Pollution: Late Notice Precludes Coverage

2nd Cir. finds Northrop Grumman provided inadequate and untimely notice under NY law.

The United States Court of Appeals for the Second Circuit, applying New York law, upheld the district court and ruled that Northrop Grumman’s (“Northrop”)  notice to Travelers Indemnity Company and related entities (“Travelers”) and Century Indemnity Company (“Century”) (collectively, “the insurers”) for environmental pollution claims was either inadequate or untimely.  As a result, coverage was barred.

Northrop operated a 600-acre naval aircraft manufacturing and testing facility (the “Bethpage Facility”) in New York.  Within the original boundaries of the Bethpage Facility is Bethpage Community Park, a parcel of land that Northrop donated to the Town of Oyster Bay in October 1962.  Beginning in the 1940s, Northrop used and stored contaminants, such as trichloroethylene (“TCE”), on the Bethpage Facility.  Ultimately, the TCE contaminated the groundwater and soil of the Bethpage Facility and surrounding area.  As a result, Northrop has been subject to a number of claims and clean-up costs relating to the environmental pollution.  From 1968 to 1985, Northrop purchased primary and excess liability insurance policies from Travelers, which provided over $100 million in coverage per occurrence, per year.  From 1951 to 1968, Northrop purchased primary and excess liability policies from Century which provided Northrop at least $2 million and up to $4.5million in coverage per occurrence, per year.

The issue before the appellate court was whether Northrop had provided adequate notice of various claims relating to environmental pollution at the Bethpage Facility and the Bethpage Community Park.  Under New York law, “where a contract of primary insurance requires notice ‘as soon as practicable’ after an occurrence, the absence of timely notice of an occurrence is a failure to comply with a condition precedent which, as a matter of law, vitiates the contract.”

The appellate court agreed with the district court and held that Northrop failed to provide adequate notice to the insurers with regard to the New York State Department of Environmental Conservation (“NYSDEC”) Bethpage Facility claim.  In 1984, Northrop received a package from NYSDEC which included a 1983 Potentially Responsible Person letter relating to the Bethpage Facility (the “1984 Package”).  Northrop sent the 1984 Package to its insurance broker who forwarded it to a slightly erroneous address for Travelers.  The address was given by Travelers for correspondence related to the defense of a separate claim.  Travelers contended that it did not receive the 1984 Package, and the appellate court found that there was no evidence to presume otherwise.  Under New York law, “the duty to provide notice is not satisfied merely by placing the notice in the mail; rather, the specific insurer to whom notice is due must actually or presumptively have received such notice.”  Century argued that the 1984 Package was substantially inadequate as notice because “the package did not identify any Century policies under which coverage was sought, addressed a different suit at a different site, and was directed to a different insurer with different types of policies.”  The appellate court agreed and held that Northrop’s notice to Century as to the NYSDEC Bethpage Facility claim was inadequate.  Because notice to the insurers for the NYSDEC Bethpage Facility claim was inadequate, the appellate court held that coverage was barred.

Next, the appellate court held that notice was inadequate because it was untimely with regard to the claims related to the Bethpage Community Park and claims by various water districts.  Northrop received a letter on July 26, 2002 from the NYSDEC asserting Northrop’s responsibility for remediation of the Bethpage Community Park.   Northrop did not provide notice to Travelers of this additional claim until October 10, 2002 and never even attempted to notify Century.  Northrop also failed to timely notify the insurers of the Town of Oyster Bay’s 2002 intent to sue letter regarding contamination at the Bethpage Community Park.  The insurers were not notified until after the Town of Oyster Bay filed suit in 2005.  Northrop argued that its 2005 notice was timely because the Town of Oyster Bay filed suit in 2005 under a different legal theory than was asserted in its 2002 letter.   The appellate court disagreed and noted that, even if notice was not required in 2002, the 47 day delay between the date the Town of Oyster Bay filed and the date of notice provided to the insurers was untimely as a matter of law.  Northrop did not provide notice to the insurers of various water district claims until almost a decade after the water districts expressed concern about contamination of their groundwater and when Northrop allegedly understood that it might be responsible for costs associated with the clean-up.  Thus, due to the untimely notice, the appellate court held that coverage was barred with regard to the Bethpage Community Park claims and the various water district claims.  Travelers Indem. Co. v. Northrop Grumman Corp., No. 15-3117-cv (2nd Cir. Jan. 27, 2017).