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December 20, 1991


The opinion of the court was delivered by: McCURN, Chief Judge.


For the most part, the issues raised by these motions do not present uncharted waters for this court. On several previous occasions the court has been confronted with legal issues which commonly arise when an insured is seeking to have its insurance company defend and/or indemnify it in an underlying environmental proceeding. See, e.g., State of New York v. Blank, 745 F. Supp. 841 (N.D.N.Y. 1990) (McCurn, C.J.), stay granted, 1991 WL 208883 1991 U.S.Dist. LEXIS 14,582 (N.D.N Y 1991); Becker Electronics Manufacturing Corp. v. Granite State Insurance Co., 86-CV-1294, 1989 WL 63671 (N.D.N.Y. June 12, 1989) (McCurn, C.J.); and New York v. Amro Realty Corp., 697 F. Supp. 99 (N.D.N.Y. 1988) (McCurn, C.J.), motion for reconsideration denied, 745 F. Supp. 832 (N.D.N.Y. 1990), aff'd in part and rev'd in part, 936 F.2d 1420 (2d Cir. 1991). These motions differ from those previously decided by this court, however, in one significant aspect. In prior similar cases, the court has not encountered the somewhat novel issue presented here of what constitutes a suit for purposes of triggering the duty to defend under a comprehensive general liability ("CGL") insurance policy. As will be seen, this issue has been the subject of litigation in quite a few courts.*fn1 There is scant case law on this issue in the Second Circuit; and the New York Court of Appeals has not yet spoken on this issue either. Given the relatively undeveloped state of the law on this narrow issue, in combination with the unique facts presented herein, after hearing oral argument on November 6, 1991, the court decided that a written decision would be appropriate.


Plaintiff Colonial Tanning Corporation is a leather tanning company located in Gloversville, New York. In September, 1986, the New York State Department of Environmental Conservation ("DEC") sent a letter to Colonial Tanning outlining two unrelated citizen complaints at Colonial Tanning's site. Those complaints were the subject of a previous meeting between Colonial Tanning and the DEC. One complaint pertained to water leaching from an on-site waste dumpster and the second pertained to possible groundwater contamination. Because the DEC engineer was unable to confirm the condition of the floor drains, Colonial Tanning agreed to excavate in the vicinity of the problem area for observation and groundwater sampling by the DEC.

Sometime thereafter, Colonial Tanning retained the law firm of Whiteman Osterman & Hanna to represent it in connection with the DEC investigation. In response to a suggestion by its counsel, Colonial Tanning searched for any CGL polices it might have purchased over the years. That search revealed that Colonial Tanning had purchased a number of CGL policies issued by three different insurance companies (the defendants in this action): Home Indemnity Company ("Home Indemnity"), Employers Insurance of Wausau, a Mutual Company ("Wausau"), and Liberty Mutual Insurance Company ("Liberty Mutual") (collectively referred to herein as the "insurers"). According to Colonial Tanning, those policies, in combination, provide coverage to Colonial Tanning from "at least" January 4, 1971 through March 26, 1989. Based upon the existence of those policies, on October 2, 1986, counsel for Colonial Tanning notified the insurers, in writing, of the DEC investigation, demanding that the insurers defend and indemnify Colonial Tanning in connection with this matter.*fn2 All three insurers refused.

From September, 1986, through January, 1987, counsel for Colonial Tanning received several intermittent communications from the DEC reporting on the groundwater sampling.*fn3 However, from January, 1987, until April, 1988, there were no further communications between the DEC and Colonial Tanning. Then, on April 21, 1988, Colonial Tanning's counsel received from the DEC a "proposed Order on Consent" ("consent order") concerning the Colonial Tanning site.*fn4 That consent order basically required a field investigation program to be developed and implemented, as well as requiring some type of remediation program. In addition, the consent order provided for Colonial Tanning to pay a penalty to the DEC. For reasons which were not made known to the court, that particular consent order was never executed.

On May 6, 1988, Colonial Tanning forwarded a copy of the proposed consent order to the insurers, renewing its request for defense and indemnification.*fn5 As had occurred on several prior occasions, the insurers rebuffed Colonial Tanning. Specifically, by letter dated October 5, 1988, Home Indemnity purported to "reserve its rights" to disclaim coverage;*fn6 by letter dated June 12, 1989, Wausau declined to defend "at this time;"*fn7 and Liberty Mutual disclaimed coverage altogether.*fn8 Consequently, on July 16, 1990, Colonial Tanning commenced the present declaratory judgment action. Immediately after the insurers interposed their answers, Colonial Tanning made a motion seeking partial summary judgment on the duty to defend.

When that motion was filed, the DEC's actions with respect to the Colonial Tanning site consisted solely of those outlined above. Between the filing of the original motion and the date of oral argument, the DEC finally began to take further action with respect to this site. In particular, on October 10, 1990, Colonial Tanning was informed by the DEC that its site had been included in the "Registry of Inactive Hazardous Waste Disposal Sites in New York State."*fn9 In addition, Colonial Tanning was informed that because of that listing, service of a DEC administrative complaint against Colonial Tanning was imminent.*fn10 And indeed, on November 16, 1990, counsel for Colonial Tanning received the DEC complaint.*fn11 After learning that its site had been included on the State Inactive Hazardous Waste Registry, and that a DEC complaint was about to be served upon it, Colonial Tanning requested an adjournment to enable it to produce the complaint. The insurers all opposed an adjournment, and the court denied the request.

On November 19, 1990, just prior to the argument on Colonial Tanning's motion for partial summary judgment, counsel for Colonial Tanning provided the court with a copy of the DEC complaint. (The specific allegations of that complaint will be discussed in detail herein.) The insurers strenuously objected to the DEC complaint being made a part of the record on that motion. Although not expressly ruling on the inclusion of that document as part of the record, the court did ask that the parties focus on whether Colonial Tanning's motion should be granted "[b]ased upon the papers in front of . . . [it] without the complaint. . . ."*fn12 After hearing oral argument, the court denied Colonial Tanning's motion without prejudice to renew, based primarily upon the fact that neither the court nor the defendants had had a chance to review the DEC administrative complaint.*fn13 The court then agreed with Wausau that additional discovery was necessary, so it lifted the stay on discovery, ordering the same to be completed within 90 days.*fn14

In January of this year, during the course of discovery, Colonial Tanning moved for a protective order and the insurers cross-moved to compel discovery. Due to the court's unavailability, and at the request of the insurers, the court referred those discovery motions to Magistrate Judge DiBianco.*fn15 The Magistrate Judge held that based upon the production of the DEC complaint, no additional discovery was necessary on the duty to defend issue.*fn16 More specifically, after discussing the duty to defend under New York law, the Magistrate Judge held:

  Based on New York law, if the court is required
  to decide the defense duty claim solely by
  reference to the underlying complaint and the
  applicable insurance policy provisions, then
  discovery beyond the DEC complaint and the
  insurance policies is not relevant to the duty to

By order dated June 17, 1991, this court held that the Magistrate Judge's order was neither clearly erroneous nor contrary to law; and thus, necessarily, that the insurers' objections and/or appeal were meritless.*fn18

As was the case when Colonial Tanning brought its original motion for partial summary judgment, the insurers make a number of arguments as to why the duty to defend is not invoked here. The court will discuss each of those arguments in turn. The arguments of the insurers are not all the same. Therefore, prior to a discussion of each of those arguments, the insurers making that argument will be identified and where their arguments vary slightly, that too will be noted.


I. "Suit"

The CGL policies at issue here all contain the standard industry-wide provision that the insurer "[s]hall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damages,. . . ."*fn19 The duty to defend clearly is not triggered under the language of those policies until there has been a "suit" against Colonial Tanning. It is undisputed that the word suit is not expressly defined in any of the CGL policies under which Colonial Tanning is seeking coverage. Thus, the threshold issue presented by these motions is whether there has been a suit against Colonial Tanning by the DEC within the meaning of these policies.

In reliance upon the April 19, 1991, order of Magistrate Judge DiBianco, and upon this court's subsequent order of June 17, 1991, Colonial Tanning contends that there has already been a court determination that a suit exists here. Specifically, in response to vigorous arguments by Wausau and Liberty Mutual that there is no suit,*fn20 Colonial Tanning asserts that, "[t]he Magistrate's decision, upheld by the Order of June 17, 1991, was expressly based on a finding that the Complaint by the State of New York evidenced a suit within the meaning of the insurance policies."*fn21 Colonial Tanning therefore contends that that is the law of the case and, in its view, Wausau and Liberty Mutual are not now entitled to "revisit" the suit issue.*fn22

  Defendant Wausau contentiously states that that assertion by
Colonial Tanning is "absurd."*fn23 Wausau's interpretation of
the Magistrate Judge's order is that he only decided the issue
of whether additional discovery should be allowed in
connection with the duty to defend issue. Thus, the first
issue for the court's consideration is whether there has
already been a determination in this litigation that a suit

  Clearly, this court did not reach that issue in November of
1990, although the court strongly suggested that it would not
consider the DEC's actions prior to the service of the DEC
complaint to be sufficiently adversarial to constitute a
suit.*fn24 In addition, the court agrees with Wausau that the
specific issue of whether a suit exists for purposes of the
CGL policies was not before the Magistrate Judge. In fact,
although the Magistrate Judge commented that "[D]efendants
apparently concede that no further discovery is needed on the
suit issue,. . . ." he did not go on to discuss the meaning of
suit.*fn25 And that is understandable because the suit issue
plainly was not before him on those discovery motions. Rather,
the focus of the Magistrate Judge's order was the necessity of
further discovery. While it appears that, based upon receipt
of the DEC complaint, the Magistrate Judge may have assumed
the existence of a suit, that assumption was not critical to
a resolution of the motions before him.

Therefore, when this court held that the order of the Magistrate Judge was not clearly erroneous or contrary to law, it did so only with respect to the issues expressly before the Magistrate Judge — the discovery issues. In the court's view then, Colonial Tanning is mistaken in its belief that the existence of a suit has been previously decided in this action. It has not. So the court will now examine the suit issue based upon the present, more fully developed, record.

The DEC complaint is dated November 6, 1990, but counsel for Colonial Tanning did not receive that complaint until November 16, 1990.*fn26 Certain provisions of the complaint are worthy of mention. The first is the DEC's characterization of that proceeding as an "enforcement action."*fn27 The second meaningful aspect of that complaint is the nature of the relief sought therein. In addition to seeking implementation of a remedial program in connection with the alleged groundwater contamination near Colonial Tanning's site, the DEC seeks an order finding Colonial Tanning "liable" for four violations of § 17-0501 of the New York Environmental Conservation Law;*fn28 the imposition of a $100,000.00 civil penalty against Colonial Tanning; and the posting of some type of security in the amount of $2,000,000.00 to ensure that the remedial investigation and feasibility study ("RI/FS") is conducted to the DEC's satisfaction.*fn29 The final remedy sought by the DEC is "[f]urther relief, including, but not limited to damages or response costs,. . . ."*fn30

Besides receiving that complaint, it has now come to light that the DEC has had the following contacts with Colonial Tanning, which were not part of the record before the court on the prior motion for partial summary judgment. In particular, in what appears to be a direct response to the issuance of the DEC complaint, Colonial Tanning entered into two separate "orders on consent" with the DEC. Both of the consent orders were executed by Colonial Tanning's president on November 6, 1990, but one is dated November 7, 1990 and the other is dated November 21, 1990. In both consent orders, Colonial Tanning waived its right to a hearing with respect to the administrative complaint.*fn31 Further, although not a part of the consent orders themselves, Colonial Tanning and the DEC also agreed to stay the enforcement hearing pending Colonial Tanning's completion of its investigation and the issuance of the RI/FS.*fn32 In light of that stay and the consent orders, Colonial Tanning has not filed an answer or any other type of response to the DEC complaint.

Colonial Tanning was assessed and did agree to pay a $25,000.00 civil penalty, however.*fn33 Even though Colonial Tanning agreed to that penalty, by its very terms, the consent order entitles the DEC to pursue additional penalties in the event of noncompliance by Colonial Tanning. For example, the DEC expressly reserved its right to bring an action against Colonial Tanning for natural resource damages caused by the release or threatened release of hazardous wastes from Colonial Tanning's site.*fn34 The DEC also reserved its right to bring an action pertaining to wastes that are present or have migrated from the Colonial Tanning site.*fn35

Two cases are particularly relevant to the court's analysis at this point. The first is the Second Circuit's decision in Avondale Indus., Inc. v. Travelers Indem. Co., 887 F.2d 1200 (2nd Cir. 1989), reh'g, denied, 894 F.2d 498 (2d Cir. 1990), cert. denied, ___ U.S. ___, 110 S.Ct. 2588, 110 L.Ed.2d 269 (1990); and the second is the decision of the First Circuit, applying New York law, in Ryan v. Royal Ins. Co., 916 F.2d 731 (1st Cir. 1990). Because an analysis of the suit issue is inherently fact intensive, the court will give a fairly detailed description of the facts of these two cases, as well as discussing the general legal principles which emerged therefrom, before going on to consider their impact on the present case.

At the request of the Louisiana State Department of Environmental Quality ("DEQ"), the Louisiana Attorney General's office sent a letter to Avondale, a commercial shipbuilder, notifying it of the DEQ's intention "to take immediate action to bring about the prompt and thorough cleanup of a hazardous waste site . . . and to recover all costs of remediation expended by the State . . . at that site." Avondale, 887 F.2d at 1202 (quoting DEQ letter). The letter described Avondale as a "potentially responsible party" and directed that it provide the DEQ with information regarding the types of substances disposed, the location of disposal at the site, as well as certain names and dates. Id. The DEQ letter also notified Avondale that in the event it willfully disregarded those requests, Avondale would be subject to potential penalties of up to $25,000.00 for each day that the information was not received; and such conduct could also result in the waiver of certain defenses available under Louisiana law. Furthermore, the letter demanded 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. Id. Lastly, the letter required Avondale to attend a meeting or face having a suit instituted against it by the DEQ. In addition to receiving that letter from the DEQ, Avondale had been named as a defendant in some private actions by citizens claiming personal injury and property damage as a result of pollutants emanating from a dump site used by Avondale.

On appeal the Second Circuit stated that it had "little trouble" viewing the state administrative proceeding as a suit, reasoning:

  The demand letter commences a formal proceeding
  against Avondale, advising it that a public
  authority assumed an adversarial posture toward
  it, and that disregard of the DEQ's demands may
  result in the loss of substantial rights by
  Avondale. These strike us as the hallmarks of
  litigation, and are sufficiently adversarial to
  constitute a suit under New York law and within
  the meaning of the policy.

Avondale, 887 F.2d at 1206. The Avondale Court distinguished Technicon Electronics Corp. v. American Home Assur. Co., 141 A.D.2d 124, 533 N.Y.S.2d 91 (2d Dep't 1988), aff'd on other grounds, 74 N.Y.2d 66, 544 N.Y.S.2d 531, 542 N.E.2d 1048 (1989), on its facts, explaining:

  There, in the Appellate Division's own words,
  '[t]he EPA letter . . . merely informed Technicon
  of its potential liability under CERCLA
  [Comprehensive Environmental Response,
  Compensation, and Liability Act] and that the EPA
  was interested in discussing Technicon's
  voluntary participation in remedial measures. The
  letter was an invitation to voluntary action . .
  .' . . . A request to participate voluntarily in
  remedial measures is not the same as the
  adversarial posture assumed in the coercive
  demand letter that Avondale received in the
  instant case.

Id. at 1206 (citation omitted). Finally, the Court persuasively reasoned:

  [c]ommon sense argues that for Travelers [the
  insurer] to proffer a defense now is better for
  it, Avondale, and the public interest in a prompt
  cleanup of the hazardous waste. A judicial
  proceeding — were Avondale to ignore the DEQ
  letter — plainly will sharply escalate the
  liability costs Avondale faces. Fundamental issues
  involved in the administrative proceeding will
  obviously affect the extent of contribution of the
  various generators of the waste. A 1987 Report of
  the Association of State Waste Management Officials
  found in the record indicates — consonant with
  what experience teaches — that a private remedial
  effort is quicker and less expensive than a
  government sponsored program. . . .

Id. (citation omitted).*fn36

  More recently the Rhode Island District Court, applying New
York law, also had occasion to address the suit issue. In
Ryan, Klimek, Ryan Partnership v. Royal Ins. Co., 728 F. Supp. 862
 (D.R.I. 1990), a case heavily relied upon by both Wausau
and Liberty Mutual, the DEC letters sent to the alleged
polluter stand in stark contrast to those sent in Avondale. The
letters in Ryan did not include the words "demand" or "order".
Nor did they threaten court action or penalties. In Ryan the
DEC correspondence concerned proposals for cleanup of hazardous
waste; they "[r]equested voluntary participation before resort
to the statutory procedures which could include initiation of
an adversarial suit." Id. at 868. After reviewing Avondale and
Technicon, as well as the case law of other jurisdictions, the
court granted the insurer's motion for summary judgment,

finding that the DEC's actions therein did not rise to the
level of a suit.

The First Circuit, after thoroughly discussing "[t]he policy language, the decisions applying New York law, the case law elsewhere, and the theoretical underpinnings of the duty to defend," affirmed the district court's decision. Ryan v. Royal Ins. Co., 916 F.2d 731, 741 (1st Cir. 1990). In so doing, the Court rejected "[a] rigid suit-cum-judgment" interpretation of the policy language. Id. Instead the Court held that "something more than an invitation voluntarily to initiate cleanup activities is required to animate the insurer's duty [to defend]." Id. The Ryan Court explained:

  The 'something more,' we suggest, must relate to
  the seriousness of purpose which characterizes
  the government's role. If government assumes an
  adversarial posture, making sufficiently clear that
  the force of the State will be brought promptly to
  bear in a way that threatens the insured with
  probable and imminent financial consequences, then
  the functional equivalent of a suit may be in
  progress and the insured might reasonably expect
  the insurer to defend.

Id. (footnote omitted) (emphasis added). The Court in Ryan concluded its discourse on the applicable law by stating:

  To sum up, the origins and purpose of the duty to
  defend seem best accommodated . . ., . . . by
  focusing . . . on the data most relevant to the
  probability of actual toxic liability:
  coerciveness, adversariness, the seriousness of
  the effort with which the government hounds an
  insured, and the gravity of imminent


The Ryan Court held that the "something more" was lacking there because "[e]vidence of coerciveness or a serious state enforcement effort . . . was completely wanting." Id. at 741-42. In reaching that conclusion, the First Circuit agreed with the district court that the DEC letters "[l]ack[ed] any significant indicia of adversariness." Id. at 742. The Court observed that those letters did not contain hortatory language. Furthermore, the Circuit Court noted, as did the district court, that those letters did not even mention a "demand" or an "order". Id. Also, the Court commented upon the fact that the DEC letters did not place the insured under any "compulsion to begin a cleanup of the site." Id. Finally, the Court was persuaded by the fact that the DEC had no intention of pursuing treatment, storage and disposal violations against the insured; nor did the DEC intend to cause the insured any "undue hardship". The First Circuit characterized the DEC's statements in Ryan as "mild," stating that they were in "marked contrast to the adversarial posture adopted by the state agency in Avondale,. . . ." Id. (citation omitted).

With those two differing scenarios in mind, the court will next consider the unique factual circumstances presented herein. Even though Colonial Tanning has now received the DEC complaint, Wausau and Liberty Mutual forcefully argue that that complaint is a mere "formality;" and thus there is no suit against which they must defend. The basis for that argument is that although Colonial Tanning has received the DEC complaint — a "traditional hallmark of litigation"*fn37 — as previously discussed, on November 6, 1990, the same date as the complaint, it also executed two consent orders. One of those orders provided, inter alia, that the DEC would not institute an action or proceeding for penalties so long as Colonial Tanning complied with the terms and conditions of that order.*fn38 Of more significance, perhaps, is the fact that Colonial Tanning agreed to pay a $25,000 civil penalty to the DEC.*fn39 In the second more detailed consent order, Colonial Tanning and the DEC agreed to stay the administrative proceeding pending completion of the ...

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