United States District Court, W.D. New York
February 19, 2004.
MAHL BROTHERS OIL CO., INC. Plaintiff,
ST. PAUL FIRE & MARINE INS. CO., Defendant
The opinion of the court was delivered by: RICHARD ARCARA, District Judge
DECISION AND ORDER
On March 9, 1998, the State of New York Department of Environmental
Conservation ("DEC") commenced a lawsuit in New York State Supreme Court
against Mahl Brothers Oil Company ("Mahl Bros."), seeking reimbursement
for costs the DEC incurred to clean up contamination on Mahl Bros.'
property in Springville, New York. Since defendant St. Paul Fire & Marine
Insurance Company ("St. Paul"), issued a general liability policy and an
umbrella insurance policy covering the property from 1981 to 1983, Mahl.
Bros, filed a third party complaint in the state court action naming St.
Paul as a third party defendant and seeking defense and indemnification
under the policies. Subsequently, St. Paul moved to sever the claims
against it from the claims DEC asserts against Mahl Bros. After the
motion to sever was granted in state court, St. Paul removed the action
between it and Mahl Bros, to this Court pursuant to 28 U.S.C. § 1441.
On July 11, 2002, this matter was referred to the Honorable Leslie G.
Foschio, United States Magistrate Judge pursuant to 28 U.S.C. § 636(b)(1).
On July 18, 2002, St. Paul filed a motion for summary judgment pursuant
to Fed.R.Civ.P. 56. On August 2, 2002, Mahl Bros. filed a motion to
remand this action to state court, and a motion pursuant to Fed.R.Civ.P.
56(f) seeking discovery necessary to defendant against St. Paul's summary
judgment motion. On September 2, 2003, Magistrate Judge Foschio filed a
joint Decision and Order and Report and Recommendation addressing all of
Magistrate Judge Foschio concluded that the motion to remand should be
denied because this Court properly had subject matter jurisdiction over
the matter. He next concluded that Mahl Bros.' Rule 56(f) motion for
discovery should be denied because there was no indication that further
discovery would lead to additional facts relevant to the defense of the
motion. Finally, he concluded that St. Paul's motion for summary judgment
should be granted because Mahl Bros, failed to timely notify St. Paul of
the potential claim against the insurance policies.*fn1
The parties filed objections to the Report and Recommendation on
September 18, 2003. Mahl Bros. also objected to Magistrate Judge
Foschio's Decision and Order with respect to the motion to remand.
were filed by both parties on October 10, 2003. The Court heard oral
argument on the objections on October 28, 2003.
For the reasons that follow, the Court adopts the primary conclusion in
the Report and Recommendation, and grants St. Paul's motion for summary
judgment.*fn2 The Court also finds without merit Mahl Bros.' objection
to Magistrate Judge Foschio's Decision and Order denying Mahl Bros.'
motion to remand.
The Court reviews de novo portions of a Report and Recommendation to
which objections have been filed. 28 U.S.C. § 636(b)(1)(B) and (C). When
a Magistrate Judge issues a Decision and Order on a non-dispositive
matter, a party may still object to the conclusions in the Decision and
Order. However, the Magistrate Judge's Decision and Order will stand
unless it is clearly erroneous or contrary to law.
28 U.S.C. § 636(b)(1)(A).
Magistrate Judge Foschio concluded in his Report and
Recommendation that this action was properly removed by St. Paul
and that the Court has diversity jurisdiction over the subject matter in
this case. No party objects to that conclusion. Mahl Bros. argues,
however, that judicial economy would best be served by remand of this
action to state court.*fn3 Mahl Bros. states that if both cases are
tried in state court, it will be spared duplicative discovery costs.
Considering and rejecting this judicial economy argument in his Report
and Recommendation, Magistrate Judge Foschio noted that the issues
involved in Mahl Bros. action against St. Paul are completely different
from the issues involved in the DEC litigation, and that Mahl Bros. will
not necessarily incur duplicative discovery costs. In its objections to
Magistrate Judge Foschio's Decision and Order, Mahl Bros. has provided no
basis for this Court to conclude that Magistrate Judge Foschio's decision
is clearly erroneous or contrary to law. Therefore, the objection is
Summary Judgment Motion
Mahl Bros. objects to Magistrate Judge Foschio's conclusion that it
failed to timely notify St. Paul of a potential claim against the
insurance policies. Mahl Bros. argues that the issue of whether notice is
timely is one for the trier of fact and that Mahl. Bros. has raised a
genuine issue of material fact as to whether its proffered excuses for
delaying notification to St. Paul are reasonable under all of the facts
and circumstances of the case.
There are two insurance policies at issue in this case. The general
liability policy required Mahl Bros, to notify St. Paul of an occurrence
which may result in a claim against the policy "as soon as possible"
after the occurrence of the event. The umbrella policy required Mahl
Bros. to provide notice to St. Paul "as soon as practicable" after the
occurrence. The issue on this motion is whether Mahl Bros.3 provided
timely notice to St. Paul, and, if not, whether a genuine issue of
material fact exists as to the merit of any proffered excuse.
Under New York law, an insured has a duty to notify its insurer "upon
knowledge of facts sufficient to alert the insured to a reasonable
possibility of the existence of a potentially covered claim." TIG
Insurance Co. v. Town of Cheektowaga, 142 F. Supp.2d 343, 368 (W.D.N.Y.
2001). The insured's receipt of a potentially responsible party ("PRP")
letter has been held to trigger the duty to notify the insurer. Id. When
notice is delayed, the question of whether the delay is excusable is
generally one of fact for the jury, unless no excuse for the delay is
proffered or the excuse is meritless as a matter of law. Olin Corp. v.
Insurance Co. of North America, 966 F.2d 718, 724 (2d Cir. 1992).
It is undisputed that Mahl Bros. first received a PRP letter from the
DEC on February 8, 1994. Therefore, Mahl Bros. duty to notify St. Paul
was triggered on or about February 8, 1994. Although the matter is
disputed, for purposes of this motion, the Court presumes that St. Paul
received notice of the potential claim on June 3, 1996, the earliest date
on which Mahl Bros. contends it provided notice.*fn4 As noted by
Magistrate Judge Foschio, notice provided more than two years after
receipt of the PRP letter is not timely, and Mahl Bros. has not provided
any authority to the contrary. Therefore, the Court must consider whether
there is a genuine issue of material fact regarding the merit of Mahl
Bros.' proffered excuses for the delay.
Mahl Bros. contends that it reasonably believed that it was not liable
for the clean up costs because it was not a discharger as defined by New
York Navigation Law and because the DEC allowed Mahl Bros. to negotiate
with its tenant in order to effectuate a voluntary cleanup. Magistrate
Judge Foschio concluded that the proffered excuse is meritless as a
matter of law because New York Navigation Law imposes strict liability
for cleanup costs on landowners. In support of that proposition, the
Magistrate Judge cited the New York Court of Appeals case of State
v. Green, 729 N.Y.S.2d 420 (N.Y. 2001). Mahl Bros. now argues that
Magistrate Judge Foschio's conclusion was erroneous, and its belief
in nonliability was reasonable because landowners had not been held
strictly liable when Mahl Bros. delayed notice to St. Paul.
Mahl Bros. is correct that the New York Court of Appeals had not
definitively stated until 2001 in State v. Green, that landowners could
be held strictly liable for contamination cleanup costs. However, as
early as 1995, in White v. Long, 626 N.Y.S.2d 989 (N.Y. 1995), the New
York Court of Appeals acknowledged that strict liability for landowners
was an undecided issue by that Court. The Court also recognized that
lower New York courts had interpreted the Navigation Law to hold
landowners liable for cleanup costs regardless of whether or not that
owner caused or contributed to the discharge. Id. (citing Matter of White
v. Regan, 575 N.Y.S.2d 375 (3d Dept. 1991)). Finally, in stating its
holding that landowners could bring suit for indemnification from actual
dischargers, the Court again acknowledged that landowners might be held
liable under the Navigation Law. Id. ("A current owner may be liable for
clean-up costs as against the Fund . . ."). Therefore, at the time during
which Mahl Bros. delayed providing notice to St. Paul, at best, there was
a possibility that Mahl Bros. could be held liable for the cleanup costs
incurred by the DEC, whether or not Mahl Bros. considered itself a
discharger. Therefore, Mahl Bros. excuse for failure to notify St. Paul
until June 1996, is meritless as a matter of law.
Moreover, even if Mahl Bros. believed that, because it was negotiating
a voluntary cleanup with its tenant, the DEC would not implement a
cleanup or bring a claim for reimbursement of cleanup costs, the DEC'S
letter of December 26, 1995 provided a firm deadline of January 26, 1996
by which any agreement was to be made. Mahl Bros. knew that no agreement
had been reached by January 26, thus, the likelihood of a claim against
the policies was not only possible, but probable at that time. Any belief
that the DEC would not seek reimbursement costs from Mahl Bros. was no
longer reasonable after January 26, 1996. Therefore, Mahl Bros.'
proffered excuse for its delay is unreasonable as a matter of law.
For the reasons stated above, Plaintiff's objections to Magistrate
Judge Foschio's Decision and Order and Report and Recommendation are
denied, and Mahl Bros. claims are dismissed. The Clerk of the Court
should take all steps necessary to close the case.
IT IS SO ORDERED.