State v. Tartan Oil Corp.

Citations: 219 A.D.2d 111; 638 N.Y.S.2d 989; 1996 N.Y. App. Div. LEXIS 2286

Court: Appellate Division of the Supreme Court of the State of New York; March 13, 1996; New York; State Appellate Court

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In 1984, gasoline contamination was detected in groundwater near a service station operated by Tartan Oil Corporation and Rally Oil Company. The plaintiff incurred costs of $167,236.30 for containment and cleanup and subsequently sued the defendants for strict liability under Navigation Law article 12 and sought $500,000 in penalties under Navigation Law sections 190 and 192. The defendants initiated a third-party action against the San Francisco Foundation (SFF), Chevron U.S.A. Inc., and Petroleum Facilities, Inc., alleging their strict liability for cleanup costs and seeking indemnification for any judgment, including penalties and legal fees. In response, SFF and Chevron claimed contractual indemnity from Tartan based on an agreement from August 27, 1981, which required Tartan to hold them harmless for damages related to a leaking storage tank. SFF and Chevron sought partial summary judgment on their cross claim, while the third-party defendants moved to dismiss the strict liability claims and requests for indemnification, arguing that those claims cannot be maintained by a discharger named as a defendant under Navigation Law article 12, and that statutory penalties and counsel fees are not recoverable as a matter of law. The Supreme Court denied the summary judgment motion as premature and granted the dismissal motion, leading to appeals from both parties. The court noted that the liability under Navigation Law article 12 could apply to an "innocent" owner, which is significant because the determination of whether Tartan is "innocent" or "guilty" cannot be made until the main action is tried, impacting the merit of SFF and Chevron’s cross claim against Tartan and the defendants' claims against third-party defendants.

SFF and Chevron's cross claim against Tartan, based on contractual indemnity, is evaluated under the August 1981 agreement stipulating: 1) the property is transferred 'as is' without any warranties; 2) the presence of potentially hazardous materials in underground storage tanks; 3) Tartan must hold SFF and Chevron harmless from related liabilities; 4) Tartan assumes risks associated with the property, including leakage from storage tanks; 5) Tartan indemnifies SFF and Chevron for such risks; and 6) Tartan is responsible for the cost of relining tanks. The language indicates that Tartan's indemnification does not cover liabilities for past or present leaks, as it only prospectively addresses risks and does not imply existing leakage or past discharges. The analysis states that the indemnification clause must be strictly construed, emphasizing a lack of intent to include liabilities resulting from leaks.

Regarding defendants’ strict liability claim against third-party defendants, the Supreme Court's dismissal is contested based on a recent ruling in White v Long, which states that a faultless property owner can pursue claims against those responsible for discharges. If the defendants are found liable to the State Fund without being responsible for the discharge, their strict liability claim stands. Additionally, the costs incurred in defending the main action may qualify as 'indirect damages' recoverable under Navigation Law. Consequently, the court partially reinstates the first cause of action and fully reinstates the seventh cause of action in the third-party complaint. The court affirms the dismissal of the claim regarding statutory penalties due to the defendants’ failure to contain discharges. The decision modifies previous rulings, denying the motion to dismiss parts of the complaint related to cleanup costs.