In Emerson Enterprises, LLC v. Hartford Accident and Indemnity Co. et al., No. 12-4287-CV, 2013 WL 4753564 (2d Cir. Sept. 5, 2013), the Second Circuit, applying New York law, affirmed the district court’s summary judgment order holding that three liability insurers had no duty to defend their policyholder against environmental contamination claims because their policies’ respective pollution exclusions barred coverage for pollution resulting from intentional conduct.
The policyholder in Emerson owned property in New York that it had leased out for industrial operations since the 1960s. In 2000, a dry well containing hazardous substances was discovered on the property and the New York State Department of Environmental Conservation (NYDEC) demanded that the policyholder pay for the investigation and remediation of the contamination. See Emerson Enterprises, LLC v. Crosby, No. 03-CV-6530, 2007 WL 4118299, *1 (W.D.N.Y. 2007). The policyholder subsequently sought a declaratory judgment that the three insurers were required to defend and indemnify it in the proceedings brought by the NYDEC. The policyholder argued that it was entitled to coverage under the policies of two of the insurers, based on an exception that made the pollution exclusion in those policies inapplicable to a “sudden and accidental” discharge of pollutants. The policyholder likewise argued that it was entitled to coverage under the third insurer’s policies because the pollution exclusion in those policies applied only where the discharge from which the damage arose was “expected or intended.”
The Second Circuit began by noting that the policyholder had conceded that pollutants had been intentionally dumped in the well at issue. Emerson, 2013 WL 4753564 at *1. The court rejected the policyholder’s claim that any subsequent overflow due to rainwater was unintended, unforeseen, and therefore “accidental” under the policies in which the pollution exclusions contained an exception for a “sudden and accidental” discharge of pollutants. Id. The Court of Appeals, citing authority from both the New York Court of Appeals and the Second Circuit, stated that under New York law, “the unintended consequences of intentional discharges are not ‘accidental.’” Id. “Thus, because the conduct resulting in pollution here was intentional, and only its consequences were unintentional,” the court concluded that any overflow was not “accidental,” and the pollution exclusion therefore applied to contamination resulting from any rainwater overflow. Id.
The Court of Appeals likewise rejected the policyholder’s claim that it was entitled to coverage under the policies in which the pollution exclusion applied only where the discharge was “expected or intended.” Id. at *2. The court explained that, even if the overflow was unintended, it nevertheless arose out of an expected and intended discharge – the routine dumping of chemicals into the dry well. Id.
The Court of Appeals similarly rejected the policyholder’s secondary argument that some discharges resulting from the workers’ practice of carrying punctured drums outside were “sudden and accidental.” Id. at *1. The court held that leakage resulting from the placement on the ground of drums known to be punctured would not be “accidental.” Id.
The court’s decision in Emerson confirms that, under New York law, the proper inquiry when applying the term “accidental” in pollution exclusions is whether the initial discharge was intentional, and not whether any later overflow or seepage was intended. The court’s decision is also noteworthy because the court reached the same conclusion under policies that except “sudden and accidental” discharges from their pollution exclusion and policies whose pollution exclusions apply only where the discharge was “expected or intended.” Finally, the court’s decision is useful despite its brevity as it canvasses key decisions under New York law interpreting pollution exclusions, including Technicon, Ogden, City of Johnstown, Olin, Rapid-American, and Stamford Wallpaper, relying on or distinguishing them, as the case may be, to reach its conclusion.