New York Federal Judge Holds Multiple Deductibles Applies to Pollution Spills

The New York Courts continue to litigate the issue of single versus multiple occurrences in pollution coverage cases. In a recent case, the Southern District of New York essentially reaffirmed the Second Circuit's decision in Stonewall Insurance Company v. Asbestos Claims Management Corp., 73 F.3d 1178 (2d Cir. 1995), modified on other grounds in denial of pet. for reh'g, 85 F.3d 49 (2d Cir. 1996), in which the Court held that under New York's "unfortunate event" test each contaminated location was the site of a separate occurrence. In Consolidated Edison Company of New York, Inc. v. Employers Insurance of Wausau, et. al. (November 21, 1997), the Southern District of New York denied the insured Con Edison's motion for partial summary judgment, holding that Con Edison failed to establish that contamination at each site arose out of one "occurrence."

BACKGROUND

Con Edison commenced suit against four of its insurers including Century Indemnity Company for reimbursement of costs associated with cleanup of two sites, one located in Kansas City, Kansas and the other in Kansas City, Missouri. Con Edison moved for summary judgment on the sole issue of whether Century was obligated to reimburse Con Edison on the basis that the contamination at both sites constituted a single occurrence under the Century policy.

During the 1980's these sites had been contaminated with PCBs shipped by Con Edison. Under a Consent Order issued by the Environmental Protection Agency, Con Edison, as a potentially responsible party, was liable to pay cleanup costs incurred at these sites. As a result, Con Edison sought reimbursement from its excess insurers for cleanup and remediation expenses. Con Edison has since settled its claims with all the defendant insurers except Century.

The opinion begins with a brief summary of Con Edison's excess coverage with Century. Century's policy provided excess layer coverage to Con Edison of $1.5 million per "occurrence" in excess of $4 million any one "occurrence." The term "occurrence" was undefined in Century's policy. The policy, however, incorporated by reference the definition of "occurrence" in a policy issued to Con Edison by Wausau Insurance Company, which defined "occurrence" as

(1) an accident; or

(2) an event; or

(3) continuous or repeated exposure to conditions which results in bodily injury, personal injury or property damage. All damages arising out of such exposure to substantially the same general conditions shall considered as arising out of one occurrence.

In an obvious effort to maximize coverage, Con Edison argued that PCB contamination at both sites was a single occurrence and that the costs associated with the property damage suffered at each site should be combined, subject only to a single $4 million "occurrence" limit under the Century policy. Century countered that each PCB-contaminated spill was a separate occurrence, thus requiring damages in excess of $4 million each "occurrence" in order to trigger its policy.

SINGLE OCCURRENCE REJECTED

Con Edison first argued that, because the Consent Order issued by the Environmental Protection Agency referred to both sites, the Environmental Protection Agency in effect treated both sites "as a single matter." The insured also argued that the activity at both sites was so similar that there was no meaningful distinction between the two. The court addressed -- and rejected -- both these arguments.

The Court concluded that there was insufficient evidence to demonstrate that the Environmental Protection Agency viewed the two PCB spills as one matter. In fact, the Court believed that the Environmental Protection Agency handled these sites in a completely separate manner by referring to each site individually in the Consent Order and by analyzing each site separately for cleanup purposes. The Court even noted that the Consent Order provided separate investigations at each site and that the Environmental Protection Agency imposed separate penalties and established separate trust funds for each contaminated site.

The Court also held that even if the insured could show that the Environmental Protection Agency had treated the sites as one matter, "it would not follow a fortiori that the pollution spills at the two sites are 'one occurrence' under the Century policy." "Whether spills at the two sites are one matter for purposes of an Environmental Protection Agency investigation is a question of administrative procedure and federal law... Whether there was one 'occurrence' or more in this case is a question of contract interpretation and state law."

The Court also considered that the sites were not in the same neighborhoods, and in fact were located in two different states in two different cities. Moreover, Con Edison primarily shipped mineral oil and capacitors to the Missouri site while the Kansas site accepted only PCB-laden transformers. Con Edison's shipment of different materials to each site resulted in different disposal processes. Recognizing this, the Court believed that there were enough meaningful distinctions between the two sites to justify treating the two spills as separate occurrences.

Con Edison made a final plea to the Court that the property damage at the two sites arose out of "exposure to substantially the same general conditions." Con Edison pointed to the last sentence of the definition of "occurrence" in the Century policy, "Damages arising out of the same general conditions shall be considered as arising out of one occurrence..." and argued that the "exposure to substantially the same conditions", i.e., the contamination by PCB Treatment, Inc. and its subsidiaries, should be considered a single occurrence. The Court made short shrift of this argument by finding that the "contamination" did not arise from substantially the same general conditions, but rather the cause or "conditions" from which the damage arose was the separate spill at each site.

Clearly, the Court was also unwilling to accept Con Edison's position that the unfortunate event was "the general mishandling of PCBs."

It concluded that:

"Taken to its logical end, Con Edison's argument would result in only "one" occurrence even when pollution is spilled at two treatment sites located ten miles or one thousand miles apart, so long as the two sites serve similar functions, are operated by related corporate entities, and are the subject of a joint EPA investigation. The parties cannot have intended to construe "occurrence" so expansively."

The Court's ruling relied on recent New York case law finding that an occurrence is the underlying event that ultimately results in a filed claim. In Stonewall, the manufacturer's policy also provided a "per occurrence" limit. The manufacturer in Stonewall argued that there was only one occurrence, the sale and manufacture of asbestos-containing products. This argument was dismissed. Applying the "unfortunate event" test, the Court in Stonewall defined an "occurrence" as each installation of asbestos-containing material. Stonewall, 73 F.3d at 1213. Accordingly, the Stonewall Court concluded that "each location" was a separate occurrence requiring another deductible under the policy. The Court in Con Edison followed the reading of Stonewall as premising the number of "occurrences" on the number of discrete locations where the spilling occurred. In this case, Con Edison's repeated PCB spills happened at two different locations and amounted to two separate occurrences.

CONCLUSION

The District Court in Con Edison evidently was persuaded that Stonewall permitted such a narrow definition of occurrence in this case. Because the Court in Con Edison found that each location of PCB-contaminated spills was a separate occurrence, Con Edison was required to apply a separate $4 million "occurrence" retention for each site under its policy with Century.