NY Appellate Court Holds Policyholder Liable For Periods Where Insurance Unavailable In Marketplace.   

A New York appellate division court, applying New York law, held Century Indemnity Company (“Century”) has no obligation to indemnify its insured for losses that are attributable to time periods when liability insurance was unavailable in the marketplace.   The court analyzed the specific policy language at issue and found that the unavailability exception to proration to the insured under pro rata time-on-the-risk allocation is inconsistent with policy language that restricts coverage to “during the policy period.”

KeySpan Gas East Corporation and its predecessors (“KeySpan”) owned manufactured gas plants which caused long-term, gradual environmental property damage due to hazardous waste seeping into groundwater between the early 1900s and possibly as recent as 2012.  The New York Department of Environmental Conservation made claims against KeySpan and required it to assume the costs of investigation and clean-up of the environmental contamination.   KeySpan filed the claims for remediation with its insurer, Century, under its general liability policies and brought an action seeking a declaration that Century was obligated to indemnify KeySpan for the costs of the environmental clean-up.   On Century’s motion for summary judgment, the court held: (1) generally that a pro rata time-on-the-risk allocation formula is appropriate to determine the parties’ respective obligations for the loss, (2) for periods when KeySpan did not purchase insurance that was otherwise available in the marketplace, KeySpan is responsible for a share of liability attributable to that time period; (3) KeySpan is responsible for the time period between 1971 and 1982 when insurance law expressly prohibited insurers from covering liability arising out of pollution or contamination; and (4) except for the period of time when the legislature expressly prohibited the sale of pollution liability insurance, liability for periods of time when insurance was unavailable in the marketplace should be allocated to Century.  Century appealed.

The issue before the appellate division, one of first impression, was the proper allocation of risk of loss attributable to a continuous harm occurring, in part, during periods when liability insurance was unavailable in the marketplace.  KeySpan’s claim for indemnification by Century included not only the 16-year period that the policies were in effect, but also periods of time, both before 1953 and after 1969, when insurance covering the risk could not be purchased in the marketplace.  Century  argued that it was not obligated to indemnity KeySpan for any damages that did not occur “during the policy period,” contending that any property damage that occurred outside its 16 year period  of coverage and during periods of no insurance is the sole responsibility of KeySpan, whether or not other insurance coverage was available in the marketplace.

Under New York law, the court’s analysis was required to focus on the language of the particular insurance policies at issue.  The language is not verbatim among the various Century policies; however, the variations were not significant enough to prevent the court from conducting a holistic analysis.  A few policies state that the policy “applies only to occurrences or accidents which happen during the policy period.”  Others state that “the policy applies only to occurrences … during the policy period.”  And still others state that the policy applies to “property damage … which occurs anywhere during the policy period.”

According to the court, “[e]ach policy, despite some minor variations, provides the insured with coverage for occurrences, accidents and continuous and repeated exposure to conditions that result in damage ‘during the policy period.’”  The court stated that while none of the policies expressly addressed how to allocate liability for long-term losses, the “during the policy period” language is consistent with allocation for time-on-the-risk.  According to the court, “[u]navailability is an exception to time on the risk, since it allocates responsibility for periods of time when no insurance was purchased and it is, therefore, inconsistent with policy language restricting coverage to the policy period.”  In holding that the unavailability exception to proration to the insured does not apply, the court noted that there was no language in the policies requiring the insurer to cover damages outside of the policy period and that it would not rewrite the terms of a policy for equitable reasons.   KeySpan Gas East Corp. v. Munich Reinsurance Am., Inc., No. 604715/97 (N.Y. App. Div. Sept. 1, 2016).