Policyholder prevails on duty to defend, pollution exclusion, asbestos exclusion, trigger and notice

A New York circuit court, applying New York law, held that primary insurer, The Burlington Insurance Company (“Burlington”), had a duty to defend its insured in the underlying lawsuits which alleged personal injury as a result of clean-up work following the World Trade Center disaster on September 11, 2001.  The court rejected the insurers arguments that pollution and asbestos exclusions barred coverage, that the injuries did not occur within the policy period, and that the insured failed to provide timely notice.

Excess insurer, National Union Fire Insurance Company of Pittsburgh, PA (“National Union”), sought a declaration that Burlington improperly failed to defend its insured, Mayore Estates, LLC (“Mayore”), in actions brought against Mayore alleging personal injury resulting from clean-up work following the World Trade Center disaster on September 11, 2001.  National Union also sought reimbursement and/or contribution from Burlington for all expenses it incurred in its defense of Mayore.

On September 11, 2001, Mayore was the owner of a 34-story building located in lower Manhattan.  Burlington issued a general liability policy to Mayore with limits of $1 million per occurrence and $2 million in the aggregate which covered the period from December 10, 2001 to December 10, 2002.  National Union issued a commercial umbrella liability policy to Mayore with limits of $10 million per occurrence and in the aggregate excess the underlying for the period from February 14, 2002 to December 10, 2002.

Mayore was a named defendant in lawsuits which alleged purported respiratory illness and other injuries suffered as a result of post 9/11 clean-up activities at properties located in the vicinity of the former World Trade Center.  The underlying lawsuits alleged that the plaintiff’s sustained damages “as a result of the carelessness, recklessness and negligence of the Defendants … in failing to provide the Plaintiff[s] with a safe place to work … and in failing to provide the plaintiff[s] with proper and appropriate respiratory protection…”

Burlington disclaimed coverage for the underlying lawsuits on the ground, among others, that coverage was barred by the policy’s pollution exclusion.  Prior to the filing of the declaratory judgment action against Burlington, National Union defended Mayore under a reservation of rights and paid or incurred over $1.5 million to defend and indemnify Mayore.  In moving for summary judgment, Burlington argued that it had no duty to defend or indemnity.

First, Burlington argued that coverage for the underlying lawsuits was excluded under the policy’s pollution exclusion.  The initial question before the court was whether the dispersal of toxins and other matter as a result of the World Trade Center disaster constituted “traditional” or “classic” environmental pollution, therefore falling within the Total Pollution Exclusion found in the Burlington policy.  The court held that it did not need to determine the issue because it found that even if the dispersal did constitute “classic” or “traditional” environmental pollution, the claimants in the underlying lawsuits asserted independent claims that did not fall within the exclusion, thus triggering Burlington’s duty to defend.  The court relied on the fact that the allegations in underlying lawsuits asserted that the plaintiffs were injured due to the failure of the insured to provide adequate safety protections and also the fact that the insured was not being sued for an affirmative act in causing the pollution, but rather for their alleged independent wrong in failing to provide a safe workplace.  The court held that Burlington had not met its “heavy burden of showing that the dispersal of pollutants, standing alone, caused the plaintiffs’ injuries in the [underlying lawsuits].”

Second, Burlington argued that coverage for the personal injury claims in underlying lawsuits was barred by an asbestos exclusion.  The court rejected this argument for the same reasons as it rejected Burlington’s arguments relating to the pollution exclusion.  Again the court found that Burlington failed to show that all of the plaintiff’s personal injury claims in the underlying lawsuits fell within the asbestos exclusion, thus triggering Burlington’s duty to defend.

Third, Burlington argued that the underlying lawsuits did not allege injuries that occurred within the Burlington policy period.  New York applies an “injury-in-fact” trigger of coverage which “requires the insured to demonstrate actual damage or injury during the policy period.”  The court held that because the complaints in the underlying lawsuits alleged that the plaintiffs sustained “injury during the entire period of his/her employment activities at said locations” and the fact that it was undisputed that each of the plaintiffs were employed at the location surrounding the World Trade Center during the Burlington Policy period, the duty to defend was triggered.

Last, Burlington argued that it had no duty to defend because it did not receive timely notice of each of the claims that constituted the underlying lawsuits.  The court held that any further notice to Burlington was excused as futile because Burlington acknowledged notice of the World Trade Center litigation Master Complaint and had repeatedly disclaimed coverage.

Although the court granted summary judgment related to Burlington’s duty to defend, it held that there were triable issues of fact as to indemnification.  National Union Fire Ins. Co. v. The Burlington Ins. Co., Index No.: 155114/2013 (N.Y. Sup. Ct. Apr. 27, 2018).