A federal district court in New York has ruled that an insured that waited for years to notify its insurer of an environmental contamination claim because it did not know about an insurance policy was not entitled to coverage for the claim.
The Case
On October 6, 2003, the New York State Department of Environmental Conservation (“DEC”) issued a notice of claim to K.B.K. Huntington Corp., the owner of a building and land in the town of Huntington in Suffolk County, New York, used as a dry-cleaning business. The notice alerted K.B.K. that the DEC “had included the Premises in the Registry of Inactive Hazardous Waste Disposal Sites in New York State.”
In March 2012, K.B.K. received a record of decision from the DEC that identified K.B.K. as a potentially responsible part (“PRP”) that had been “documented to date” and that might “be legally liable for the contamination at the site.” The record of decision also stated that K.B.K. had “declined to implement a remedial program when requested by the [DEC].”
In addition, the record of decision stated that PRPs would be contacted to “assume responsibility for the remedial program.”
On May 4, 2016, K.B.K. submitted a notice of claim under an insurance policy that it had obtained in 1979 from Hanover Insurance Company. K.B.K. said that it failed to submit a claim before then because it had not been aware of the policy until early 2016 due to the deteriorating health of its president, Steven Birchell.
Specifically, K.B.K. alleged that Mr. Birchell had suffered from Parkinson's disease since approximately 1994 and operated K.B.K. in poor health until his family took control in 2004, after receipt of the DEC's notice of claim. Consequently, K.B.K. contended, it did not learn of the policy's existence until it retained the services of a company named Policy Find, resulting in the discovery of the policy in Mr. Birchell's “old business records.”
On June 15, 2016, Hanover denied K.B.K.'s claim under the policy based, in part, on late notice.
On March 19, 2018, the New York State Attorney General advised K.B.K. that it intended to make a monetary claim against K.B.K. for the costs of remediation at the Huntington site. K.B.K. sent a copy of the letter to Hanover, which indicated that it would not defend or indemnify K.B.K. because it had breached the policy's notice provisions by failing to provide a timely notice of claim without a valid reason for the delay.
K.B.K. sued Hanover, which moved to dismiss.
The District Court's Decision
The district court granted the motion.
In its decision, the district court explained that the policy required written notice after an “occurrence” and after a claim was made, or a suit was brought against the insured.
The district court then found that a claim had occurred, at the very least, when K.B.K. received the March 2012 record of decision, which designated K.B.K. as a PRP “who may be legally liable for contamination at” the Huntington site. The district court observed that the record of decision elaborated that K.B.K. had “declined to implement a remedial program when requested by the [DEC]” and could be “subject to legal actions by the state for recovery of all response costs the state has incurred.”
Because the record of decision was a claim, the district court ruled, Huntington's policy required that K.B.K. provide notice of its potential liability to Huntington “as soon as practicable.” The district court decided that the length of K.B.K.'s delay – four years in the case of the record of decision (and many years in the case of the 2003 notice of claim) – was “inordinately long.”
The district court then rejected K.B.K.'s argument that its ignorance about the policy's existence in effect made its delay reasonable under the circumstances. The district court expressed “great sympathy for the hardships induced by [Mr.] Birchell's medical ailments,” but declared that K.B.K. could “not justifiably blame a delay of such great length entirely on his illness.” In the district court's opinion, a medical ailment “might justify a minor delay, in order to obtain treatment for an emergency for example. However, a person who chooses to continue operating a business over a long period of time, despite affliction from health issues, cannot use their situation as a shield against the basic responsibilities arising in the ordinary course of business.”
In any event, the district court stated, even accepting K.B.K.'s allegations as true, Mr. Birchell's family had assumed control of K.B.K. in 2004 “and apparently failed to even look for an insurance policy for over a decade, the whole time knowing the potential for liability” – and once K.B.K. began its search, it found the policy in its own business records. In the district court's view, it would be “profoundly unfair” to permit K.B.K. “to avoid one of the most basic obligations of its agreement” with Hanover simply because it “failed to exercise the minimal diligence necessary to discover the insurance policy.”
Accordingly, the district court concluded that K.B.K. had breached the policy's notice provisions, vitiating its right to seek indemnification and defense under the policy.
The case is K.B.K. Huntington Corp. v. Hanover Ins. Co., No. 2:18-cv-03135 (ADS)(AKT) (E.D.N.Y. March 14, 2019). Attorneys involved include: For Plaintiff: James A. Bradley, Esq., Of Counsel, McLaughlin & Stern, LLP, Great Neck, NY. For Defendant: Michael J Rossignol, Esq., Brooks Howard Leonard, Esq., Of Counsel, Riker Danzig Scherer Hyland Perretti LLP, Morristown, NJ.
Steven A. Meyerowitz
Steven A. Meyerowitz, a Harvard Law School graduate, is the founder and president of Meyerowitz Communications Inc., a law firm marketing communications consulting company. He may be contacted at [email protected].