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April 22, 1993



The opinion of the court was delivered by: JOHN T. CURTIN

This case concerns the duty of an insurer to defend and indemnify its insured against a third-party action. The plaintiff, Freedom Gravel ("Freedom"), filed a complaint against the defendants, Michigan Mutual and its wholly owned subsidiaries, Amerisure Insurance Co., Amerisure Life Insurance Co., Amerisure, Inc., and Amerisure Re (Bermuda) Ltd. ("defendants"), alleging breach of contract; negligent, intentional, and malicious denial of the provision of a defense; and unlawful and deceptive actions under New York State General Business Law § 349 (a). Plaintiff now moves for partial summary judgment on the issue of defendants' duty to defend, while defendants cross-move for complete summary judgment.


 Freedom Gravel has operated a gravel mining operation at 10292 Elton Road, Freedom, New York, since 1988. Item 12, Statement of Material Facts, P 1. The mine extracts sand, gravel, and other materials and then prepares the material for sale. Such preparations include: washing, crushing, sorting, and shifting the extractions. Item 2, Memorandum, P 2. At the time Freedom purchased the mine, the previous owner was mixing salt with the sand derived from gravel mining for sale to local municipal agencies. The salt was stockpiled on the property. When the proper amount of sand was produced, it would be mixed in varying ratios with the salt and stored on the property. Freedom was able to continue this practice by purchasing, along with the land, a New York State Department of Environment Conservation ("NYSDEC") mining and processing permit. In 1990, NYSDEC renewed Freedom's permit without limiting or restricting the maintenance of the salt stockpiles. Item 2, Memorandum, P 3.

 Kenneth and Donna Miller lived adjacent to Freedom Gravel at 10368 Elton Road. On July 26, 1990, they initiated an action against Freedom ("Miller Complaint" or "underlying action"). Their complaint alleged that sometime between November 1989 and January 1990, Freedom caused substantial quantities of salt, stored near the gravel pit, to wash and drain into the result, the Millers claimed their drinking water became contaminated with salt and cyanide, the plumbing in their house was damaged, and they and their children were exposed to sodium chloride, and cyanide. The Millers requested an order of abatement to prevent Freedom from any further mining activities; $ 1 million for injury to their property and persons; and $ 5 million in punitive damages. Item 12, Ex. A.

 From December 30, 1988, to December 30, 1990, Freedom maintained two Michigan Mutual liability coverage policies: Policy CPP 0339609, a comprehensive General Liability policy; and Policy CU 0335059, an Umbrella Liability policy. Item 15, P 3. Each policy contains a different form of a pollution exclusion clause. The General Liability policy employs a straight exclusion clause, and the Umbrella policy allows "sudden and accidental" pollution to revive coverage. Item 15, Exs. C and D.

 Freedom took the proper steps to inform defendants of the underlying claim brought against them. Freedom filed a Notice of Occurrence/Claim with its insurance agent, Mr. Lawrence Digulio, on August 7, 1990. Item 15, P 12, Ex. E. Freedom's attorneys notified Mr. Digulio on August 10, 1990, that they would represent Freedom in the action brought by the Millers. Mr. Digulio sent both the notice of occurrence and the letter to Amerisure Insurance. Id.

 In a letter to Freedom dated August 28, 1990, Michigan Mutual advised plaintiff that it was the carrier for both the General Liability and Umbrella policies. Michigan further informed Freedom that any loss from the Miller action was not covered under the policies. Michigan's senior claims adjustor, Mr. Harry J. Frizzell, cited the pollution exclusion clause in the General Liability policy as the reason for the denial of coverage. Item 15, P 14, Ex. F. The letter failed to identify any clause in the Umbrella policy which would exclude coverage of the Miller action.

 Upon Michigan Mutual's refusal to defend Freedom on the grounds of a noncovered event, Freedom hired the law firm of Devorsetz, Stinziano & Smith to represent it in the underlying action. Item 12, Alderman Aff., P 8. Freedom obtained a stipulation of discontinuance from the Millers on April 3, 1991. Item 12, Alderman Aff., P 10. In return, Freedom purchased the Millers' property for $ 52,000 and made a cash payment of $ 33,000 for all past, present and future expenses and damages allegedly suffered by the Millers and their children. Item 12, Statement of Material Facts, P 9.

 Freedom commenced this action on April 2, 1991, alleging that defendants breached their duties under the insurance contract; that defendants negligently, intentionally, and maliciously refused to defend the plaintiff; and that they engaged in unlawful and deceptive acts under N.Y. Gen. Bus. Law § 349(a). Item 1, Compl.

 Defendants readily admit that Freedom held the General Liability and Umbrella insurance policies through Michigan Mutual continuously from December 30, 1988, to December 30, 1990. Defendants also admit that Michigan Mutual denied coverage under the General Liability policy. Defendants raise, as a separate defense, that since Amerisure Insurance Co., Amerisure Inc., and Amerisure Re (Bermuda) Ltd. were not named on any insurance contract held by Freedom, Freedom is precluded from alleging a cause of action against any defendant but Michigan Mutual.


 At the outset, it is important to note that Freedom purchased the two liability insurance policies at issue from defendant Michigan Mutual, the parent company of the various defendant Amerisure wholly owned subsidiaries. No contract of insurance was purchased from the various Amerisure entities listed as defendants in the complaint. Plaintiff was advised by the Superintendent of Insurance that Amerisure, Inc., and Amerisure Re (Bermuda) Ltd. are not authorized to do business in New York. Item 15 at 4 and Ex. I. Moreover, the Superintendent of Insurance never received an acknowledgement of service in regard to Amerisure Life Insurance Company. Id. at 5. Plaintiff does not challenge this, therefore, for failure to state a claim, the Amerisure entities are dismissed. Any other reference to defendant in this order will apply only to Michigan Mutual.

 Plaintiff's motion seeks partial summary judgment under Fed. R. Civ. P. 56(a) on the ground that defendants owed plaintiff a duty to defend. Defendants cross-move for complete summary judgment on the grounds of not having any duty to defend nor indemnify plaintiff.

 As to a motion for summary judgment, it will be granted if it is shown "that there is no genuine issue as to any material fact and that the moving party is entitled to summary judgment as a matter of law." Fed. R. Civ. P. 56(c) See generally, Celotex Corp. v. Catrett, 477 U.S. 317, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986). "The mere existence of some alleged factual dispute will not defeat an otherwise properly supported motion for summary judgment; the requirement 'is that there be no genuine issue of material fact.'" Olin v. Corp. v. Insurance Co. of North America, 762 F. Supp. 548, 557 (S.D.N.Y. 1991) quoting Anderson v. Liberty Lobby, 477 U.S. 242, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986). The court must resolve all ambiguities and draw all reasonable inferences in favor of the non-moving party. Donahue v. Windsor Locks Bd. of Fire Comm'rs, 834 F.2d 54, 57 (2d Cir. 1987). Moreover, use of the summary judgment vehicle is particularly appropriate in the resolution of insurance contract coverage disputes. McGinniss v. Employers Reins. Corp., 648 F. Supp. 1263, 1266 (S.D.N.Y. 1986).

 It is undisputed that Freedom purchased the General and Umbrella Liability insurance policies from defendant which were effective during the period covering December 30, 1980 through December 30, 1990. It is also undisputed that the allegations of the underlying complaint set out an "occurrence" during the period of policy coverage.

 The nature of the two liability policies is such that the Umbrella Liability policy acts as an excess liability policy for claims exceeding the $ 1 million-per-occurrence, two-occurrence-cap limits. The motions before this court require the interpretation of several of the policies' clauses commonly included in commercial insurance policies: the pollution exclusion clause and those clauses which "trigger" coverage under the Umbrella Liability policy.

 Each policy contains a clause known as a "pollution exclusion." The General Liability policy's blanket pollution exclusion is without exception and very broad:

 "This insurance does not apply to:

f. (1) "Bodily injury" or "property damage" arising out of the actual, alleged or threatened discharge, dispersal, ...

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