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June 11, 1996


The opinion of the court was delivered by: MCAVOY


 Plaintiff Endicott Johnson Corporation commenced this declaratory judgment action against defendant in 1992. Plaintiff seeks insurance coverage from defendant Liberty Mutual Insurance Company for defense costs and indemnification with respect to actions commenced by the United States Environmental Protection Agency ("EPA") against plaintiff. EPA has named plaintiff a potentially responsible party ("PRP") in regard to the cleanup of a landfill known as the Endicott Landfill ("Landfill"), and with regard to the cleanup of a site known as the Tri-Cities Barrel Company ("Tri-Cities"). The Court previously granted summary judgment in part in favor of defendant to the extent that the pollution exclusions in the 1971-81 Comprehensive General Liability ("CGL") policies free defendant from liability to plaintiff on those policies Summary judgment was also granted in part in favor of plaintiff to the extent that defendant is liable to defend and indemnify plaintiff up to the available limits of the pre-1971 policies.

 Plaintiff now moves (1) to dismiss defendant's third and twenty-first affirmative defenses and for a declaration that there are no policy provisions that reduce the annual policy limits available to plaintiff, and (2) for an order declaring remedial investigation/feasibility studies ("RI/FS") costs to be defense costs. The Court consequently faces two questions that concern matters of first impression in the Second Circuit: (1) what are the 'available limits' of the pre-1971 policies? and (2) Are expenses associated with the RI/FS studies undertaken at the two dumps 'defense' costs or 'indemnification' costs? The Court heard oral arguments on June 10, 1996; the following constitutes the Court's findings of fact and conclusions of law with respect to the issues raised.


 Beginning in 1944 and continuing until 1981, plaintiff purchased CGL insurance policies from defendant. Each of these policies was for a one-year term and was designed to protect plaintiff from, inter alia, expenses arising from claims for property damage made by third parties. Until 1979, each year's primary policy carried annual property damage limits of $ 100,000 per occurrence; in 1980 and 1981, they carried limits of $ 250,000 per occurrence. Moreover, between 1976 and 1981 Excess/Umbrella policies carried property damage limits of $ 3 million per occurrence. Finally, under the 1955 through 1966 policies, defendant is required to pay defense costs even to the extent they exceed policy limits.

 In two letters dated February, 1988, EPA claimed that plaintiff, along with International Business Machines ("IBM"), the Village of Endicott, and the Town of Union, was responsible for contaminating the Village's municipal water supply in the Endicott Wellfield. These "PRP letters" asserted that hazardous substances had been and would continue to be released into the Wellfield from the nearby Endicott Landfill. They also asserted that Plaintiff shared the blame because it had arranged for the disposal of hazardous substances at the Landfill between 1957 and 1983.

 Plaintiff had, in fact, used the Landfill continuously between 1957 and some point in the 1970s, when the site was closed. Plaintiff sent for disposal and burial a variety of substances, including leather, adhesives, solvents, and other chemicals, some of which were later defined as "hazardous substances" under CERCLA. This dumping apparently was done in accordance with industry standards, and before hazardous materials were regulated to any serious extent. EPA eventually demanded that plaintiff and the other PRPs undertake certain remedial measures at the Landfill site First, they were instructed to install an "air diffuser" to reduce the contamination. Second, they were to conduct an RI/FS focused on the Landfill as the suspected source of contamination at the Wellfield. Plaintiff notified defendant of these demands in a timely fashion. Finally, the PRPs were directed to cap the Landfill with a leachate collection system at significant cost. Faced with what it saw as a strict liability law and "undeniably bad facts," plaintiff decided to settle the claims made by EPA.

 Soon after the Landfill incident came to a head, EPA asserted another CERCLA claim against plaintiff. Tri-Cities Barrels Company had run a barrel recycling business in Port Crane, New York, since 1955. Various commercial and industrial users, including plaintiff, would send their used barrels to Tri-Cities, where they would be cleaned and reconditioned for reuse. This process resulted in wastewater containing hazardous substances that had been left inside the barrels. Unfortunately, Tri-Cities left the waste in unlined ponds and it contaminated soil and groundwater.

 At issue on the present motions are the 17 CGL policies that defendant issued to plaintiff between December 1, 1954, and December 1, 1970. In its previous decision, the Court held that property damage at the Endicott Landfill triggered the 1956-70 insurance policies and property damage at the Tri-Cities Barrel site triggered the 1954-70 policies. Again, each of these policies provides for an annual per occurrence limit of liability of $ 100,000. The aggregate limit of each of the policies also is $ 100,000. Thus plaintiff essentially seeks $ 1.7 million, or $ 100,000 from each of the seventeen policies between 1954-70. Defendant argues that these amounts are not fully available to plaintiff because of various limitations in the policies. This theory is vaguely asserted in defendant's Third and Twenty-First Affirmative defenses in the Answer, so plaintiff seeks to have those defenses dismissed and/or a declaration that there are no policy provisions that reduce the annual policy limits available to plaintiff.

 Defendant admits that $ 100,000 is available on each of the 10 policies prior to 1964. However, defendant points to the following provisions to limit plaintiff's recovery on the 1964-70 policies:

(1) "Deemer" clause (1964-65 policies): this clause provides that
with respect to injury or destruction of property . . . caused by exposure to injurious conditions over a period of time involving two or more liability policies . . . all such injury, destruction . . . caused by the same injurious conditions shall be deemed to occur only on the last day of the last exposure and the applicable limit of liability contained in the policy in effect on the last day of such exposure shall be the applicable limit of liability.

 (10/6/94 Stipulation Ex. 10 at 5 (emphasis added).) Defendant claims that plaintiff used the Endicott Landfill until at least 1972 and the Tri-Cities Barrel site until at least 1983. Thus defendant argues that the "last day of exposure" occurred on a date when plaintiff had no coverage with defendant either because no policy was in place or a pollution exclusion prevented recovery.

(2) "One-Year Reporting" requirement (1964-65 policies): this clause provides that
if the insured at the time a claim is made against it is no longer covered by a liability policy issued by the company, this policy shall not apply . . . to injury to or destruction of property . . . that is caused by exposure to conditions over a period of days, weeks, months, or longer and that is not ...

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