In KeySpan Gas East Corp. v. Munich Reinsurance Am., Inc., the New York Court of Appeals examined an action against a liability insurer for indemnification of long-tail environmental damage. The plaintiff power company owned two manufactured gas plants that began operations in the late 1880s and early 1900s, and had remained in operation for several decades. After the plants had ceased operations, a state environmental agency detected long-term environmental damage at both sites arising from contaminants seeping into the ground and leeching into groundwater. The power company was required to perform expensive clean-up operations at both sites.
The power company sought coverage from numerous insurers, including an insurer that had issued the company excess coverage from 1953 to 1969. This insurer filed a motion for summary judgment, contending that the insurer should not be responsible for any damage that occurred outside the policy period, and that covered costs should be apportioned on a pro rata basis based upon each insurer’s time on the risk. While the power company did not dispute this general point, it argued that costs should not be apportioned to the company during periods in which liability insurance for pollution was unavailable. The trial court partially granted the insurer’s summary judgment motion, holding that the policyholder would be required to bear liability for periods in which insurers were legally required to incorporate pollution exclusions in liability policies, but that the defendant insurer would be required to indemnify the insured for other periods in which coverage was unavailable in the market. The Appellate Division reversed, holding that the insurer was not required to indemnify the insured for any period in which it did not have coverage, regardless of whether applicable insurance was available.
The Court of Appeals began its analysis by noting that under New York law, the manner in which indemnification for long-tail environmental damage is allocated among insurers is dependent upon the policy language at issue. In the present case, the policies at issue limited the defendant insurer’s liability to losses and occurrences “during the policy period.” New York courts have interpreted such language to require pro rata allocation so that insurers will not be held responsible for damages outside the policy period. The Court observed that requiring an insurer to indemnify an insurer for damages sustained when the policyholder was uninsured would defeat the purpose of pro rata allocation, regardless of whether the policyholder would have been able to obtain insurance during that period. The Court therefore affirmed the Appellate Division’s decision.