Second Circuit: Late Notice To Insurer Bars Coverage For Environmental Claims

Posted By on May 8, 2017

How important is it that timely notice of an environmental claim be given to your insurance carrier? And just what is “timely”?

A federal appeals court in New York recently answered, “it’s very important,” and “timely” means as soon as practicable (but more than 2-and-a-half months is too late!).

Just about all environmental insurance policies contain a “Notice” provision requiring notice to the carrier immediately (or as soon as practicable) when the insured knows or suspects that a claim might be made under that policy. As such, unreasonably late notice to insurance carriers will bar claims under the applicable insurance policy…It’s not a difficult concept, but we’ll repeat this one more time for the people in the back: unreasonably late notice to insurance carriers of claims will (likely) bar claims under the applicable insurance policy!

The case at hand reaffirming that policy. There’s a good reason for the notice requirement, namely to provide insurance carriers an opportunity to investigate claims as soon as possible, not lose the opportunity to seek potential contribution from other sources and set proper reserves covering the anticipated losses. New York law even allows for some flexibility, since “notice requirements [are supposed to be] liberally construed in favor of the insured, with substantial, rather than strict, compliance being adequate.” Therefore, it’s always surprising to come across “Late Notice” cases where courts bar insurance claims concerning environmental releases.

Claims under Northrup Grumman’s (“Grumman”) historical 600-acre naval aircraft manufacturing and testing facility in Bethpage, New York (Suffolk County), which has been the subject of countless environmental law suits for decades, were the subject of this case. Here, a federal appeals court agreed with the trial court in Manhattan that Grumman failed to provide “effective notice” to one of its insurance carriers, Travelers Indemnity Company (“Travelers”) and upheld the District Court’s ruling that Grumman’s notice was time-barred.

The Second Circuit reiterated that “in New York, 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 received such notice.” Travelers Indemnity Co. v. Northrop Grumman Corp., 2017 U.S. App. LEXIS 1471, *9 (2d Cir. Jan. 27, 2017) (emphasis supplied). Grumman unsuccessfully argued that a package with information allegedly sent to Traveler’s in 1984, which Traveler’s apparently never received, constituted effective notice; the court disagreed.

The appeals court also agreed with the trial court that Grumman’s notice to Travelers of another claim stemming from the Facility was similarly defective. The court held “the notice Grumman provided to Travelers on October 10, 2002 – 77 days after the July 26, 2002 NYSDEC letter asserting Grumman’s responsibility for remediation of ‘this newly identified area,’ App’x 1451 – was untimely as a matter of law.”

Clearly, the idiom “better late than never” is not always applicable…specially in the insurance claims context.

Click to read the Second Circuit opinion: Travelers Indemnity Co. v. Northrop Grumman Corp., 2017 U.S. App. LEXIS 1471, *9 (2d Cir. Jan. 27, 2017)

In Oil Spill Case, Common Law Negligence Claim Against Insurer Not Time-Barred Despite Policy

Posted By on March 31, 2017

Sometimes simple common law principles are the best way to litigate against insurance companies. Specifically, if the insurance policy calls for a two-year limitations period to sue, make sure your attorney alleges common law negligence against the insurance carrier if you want the benefit of the longer, three-year, statute of limitations period (assuming the facts support a negligence claim, of course).

In this Long Island oil spill case, plaintiffs carried an insurance policy (the “Policy”) with defendant State Fire Farm and Casualty Company (State Farm) that provided coverage for cleanup of the insured property pursuant to the New York State Department of Environmental Conservation’s orders. State Farm provided coverage under the Policy, and with its consultant, H2M, supervised the cleanup work. However, it appears that, according to plaintiffs, State Farm and H2M “caused additional damage to the property,” beyond that incurred by the initial oil contamination incident due to their negligent supervision of the cleanup.

As summarized by the Supreme Court (J. Palmieri, Nassau Co.):

  •  State Farm engaged an engineering firm, H2M, to supervise the investigation and remediation of the [oil] spill. In the Fall of 2011, areas of contaminated soil remained and were identified by H2M. According to the complaint, State Farm authorized and paid for the preparation of plans for the removal of all remaining petroleum-contaminated soil, which led to excavations at the premises through the winter of 2011-2012. However, plaintiffs were advised by a remediation contractor that because the excavations had exposed the home and foundation to the elements and changes in temperatures, extensive structural damage could result.

    Plaintiffs agreed to a State Farm request to delay temporarily the remediation until spring/summer of 2012, when the work would be completed.Plaintiffs further allege that by agreement with State Farm excavation sites were temporarily backfilled, but that State Farm reneged on its pledge to finish the remediation in  spring/summer of  2012. During the summer of 2013, plaintiffs and State Farm developed and “are developing” plans for restoration of the premises, but that State Farm would not pay to return the property to its pre-spill condition. Although plaintiffs expended their own funds in the cleanup, a substantial amount of contaminated soil remains. The complaint alleges that “the remediation of the Premises is continuing.”

Bennett v. State Farm Fire & Cas. Co., 43 Misc. 3d 1224(A), 992 N.Y.S.2d 157 (N.Y. Sup. Ct. 2014).

As part of its defense, State Farm alleged that plaintiffs’ claims were untimely because the Policy provided that “[n]o action shall be brought [against State Farm] unless there has been compliance with the policy provisions and the action is started within two years after the occurrence causing loss or damage.” The Second Department considered that provision of the Policy ambiguous and construed it against State Farm, by highlighting that it applies only to suits alleging breach of the “policy provisions.” The court noted that, in this action, plaintiffs did not allege breach of the “policy provisions” because State Farm did not fail to pay for the damages in violation of the policy. Instead, plaintiffs allege that State Farm acted negligently in connection with its supervision of the remediation work at the subject property. The Second Department held that, under these circumstances, the provision of the Policy providing for a two-year limitations period is inapplicable.

In reversing the Supreme Court, the Second Department determined that the plaintiffs’ complaint states a viable negligence cause of action against State Farm independent of the Policy, “although it may be connected with and dependent upon the contract.” While the complaint failed to plead conduct potentially warranting punitive damages (i.e., conduct “showing of reckless disregard for the rights of others”), the Second Department found a negligence claim sua sponte and held that the complaint properly alleged that “State Farm, and H2M, acting as State Farm’s agent, failed to exercise reasonable care in the course of supervising remediation and repair, and that such failure caused additional damage to the property.”

The lesson, here, of course is that when possible, ensure that a negligence claim is plead in order to take advantage of the 3-year statute of limitation – not all courts will find a negligence claim where one is not plead properly.

Click to read the Second Department opinion: Bennett v State Farm Fire & Cas. Co., 137 A.D.3d 727

Publicly Owned Sewer Systems Now Required To Report and Notify Of Combined Sewer Overflows

Posted By on February 27, 2017

In 2012, the Sewer Pollution Right to Know Act (SPRTKA) was signed into law in New York State.  This law requires that owners of publicly owned sewer systems (POSSs) advise the public when raw or partially treated sewage, including combined sewer overflows (CSOs), is discharged into New York’s waterways.  On November 9 2016, the Department of Environmental Conservation’s (DEC) regulations implementing the SPRTKA took effect.

The new rules establish a registration program as a new regulatory mechanism for POSSs and required POSS owners to register their facilities by December 9, 2016. As part of the program, POSSs must report untreated or partially treated sewage discharges to the DEC and the local department of health (or the New York State Department of Health) “immediately, but in no case later than two hours from discovery of the discharge.”  POSS owners must also submit “daily reports” for each day that the discharge continues after the date that the initial discharge report is made. On the day the discharge terminates, a POSS owner may submit a “termination report” in lieu of the daily report. However, partially treated sewage discharged directly from a POSS that is in compliance with a DEC approved plan or permit does not need to be reported.

To view the final DEC rule implementing SPRTKA, click here.

Two Decades Later, New York Proposes First Major Amendments to the State Environmental Quality Review Act (SEQRA)

Posted By on February 9, 2017

On January 17, 2017, the New York State Department of Environmental Conservation (DEC) released proposed amendments to SEQRA – the department’s first major revisions to such regulations in more than two decades. The proposed amendments follow recent efforts by the DEC to modernize SEQRA and are intended to streamline the process by, among other things, new environmental assessment forms along with the creation of workbooks and a spatial data platform on DEC’s website (EAF Mapper). According to the DEC, the EAF Mapper “enables users in performing environmental assessments to access the same geographic information relied on by DEC staff.expanding the list of Type II actions that are not subject to SEQRA review.”

Notably, the proposed amendments to the Type II list of actions include building upgrades conducted to meet energy, building and fire codes. The DEC also proposes to add the “retrofit[ting] of an existing structure or facility to incorporate green infrastructure” to the list of Type II actions exempt from SEQRA review. The new term “Green Infrastructure” is defined to include “practices that manage storm water through infiltration, evapo-transpiration and reuse such as the use of permeable pavement; bioretention; green roofs and green walls; tree pits; storm water planters; rain gardens; vegetated swales; urban forestry programs; downspout disconnection; and storm water harvesting and reuse.”

New proposed Type II actions also include, but are not limited to:  (i) brownfield site clean-up site agreements, provided the design and implementation of the remedy do not commit the DEC to specific future uses; (ii) the installation of fiber-optic cables in existing highway or utility rights of way; (iii) installation of cellular antennas on existing structures that are not listed on the National or State registers of historic places; (iv) the installation of five megawatts or less of solar energy panels on a landfill, brownfield site, waste-water treatment facility or site zoned for industrial use; (v) subdivisions defined as “minor” under a municipality’s subdivision regulations (or subdivision of four or fewer lots) that involve ten acres or less; and (vi) the transfer of five acres or less by a municipality or public corporation to a non-profit corporation for the construction or rehabilitation of one, two or three family housing.

However, the proposed amendments also include new Type I actions, which are those actions or projects “that are more likely to require the preparation of an EIS than Unlisted actions.” For example, the DEC proposes to add to the Type I list new non-residential construction projects that include “parking for 500 vehicles in a city, town or village having a population of 150,000 persons or less.” The amendments would also make scoping of environmental impact statements (see 6 NYCRR 617.8) mandatory (scoping is now optional), and more precisely define the acceptance procedures for draft environmental impact statements (EIS).

Comments on the proposed amendments will be accepted until the close of business on May 19, 2017. A public hearing will be held on March 31, 2017. The hearing will begin at 1:00 pm at 625 Broadway, Albany, New York, Public Assembly Room 129.

For more information, click here.

Proposed Amendments to 6 NYCRR Part 617, Draft Express Terms (PDF)

Split Second Circuit Panel Invokes Chevron Doctrine, Reverses Southern District and Reinstates EPA’s Water Transfers Rule

Posted By on February 6, 2017

In a 2-1 ruling, the Second Circuit reversed Southern District Judge Kenneth Karas, who had found that the U.S. Environmental Protection Agency’s (EPA) “Water Transfers Rule” was an unreasonable interpretation of the Clean Water Act. Writing for the majority and leaning on the EPA’s reasoning, Circuit Judge Robert Sack wrote that the “Water Transfers Rule is based on a reasonable interpretation of the Clean Water Act and therefore entitled to Chevron deference.”

A “water transfer” is an activity that “conveys or connects waters of the United States without subjecting those waters to any intervening industrial, municipal or commercial use.”  Judge Sack noted, for example, that New York City’s water supply system, which moves water to the City from various upstate reservoirs, is considered a “water transfer.” The EPA’s Water Transfers Rule, which was promulgated in 2008, allows water to be transferred between basins without a National Pollutant Discharge Elimination System (NPDES) permit, even if the water being transferred is polluted. In taking this position, the EPA noted in an August 2005 legal memorandum that Congress “did not intend for water transfers to be subject to the NPDES permitting program.” To that end, the Rule provides that water transfers “do not require NPDES permits because they do not result in the ‘addition’ of a pollutant.”  The EPA reasoned that even if water is transferred in which pollutants are present, “it does not result in an ‘addition’ to ‘the waters of the United States,’ because the pollutant is already present in ‘the waters of the United States.’”

Plaintiffs in Catskills Mountains Chapter of Trout Unlimited et al. v. Environmental Protection Agency (Catskill III), case no. 14-1823, consist of various states and environmental groups who unsuccessfully argued that the Water Transfers Rule “is not the interpretation best designed to achieve the [Clean Water] Act’s overall goal of restoring and protecting the quality of the nation’s water.” Judge Sack conceded that the EPA’s interpretation of the Clean Water Act in promulgating the “Water Transfers Rule” might not be entirely “consistent with what appears to us to be the most prominent goals of the Clean Water Act.”  Nevertheless, the Second Circuit panel invoked the Chevron Doctrine and determined that as long as the EPA’s “statutory interpretation is reasonable, what we might prefer is irrelevant.”

In concluding that the EPA’s interpretation of the Clean Water Act was reasonable, Judge Sack noted that “the Rule is supported by several valid arguments – interpretive, theoretical, and practical.” The Second Circuit majority found that the EPA’s justification for the Rule was also supported by a statutory purpose because, according to the EPA, “Congress intended to leave primary oversight of water transfers to state authorities in cooperation with Federal authorities.” One observation made by the EPA, which Judge Sack found reasonable, was that “subjecting water transfers to NPDES permitting could affect states’ ability to effectively allocate water and water rights.”

Dissenting Judge Denny Chin agreed with the district court, noting that the Rule and majority’s decision to defer to the EPA is “incompatible with the goal of the [Clean Water] Act to protect our waters…because” it could “lead to the absurd result that the transfer of water from a heavily polluted, even toxic water body to one that was pristine via a point source would not constitute an ‘addition’ of pollutants and would not be subject to the [Act]’s NPDES permit requirements.”

Catskills Mountains Chapter of Trout Unlimited et al. v. Environmental Protection Agency, Case No. 14-1823, U.S. Court of Appeals for the Second Circuit.

City Council Members Seek to Redefine “Reside” in Local Lead Paint Law

Posted By on February 6, 2017

New York City’s lead-based paint law (Local Law 1 [1982]) requires landlords to remove lead-based paint in any apartment unit in which a child under 6 years of age resides. The issue in Yaniveth R. v. LTD Realty Co. was whether a child “resides” in an apartment containing lead-based paint when the child does not live in the apartment but spends approximately 50 hours per week there with a caregiver. The child, who was found to have elevated blood lead level at the age of one lived with her parents but usually stayed with her maternal grandmother five days per week while her parents were at work and did so since she was three months old.

Defendants successfully argued that, under Local Law 1, they owed no duty to removed lead-based paint from the grandmother’s apartment because the child did not “reside” there. The Supreme Court granted the motion for summary judgment and dismissed the complaint; the Appellate Division (First Dept.) unanimously affirmed.  The Court of Appeals, in a 4-1 decision, affirmed and held that the lower courts properly dismissed the case because Yaniveth did not “reside” in her grandmother’s apartment (and therefore, the landlord had no duty to remove lead based paint from the apartment). The Majority Opinion, written by Judge Eugene Pigott relied on principles of construction and various dictionary definitions of the term “reside” (noting that “[r]esidence implies something more than mere physical presence and something less than domicile.”).

In response to the above, four Council Members are planning to redefine the term “reside” in New York City’s lead-based paint law. On January 18, 2017, Council Members Daniel Dromm, Rafael Salamanca, Jr., Inez Barron and Robert Cornegy, Jr. jointly sponsored Introduction No. 1427. The bill seeks to amend § 27-2056.2 of the Administrative Code by adding a definition to the words “reside” and “residency” to the City’s Lead Law. Specifically, the bill would define “reside” or “residency” as “being present in a dwelling unit for 15 or more hours in a typical week.”  The bill has been referred to the Council’s Committee on Housing and Buildings, and a hearing on this will be held in the coming months.

The bill’s prime sponsor, Council Member Dromm, was elected to the New York City Council in 2010, as the representative for District 25, Jackson Heights and Elmhurst.

Yaniveth R., v. LTD Realty Co., 27 N.Y.3d 186 (N.Y. Apr. 5, 2016)

Tonawanda Coke Corporation Enters into a $12 Million Settlement with DEC and EPA for Alleged Violations of State and Federal Environmental Law

Posted By on September 25, 2015

The U.S. Federal Government and the State of New York jointly announced on May 11, 2015 a $12 million settlement with Tonawanda Coke Corporation for a litany of alleged environmental violations at TCC’s western New York coke manufacturing facility.

The settlement comes largely as a result of a concerted effort by the local community to attract regulators’ attention to operations at the facility. The community conducted its own air toxic monitoring which identified pollution problems emanating from the facility, and EPA Regional Administrator Judith Enck stated that it was the community’s actions that “spurred government action to protect the community” against what she dubbed an “environmental outlaw.” (more…)

DEC Issues New York State’s Official Rationale for Fracking Ban

Posted By on September 4, 2015

DEC has issued its long-awaited environmental impact study for high volume horizontal fracturing, or fracking, in New York State. This document contains the state’s official findings on the environmental and human health impacts of fracking, namely, that too much uncertainty surrounds the impacts of the process to proceed with issuing permits for fracking.

This constitutes the legal basis for the state’s highly publicized ban on fracking. Formally known as the Findings Statement for the Final Supplemental Generic Environmental Impact Statement on the Oil, Gas and Solution Mining Regulatory Program, it has been seven years in the making. (more…)

New State Legislation Requires Increased Climate Resilience for New York Infrastructure

Posted By on January 21, 2015

As in other areas of environmental policy, New York State is a leader in grappling with global climate change.  Since 2009, the New York State Department of Environmental Conservation has had a policy in place that requires it to consider energy use and greenhouse gas emissions when it prepares or reviews an Environmental Impact Statement under the State Environmental Quality Review Act.

One of many climate-related policies, it was put in place to help mitigate the state’s contribution to climate change. But with the impacts of climate change increasingly being felt in New York, the state’s focus has expanded from climate change mitigation to include adaptation as well. Accordingly, Governor Cuomo has recently signed into law a bill that will help ensure that the state’s infrastructure is prepared for future climate hazards. (more…)

When is Judicial Review Available for an Ongoing Federal Superfund Remediation?

Posted By on January 2, 2015

The U.S. Supreme Court has recently declined to consider a case centering on the question of when a citizens’ group may challenge an ongoing environmental remediation under the federal Superfund law. The Court’s decision lets stand a May 2014 ruling by the Seventh Circuit that chipped away at Superfund’s general prohibition on legal challenges to ongoing removal or remedial actions. (more…)