In the latest development in Olin Corporation v. Insurance Co. of North America, No. 1:84-CV-01968, (S.D.N.Y., 11/21/2016), a 30-plus year old case between plaintiff Olin Corporation (“Olin”) and its insurance provider, defendant Insurance Company of North America (“INA”), a judge of the Southern District Court of New York ultimately ordered the insurer to reimburse Olin $1.7 million for litigation costs it incurred in connection with a 2003 lawsuit concerning hazardous waste contamination at one of Olin’s properties originating in the 1950s.

Olin sought to recover from INA expenses incurred as a result of defending litigation brought by third-party plaintiffs concerning two separate properties, the Hamden and Chula Vista sites. The Court had previously granted Olin summary judgment on its claims relating to the Hamden site in an amount exceeding $1.7 million. With respect to the Chula Vista site, the Court granted partial summary judgment in Olin's favor, finding that Olin timely notified INA of two third-party suits. After the ruling on the summary judgment motion, INA’s counsel became aware of certain documents produced by Olin that if believed were material to the Chula Vista site. The Court therefore allowed the parties to submit supplemental briefing on the issue of whether the documents impacted the Court’s prior rulings. The Court only modified its previous ruling to the extent of withdrawing its prior determination that Olin timely notified INA of one of the third-party suits regarding the Chula Vista site, however, the Court set forth the reasons for all the Court’s rulings on the issues in this opinion.

The first dispute entails Olin’s claims for defense costs in connection with the Hamden site. Olin was insured by INA from 1950 to 1970. In 2003, a putative class filed suit alleging personal injuries and property damage caused by Olin’s disposal of industrial waste at private and public dumps in the area until at least 1957. Olin notified INA of the litigation 19 days after receiving notice and demanded INA provide a defense. INA denied the request. In 2006, a second amended complaint was filed which included more parties and eventually resulted in a settlement between Olin and the class. Olin sought the $1.7 for defense costs from INA incurred as a result of these proceedings.

While admitting that INA did have a duty to defend Olin, INA opposed the request for defense costs arguing that the property damage occurred outside the actual coverage periods. Furthermore, INA contended that the Court should allocate defense costs between the parties to account for the damage which occurred during the periods when Olin lacked insurance. The Court disagreed, citing New York cases holding that any ambiguity as to the insurer’s duty to defend us resolved in favor of the insured. Even as the parties agreed that Olin ceased dumping pollutants near the plaintiffs' properties in 1957, the Court held that property damage can continue after active disposal ceases if contamination seeps into the soil and groundwater. It supported its determination stating that several courts in the District have held that allegations of migration triggered the duty to defend even when the actual dumping took place outside the policy period.

INA argued that the pleadings failed to allege property damage during the policy periods, as the groundwater contamination was not claimed to be ongoing and continuous. The District Court found this argument insufficient, stating that, as the pleadings at issue were ambiguous as to when the contamination migrated onto the Hamden plaintiffs' property, such ambiguity must be resolved in favor of the insured under New York law. It further stated that dumping during the 1950s raised the inference that the contamination migrated during the following policy period. Thus, the Court granted summary judgment in favor of Olin on this issue.

As to the next issue of allocating the defense costs between the parties as raised by INA, the District Court found that under New York law costs may not be allocated in these circumstances if there is no reasonable means of prorating the costs between covered and non-covered items. Even in previous litigation between the parties concerning a different site, the Court declined to allocate costs between the parties since it would involve unreasonable guesswork. The Second Circuit affirmed. The Court reiterated that the issue is not when the dumping occurred, but rather when the property damage occurred as that is the event that triggers coverage.

The Court then considered the claims regarding the Chula Vista property. Olin demanded that INA pay its defense costs when the Chula Vista plaintiffs filed suit alleging that Olin arranged for the disposal of hazardous substances at the site from 1965 until 1997, causing damage to their properties. Although the owner of the property at the time, UE, had agreed to indemnify Olin, UE denied doing so. Olin filed an action against UE. The next year, UE sold the property at issue to the Baldwins and, as a result of a settlement between UE and the Baldwins, the Baldwins assumed UE’s obligations to Olin’s claim for indemnity. As a result of a subsequent settlement agreement, the Baldwins paid for Olin’s defense costs for several years until it became insolvent. Thereafter, Olin informed INA of this Chula Vista suit, which Olin ultimately settled.

INA received notice of the Chula Vista suit six years after it was filed and thus denied coverage on the grounds of lack of proper notice. The Court however found Olin had timely notified INA. Olin and INA had previously agreed that Olin must submit a claim to INA within a reasonable time whenever Olin determines that a claim may exceed $100,000. Here, as the Baldwins funded Olin’s defense until 2012, it was only when the Baldwins ceased payment that Olin could determine that the claim might exceed $100,000.

Additionally, while the parties did not dispute that the complaints fall within the scope of INA’s duty to defend, they did dispute (1) whether the May 2004 notice to INA contained sufficient information to trigger the duty to defend, (2) whether Olin fulfilled a condition precedent to coverage by providing notice of the State and UE suits to INA, (3) whether Olin forfeited the claim to payment by impairing INA’s subrogation rights, and (4) whether Olin’s defense costs were reasonable. The Court only granted summary judgment on the first issue of timely notice, and on all other issues denied it.

This opinion serves to further cement New York case law holding that ambiguity as to an insurer’s duty to defend is resolved in favor of the insured. In addition, absent reasonable means of prorating costs between covered and non-covered issues, courts in New York are hesitant to permit such allocation. But the central takeaway from this case is that, under current New York law, coverage is not triggered when the dumping occurred, but rather when the property damage occurred, even if the dumping occurred outside of the coverage period.