United States District Court, S.D. New York
Scott E. Agulnick, Esq., Greenblatt Lesser LLP, Hackensack, NJ, for Plaintiff.
Patrick M. Tomovic, Esq., Hodgson, Russ, LLP, Buffalo, NY, for Defendant.
OPINION AND ORDER
SHIRA A. SCHEINDLIN, District Judge.
I. INTRODUCTION AND BACKGROUND
This case presents an issue of first impression under New York law - whether a contract that requires an insured party to seek approval from its insurer before expending funds for environmental clean-up is void as against public policy. The facts are not in dispute. SI Venture Holdings ("SI"), a real estate development company, entered into an insurance contract with Catlin Specialty Insurance ("Catlin") that included the following provision ("Consent Provision"):
The Insurer shall pay on behalf of the Insured for Clean-Up Costs and related Claim Expense in excess of the Deductible stated in the Declarations because of a Pollution Condition discovered by the Insured during the Policy Period... but only if the Insured notifies the Insurer of the Pollution Condition, in writing, during the Policy Period or any applicable Extended Reporting Period. ... The Insured shall not assume or admit liability, make any payment, consent to any judgment, settle any Claim or Protective Third Party Claim or incur any Clean-Up Cost, Claim Expense or Protective Third Party Claims Expense without prior written consent of the Insurer, which consent shall not be unreasonably withheld. The Insurer shall not be liable for any expense, settlement, assumed obligation or admission to which it has not consented.
In February 2013, SI tested the soil of one of its properties in Staten Island, only to discover that it was contaminated with petroleum. The level of contamination was such that SI thought that it was obligated - based on its understanding of New York law - to transport the soil to a disposal site in New Jersey. SI did so. Then, six months later, it sent a notice of claim to Catlin, requesting coverage of $250, 000 worth of clean-up costs. Catlin denied that request, citing SI's failure to comply with the Consent Provision.
SI concedes that it did not seek Catlin's consent before embarking on the soil disposal. Nor does SI dispute that by failing to obtain such consent, SI breached the Consent Provision. Instead, SI argues that the Consent Provision is unenforceable as against public policy, because it impedes compliance with environmental regulations. According to SI, if an insured party must seek approval from its insurer before incurring clean-up costs, the practical effect will be that less clean-up takes place - to the public's detriment. Therefore, SI has moved for summary judgment, asking the Court to set aside the Consent Provision, and to require Catlin to reimburse SI the amount that it expended in connection with the soil disposal. Catlin has cross-moved for summary judgment, asking the Court to enforce the Consent Provision - and accordingly, to release Catlin from any putative coverage obligations. For the reasons set forth below, SI's motion in DENIED, and Catlin's motion is GRANTED.
II. APPLICABLE LAW
A. Construction of Insurance Contracts
Under New York law, "unambiguous provisions of an insurance contract must be given their plain and ordinary meaning, and the interpretation of such provisions is a question of law for the court." Pursuant to this general rule, consent-to-settle provisions - requiring insured parties to give insurers notice before entering into voluntary settlement agreements - are "routinely enforced" as "a condition precedent to coverage." This same is true, moreover, of settlements between private actors and public agencies that arise from enforcement actions. In 2008, for example, the New York Court of Appeals enforced a consent-to-settle provision against Bear Stearns, in connection with a settlement that it entered into with the Securities and Exchange Commission ("SEC"). And Judge Katherine Forrest of this District recently enforced a similar provision against Northrop Grumman, in connection with an informal agreement it made with the United States Navy to spearhead the clean up of land adjacent to a weapons plant.
B. Void as Against Public Policy
There is no magic formula for determining when a contract - or a particular provision of a contract - is void as against public policy. Under New York law, "[a]n agreement may be unenforceable  as contrary to public policy even in the absence of a direct violation of a criminal statute, if the sovereign has expressed a concern for the values underlying the policy implicated." A contract is "contrary to public policy, not only if it directly violates a statutory ...