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United States District Court, W.D. New York

February 19, 2004.


The opinion of the court was delivered by: RICHARD ARCARA, District Judge


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. Page 2

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 the motions.

  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. Responsive papers Page 3 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).

 Remand Motion

  Magistrate Judge Foschio concluded in his Report and Page 4 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 denied.

 Summary Judgment Motion

  Mahl Bros. objects to Magistrate Judge Foschio's conclusion that it Page 5 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). Page 6

  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 Page 7 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 Page 8 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.


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