have played a part in the negotiation of some of the policies. The Duplan Defendants do not present any evidence confirming the use of a Virgin Islands broker or rebutting the evidence offered by the Insurers on the use of New York insurance brokers. Significantly, however, they have not invoked the provisions of Rule 56(f) to seek a continuance for the purposes of engaging in discovery in order to adequately oppose the motion.
In short, the Insurers have come forward with evidence showing that the negotiation, execution and delivery of the insurance policies took place in New York, that the policies were issued to a corporation whose principal place of business was New York, and that the policies cover risks nationwide. The Duplan Defendants have failed to refute any of these propositions by admissible evidence. The Duplan Defendants' conjecture concerning the possible use of a Virgin Islands broker by a company covered under the policies but not the named policyholder, is simply insufficient to demonstrate a triable issue of material fact concerning the situs of the negotiation and execution of the policies. Applying New York choice of law principles to the facts at bar, I conclude that New York furnishes the governing law in this insurance coverage dispute. I would not alter this conclusion even if the Duplan Defendants were able to show that a Virgin Islands broker was occasionally used. Under New York choice of law principles, that single fact would not be dispositive of the choice of law.
The Duplan Defendants contend, however, that having suffered the environmental consequences of the pollution, the Virgin Islands have the greatest interest in resolving this dispute and should therefore supply the governing law. This argument does not withstand scrutiny. While the location of the allegedly tortious or damaging conduct giving rise to liability may be a factor in the choice of law calculus, it is not dispositive, particularly where the insurance policies such as these cover risks in multiple states and territories. See Monarch Insurance v. Insurance Corp. of Ireland Ltd., 835 F.2d 32, 35-36 (2d Cir. 1987) (under New York choice of law rules New York law applied to dispute concerning breach of reinsurance contracts where two insurers did business in New York, one insurer's principal place of business was New York, and one insurance contract was executed in New York, despite fact that damage occurred in Ireland and tortious conduct occurred in New Jersey); Olin Corp., 743 F. Supp. at 1049 (where risks covered were located in several states, fact that dispute involved only coverage at site in Virginia did not control choice of law); U.S. Aviation Underwriters, Inc. v. United Coconut Chemical, Inc., 1992 U.S. Dist. LEXIS 7625, 87 Civ. 5684 (MJL), 1992 WL 122787 *2 (S.D.N.Y. May 22, 1992) (fact that location of the risks may have been outside New York did not require foreign law to be applied; where policies were issued and delivered in New York, broker was located in New York and insured's principal place of business was in New York, New York law applied); Maryland Casualty Co. v. W.R. Grace & Co., 1992 U.S. Dist. LEXIS 8378, 88 Civ. 4337 (JSM), 1992 WL 142038, *2 (S.D.N.Y. June 9, 1992) (noting that it would be unusual and inconsistent to have the law of many different states apply to a single insurance contract based upon the situs of the underlying injury giving rise to liability) (citing cases); cf. Borg-Warner Corp. v. INA, 174 A.D.2d 24, 577 N.Y.S.2d 953, 956 (3d Dep't 1992) (New York law governed insurance coverage dispute where contracts covered number of sites, New York has a unique policy-based interest in pollution exclusion clause at issue, insured chose New York as forum for action, and Illinois law was unsettled).
Keeping in mind that interpretation and application of the insurance contracts is the centerpiece of this dispute, it is apparent that the situs of the Duplan Defendants' allegedly tortious actions and their environmental consequences is only indirectly relevant to this action. The insurance contracts at the heart of the summary judgment motions were negotiated, executed and delivered in New York to a New York company and cover risks in more than one state or territory. It follows that New York has the greatest interest in this dispute's resolution, notwithstanding that the pollution occurred in the Virgin Islands.
Even if I were to accept the Duplan Defendants' contention that New York does not have the most significant contacts with the dispute, I would nonetheless hold that New York law governs this action because there is no conflict between New York law and the law of the Virgin Islands concerning the operation of the pollution exclusion clause on which the present dispute focuses. The choice between the law of New York and that of another state is a consideration only where a conflict exists between New York and foreign law. See Zurich Insurance v. Shearson Lehman Hutton, 84 N.Y.2d 309, 315, 618 N.Y.S.2d 609, 611, 642 N.E.2d 1065 (1994) (where no conflict exists between the law of New York and that of another state concerning particular issue, no choice of law problem arises); Olin Corp. v. Insurance Co. of North America, 762 F. Supp. 548, 558 (S.D.N.Y. 1991) (choice of law question did not arise because laws of New York and Connecticut were not in conflict on dispositive issue of interpretation of pollution exclusion clause), aff'd 966 F.2d 718 (2d Cir. 1992); In re Wedtech Corp. v. Nofziger, 88 Bankr. 619, 623 n. 5 (Bankr. S.D.N.Y. 1988) (noting that because no conflict existed between the law of Washington, D.C. and the law of New York on a dispositive issue, choice of law problem did not arise).
This Court has discovered only one reported case applying Virgin Islands law interpreting a pollution exclusion clause containing a "sudden and accidental" exception which, as we shall see, is of primary concern in this case. As discussed below, that case is not in conflict with New York law on the subject. Since no conflict exists, New York law would govern in any event.
The Duplan Defendants submit that C.H. Heist Caribe Corp. v. American Home Assurance Co., 640 F.2d 479, 483 (3d Cir. 1981) conflicts with New York law because it affords a broad interpretation to the "sudden and accidental exception" in a pollution exclusion clause, assertedly in contrast to New York law. This contention is not borne out by an analysis of the case. In Heist, the court held an insurer obligated to defend a claim arising from personal injuries suffered by an individual while cleaning a tank containing toxic substances. The insurer argued that it had no duty to defend the insured because the claim fell within the policy's pollution exclusion. The Third Circuit disagreed. It held that the allegations in the complaint did not trigger operation of the pollution exclusion because the complaint did not allege that any pollutants had been discharged or released onto land, atmosphere or a body of water, as the pollution exclusion required. Moreover, the court held that because the allegations did not describe the occurrence of a non-accidental event, the complaint did not negate the possibility that the claim fell within the "sudden and accidental" exception to the pollution exclusion.
There can be no serious dispute that faced with those same allegations, New York courts would reach a similar result. As set forth infra, under New York law if the third-party complaint's allegations give rise to the possibility of a sudden and accidental discharge of pollution, the insurer is bound to defend. Heist is in accord with that principle. The broadly-worded complaint alleged no non-"sudden and accidental" event, thereby failing to negate the possibility of a covered occurrence.
To the extent the Duplan Defendants maintain that Heist narrowly interprets the pollution exclusion by limiting its application to only non-accidental events, that contention is unfounded. The Heist court's recognition that the allegations demonstrated the possibility of non-accidental discharge, and its concomitant failure to discuss whether the allegations raised the possibility of non-sudden discharge, is of no consequence. The court of appeals expressly declined to "decide whether the district court was correct when it held that [the pollution exclusion] excluded coverage only for nonaccidental [sic] environmental pollution." Id. at 483 n.2.
Moreover, even if I were to hold that under choice of law principles the law of the Virgin Islands applies to this case, because the law of the Virgin Islands is unsettled with respect to the interpretation of the "sudden and accidental" exception, I would be compelled to apply the law of New York and other leading jurisdictions in interpreting that exception. See Rogers v. Grimaldi, 875 F.2d 994, 1003 (2d Cir. 1989); Lenz v. Associated Inns & Restaurants Co. of Am., 833 F. Supp. 362, 378 n. 16 (S.D.N.Y. 1993). As previously noted, the Court has discovered, and the Duplan Defendants have identified, only one case applying Virgin Islands law to a pollution exclusion clause similar to the one involved in the present action. Because there is no developed body of law on the subject, the law of the Virgin Islands is well short of settled. Accordingly, this Court would apply New York law interpreting the sudden and accidental exception which is in accord with the national trend, see Technicon Electronics v. American Home Assurance, 141 A.D.2d 124, 533 N.Y.S.2d 91, 99 (2d Dep't 1988), aff'd, 74 N.Y.2d 66, 544 N.Y.S.2d 531, 542 N.E.2d 1048 (1989); Olin Corp., 762 F. Supp. at 558, even if New York did not have the most significant contacts with the dispute.
For all these reasons, New York supplies the governing law in this case.
2. Duty to Defend
Under New York law, an insurer's contractual duty to defend is broader than its duty to indemnify. See Curtis v. Nutmeg Ins. Co., 204 A.D.2d 833, 612 N.Y.S.2d 256, 258 (3d Dep't 1994). An insurer's duty to defend arises when a complaint against the insured alleges facts, no matter how false or groundless, which give rise to any potential liability covered by the terms of the policy provided by the insurer. See Technicon Electronics v. American Home Assurance, 74 N.Y.2d 66, 73, 544 N.Y.S.2d 531, 533, 542 N.E.2d 1048 (1989). "If there is a doubt as to whether the claim comes within the insurer's duty to indemnify, the insurer is generally required to furnish a defense, leaving the issue of indemnification to be settled after establishment of the insured's liability." Village of Sylvan Beach v. Travelers Indemnity Co., 55 F.3d 114, 115 (2d Cir. 1995).
When the insurer seeks to invoke an exclusion provision in order to be released from the duty to defend, it is incumbent upon the insurer to demonstrate that the "allegations of the complaint place that pleading solely and entirely within the policy exclusions, and, further, that the allegations, in toto, are subject to no other interpretation." 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 (1974) (quoted in Technicon, 74 N.Y.2d at 73, 544 N.Y.S. at 533). If the exclusion contains an exception for which coverage would obtain, the insurer also shoulders the burden of demonstrating that the exception does not apply. State of N.Y. v. Blank, 27 F.3d 783, 789 (2d Cir. 1994).
Insurance coverage of the claims against the Duplan Defendants hinges upon the applicability of the pollution exclusion clause contained in each of the policies furnished by the Moving Insurers which strictly limits covered pollution risks. Each subject policy contains a standard pollution exclusion clause which reads substantially as follows:
"This 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, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any water course or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental. "
(emphasis added.) The parties' dispute on these motions centers upon the application of the last phrase of that clause which provides an exception to the coverage exclusion when the discharge is sudden and accidental (the "sudden and accidental exception").
From 1971 to 1982, New York law mandated inclusion of these standard pollution exclusion clauses in general liability insurance policies in order to prevent companies from purchasing protection for liability arising from their acts of pollution. See former N.Y. Insurance Law § 46; Technicon Electronics, 533 N.Y.S.2d at 102 (citing 1971 NY Legis. Ann., at 353-354). Under these "unambiguously plain and operative" clauses, an occurrence will not fall within the exception, and coverage will not be triggered, unless the discharge was both sudden and accidental. Technicon, 74 N.Y.2d at 75, 544 N.Y.S.2d at 533; Powers Chemco, Inc. v. Federal Ins. Co., 74 N.Y.2d 910, 911, 549 N.Y.S.2d 650, 651, 548 N.E.2d 1301 (1989). It follows that the failure to fulfill one of these two components defeats application of the exception.
To satisfy the "accidental" element of the inquiry, it is settled under New York law that the discharge must be unexpected and unintended. See Powers Chemco, 74 N.Y.2d at 911, 549 N.Y.S.2d at 651 (discharge resulting from purposeful conduct cannot be accidental); Technicon, 74 N.Y.2d at 75, 544 N.Y.S.2d at 534 (occurrence is not accidental when the discharge was deliberate and intentional); County of Fulton v. U.S. Fidelity and Guaranty Co., 195 A.D.2d 864, 600 N.Y.S.2d 972, 973 (3d Dep't 1993). As for the second prong, while the Court of Appeals has not defined the meaning of "sudden," most courts applying New York law have construed that term as having a temporal focus. Those courts have determined that a discharge cannot be regarded as sudden unless it is instantaneous or short-lasting. See EDO Corp. v. Newark Ins. Co., 878 F. Supp. 366, 373 (D.Conn. 1995) (collecting cases); County of Fulton, 600 N.Y.S.2d at 973; Borg-Warner Corp. v. INA, 577 N.Y.S.2d at 957; Technicon, 533 N.Y.S.2d at 99; see also State of New York v. Amro Realty Corp., 936 F.2d 1420, 1428 (2d Cir. 1991); Ogden Corp. v. Travelers Indem. Co., 924 F.2d 39, 42 (2d Cir. 1991); cf. Redding-Hunter Inc. v. Aetna Casualty and Surety Co., 206 A.D.2d 805, 615 N.Y.S.2d 133, 135 (3d Dep't 1994) (pollution which resulted from discharge occurring over long period of time rather than abruptly or quickly did not fall within the ambit of the exception); but see Allstate Ins. Co. v. Klock Oil Co., 73 A.D.2d 486, 426 N.Y.S.2d 603, 605 (4th Dep't 1980) ("sudden" need not be limited to an instantaneous happening).
The Duplan Defendants argue that sudden should not be temporally defined. Their argument has some surface appeal. Since sudden can mean either unexpected or abrupt, read in isolation it could feasibly lack a temporal element. But, sudden does not appear alone in the exception. Rather, it is used in the conjunctive with the adjective accidental, which means unexpected or unintentional. Given the inclusion of the word accidental in the phrase, if the word sudden is not accorded a temporal connotation it would converge with the term accidental to mean unexpected. In that case sudden would be rendered superfluous, an effect which the New York Court of Appeals clearly does not intend. Nor would that result comport with the general principle of contract construction which requires a court to ensure that every word in a contract is given meaning. In this regard, I am persuaded by those decisions holding that "sudden" has a temporal element. The reasoning of the Borg-Warner court is instructive:
"By acknowledging that 'sudden' and 'accidental' are independent requirements, the [Court of Appeals in Technicon and Powers Chemco] necessarily rejected the argument urged by plaintiff here that 'sudden' simply means 'unexpected' and is therefore synonymous with 'accidental.' 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.'"
577 N.Y.S.2d at 957 (quoting Technicon, 533 N.Y.S.2d 91); see EDO Corp. v. Newark Ins. Co., 878 F. Supp. at 372-374 (upon thorough analysis of construction of term "sudden" in "sudden and accidental" exception under New York and Connecticut law, court concluded that it has temporal element).
It should be noted that the focus of the "sudden and accidental" inquiry is upon the act of "discharge, dispersal, release or escape," not upon the pollution itself. Pollution may be entirely unintended, but if it results from intentional and systematic discharge the liability arising from the pollution will not fall within the ambit of the exception. It is therefore irrelevant under this analysis whether the resulting pollution was unexpected or unintended. See Technicon, 74 N.Y.2d at 75, 544 N.Y.S.2d at 533-34.
Applying these precepts, a number of courts have recognized that the discharge of hazardous substances which occurs as part of the insured's systematic practice of business does not fall within the exception. See EDO Corp., 878 F. Supp. at 376 (release of pollutants occurring as a matter of course in the daily operation of a plant do not fall under exception); Redding-Hunter, 615 N.Y.S.2d at 135 ("Courts have repeatedly concluded that waste discharges which are a concomitant of normal business activities are not 'sudden' within the meaning of the exclusion."); County of Fulton, 600 N.Y.S.2d at 974 (where insured regularly disposed of waste in landfill for years, discharge did not fall within exception); Powers Chemco, 549 N.Y.S.2d at 651 (purposeful business activity including burying drums containing wastes and discharging wastes through a pipe into pits was not accidental). This is because discharges which occur over a long period of time and result from intentional, purposeful activity are neither sudden nor accidental within the meanings ascribed by New York courts.
The P.I.D./Harthman and Four Winds complaints allege that from 1971 to 1979 Laga disposed of PCE through a pipe into an open pit located on the grounds of the Laga site. See Four Winds First Am. Compl. at P 46; P.I.D./Harthman Fourth Am. Compl. at P 55. These allegations fail both prongs of the sudden and accidental inquiry. The disposal is alleged to have occurred throughout the existence of the manufacturing process as part of the plant's standard operation. Such disposal is neither abrupt nor unintentional. Indeed, the Second Circuit applying New York law recently held that this precise method of disposal falls outside the sudden and accidental exception.
In State of New York v. Amro Realty Corp., supra, the complaint against the insured alleged that it had disposed of hazardous substances through a pipe into a drainage ditch. The Second Circuit held that these allegations led to only one conclusion: "namely that the conduct alleged is that [the insured] intentionally and deliberately disposed of its wastes, among other places, into 'drains which discharged . . . into a drainage ditch.'" 936 F.2d at 1428. The insurer was therefore not obligated to defend its insured as the allegations did not give rise to a claim falling within the policy's sudden and accidental exception. The court rejected the insured's argument that its lack of knowledge as to the ultimate repository of the waste made the discharge accidental. In language equally applicable to the present case, the court remarked:
"The release of hazardous waste upon land or into a watercourse caused by the long-term industrial intentional disposal into a drain that leads to a ditch cannot be considered accidental merely because the disposer did not have an affirmative knowledge of where the drain led. In such a case the insured may lack specific intent, but the release into the environment cannot be considered 'accidental.'"