 200-01, 538 N.Y.S.2d 633, 637 (3d Dep't 1989) (citations omitted); see also, e.g., Ethicon, Inc. v. Aetna Cas. and Sur. Co., 688 F. Supp. 119, 123-24 (S.D.N.Y. 1988).

We agree that as to Commercial Union and Highlands, Louisiana law is appropriately applied. The policies of both insurers were signed in Louisiana, were brokered by Louisiana brokers, and issued to a Louisiana corporation (Avondale Shipyards, Inc.) with its principal place of business and its insured interest located in Louisiana. The underlying actions involve a Louisiana site and were brought by Louisiana public agencies and residents.

We also agree that as to AMICO and National Union, New York law applies. These policies were signed in New York, were brokered by New York brokers, and covered Delaware Corporations (Ogden Corp. and Avondale Industries, Inc.) with their principal place of business in New York, and with operations and insured interests located in a wide geographic range.*fn9 No other party has objected to AMICO's express and NU's implicit choice of New York law, and "there are enough contacts with New York to warrant honoring" the parties' selection. Uniroyal, Inc. v. Home Ins. Co., 707 F. Supp. 1368, 1372 (E.D.N.Y. 1988).

B. Limits of Impleader

Commercial Union and Highlands contend that because Travelers has brought this action as a third-party plaintiff seeking reimbursement, it may only recover from the third-party defendants to the extent that they are liable to Travelers "for all or part of [Avondale's] claim against [Travelers]." Fed.R.Civ.P. 14(a). CU and Highlands contend that because Avondale's complaint in this action alleges that it shipped oil waste between December 1975 and October 1979 (Complaint ¶ 8 (Monteleone Affid., Ex. Q)), this action is limited to a resolution of the dispute concerning insurance coverage for liability arising out of shipments during that period only. Therefore, they contend, Travelers faces no liability in this action for coverage not arising out of those shipments, and accordingly cannot seek here to implead the other carriers, whose policies were not in effect during that time.

This contention is meritless. Avondale seeks in this action a declaration that "Travelers is obligated to defend and indemnify Avondale with respect to" the underlying actions. (Complaint at 8 ¶ 2.) The dates of shipment are irrelevant to Avondale's liability in the underlying actions. The cost of defending the underlying actions, which Travelers is obligated to pay, cannot meaningfully be separated between pre- and post-December 1975 shipments. Thus, though Avondale's allegations in the complaint refer to shipments from 1975-1979, in actuality Avondale is necessarily seeking in this action a complete defense of the underlying actions regardless of any ultimate ...