Long Island Lighting Co. v. Allianz Underwriters Insurance

301 A.D.2d 23, 749 N.Y.S.2d 488, 2002 N.Y. App. Div. LEXIS 10136
CourtAppellate Division of the Supreme Court of the State of New York
DecidedOctober 24, 2002
StatusPublished
Cited by19 cases

This text of 301 A.D.2d 23 (Long Island Lighting Co. v. Allianz Underwriters Insurance) is published on Counsel Stack Legal Research, covering Appellate Division of the Supreme Court of the State of New York primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Long Island Lighting Co. v. Allianz Underwriters Insurance, 301 A.D.2d 23, 749 N.Y.S.2d 488, 2002 N.Y. App. Div. LEXIS 10136 (N.Y. Ct. App. 2002).

Opinion

OPINION OF THE COURT

Friedman, J.

This appeal requires us to determine whether one of the many excess liability insurance policies at issue in this action affords coverage for the cost of remediating soil and groundwater contamination that was caused by the operation of plants that closed years before the inception of the policy period. The insured argues that coverage exists, notwithstanding that no new contaminants were discharged during the policy period, [25]*25because preexisting contaminants continued to migrate during the policy period. The insurers argue that the loss is not covered because there was no causal “occurrence” within the meaning of the policy during the policy period. We agree with the insurers, and therefore affirm the grant of partial summary judgment to them on this issue.

This appeal also presents the question of whether the insured waived any attorney-client privilege attaching to an internal report coauthored by its in-house counsel by inadvertently producing it in a prior related action, or by placing the subject matter of the report in issue in this action. We hold that, on this record, there was no waiver of privilege, and the insured’s motion for a protective order should therefore have been granted. Finally, we vacate Supreme Court’s imposition on the insured of an unduly punitive mechanism to deal with the privilege issues created by the erroneous finding of waiver.

PACTS

General Background

Plaintiff Long Island Lighting Company (LILCO) and its predecessors in interest formerly operated seven plants at which gas for lighting and heating was manufactured from a derivative of coal. Six of these plants, known as “manufactured gas plants” (MGPs), had ceased operating by the late 1950s; the seventh plant, located at Bay Shore, New York, closed in 1973. While the plants were operational, the gas manufacturing process produced solid and liquid waste residues that contaminated soil and groundwater at the sites.

Defendants are several insurance carriers that sold LILCO excess commercial general liability policies. LILCO commenced this action for the purpose of obtaining a declaration that defendants are obligated to provide LILCO with defense and indemnification in connection with LILCO’s potential liability to remediate the environmental damage at the MGP sites. Defendants have raised defenses of late notice. LILCO denies that it gave late notice of the claims, and further avers that defendants waived any defense of late notice by failing to disclaim coverage on that ground in timely fashion. The merits of the parties’ respective contentions as to late notice and untimely disclaimer are not at issue on this appeal.

The 1970-1972 Policy

This appeal does raise the issue of whether LILCO is afforded coverage for the six MGP sites that were closed as of the late 1950s under the terms of one of the policies issued by [26]*26one group of defendants, Certain Underwriters at Lloyd’s, London, and Certain London Market Insurance Companies (collectively, the London Defendants). This policy (the 1970-1972 Policy) provided coverage for the period from March 1, 1970 through December 31, 1972,1 and provided in pertinent part as follows:

“insuring agreements
“I. COVERAGE
“This policy is to indemnify:
“(a) the named Assured and/or the Assureds as defined in the definitions for any and all sums which they shall be legally obligated to pay and shall pay or by final judgment be adjudged to pay (subject to the limitations hereinafter mentioned) to any person or persons * * * by reason of damage to or destruction of property, by reason of or resulting from any trade or business of the named Assured including the performance of services by or on behalf of such Assured in connection with said trade or business. * * *
“II. LIMIT OF LIABILITY
“It is expressly agreed that the Underwriters shall only be liable hereunder for the ultimate net loss as a result of any occurrence covered under Insuring Agreement I (a) * * *” (emphasis added).

Elsewhere, the 1970-1972 Policy defined the term “occurrence” to mean “one happening or series of happenings arising out of or caused by one event taking place during the term of this contract” (emphasis added).

In May 1999, the London Defendants moved for, among other relief, partial summary judgment declaring that the 1970-1972 Policy did not cover claims relating to the six MGPs that closed prior to 1970. The London Defendants argued that LILCO was not entitled to coverage for these sites under the 1970-1972 Policy because coverage under the Policy, pursuant to their “Limit of Liability” provision (paragraph II of the “Insuring Agreements”), was triggered only by an “occurrence” during [27]*27the policy period that caused the damage giving rise to the liability. According to the London Defendants, the “occurrence” that caused the damage at issue was the operation of the plants, which, in the case of the six MGPs that had closed by the late 1950s, came to an end many years prior to the inception of the policy period on March 1, 1970.

In response, LILCO argued that the London Defendants overlooked the fact that the Policy’s “Coverage” provision (paragraph I [a] of the “Insuring Agreements”) did not utilize the word “occurrence,” but provided that coverage would be triggered by “damage to or destruction of property.” From this, LILCO drew the conclusion that the Policy was susceptible to the interpretation that ongoing property damage during the policy period, such as continued leaching of contaminants through the soil, was sufficient to trigger coverage, and that no causative “occurrence” during the policy period was required. Therefore, LILCO argued, the 1970-1972 Policy was ambiguous as to whether a causative “occurrence” during the policy period was required to trigger coverage, and the issue could only be resolved after trial.

The December 1993 Report

In response to the same motion by the London Defendants, LILCO cross-moved for a protective order as to a December 1993 internal report coauthored by LILCO’s Environmental Engineering Department and Legal Department, entitled “Manufactured Gas Plant Sites: Hempstead Gas Plant, Bay Shore Gas Plant — Investigation Summary and Remediation Strategy Recommendations” (hereinafter, together with its transmittal memorandum, the December 1993 Report). The December 1993 Report, which was marked “Privileged and Confidential — Attorney Work Product — Attorney-Client Communication,” analyzed the federal and state statutory and regulatory framework relevant to MGP sites in New York, discussed the anticipated action of the regulatory agencies concerned, summarized the results of LILCO’s investigation of the environmental damage at the two sites, set forth several remediation options for each site and the estimated cost of each option, and offered recommendations for the option to be implemented for each site and the strategy to be pursued in negotiations with the regulators. The recommendations made in the December 1993 Report were based on a combination of factors, legal as well as scientific and economic.

In a prior federal court action seeking substantially the same relief as this action (the Federal Action), LILCO had inadvert[28]

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Bluebook (online)
301 A.D.2d 23, 749 N.Y.S.2d 488, 2002 N.Y. App. Div. LEXIS 10136, Counsel Stack Legal Research, https://law.counselstack.com/opinion/long-island-lighting-co-v-allianz-underwriters-insurance-nyappdiv-2002.