be safely left in the sump. G & M indicated that this option was untenable because "it may be impossible to demonstrate the non-hazardous nature of the sediments." Id.
The second option, which is the most expensive one, and the one G & M felt NYSDEC favored, was to remove the bottom sediments and transport them off-site. Id. The third option was to acknowledge that the bottom sediments were hazardous, but to show that the hazardous constituents have not and will not migrate from the site. According to G & M, if Fairchild could show that the hazardous materials have not migrated "it is not unreasonable to 'close' the facility as a hazardous materials disposal site with the 'waste' in place, recognizing the need for long-term ground water monitoring and a provision to implement a remedial program if migration is detected in the future." Id. On July 10, 1987, G & M sent a follow-up letter to Fairchild indicating, among other things, that the sump closure could generate a credit for Fairchild of 1.8 million dollars to a cost of 45 million dollars depending on the option chosen.
Pl. Exh. 63.
Finally, on June 2, 1988, a meeting was held at NYSDEC headquarters to discuss NYSDEC's response to Fairchild's Phase II reports.
A Fairchild internal memorandum dated June 7, 1988, memorialized the meeting. Pl. Exh. 3. At that meeting, NYSDEC indicated that the Old Recharge Basin "will most likely be reclassified from Class 2A
to Class 2 as a result of the findings of the Phase II Investigation." Id. (footnote added). As noted earlier, in August 1989, NYSDEC officially classified the sump as a Class 2 site requiring remediation.
A. Standard For Directing A Verdict
Under Rule 50(a) of the Federal Rules of Civil Procedure, a court may enter a judgment as a matter of law if "a party has been fully heard with respect to an issue and there is no legally sufficient evidentiary basis for a reasonable jury to have found for that party with respect to that issue . . . ." Because this case presents no issue of material fact requiring resolution by a jury, this Court entered a judgment as a matter of law in favor of Fireman's Fund.
B. Fireman's Fund Has No Duty To Defend Or Indemnify Fairchild For Remediation Of The Old Recharge Basin Because Fairchild Failed To Give Timely Notice
It is undisputed that Fairchild gave notice to Fireman's Fund on September 29, 1989. It is also undisputed that the policies at issue contain a notice of occurrence provision. Fireman's Fund argues that as early as 1981, Fairchild was put on notice that it would be required to remediate the Old Recharge Basin. Accordingly, it is Fireman's Fund's position that it was entitled to notice shortly thereafter. Fairchild argues, however, that it was NYSDEC's 1989 reclassification of the site to a Class 2 site that triggered its obligation to notify its insurance carriers. "'Under New York law, compliance with a notice of occurrence provision in an insurance policy is a condition precedent to an insurer's liability under the policy.'" Olin Corp. v. Insurance Co. of North America, 743 F. Supp. 1044, 1052 (S.D.N.Y. 1990) (quoting Commercial Union Ins. Co. v. International Flavors & Fragrances, Inc., 822 F.2d 267, 271 (2d Cir. 1987). This is so even if the insurance company is not prejudiced by the delay. Utica Mutual Ins. v. Fireman's Fund Ins. Cos., 748 F.2d 118, 121 (2d Cir. 1984).
In order to determine whether a late notice defense is meritorious, a court must determine when the obligation to give notice accrued. In New York, notice must be given when "'the circumstances known to the insured at that time would have suggested to a reasonable person the possibility of a claim.'" Olin, 743 F. Supp. at 1053 (quoting Commercial Union, 822 F.2d at 272). The New York test is an objective one, asking what an insured "'reasonably could or should have concluded.'" Olin, 743 F. Supp. at 1053 (quoting Utica Mutual, 748 F.2d at 122).
Once the court determines when the obligation to give notice accrued, it must then decide whether the insured did provide timely notice. The insurance policies at issue in this case require that Fairchild give notice "as soon as practicable." New York courts interpret this provision as requiring notice "within a reasonable time under all the circumstances." Olin, 743 F. Supp. at 1053. Moreover, "while the reasonableness of delay may be an issue for trial, in the absence of an excuse or mitigating factors, courts have addressed that question as a legal matter." Id. Indeed, "even short periods of delay have been found unreasonable as a matter if law." Id; see also Commercial Union, 822 F.2d at 272 (18 months); Utica Mutual, 748 F.2d at 121 (six months); Government Employees Ins. Co. v. Elman, 40 A.D.2d 994, 338 N.Y.S.2d 666 (2nd Dep't 1972) (29 days); Peerless Ins. Co. v. Nationwide Ins. Co., 12 A.D.2d 602, 208 N.Y.S.2d 469, 470 (1st Dep't 1960) (four to five months); Deso v. London & Lancashire Indem. Co., 3 N.Y.2d 127, 164 N.Y.S.2d 689, 692, 143 N.E.2d 889 (Ct. App. 1957) (51 days).
A review of the correspondence between the various government agencies and Fairchild supports a finding that Fireman's Fund was entitled to notification before September 1989. Beginning in 1981, SCDHS informed Fairchild that it would have to remediate the sump, including dredging and scraping the entire sump.
Although it is true that Suffolk County ultimately did not require this response from Fairchild, at the time Fairchild received this correspondence it had no way of knowing that the County would not follow through on its request.
Moreover, in 1985, Fairchild was once again alerted to the possibility that it would have to remediate the sump. On that date, NYSDEC informed Fairchild that the chrome-laden sediment was a hazardous substance and would have to be dealt with. Despite an internal Fairchild memorandum indicating that it would cost the company anywhere between 11 to 15 million dollars to dredge the basin, Fairchild did not notify Fireman's Fund.
Additionally, on May 4, 1987, Fairchild's own engineers reported that they believed the state would insist that Fairchild dredge the sump. Indeed, even the option promoted by Fairchild's own engineers would have required Fairchild to expend considerable sums of money to ensure that the basin remain safe. Moreover, that plan recognized that there would be a continuing risk that further remedial action may be required at the sump. Again, despite this report, Fairchild failed to notify its insurance carriers of the problem. Finally, on June 2, 1988, a meeting was held wherein Fairchild learned that the Old Recharge Basin would "most likely" be reclassified to a Class 2 site. As noted earlier, a Class 2 classification means that remediation is definitely required. Even after this meeting, no notification was sent to Fireman's Fund.
As stated above, under New York law, the obligation to give notice accrues when "'the circumstances known to the insured at that time would have suggested to a reasonable person the possibility of a claim.'" Olin, 743 F. Supp. at 1052 (quoting Commercial Union, 822 F.2d at 272). Fireman's Fund urges this Court to hold that as early as 1981, Fairchild was presented with information that should have apprised it of the possibility that some government agency would bring a claim against it with respect to the Old Recharge Basin. This is so, according to Fireman's Fund, even though the agency that initially alerted Fairchild of the need for remediation never followed through with its demand.
Fairchild, the argument goes, was or should have been aware that local, state and federal agencies exercised overlapping jurisdiction over the sump. The mere fact that it was NYSDEC, and not SCDHS, that finally required the action for which Fairchild is seeking indemnification does not, according to Fireman's Fund, erase the early warning Fairchild received from the SCDHS. Because SCDHS's concern with the sump was unrelated to NYSDEC's concern, this Court does not find that the SCDHS correspondence triggered Fairchild's obligation to give notice.
However, the SCDHS correspondence indicating that dredging would be required does not stand alone. Rather, this correspondence is bolstered by the 1985 NYSDEC letter indicating that some remediation was necessary, the internal memorandum suggesting that the requested remediation could run into the millions of dollars,
the engineering report indicating that the state would choose the most expensive remediation option, and the 1988 meeting suggesting that the state was most likely going to classify the Old Recharge Basin as a Class 2 site.
Standing against all these early indications that remediation was necessary, Fairchild's argument that its obligation to notify Fireman's Fund did not accrue until it got the official word that the sump was reclassified to a Class 2 site does not withstand scrutiny. This Court finds that a reasonable person should have known that there was a possibility of a claim as early as 1985, long before the state issued its final reclassification.
Notice, however, was not given to Fireman's Fund until 1989. Because there are no mitigating circumstances explaining this four year gap, this Court finds that as a matter of law Fairchild violated the notice of occurrence provision thereby relieving Fireman's Fund of its duty to defend and indemnify Fairchild.
C. Fireman's Fund Has No Duty To Defend Or Indemnify Fairchild For Remediation Of The Old Recharge Basin Because The Discharge Of Chrome Into The Basin Was Not Accidental
Even had Fairchild provided timely notice to Fireman's Fund, it still would not be entitled to indemnification because the release of chrome into the sump was not accidental within the meaning of the policy. The policies at issue contain a pollution exclusion. This exclusion, in turn, contains an exception that allows for coverage only if releases are "sudden and accidental".
It is undisputed that Fairchild intentionally released chrome into the sump. Indeed, they had government issued permits for just that purpose. Fairchild argues that although it intentionally released the chrome into the sump, it did not intend to pollute and thus any of the inadvertent consequences caused by discharge of chrome must be viewed as accidental. In Technicon Electronics v. American Home Assurance Co., 74 N.Y.2d 66, 544 N.Y.S.2d 531, 534, 542 N.E.2d 1048 (Ct. App. 1989), an insured made the same argument. The policies in Technicon contained the same pollution exclusion clause as that at issue here. The New York Court of Appeals found that argument to be without merit
because the pollution exclusion clause, by its own terms, does not distinguish between intended or unintended consequences of intentional discharges; rather, it excludes from coverage liability based on all intentional discharges of waste whether consequential damages were intended or unintended. If the discharge was intentional, the disqualifying exclusion clause is operative and there is no coverage because the exception clause lacks it springboard. Inasmuch as the underlying complaint and Technicon's answer concedes that its dumping of wastes was deliberate, the occurrence cannot be "accidental" within the meaning of the policy.
Id. (emphasis in original).
Accordingly, to the extent the policies contain a pollution exclusion clause, this Court finds as a matter of law that Fireman's Fund has no duty to defend or indemnify Fairchild.
D. Fireman's Fund Has No Duty To Defend Or Indemnify Fairchild For The Perc Plume Because The Discharge Of Perc Was Not Sudden
Both parties agree that beginning in 1975 and continuing until the system was taken offline in 1988, Perc began escaping at a rate of about a gallon a day from its underground holding system. Moreover, although the parties do not agree as to the exact source of the leak, with Fireman's Fund theorizing that the underground storage tank leaked as a result of corrosion and Fairchild arguing that certain underground pipe fittings leaked as a result of thermal fluctuations, it is clear that whichever scenario is accepted, a gradual process caused a slow undetected leak that lasted many years.
The question before this Court is whether such a leak can be understood to be "sudden" within the meaning of the exception to the pollution exclusion clause found in the relevant policies. In Technicon, 544 N.Y.S.2d at 532, the New York Court of Appeals held that the pollution exclusion clause was "unambiguously plain and operative." Moreover, the Technicon court further held that "since the exception is expressed in the conjunctive, both requirements must be met for the exception to become operative." Id. at 533. In other words, the Court of Appeals has instructed that both words need to be invested with meaning.
The Court of Appeals defined "accidental" to mean an unintended discharge. Id. at 534. Unfortunately, the Technicon court did not define the word "sudden".
Fairchild argues that the plain meaning of the word "sudden" means unexpected and that the Perc leak was in fact unexpected.
Fireman's Fund, however, argues that Fairchild's definition ignores the temporal aspect of the term. According to the insurance company, a release cannot be "sudden" if it lasts a long time.
Fairchild relies on a line of New York appellate division cases to support its contention that undetected underground leaks fall within the exception. In Allstate Ins. Co. v. Klock Oil Co., 73 A.D.2d 486, 426 N.Y.S.2d 603, 605 (4th Dep't 1980), the court held that "the negligent installation or maintenance of the storage tank could result in an accidental discharge or escape of gasoline which would be both 'sudden and accidental' though undetected for a substantial period of time." The court further held that "the word 'sudden' as used in liability insurance need not be limited to an instantaneous happening." Id.
Additionally, in Colonie Motors, Inc. v. Hartford Accident and Indem. Co., 145 A.D.2d 180, 538 N.Y.S.2d 630, 632 (3d Dep't 1989), an underground pipe cracked and leaked, causing damage. In that case, the insured argued that because the crack was unexpected, it should be viewed as "sudden", despite the fact that the leak went undetected and continued for a period of time.
The court stated that although it believed that the word sudden "should be accorded some meaning other than that already encompassed by the word 'accidental', we are of the view that the phrase 'sudden and accidental' should be construed in its entirety, without undue reliance upon discrete definitions of the two operative words that make up the phrase." Id. The court went on to hold that as long as the Initial discharge of waste was sudden and accidental it is irrelevant that the undetected leak continued for a period of time. Id. In State of New York v. Aetna Casualty and Surety Co., 155 A.D.2d 740, 547 N.Y.S.2d 452, 453 (3d Dep't 1989), the third department reaffirmed its position with respect to underground undetected leaks.
Finally, in Petr-All Petroleum Corp. v. Fireman's Ins. Co., 188 A.D.2d 139, 593 N.Y.S.2d 693, 695 (4th Dep't 1993), an underground gasoline storage tank leaked causing damage to adjacent property. The adjacent property owner brought suit against the gas station alleging that the damage was caused by the gas station's negligence. The gas station in turn sought a declaration that its insurers were obligated to defend and indemnify it.
The Petr-All court found that the landowner's complaint did not allege "that the leak resulted from a repeated or continuous business operation." Id. Moreover, the court stated that the complaint "can be interpreted to allege an accidental and unexpected leak from a subsurface pipe or tank that continued undetected for a period of time, an event both sudden and accidental within the meaning of the  policy." Id. It should be noted that although the landowner's complaint makes no mention of it, facts extrinsic to the complaint suggested that the leak may have been caused when a customer drove away from the gasoline dispenser without removing the nozzle from her gas tank.
The cases relied on by Fairchild do suggest that at least some New York courts have interpreted the word "sudden" to mean unexpected and have thus found that underground leaks that continue undetected can be sudden and accidental within the meaning of the exception. Not all New York courts, however, define "sudden" to mean unexpected. In Technicon Electronics v. American Home Assurance Co., 141 A.D.2d 124, 533 N.Y.S.2d 91 (2d Dep't 1988), aff'd 74 N.Y.2d 66, 544 N.Y.S.2d 531, 542 N.E.2d 1048 (Ct. App. 1989), the court cited with approval federal and sister state cases that attached a temporal meaning to the word "sudden". Thus, the appellate division in Technicon accepted the following definitions of the word "sudden": 1) an abrupt or precipitous event; 2) an event that occurs abruptly, without warning; and 3) an antonym to an event which happens gradually or over an extended time. Technicon, 533 N.Y.S.2d at 98 (citing cases).
Moreover, in Borg-Warner Corp. v. Insurance Co. of North America, 174 A.D.2d 24, 577 N.Y.S.2d 953 (3d Dep't 1992), the third department clarified its position with respect to the meaning of the exception. Relying on the Court of Appeals opinion in Technicon, the Borg-Warner court rejected the plaintiffs argument "that 'suddenly' simply means 'unexpected'."
Borg-Warner, 577 N.Y.S.2d at 957. The court stated that "only by allowing 'sudden' to retain its temporal aspect does the term attain independent significance. Thus, for a release or discharge to be 'sudden' within the meaning of the pollution exclusion, it must occur abruptly or quickly or 'over a short period of time.'" Id. (citations omitted).
The Borg-Warner court further stated that
both Colonie Motors and Aetna Cas. involved leakages from underground storage tanks or pipes. Far from disregarding the "sudden" prong of the exception, in each case this court held that it could not exclude the possibility that the crack that precipitated the leak had been abrupt, but had remained undetected for a lengthy period of time.