The Melito & Adolfsen Law Firm

THE POLLUTION EXCLUSION

Having addressed the meaning of “accidental” in the “sudden and accidental” pollution exclusion in 1989 in Technicon, it took eight years before the New York Court of Appeals, in a case handled by Melito & Adolfsen and others, addressed the meaning of “sudden” in Northville Industries.  Northville involved an enormous quantity of pollution emanating from underground storage tanks and pipelines at two sites.  The discharges were accidental.  Consistent with its previous interpretations of the exclusion, the Court concluded that the language of the exclusion was unambiguous and that “sudden” had a temporal meaning.  The Court held that the “sudden” element of the exclusion is satisfied if there is an abrupt discharge of a significant quantity of a pollutant having some potentially damaging environmental effect.  Of arguably equal importance, the Court also placed the burden of proof on the policyholder to establish that the “sudden and accidental” exception applies -- after the insurer first demonstrates that the underlying complaint alleges damages attributable to a discharge of a pollutant into the environment.  The insurers were granted summary judgment.

POST-SCRIPT:  Shortly after Northville, Melito & Adolfsen obtained a voluntary dismissal with prejudice of an environmental case in New York involving a leaking underground storage tank at a dry cleaner based on just the threat of a Northville summary judgment motion.

DON'T TAKE A CHANCE AND NOT GIVE NOTICE OF A POTENTIAL  CLAIM TO YOUR INSURANCE COMPANY - You can Void your Coverage!!! 

         One of the most common experiences faced by  individuals, businesses, attorneys, doctors and other  professionals is whether to give notice to the insurance  company of a potential claim.  There is a general  reluctance on the part of people, even attorneys who  should know better, to give notice of a potential claim.  The most common concern is that giving notice of a  potential claim will result in increased rates. This is  not so. Even in the case of automobile coverage, a claim  will result in a surcharge only if the insurance company  is required to make a payment under the law of most  jurisdictions.  With all types of coverage, the mere  reporting of a potential claim will simply result in a  file being opened and, if no claim results, the file will  thereafter be closed based on the procedure of the  particular insurance company.  

         A recent case illustrates the danger of not giving  notice of a potential claim although it involves a  slightly different aspect of the notice requirements in an  insurance policy.  In Executive Risk Indemnity, Inc. v.  Pepper Hamilton LLP, - - NY3d - -, 2009 NY Slip Op 07453 (October 20, 2009) New York's court of appeals decided a case under the laws of Pennsylvania where the law firm was  located.  In that case, the activities of the law firm's  client had led to some lawsuits against the client.  The  firm had not been sued but it was apprehensive of its  possible malpractice exposure.  It had several insurance  policies providing both primary and excess coverage and  each policy excluded coverage for a category called "prior  knowledge exclusions" which involved acts that the insured  might foresee as producing a claim.  The law firm did not  report its apprehensions of possible malpractice exposure  in applying for coverage.  The New York Court of Appeals  applied Pennsylvania law (based on where the firm was  located) and concluded that the firm was on notice of its possible implication in the wrongdoing and that "a  reasonable attorney with [that] knowledge should have  anticipated the possibility of a lawsuit."  Consequently, two of the insurers were allowed to void the coverage and not pay the claim. 

        We like to tell what we call "cautionary tales" and  advise clients, including law firms, that it is better to  advise the insurance company of the potential for claim  than to try and hope that there won't be a claim when  there is knowledge that there might be one. Even where the  insurance company may be required to show prejudice, such  as where the insured fails to give notice of a claim or  lawsuit, it is never worth the risk of having to explain  why any information, even only a potential claim,  was  held back. Keeping the insurance company on notice of the  potential for a claim has no down side - not advising the  insurance company has potentially serious consequences,  i.e. the loss of the coverage.

CGL vs. WORKERS’ COMP 1B - COVERAGE IN CONSTRUCTION CASES

The question as to the applicability of CGL and/or 1B Coverage in any given case remains a fertile ground for dispute.  The 1B Coverage generally provides liability coverage for bodily injury sustained by an employee, excluding coverage of the employer for contractual indemnity but covering it for common law indemnity or contribution.  The CGL coverage covers the employer for contractual indemnity but excludes coverage for common law indemnity or contribution.

Generally, both common law and contractual claims are asserted against the employer.  While the two policies cover different types of liability, in Labor Law cases a common scenario arises in which both policies apply. Because the Labor Law imposes strict liability on owners and general contractors (“GC”) regardless of fault, such entities are commonly found liable in construction accidents, particularly involving scaffolding claims under Labor Law § 240, even where they are free from fault and have no involvement in the accident or in the work.  In such cases, the owner and GC will commonly pass the entire liability on to the contractor who is at fault by means of a third-party action or a cross-claim.  Furthermore, although New York General Obligations Law (“GOL”) § 5-322.1 prohibits contractual indemnification in the construction context where the party to be indemnified is to any extent negligent, the New York Court of Appeals held in Brown v. Two Exchange Plaza Partners that a finding of absolute liability under the Labor Law will not prevent an owner and GC from obtaining contractual indemnity as long as they are not found to any extent negligent.