(Article from Insurance Law Alert, June 2025)
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Holding
Following a jury trial in an environmental coverage dispute, a New York appellate court ruled on the parties’ appeals relating to late notice and the annualization of per-occurrence limits in multi-year policies. Century Indemnity Company v. Brooklyn Union Gas Company, 2025 N.Y. App. Div. LEXIS 3446 (N.Y. App. Div. June 5, 2025).
Background
The coverage dispute arose out of contamination stemming from three manufacturing plants bordering the Gowanus Canal in Brooklyn, New York. Brooklyn Union Gas Company, the owner and operator of the sites, was insured under six excess policies issued by Century Indemnity Company during the relevant time frame. Each policy had a one-year term and contained a $100,000 self-insured retention. Four policies required notice “[u]pon the happening of an occurrence or accident that appears reasonably likely to involve liability on the part of [defendant].” The court referred to these policies as containing an “objective standard.” Two policies contained a “subjective standard,” requiring notice “upon [defendant] learning of any occurrence which in its judgment is likely to result in a claim in excess of the retained limit.”
In 1993, New York City issued notice of its intent to sue based on contamination at a different site. One month later, Brooklyn Union sent Century Indemnity notices of occurrences for the three sites at issue. Remediation orders issued between 2002 and 2005 for the three sites indicated costs in excess of the $100,000 self-insured retentions.
Century Indemnity sought a declaration that it lawfully disclaimed coverage based on untimely notice of an occurrence. A New York trial court issued numerous rulings on various motions for partial summary judgment, resulting in two appeals to the Appellate Division. In 2009, the Appellate Division affirmed the denial of Century Indemnity’s motion for summary judgment based on untimely notice, finding issues of fact as to whether Brooklyn Union’s analysis regarding whether the costs of remediation at the three sites were reasonably likely to implicate excess coverage prior to 1993, if at all.
In 2019, the Appellate Division affirmed the trial court’s ruling that Century Indemnity’s successive policies were subject to pro rata allocation for losses resulting from long term, continuous contamination. However, the Appellate Division deemed the policies ambiguous as to whether per-occurrence limits in multi-year policies were for the entire term of those policies or were annual per-occurrence limits.
In 2022, the matter proceeded to trial and a jury returned a verdict in Brooklyn Union’s favor, finding that it was entitled to excess coverage for the three sites at issue. Century Indemnity appealed, challenging several pretrial and trial rulings. Brooklyn Union cross-appealed, challenging the court’s ruling that the per-occurrence limits for multi-year policies were for the entire period and did not reset annually.
Decision
The Appellate Division ruled that the trial court erred when it instructed the jury to deem pro rata allocation of damages and retention amounts “a reasonably likely factor comprising defendant’s notice analysis . . . when determining whether defendant provided a timely notice of occurrence.” Instead, the jury should have been instructed to consider “all factors relevant to when the original retention amounts were reasonably likely to be exceeded,” including “motive and other evidence that the trial court erroneously excluded regarding the timely notice issue.” Additionally, the Appellate Division concluded that the trial court should have left it for the jury to decide whether Brooklyn Gas was on inquiry notice of an occurrence and whether it adequately investigated such occurrences.
However, the Appellate Division upheld the trial court’s apportionment of coverage equally among the three sites, finding a “rational basis” for such apportionment. Further, the Appellate Division upheld the trial court’s refusal to apply the contra proferentem doctrine to resolve ambiguities regarding per-occurrence limits in multi-year policies. In ruling that Brooklyn Gas was not entitled to inferences drawn in its favor as to policy terms, the Appellate Division emphasized Brooklyn Gas’s “large in-house insurance department,” sophistication in insurance matters, and bargaining power in negotiating the policies.
Comments
Untimely notice disputes often turn on a determination as to when a policyholder is or should be reasonably aware of a covered “occurrence” or other event triggering its duty to provide notice. As this ruling highlights, such decisions are often case-specific, dependent upon the factual records as compared to the notice obligations in the operative policies.