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Travelers Indemnity Co. v. Northrop Grumman Corp.

United States District Court, S.D. New York

July 3, 2013

TRAVELERS INDEMNITY CO., et al., Plaintiffs,
v.
NORTHROP GRUMMAN CORP., et al., Defendants, and CENTURY INDEMNITY CO., eventual successor in interest to INSURANCE CO. OF NORTH AMERICA, Nominal Defendant

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For Travelers Indemnity Company, Travelers Indemnity Company of Connecticut, formerly known as Travelers Indemnity Company of Rhode Island, Travelers Casualty and Surety Company, formerly known as The Aetna Casualty and Surety Company, Travelers Property Casualty Company of America, formerly known as Travelers Indemnity Company of Illinois, Plaintiffs: Lynn Katherine Neuner, Mary Beth Forshaw, LEAD ATTORNEYS, Bryce Allan Pashler, Ian Ronald Dattner, Rae Caroline Adams, Simpson Thacher & Bartlett LLP (NY), New York, NY; Meghan E. Cannella, Rita Kathleen Maxwell, Simpson Thacher & Bartlett LLP, New York, NY.

For Northrop Grumman Corporation, Northrop Grumman Systems Corporation, Defendants: Edward H. Rippey, Shelli Li Calland, PRO HAC VICE, Covington & Burling, Washington, DC; Georgia Kazakis, Jamar Kentrell Walker, Joshua David Asher, Kevin Robert Glandon, Laura Elizabeth Mellis, PRO HAC VICE, John Francis Scanlon, Covington & Burling LLP, Washington, DC; James A. Goold, Richard Laird Hart, PRO HAC VICE, Covington & Burling, L.L.P. (DC), Washington, DC; Jennifer Amelia Holmes, PRO HAC VICE, Covington & Burling, LLP, Washington, DC; Peter Benjamin DeWitt Duke, Covington & Burling LLP(NYC), New York, NY; William F. Greaney, PRO HAC VICE, Covington and Burling LLP, Washington, DC.

For Century Indemnity Company, eventual successor in interest to Insurance Company of North America, Nominal Defendant: Seth Goodman Park, LEAD ATTORNEY, Siegal & Park, Mt. Laurel, NJ; Brian C. Vance, PRO HAC VICE, Havertown, PA; Guy A. Cellucci, PRO HAC VICE, White and Williams LLP, Philadelphia, PA; Melvin R. Shuster, PRO HAC VICE, Siegal & Park, Mt. Laurel, NJ; Robert F. Walsh, White and Williams LLP(Philadelphia), Philadelphia, PA; Shane R. Heskin, White & Williams, LLP(Philadelphia), Philadelphia, PA.

For United States Of America, Interested Party: Farzin Franklin Amanat, LEAD ATTORNEY, Us Attorney Edny, Brooklyn, NY.

For Northrop Grumman Corporation, Northrop Grumman Systems Corporation, Cross Claimants: Georgia Kazakis, Jamar Kentrell Walker, Joshua David Asher, Kevin Robert Glandon, PRO HAC VICE, John Francis Scanlon, Covington & Burling LLP, Washington, DC; Jennifer Amelia Holmes, PRO HAC VICE, Covington & Burling, LLP, Washington, DC; Peter Benjamin DeWitt Duke, Covington & Burling LLP(NYC), New York, NY; Shelli Li Calland, PRO HAC VICE, Covington & Burling, Washington, DC; William F. Greaney, PRO HAC VICE, Covington and Burling LLP, Washington, DC.

For Century Indemnity Company, eventual successor in interest to Insurance Company of North America, Cross Defendant: Seth Goodman Park, LEAD ATTORNEY, Siegal & Park, Mt. Laurel, NJ; Brian C. Vance, PRO HAC VICE, Havertown, PA; Melvin R. Shuster, PRO HAC VICE, Siegal & Park, Mt. Laurel, NJ.

For Travelers Casualty and Surety Company, Travelers Indemnity Company, Travelers Indemnity Company of Connecticut, Counter Defendants: Lynn Katherine Neuner, Mary Beth Forshaw, LEAD ATTORNEYS, Bryce Allan Pashler, Simpson Thacher & Bartlett LLP (NY), New York, NY; Rita Kathleen Maxwell, Simpson Thacher & Bartlett LLP, New York, NY.

OPINION

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OPINION & ORDER

KATHERINE B. FORREST, United States District Judge.

Travelers[1] brought this action against Northrop Grumman[2] seeking (1) declarations that certain insurance policies require it neither to indemnify nor to defend Northrop Grumman against certain claims and (2) money damages for certain defense costs already incurred.[3] Travelers also named Century[4] as a nominal defendant.

Travelers filed the action in New York State Court on March 15, 2012. Northrop Grumman timely removed it to this Court on April 17, 2012. (Notice of Removal, ECF No. 1.) On June 8, 2012, Northrop Grumman answered and asserted counterclaims and crossclaims against both Travelers and Century for declaratory relief and money damages in connection with the insurers' alleged duties to defend and indemnify. (Answer, Counterclaim, & Crossclaim, ECF No. 11.)

Both Travelers and Century issued Northrop Grumman (or, more particularly, its predecessors) a number of general liability policies, catastrophe umbrella policies (" CUPs" ), and excess liability policies. (See Compl. Ex. A, ECF No. 1 (schedule of Travelers' policies); Answer, Counterclaim, & Crossclaim Ex. A, ECF No. 11 (schedule of policies).) At issue in this lawsuit are policies Travelers issued over the period fro 1968-1989, and that INA and IINA, predecessor companies to Century, issued over the period from 1951-1968. (Compl. ¶ 19, Ex. A, ECF No. 1; Answer, Counterclaim, & Crossclaim 32, Ex. A, ECF No. 11.)

Northrop Grumman has been and remains subject to a number of claims and clean-up costs relating to sites across the east coast for environmental pollution that may have occurred during the years encompassed by the Travelers and Century policies. Pursuant to a reservation of rights, Travelers has paid certain defense costs in connection with these claims.

Northrop Grumman has sought coverage and defense costs relating to claims with respect to eighteen separate sites. (Answer, Counterclaim, & Crossclaim 33-34, ECF No. 11.) The Court bifurcated

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trial and discovery into two phases, by site. (July 26, 2012, Order, ECF No. 28; Dec. 10, 2012, Order, ECF No. 49.) The first phase (and the phase at issue here) includes the sites at (1) Aqua N.Y. Water District in Merrick, New York; (2) Bethpage Facility, (3) Bethpage Naval Weapons Industrial Reserve Plant (" NWIRP" ), (4) Bethpage Community Park, and (5) Bethpage Water District in Bethpage, New York; (6) Calverton NWIRP in Calverton, New York; (7) Massapequa Water District in Massapequa, New York; and (8) South Farmingdale Water District in South Farmingdale, New York. (July 26, 2012, Order, ECF No. 28; Dec. 10, 2012, Order, ECF No. 49.) Discovery has proceeded with respect to the Phase 1 sites, and a Phase 1 jury trial is scheduled for January 8, 2014.

Before the Court are two motions for partial summary judgment: (1) Travelers' motion for a declaration that fourteen policies in effect from 1972 to 1983 must be read to include a pollution exclusion codified in New York Insurance Law during that period (Travelers Mot. Partial Summ. J. 1, ECF No. 65); [5] and (2) Northrop Grumman's motion relating to Travelers' and Century's duty to defend against an action brought by the Town of Oyster Bay (Northrop Grumman Mot. Partial Summ. J., ECF No. 60).

For the reasons set forth below, the Court grants in part and denies in part Travelers' motion, and grants in part and denies in part Northrop Grumman's motion.

I. FACTS RELEVANT TO THE MOTIONS

The following facts are undisputed unless otherwise noted.

Over the course of more than six decades, Northrop Grumman operated naval aircraft manufacturing and testing facilities in Bethpage and Calverton, New York. (See Northrop Grumman's Resp. Travelers' Local Rule 56.1 Statement Supp. Mot. Partial Summ. J. ¶ 4, ECF No. 87 (" DCSOF" ).)

A. The Sites

1. The Bethpage Facility Site

The parties (and the Court) refer to a large[6] tract of land located in Bethpage, New York, as the " Bethpage Facility." (Id. ¶ 5.) Starting in the 1930s, Grumman developed and manufactured, among other things, naval aircraft and amphibious craft at the site. (Id. ¶ ¶ 5-6.) The Bethpage Facility was added to the New York State Department of Environmental Conservation (" NYSDEC" ) Registry of Inactive Hazardous Waste Sites in the 1980s. (Answer, Counterclaim, & Crossclaim ¶ 50, ECF No. 11.)

2. The Bethpage NWIRP Site

Within the Bethpage Facility Site was an approximately 105-acre tract of land referred to as the Bethpage NWIRP. (DCSOF ¶ 8.) The Bethpage NWIRP site was established in the 1930s or 1940s[7] and

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was owned by the United States Navy, but operated by Grumman. (Northrop Grumman Resp. Travelers' Local Rule 56.1 Counterstatement Opp'n Northrop Grumman's Mot. Partial Summ. J. ¶ 4, ECF No. 111 (" Defs.' Reply SOF" ).) Travelers cites to (disputed) record material suggesting that this site was used for research, prototyping, testing, design engineering, fabrication, and primary assembly of military aircraft. (Id. ¶ 5.)

3. The Bethpage Community Park Site

The Bethpage Community Park is a smaller (somewhere between twelve and eighteen acres) tract of land located within the larger Bethpage Facility Site. (Id. ¶ 7.) The Park sits on what used to be " sludge drying beds," where Grumman placed wastewater treatment sludge generated from its plants. (See Feb. 1, 2013, Pashler Decl. Ex. 17, at NGINS000007369-70, ECF No. 88.) The parcel was donated to the Town of Oyster Bay in October 1962. (Id.)

4. The Calverton NWIRP Site

The Calverton NWIRP originally consisted of an approximately 6,000-acre tract of land in Suffolk County, Long Island. (DCSOF ¶ 24.) This site was owned by the Navy but operated by Grumman. (Id. ¶ 23.) Grumman ceased operating the Calverton NWIRP site in 1996. (Id. ¶ 26.)

B. Various Suits and Claims

In the 1980s, the Bethpage Facility was added to the NYSDEC Registry of Inactive Hazardous Waste Sites. (Answer, Counterclaim, & Crossclaim ¶ 50, ECF No. 11.) A number of entities have conducted investigations into and/or brought claims against Northrop Grumman, alleging that it is liable for cleanup costs and other costs associated with groundwater contamination and environmental property damage at the Bethpage Facility and the Bethpage NWIRP. Northrop Grumman has paid for certain remedial measures including the installation of a groundwater extraction and treatment system to abate contamination of public water supplies, and it continues to undertake testing and sampling of groundwater.

On April 21, 2005, the Town of Oyster Bay filed a lawsuit against Northrop Grumman for pollution at the Bethpage Community Park (" TOB Action" ). (PCSOF ¶ 17.) It is this action for which Northrop Grumman now seeks litigation coverage from Travelers and Century.

Northrop Grumman faces three additional potential actions. First, the Navy has asserted a claim against Northrop Grumman in connection with the Bethpage NWIRP Facility. Northrop Grumman and the Navy entered into a tolling agreement in April 2009. Second, the Bethpage Water District has asserted claims against Northrop Grumman for contamination of wellfields that supply drinking water. Third, in a letter dated July 16, 2008, the United States Department of Justice (" DOJ" ) stated that the Navy had requested that the DOJ commence a lawsuit against Northrop Grumman relating to the Calverton NWIRP.

C. Notice

Commencing in the 1970s, various inquiries and investigations were made with respect to groundwater contamination " in and around the Grumman plant." (See Apr. 19, 2013, Hart Decl. Ex. 1, ECF No. 168.) Travelers learned about these issues at the time and convened a meeting in December 1976 with Grumman. (Id.) In internal memoranda drafted after this meeting, Travelers questioned whether the Navy or Grumman owned certain wells. (Id. Ex. 2.) Travelers also questioned whether Grumman could be the source of

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the pollution. (Id.) Additional subsequent Travelers memoranda referred to the water contamination as " in and around the Bethpage facility" and noted that some of the wells were owned by the Navy and some by Grumman. (Id. Ex. 3.) Travelers noted concern with respect to health risks to the 20,000 employees of the Bethpage facility. (Id.; see also id. Exs. 5, 6.) Geraghty & Miller, Inc., an environmental consulting firm, prepared a memorandum for Grumman in June 1976 outlining the potential for extensive groundwater contamination in the Bethpage Water District. (Feb. 1, 2013, Heskin Decl. Ex. 12, ECF No. 80.) In January 1977, Travelers noted that Grumman had not received any claims yet. (See Apr. 19, 2013, Hart Decl. Ex. 6, ECF No. 168.) But CERCLA became effective in 1980, and, by March 1982, the EPA had sent Grumman a letter concerning a public investigation into contaminants at " Old Bethpage." (See Feb. 1, 2013, Heskin Decl. Ex. 14, ECF No. 80.)

A letter dated January 30, 1984, from insurance broker Frank Hall & Co. was addressed to Travelers at 339 Seventh Street, Garden City, New York. (May 2, 2013, Cannella Decl. Ex. 1, ECF No. 180.) The letter shows copyees Gregory Flemming (of INA) and J. Morgese. (Id.) This letter was produced from Century's files. (Id.) There is no evidence in the record that Travelers in fact received a copy of this letter, and Travelers has stated that the address to which the letter was sent was an incorrect address. (See Letter from Lynn Neuner to the Court 3 (May 2, 2013), ECF No. 180.) The letter is captioned " Re: Grumman Corporation, New York State vs. Town of Oyster Bay, et al," and it states: " Enclosed is additional information on the above captioned for your file." (May 2, 2013, Cannella Decl. Ex. 1, ECF No. 180.) Enclosed with the letter is another letter from R. J. Fitzpatrick to E. B. Jacobs describing a claim by NYSDEC against Grumman concerning " any potential damage to the State's natural resources attributable to [Grumman's] on-site sludge drying bed, identified as site #130003." (Id.) The letter also contains attachments from NYSDEC, CERCLA, the Environment Reporter, and reports describing Grumman's sludge drying beds. (Id.) Nothing in the letter mentions groundwater contamination, and, indeed, the letter from Fitzpatrick indicates that " [l]eachate tests performed on sludge samples at that time indicated no leaching of contaminants was occurring." (Id.) Attachment four to the letter includes a site narrative describing the sludge treatment practices at " Grumman Aerospace -- Bethpage Facility," and is dated April 15, 1980. (Id.)

The copy of the 1984 letter from Century's files contains a variety of handwritten notes including " need date of event" and a claim number, as well as a circle around the words " Grumman Corporation" with an arrow to the handwritten notation " insured." (Id.) There is also the comment: " Steve, please speak to me." (Id.)

A Grumman Form 10-K for the fiscal year ended December 31, 1987, refers to a suit called " The State of New York v. The Town of Oyster Bay, et al." and describes the suit as relating to damage Grumman allegedly caused " to the environment at the Old Bethpage landfill." (Id. Ex. 7; see also id. Ex. 9 (10-K for the fiscal year ended December 31, 1988).)[8] The 1987 10-K describes terms of a settlement reached. (Id. Ex. 7.) Other Grumman documents refer to issues with hazardous

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waste disposal at the " Bethpage Facility." (See id. Ex. 8, at NGINS000398059.) One document refers both to the Bethpage Facility and places a mark indicating that the issue relates to a landfill. (Id. at NGINS000398061.)

In a 1995 deposition of a Grumman employee in the Town of Oyster Bay suit, the employee testified that sludge had been placed in the fields at the Bethpage Facility. (Letter from Shane Heskin to the Court, Ex. 8, at 61, 63 (May, 2, 2013), ECF No. 176.) In December 2003, engineers prepared a report for Northrop Grumman relating to pollution at the Bethpage Community Park. (Id. Attach. 24, Ex. 2.) Northrop Grumman sent this report to the Bureau of Solid Waste and Corrective Action, Division of Solid and Hazardous Materials, NYSDEC. (Id.) The report provides a chronology of investigations at the Bethpage Community Park property going back to 1994. (Id. at NGSINS000007370-72.)

The Town of Oyster Bay sent Northrop Grumman a " Notice of Intent to Sue for Violations of [RCRA] at the property known as the Bethpage Community Park." (Id. Attach. 2.) The activities referred to in this letter involve those also at issue in the lawsuit filed by the Town of Oyster Bay in 2005. (Compare id. Attach. 2, with Jan. 4, 2013, Scanlon Decl. Ex. 14, ECF No. 61 (Complaint in TOB Action).) That lawsuit was ...


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