Burt Rigid Box, Inc. v. Travelers Property Casualty Corp.
Docket: Nos. 01-7230(L), 01-7649(XAP)
Court: Court of Appeals for the Second Circuit; August 16, 2002; Federal Appellate Court
Burt Rigid Box, Inc. initiated a legal action against Travelers Casualty and Surety Company regarding insurance coverage for claims of improper toxic waste disposal at four sites in New York during the 1960s and 1970s. In a ruling on January 26, 2001, the U.S. District Court for the Western District of New York partially granted and denied cross-motions for summary judgment. Key findings included: (1) Burt proved the existence and terms of the insurance policies by a preponderance of the evidence; (2) Burt's notice of occurrence for the Pfohl and Sleepy Hollow sites was deemed untimely; (3) Aetna was not estopped from asserting late notice defenses, except concerning certain bodily injury claims for which it failed to promptly disclaim coverage as required by New York Insurance Law § 3420(d); and (4) Aetna was entitled to summary judgment on claims outside the policies' coverage. A subsequent order on April 24, 2001, confirmed that Aetna was excused from defending property damage claims related to the Pfohl site due to Burt's late notice. Both parties filed cross-appeals; Burt argued against the untimeliness ruling and the use of external evidence for summary judgment, while Aetna contested the burden of proof on the policy existence and terms, as well as its obligations regarding bodily injury claims. The court did not address the evidentiary standard, the timeliness of Burt’s notice for the Pfohl site, or Aetna's compliance with § 3420(d).
Burt is granted summary judgment regarding the existence and terms of its lost insurance policies, having provided sufficient unopposed evidence to meet the clear-and-convincing standard required. Aetna's late notice defenses are waived as they were not included in its affirmative defenses in the Answer, which addressed coverage disclaimers based on other policy provisions. The District Court's decision to grant summary judgment to Aetna on certain claims, which were determined to be outside the policies' coverage based on undisputed evidence, is upheld. The judgment of the District Court is reversed only concerning claims related to the Pfohl and Sleepy Hollow sites, which were deemed not to require Aetna's defense due to Burt's untimely notice. Prior to 1983, Burt was a subsidiary of Moore Corporation, which managed its insurance. Following Burt's sale in 1983, the New York State Department of Environmental Conservation (DEC) identified Burt as a generator of hazardous waste at the Pfohl Landfill and later at the Sleepy Hollow site. Burt disputed its liability for the Pfohl site but complied with DEC's inquiry. After receiving a letter from the Pfohl Bros. Site Steering Committee requesting financial contributions for clean-up efforts, Burt sought information about past insurers. Burt eventually entered a consent order with the DEC for the Sleepy Hollow site clean-up and received further notifications regarding its status as a potentially responsible party for other sites.
Burt received letters from the DEC asserting claims against him for investigation and remediation costs related to hazardous waste sites, including the Pfohl site, where the DEC indicated Burt had generated hazardous waste. Burt requested details about his insurance coverage prior to 1983, and Moore informed him that Aetna had been the commercial general liability carrier during the late 1960s and early 1970s. Burt subsequently notified Aetna of the DEC's claims concerning multiple sites and communicated that he was incurring defense costs. Aetna denied coverage, citing a lack of evidence of insurance and documentation from Burt. In December 1990 and January 1991, Burt formally requested defense and indemnification from Aetna for claims related to the Sleepy Hollow site, but Aetna denied coverage again. In May 1991, Burt initiated a lawsuit seeking a declaration of Aetna's obligation to provide coverage for the Pfohl site and others. Multiple lawsuits were filed against Burt related to property damage and personal injury claims, alleging exposure to hazardous waste from the Pfohl Landfill, which diminished property values and affected the plaintiffs' quality of life. Burt notified Aetna of these claims, but Aetna consistently refused to provide defense or indemnification, citing an inability to verify Burt as an insured. In 1998, Burt sought summary judgment in a declaratory judgment action, arguing that evidence showed Aetna had issued insurance policies covering him from December 31, 1963, to December 31, 1971, entitling him to coverage for four environmental site claims and ten lawsuits regarding the Pfohl site.
Aetna filed a cross-motion for partial summary judgment, asserting it was not obligated to cover environmental claims at the Sleepy Hollow and Pfohl sites due to Burt's failure to provide timely notice of occurrences and claims. Aetna also sought apportionment of defense costs for lawsuits involving claims outside the 1963-1971 period and argued it had no obligation to defend lawsuits with claims entirely outside that timeframe. Burt countered that its notifications were timely and claimed that Aetna waived any defense based on untimely notice through its own late disclaimer.
In a January 26, 2001 Decision and Order, the District Court found that Burt had provided sufficient evidence showing that Moore obtained comprehensive general liability policies from Aetna for the relevant years, and that Burt was an additional insured under those policies. The court ruled Aetna was obligated to cover environmental claims related to the Alltift and Booth Oil sites and most Pfohl lawsuits, except for Cline I. However, it held that Burt's untimely notice excused Aetna from covering claims for the Sleepy Hollow and Pfohl sites, and from defending Cline I. The court also determined that Aetna's failure to timely disclaim coverage did not waive its late notice defenses, as Burt failed to show prejudice from Aetna's delay. Furthermore, Aetna was not obligated to defend against certain claims outside the policy coverage.
On April 24, 2001, the court granted Aetna's motion to amend the judgment, confirming that Aetna was not required to defend any property damage actions due to Burt's untimely notice concerning the Pfohl site. Both parties subsequently cross-appealed. Burt argued the court erred in its findings regarding the timeliness of its notice and Aetna's waiver of late notice defenses. Burt also claimed the court improperly considered evidence beyond the original complaints to grant Aetna summary judgment on claims outside the policies' coverage. Conversely, Aetna contended the court erred in granting Burt summary judgment regarding the policies' existence and terms using a preponderance of evidence standard instead of clear-and-convincing evidence. Aetna also maintained that it was not required to disclaim coverage under New York's Insurance Law section 3420(d) and asserted its disclaimers were timely.
The amicus curiae Environmental Litigation Association filed a brief supporting Aetna, asserting that an insured must establish the existence and terms of a lost insurance policy by clear and convincing evidence. They also contended that the District Court rightly determined that an insured cannot avoid the requirement for timely claim notice based solely on the belief of non-liability. The legal standards for summary judgment were outlined, stating it is reviewed de novo and is appropriate when there are no genuine issues of material fact. The moving party must show the absence of such issues, while the nonmoving party must provide sufficient evidence to support a jury verdict. In a diversity case, federal courts apply the substantive law of the forum state, which in this case is New York. The District Court concluded that an insured must prove coverage under a lost policy by a preponderance of the evidence, relying on precedent from the New York courts. Aetna and the Environmental Litigation Association suggested a 'clear and convincing' standard should apply, but the court noted that summary judgment for Burt would still be justified regardless of the standard used. Furthermore, it was agreed that an insured can use secondary evidence to demonstrate the existence and terms of a policy only after showing diligent but unsuccessful efforts to locate the original policy.
The excerpt outlines the legal principles regarding the admissibility of secondary evidence under the 'best evidence' rule, as established in Rule 1004 of the Federal Rules of Evidence and similar New York rules. It emphasizes that the 'diligence' requirement is a preliminary evidentiary question for the court, not a factual issue for the jury. Aetna's arguments suggesting there were material issues regarding Burt's diligence are deemed misplaced; Aetna must show that the District Court abused its discretion in admitting the secondary evidence Burt presented. This evidence included various documents and testimonies indicating that Burt was covered by Aetna policies during the relevant period. The District Court found that Burt met its burden of proof regarding diligence and admissibility, and no manifest error was identified in that ruling. The secondary evidence submitted by Burt comprised business documents indicating policy numbers and coverage dates, acknowledgment from Aetna representatives, financial records showing allocated funds for insurance, and testimonies confirming the existence of insurance policies covering Moore and its subsidiaries.
An excess insurance policy was issued by Home Insurance Company to Moore, naming Burt as an insured party and Aetna as the primary insurance carrier. Testimony from Milne indicated that Burt needed to be listed on Aetna's primary policy to be included on the excess policy. Multiple testimonies from former and current officers of Moore and Burt supported this assertion. The District Court noted that Aetna did not provide evidence to contradict this secondary evidence, allowing a reasonable jury to conclude that Moore had CGL insurance policies from Aetna covering the years 1963 to 1971 for $1,000,000, with Burt as an additional insured. The parties acknowledged that any CGL policy from Aetna during this period would be its standard policy.
Aetna challenged the sufficiency of the evidence, likening it to cases where the burden of proof was not met, specifically citing Boyce Thompson Institute and Maryland Casualty Co. However, the evidence presented by Burt was deemed more compelling and well-supported. Unlike the cases referenced, where evidence was lacking or insufficient, Burt's case included strong documentary and testimonial evidence demonstrating the existence of the policies and their terms. The court found this evidence clear and convincing.
Regarding notice issues, Aetna's typical CGL policies required insured parties to notify Aetna of any accidents or occurrences promptly. Aetna claimed that Burt provided late notices for incidents at the Pfohl and Sleepy Hollow sites and for the Cline I lawsuit. Burt acknowledged receiving a notice of potential liability related to Pfohl and entering a consent order regarding Sleepy Hollow, as well as being served a summons for Cline I. Burt asserted that its notifications to Aetna were timely given the circumstances.
Burt asserts that it acted reasonably and in good faith, believing it was not liable for contamination at the Pfohl Landfill until the DEC identified it as a 'potentially responsible party' on August 18, 1986. Burt claims it was unaware of the Aetna insurance policies until May 3, 1988, thereby excusing any late notification regarding the Pfohl Landfill and Sleepy Hollow site. Burt also argues that any untimely notice to Aetna was waived, as Aetna failed to disclaim coverage promptly on that basis. The court found it unnecessary to determine the timeliness of Burt’s notices, agreeing with Burt that Aetna waived its right to deny coverage due to late notice.
In the District Court, Burt contended Aetna was estopped from asserting untimely notice due to its failure to timely disclaim. The court ruled that Aetna's late disclaimer did not waive the defense, as Burt did not demonstrate prejudice from the delay. However, regarding bodily injury claims, the court held that New York Insurance Law section 3420(d) barred Aetna from asserting a late notice defense.
On appeal, Burt argues the District Court erred by not separately analyzing waiver and estoppel. Aetna contends that the District Court mistakenly granted Burt summary judgment on its duty to defend bodily injury actions, asserting that section 3420(d) is inapplicable since the injuries did not arise from an 'accident,' and claiming that it had no obligation to disclaim due to the non-existence of an insurance policy. Aetna also argues its prior disclaimers were sufficient to preserve its right to later assert late notice and that any disclaimers were timely under the circumstances.
In New York law, waiver is defined as the voluntary relinquishment of a known right, while estoppel occurs when an insurer acts inconsistently with a lack of coverage, leading the insured to rely on that conduct to their detriment, which requires showing prejudice. The District Court's reliance on previous cases highlighted that prejudice was not established due to Aetna's inconsistent actions, which involved unreasonable delays in disclaiming coverage rather than a simple failure to meet one condition precedent.
The District Court ruled that Aetna's failure to timely disclaim coverage based on late notice does not prevent it from asserting that defense against Burt’s estoppel argument, but it does affect Burt’s waiver argument. Burt claims Aetna waived its right to argue untimely notice by not including it in a June 4, 1991 Answer, where Aetna disclaimed coverage on other specific grounds. Aetna argues that the term "conditions" in its affirmative defense implies untimely notice, but the defense primarily states that the losses were not covered by the policies. Aetna further contends that its disclaimers were based on policy exclusions, which do not waive the defense of untimely notice. However, case law indicates that an insurer's denial of liability due to lack of coverage operates as a waiver of notice requirements. Aetna, by disclaiming liability based on specific exclusions in its policies, has waived its right to assert a defense of untimely notice regarding claims related to the Pfohl site. Consequently, Aetna's arguments regarding the applicability of section 3420(d) to bodily injury actions are rendered unnecessary. Regarding the Cline I claim, Burt notified Aetna on May 24, 1994, but Aetna's subsequent Answer on October 9, 1995, also failed to assert a defense of untimely notice.
Aetna waived the defense of untimely notice of claim for Cline I because it did not assert this defense in its Answer to the Plaintiffs’ First Amended Complaint. The District Court granted summary judgment in favor of Aetna regarding its duty to defend against certain bodily injury claims, determining that undisputed extrinsic evidence demonstrated that there were no facts under which those claims could be covered by Aetna's policy. Burt contended that the Court erred by considering extrinsic facts; however, the Court clarified that an insurer's duty to defend is broader than its duty to indemnify and can include consideration of external evidence when it conclusively shows that there is no possible liability for the insurer. The District Court found that Aetna had no possible liability based on the evidence presented, justifying the summary judgment. The conclusion affirmed that Burt was entitled to summary judgment on the existence and terms of the policies, Aetna waived its late notice defenses, and the District Court did not err in granting summary judgment as the claims were clearly outside the policy coverage.
The judgment of the District Court is reversed concerning the claims related to the Pfohl and Sleepy Hollow sites, where the court had ruled that Aetna was not obligated to defend due to Burt's untimely notice of occurrence. The judgment is affirmed in all other respects, with each party responsible for its own costs. The defendant was incorrectly named "Travelers Property Casualty Corp" and will be referred to as "Aetna" in this opinion. The case was referred to Magistrate Judge Foschio on June 26, 1998, and reassigned on July 2, 1998, by District Judge Richard J. Arcara. A Steering Committee, comprised of companies identified by the DEC as potentially responsible for contamination at the Pfohl landfill, was formed to address immediate remedial actions demanded by the DEC. Under Section 3420(d) of New York Insurance Law, an insurer must notify the insured and claimants of any disclaimer of liability or denial of coverage for accidents occurring in the state as soon as reasonably possible. Rule 1004 allows for the admissibility of evidence when original documents are lost or destroyed, unless done so in bad faith. Although Aetna did not formally concede that any CGL policy issued to Moore between 1963 and 1971 was its "typical" policy, it presented evidence of its typical policy terms to assert that relevant policies would have included a pollution exclusion. Burt acknowledges the untimeliness of the notice but argues it was unnecessary due to Aetna's prior disclaimers of coverage, a matter not required for resolution in this instance. Burt asserts that Aetna first introduced the defense of untimely notice in its June 26, 1998, Answer to the Plaintiff's Second Amended Complaint.
