Court: Court of Appeals for the Second Circuit; August 16, 2002; Federal Appellate Court
Burt Rigid Box, Inc. initiated a legal action against Travelers Property Casualty Corp., seeking a declaration of insurance coverage under policies from Burt’s former parent company for claims related to improper toxic waste disposal at four locations in New York during the 1960s and 1970s. The United States District Court for the Western District of New York issued a comprehensive decision on January 26, 2001, resolving cross-motions for summary judgment. The court ruled that Burt proved the existence and terms of the insurance policies, but found Burt’s notice of occurrence for contamination at two sites, Pfohl and Sleepy Hollow, to be untimely. The court further held that Aetna did not waive its right to assert late notice defenses, except for certain bodily injury claims due to failure to promptly disclaim coverage as required by New York Insurance Law. Additionally, Aetna was granted summary judgment for claims deemed outside the coverage of the policies. A subsequent ruling on April 24, 2001, amended the judgment to include all property damage claims related to the Pfohl site as exempt from Aetna’s defense due to Burt’s late notice. The parties are now cross-appealing; Burt challenges the District Court’s findings on the timeliness of notice, waiver of late notice defenses, and the consideration of external evidence in determining coverage.
Aetna argues that the District Court incorrectly granted Burt summary judgment by requiring a preponderance of the evidence to prove the existence and terms of the insurance policies, rather than a clear-and-convincing standard. Additionally, Aetna claims the court erred in determining its obligation to defend certain bodily injury claims based on New York Insurance Law section 3420(d), asserting that the alleged injuries did not arise from an "accident," and that even if the section applied, it was not required to disclaim coverage. Aetna contends that its prior disclaimers based on other grounds preserved its right to later assert a late notice defense, which it claims was timely.
The court held that, regardless of the evidentiary standard, Burt presented sufficient unopposed evidence to support summary judgment on the policies' existence and terms. It found that Aetna waived its late notice defenses by not including them in its affirmative defenses in the Answer. Furthermore, the District Court did not err in granting summary judgment for Aetna regarding certain claims that were undisputedly outside the policies' coverage. The court reversed the District Court's judgment only concerning claims related to the Pfohl and Sleepy Hollow sites, which had been deemed not timely notified by Burt. All other aspects of the District Court's judgment were affirmed.
Background facts indicate that Burt was sold by Moore Corporation in 1983 and later identified by the New York State Department of Environmental Conservation (DEC) as a generator of hazardous waste at the Pfohl Landfill, although Burt asserted it did not dispose of hazardous waste there. Subsequently, the DEC notified Burt of its responsibility for waste at the Sleepy Hollow site.
In August 1986, Burt was notified by the "Pfohl Bros. Site Steering Committee" that he had been identified as a potentially responsible party (PRP) by the DEC regarding the Pfohl site, leading to a request for a $3,000 assessment for an administrative trust fund. Burt informed Hartford Insurance Company of this situation and requested information on his prior insurers. In September 1986, his counsel, Moore, identified insurance carriers from 1972 to 1983 but could not ascertain those prior to 1972. In February 1987, Burt consented to a clean-up order for the Sleepy Hollow site. By February 1988, the DEC had identified Burt as a PRP for hazardous waste at the Alltift Realty and Booth Oil sites, asserting claims for investigation and remediation costs. Additionally, a March 1988 letter suggested Burt may have generated waste at the Pfohl site as well.
Burt repeatedly sought from Moore the details of his insurance coverage before 1983, and in May 1988, learned that Aetna had provided coverage in the late 1960s and early 1970s. He subsequently notified Aetna of the DEC's claims and incurred defense costs. Aetna responded in October 1988, denying any evidence of coverage for Burt due to lack of documentation. Burt continued to seek coverage, notifying Aetna of claims related to the Sleepy Hollow site in December 1990, but Aetna denied coverage again in January 1991.
On May 9, 1991, Burt initiated legal action to declare Aetna’s obligation to provide coverage for the Pfohl site and other locations. Concurrently, multiple lawsuits were filed against Burt, alleging liability under CERCLA and state tort law for generating hazardous waste disposed of at the Pfohl Landfill, impacting nearby property owners and their quality of life.
On May 24, 1994, Burt informed Aetna of claims against it in the Cline I case and other property damage actions, seeking defense and indemnification. Aetna denied coverage, claiming it could not confirm Burt's status as an insured under the relevant policies. Burt was also named in four personal injury actions related to alleged hazardous waste exposure at the Pfohl Landfill, prompting further requests for defense and indemnification from Aetna, which were similarly refused on the same grounds.
In 1998, Burt filed for summary judgment in a declaratory judgment action, asserting that Aetna had issued insurance policies covering Burt from December 31, 1963, to December 31, 1971, and that these policies entitled Burt to coverage for related environmental claims and lawsuits. Aetna countered with a cross-motion for partial summary judgment, claiming Burt failed to provide timely notice of occurrences and was not obligated to cover lawsuits outside the specified time frame. Burt argued that its notifications were timely or that Aetna waived the late notice defense due to its own delayed coverage disclaimer.
On January 26, 2001, the District Court ruled that Burt provided sufficient evidence of insurance coverage from Aetna for 1963-1971 and that Burt was an additional insured. Aetna was ordered to cover environmental claims related to specific sites and most Pfohl lawsuits, except Cline I. However, the court also found that Burt's late notices excused Aetna from covering certain claims, including those related to the Sleepy Hollow and Pfohl sites, and that Aetna's failure to timely disclaim coverage did not waive its right to assert late notice defenses, as Burt did not show prejudice from the delay. Additionally, Aetna was not required to defend or indemnify Burt for claims outside the policy coverage, including some bodily injury claims.
On April 24, 2001, the District Court approved Aetna's request to amend the judgment under Rule 59(e) of the Federal Rules of Civil Procedure, determining that Aetna was not obligated to defend against property damage claims related to the Pfohl site due to Burt's untimely notice of occurrence. Burt is cross-appealing this decision, arguing that the District Court incorrectly found the notice to be late and that Aetna waived its defenses regarding late notice. Burt also challenges the Court's reliance on evidence outside the original complaints to grant Aetna summary judgment on claims not covered by the insurance policies.
Conversely, Aetna is cross-appealing, asserting that the District Court mistakenly required Burt to prove the existence and terms of the policies by a preponderance of the evidence instead of by clear and convincing evidence. Aetna contends that it should not be required to defend certain bodily injury claims under New York's Insurance Law section 3420(d), arguing that the injuries did not arise from an "accident" as defined in the statute, and that even if applicable, Aetna's disclaimers on other grounds were adequate to preserve its late notice defense.
The Amicus curiae, Environmental Litigation Association, supports Aetna's position on the burden of proof regarding lost policies and the necessity of timely notice of claims. The legal standards for reviewing summary judgment indicate that it is appropriate when there are no genuine issues of material fact, with the burden on the nonmoving party to present sufficient evidence to support a favorable jury verdict, avoiding reliance on mere conclusory statements.
In diversity cases, federal courts typically apply the substantive law of the forum state, with the parties in this matter agreeing that New York law governs. The District Court established that an insured must demonstrate the existence and terms of a "lost" policy by a preponderance of the evidence, referencing the New York case Gold Fields American Corp. v. Aetna Cas. Sur. Co. as precedent. Aetna and the Amicus Insurance Environmental Litigation Association contend that the standard should be "clear and convincing," based on a prior case, Boyce Thompson Inst. for Plant Research, Inc. However, the court does not need to resolve this disagreement since Burt is entitled to summary judgment regarding the existence and terms of the policies regardless of the standard applied.
Regarding evidence, the District Court recognized that an insured can use secondary evidence to prove a policy's existence only if they show they conducted a diligent but unsuccessful search for the missing policy, as outlined by the "best evidence" rule in the Federal Rules of Evidence and supported by New York law. Nonetheless, the parties mischaracterize the "diligence" requirement as an element needing proof by Burt rather than an evidentiary threshold. They presented conflicting views on whether there were material issues of fact regarding Burt's diligence, which they argue affects the appropriateness of granting summary judgment.
The "diligence" requirement regarding admissibility of evidence is determined by the court, not the fact finder, under Rule 104(a) of the Federal Rules of Evidence. The trial judge has broad discretion to admit secondary evidence, and an evidentiary ruling is reversed only if it constitutes a manifest abuse of discretion. Aetna's claims about a disputed issue regarding Burt's diligence are unfounded; instead, Aetna must demonstrate that the District Court abused its discretion in admitting Burt's secondary evidence, which was necessary for ruling on summary judgment.
The District Court found that Burt met its burden of proof regarding the existence of insurance coverage, having examined various pieces of secondary evidence. This evidence included business documents from Moore showing Aetna policy numbers, acknowledgment by an Aetna claim representative of those policies, financial statements indicating coverage, and testimonies from Aetna's claims counsel and Moore's risk manager. Additionally, Burt presented an excess insurance policy referencing Aetna as the primary carrier and corroborating testimonies from several individuals associated with Moore.
The District Court stated that Aetna did not provide any contradictory evidence and concluded that a reasonable jury could find that Moore had obtained CGL insurance policies from Aetna from 1963 to 1971, covering Burt as an additional insured. The parties concurred that any CGL policy issued during this timeframe would have been Aetna's standard policy.
Aetna contends that the evidence presented by Burt does not satisfy the clear-and-convincing standard for proving the existence of insurance policies, referencing two prior cases where insured parties failed to meet this burden due to less compelling evidence. In contrast, Burt's evidence includes strong documentary and testimonial support for the existence of Aetna CGL policies, with corroborative items enhancing its credibility. Aetna has conceded that, if the policies exist, they are "typical" policies, implying agreement on their terms.
Regarding notice issues, Aetna's policies mandated timely notification of any claims or occurrences. Aetna and the District Court concluded that Burt's notifications about the Pfohl and Sleepy Hollow sites, as well as the Cline I lawsuit, were late. While Burt acknowledges receipt of relevant communications and the timing of its notices, it argues that circumstances justified the delays. Specifically, Burt claims it only became aware of its liability for the Pfohl Landfill in August 1986 and learned of the Aetna policies in May 1988, which should excuse the delayed notifications.
Burt also asserts that even if the notifications were late, Aetna waived its right to deny coverage by failing to timely challenge the notices. The court finds it unnecessary to determine the timeliness of Burt's notices, agreeing with Burt that Aetna waived its right to deny coverage based on the timing of these notifications.
Burt contended that Aetna waived or is estopped from asserting the defense of untimely notice due to its failure to timely disclaim coverage. The District Court ruled that Aetna's delay in disclaiming coverage did not waive the defense for property damage claims and environmental claims because Burt failed to demonstrate prejudice from this delay. However, for bodily injury claims, the court found that section 3420(d) of the New York Insurance Law prevented Aetna from asserting a late notice defense. On appeal, Burt argued that the District Court erred by not separately analyzing waiver and estoppel. Aetna countered that it was incorrect for the District Court to grant Burt summary judgment regarding its duty to defend the bodily injury claims, asserting that section 3420(d) was inapplicable since the injuries were not "accidents," and it maintained that no policy existed. Aetna also claimed that its timely disclaimers on other grounds preserved its right to later assert the late notice defense.
New York law distinguishes between waiver, which involves the intentional relinquishment of a known right, and estoppel, which occurs when an insurer's conduct leads the insured to reasonably rely on the belief that coverage exists, resulting in detriment. The District Court's decision that Burt must establish prejudice aligns with cases involving unreasonable delays in disclaiming coverage. Burt's waiver argument is based on Aetna's initial disclaimer in 1991, which did not mention untimely notice, with Aetna only raising that defense in 1992.
Aetna argues that its mention of "conditions" in the second affirmative defense of its Answer sufficiently asserts a defense of untimely notice. However, this defense states that if Aetna issued policies to the plaintiff, the terms and conditions of those policies do not provide coverage for the alleged liabilities. This interpretation indicates that Aetna is disclaiming coverage based on the absence of coverage rather than a failure to meet a condition precedent, such as timely notice. Aetna further claims that a disclaimer based on failure to satisfy one condition waives defenses based on other conditions, yet this is not supported by case law. The court has established that an insurer's repudiation of liability due to non-coverage waives any notice requirements. Aetna's Answer included multiple defenses based on exclusions, suggesting that if it issued policies, they contained standard provisions, including notice requirements. Since Aetna failed to assert these at the time of its disclaimers, it waived the right to later enforce them. Consequently, Aetna's defense of untimely notice regarding the Pfohl site claims is waived, and the court does not need to address Aetna's arguments about the applicability of section 3240(d). Aetna also failed to assert untimely notice in relation to the Cline I claim, thus waiving that defense as well. Lastly, the District Court granted summary judgment in favor of Aetna concerning its duty to defend certain bodily injury claims.
Based on undisputed evidence extrinsic to the complaints, it was established that there were no facts under which the claims could be covered by an Aetna policy. Burt contended that the District Court erred in considering facts outside the complaints, but this was refuted. An insurer's duty to defend is broader than its duty to indemnify and depends on a comparison of the complaints' allegations with the policy terms. An insurer must defend even if external facts suggest a claim may be meritless. However, the duty to defend ceases if it can be shown as a matter of law that no possible factual or legal basis exists for indemnification. New York courts may consider extrinsic evidence to determine an insurer's liability. The District Court correctly concluded that Aetna had no possible liability based on the evidence presented. The summary judgment granted to Aetna was upheld, while Burt was entitled to summary judgment regarding the existence and terms of the policies. Aetna waived its late notice defenses by not including them in its Answer. The judgment related to the Pfohl and Sleepy Hollow sites was reversed due to Burt's failure to provide timely notice, but the remainder of the District Court's judgment was affirmed. Each party will bear its own costs.
The Steering Committee was established by companies identified as "potentially responsible parties" by the New York Department of Environmental Conservation (DEC) to address immediate remedial actions required for the contamination at the Pfohl landfill. Under Section 3420(d) of the New York Insurance Law, if an insurer disclaims liability or denies coverage for injuries from accidents in New York, it must provide written notice of this disclaimer to the insured and the claimant as soon as reasonably possible. Rule 1004 allows for the admissibility of evidence of documents if the originals are lost or destroyed, provided there is no bad faith involved in their loss. Aetna did not confirm that its typical general liability (CGL) policy issued to Moore between 1963 and 1971 was standard, but it presented evidence of typical policy terms to support the assertion that a pollution exclusion would apply. Burt acknowledges that the notice given was untimely as a legal matter but argues that timely notice was unnecessary due to Aetna's prior disclaimers of coverage. The resolution of this point is not essential for the case. Furthermore, Burt asserts, and Aetna does not contest, that Aetna first claimed the defense of untimely notice concerning Cline I in its response to the plaintiff's second amended complaint on June 26, 1998.
