The New York Supreme Court, Appellate Division (“Court”) considered in a January 6 decision whether two insurance companies had a duty to defend an insured for damages related to the release of certain chemicals . To see Tonoga, Inc. v. New Hampshire Insurance Company, et al., 2022 WL 52903.
The relevant insurance policies included pollution exclusion clauses.
Tonoga, Inc. (“TI”) and/or its predecessors are said to own and operate since 1961 a manufacturing facility (“Facility”) in Petersburg, New York. Their manufacturing process would historically have involved the use of perfluorooctanoic acid and ammonium perfluorooctanoate (collectively “PFOA”) and perfluorooctane sulfonic acid and perfluorooctane sulfonate (collectively “PFOS”).
Use was discontinued by TI in 2013. In 2016, the New York Department of Environmental Conservation (“DEC”) added PFOA to its list of regulated hazardous substances.
Concentrations of PFOA and/or PFOS were later found in the Petersburg municipal water supply, exceeding recommended levels. PFOA and/or PFOS have also been identified in leachate from a municipal landfill. DEC designated the TI facility as a state Superfund site.
TI entered into a consent agreement with DEC that required the company to participate in certain corrective actions. In addition, a number of lawsuits have been filed against TI alleging that it negligently allowed PFOA and/or PFOS to pollute local water supplies, air and soil. The plaintiffs in the actions alleged bodily injury and property damage.
TI notified Granite State Insurance Company (“Granite State”) and New Hampshire Insurance Company (“New Hampshire”) of various claims. Granite State provided policies to TI from July 12, 1979 through July 12, 1982. New Hampshire provided policies from July 12, 1986, through July 12, 1987.
Insurance policies exclude coverage for bodily injury and property damage caused by pollution. However, Granite State’s policy included an exception to its pollution exclusion if an event was “subsequent and accidental.”
Both insurance companies declined coverage due to pollution exclusions.
A lower court found that the exclusions applied in law, as PFOA and PFOS were considered “unambiguously pollutants within the meaning of the policies”. Further, with respect to Granite State policy, the alleged discharge was found to be neither sudden nor accidental. TI, however, argued on appeal that both insurance companies were obligated to defend it in the underlying lawsuits.
The Court noted that an insurance company’s duty of defense is “excessively broad”. In other words, the duty to defend is broader than the duty to indemnify. An insurer is declared to have a duty to defend if the allegations against the insured “state a cause of action which gives rise to a reasonable possibility of recovery under the policy”. To avoid this obligation, the insurer must:
. . . establish that the exclusion is stated in clear and unequivocal language, is not subject to any other reasonable interpretation and applies to the particular case . . .
The Court analyzes Granite State’s policy and notes that it employs the standard “qualified pollution exclusion” clause (ie, it includes “sudden and accidental” language).
New Hampshire’s policy is described as containing an “absolute” or “total” pollution exclusion.
The Court concludes that the question of whether a substance is unambiguously an irritant, contaminant or pollutant within the meaning of the pollution exclusion is situational. It submits that under the facts of TI’s situation, PFOA and PFOS are pollutants within the meaning of the exclusions. Some of the facts cited in support of this proposition include:
- By-products and wastes were released to the environment as part of routine IT processes
- Fabrics have been soaked in solutions containing PFOA and/or PFOS
- The furnaces were releasing steam through the facility’s chimneys
- IT employees allegedly poured PFOA and/or PFOS into floor drains and sinks
- TI employees allegedly regularly transported waste containing PFOA and/or PFOS to municipal land
As to the sudden and accidental pollution provision, the Court rejects TI’s argument that the spill or spill indicates that some of the pollution was sudden and accidental. He says such allegations suggest “the opposite of suddenness”.
The Court also rejects the argument that the fact that the lawsuit potentially refers to other ways in which TI rejected PFOA and/or PFOS is sufficient to require a defense. The rationale for this position is its belief that:
. . . gravamen of each suit is decidedly the applicant’s conscious discharge of PFOA and/or PFOS as part of their routine manufacturing processes.
The Court concludes that no insurance company is obliged to defend the plaintiff in the underlying lawsuits.
A copy of the notice can be downloaded here.