New York Court Elaborates on “Expected or Intended” Damages, Commercial Coverage Issues
We previously discussed an Appellate Division case touching on when and how liability insurance coverage may be excluded because the damage caused was “expected or intended” by the policyholder as opposed to “accidental.” In that case, as we explained, the court ultimately focused on subjective vs. objective intent. Following that decision, a trial court had occasion to visit the “expected or intended” damages issue as well as a number of other pertinent coverage dispute questions. Below, we discuss several of the conclusions drawn by the court, including its detailed “accidental” damage analysis. If you are in the midst of a coverage dispute regarding toxic chemicals or environmental damage, call a knowledgeable New York environmental litigation coverage dispute defense attorney for advice and representation.
Defining the Parameters of “Expected or Intended” Damage
The case titled Century Indemnity Co. v. Brooklyn Union Gas Company et al. concerns whether certain insurance policies provided by Century cover Brooklyn Union’s costs relating to environmental damage attributed to the company’s manufactured-gas plants (MGPs). Brooklyn Union incurred significant expenses in remediating environmental damage caused at several former MGPs and in the Gowanus Canal in Brooklyn in the mid-twentieth century, during which time it was insured by Century. After two decades of litigation, the parties finally went to trial over the coverage dispute. By the time of trial, it was undisputed by the parties that Brooklyn Union’s costs would only be covered by Century’s policies if the environmental damage caused by Brooklyn Union was “accidental” as opposed to “expected or intended.” Much of the court’s decision turns on the appropriate parameters for defining accidental vs. expected or intended damage.
As explained by the court, the question does not turn on whether the covered party “intended” to commit the actions that led to the property damage, but rather whether the party intended to cause the resulting damage. Intent to cause the resulting damage turns on the party’s state of mind and the facts within its knowledge at the time it chose to act or refrain from acting. Taking a “calculated risk” that damage might, but might not, result from certain acts, or that damage might result down the line, is not sufficient to show the damage was expected or intended. Certainty that such damage will result from certain acts, however, or where the “damage is inherent in the nature of the act itself,” is sufficient to show such damage was expected or intended.
Based on this analysis and other case law, the court reached several conclusions. First, the relevant time period for evaluating the policyholder’s state of mind is at the time of the act itself–what they knew when they acted, rather than what they knew at the start date of each policy. Second, citing NL Industries, which we previously discussed, the court went on to reaffirm that a “substantial probability” of property damage is not sufficient to show the policyholder “expected or intended” the damage. Damage is expected or intended when the damage is “[c]ertain or substantially certain to result at the time of the harm-producing act.”
How to Read an Ambiguous Policy With a Sophisticated Policyholder
The Century Indemnity court addressed a number of additional issues regarding coverage and policy interpretation. The parties disputed, for example, whether the policies’ per-occurrence limits reset annually upon policy renewal or instead should be applied once across the entire life of the policies. Among other things, the court addressed how ambiguous policy language should be resolved.
The default rule for interpretation of a contract is to interpret ambiguous terms against the drafter. This is known as the “Contra Proferentem Doctrine.” With regard to an insurance contract, that typically means that ambiguous terms will be resolved in a way that favors the insured, given that insurers draft the contracts. If, however, the policyholder is a sophisticated party, the presumption may not apply.
In Century Indemnity, the court held that Brooklyn Union was a victim of its own sophistication. The company maintained substantial self-insurance “and had extensive experience in insurance-coverage-related issues.” Self-insurers and other sophisticated parties are not given the benefit of contra proferentem because the law expects them to understand the contract just as well as the drafting party, and to negotiate any provisions they don’t like. They are “more akin to that of an insurance company than to that of an individual who is inexperienced in matters of insurance coverage for whose benefit the rule was promulgated.”
For thorough and effective legal guidance on a New York insurance defense or toxic tort claim, contact the Islip offices of Richard A. Fogel at 516-721 -7161.