Applying Second Circuit's Rule Favoring Prorata Allocation of Coverage Responsibility, Federal District Court Holds Olin Responsible for Half the Costs of Pollution Clean Due to 14 Years of Self-Insurance

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Olin Corporation v. Insurance Co. of North America, 986 F. Supp. 841 (U.S. Dist. Ct., S.D.N.Y. Dec. 31, 1997)

In Stonewall Insurance Co. v. Asbestos Claims Management Corp., 73 F. 3d 1178 (2d Cir. 1995), a case discussed in connection with B & L Trucking (above), the United States Court of Appeals for the Second Circuit, applying New York, law held that in cases of multiyear triggering of liability insurance coverage responsibility must be prorated by time on the risk and that this included prorating the years during which the policyholder was uninsured or self-insured. However, the Stonewall court refused to impose responsibility on the insured via proration for years during which it was impossible to purchase insurance coverage for asbestos claims. The New York law applied in Stonewall has not been definitively pronounced by New York State's highest court. Under the balance of power between state and federal courts, federal courts ruling on matters of state law apply the law as enunciated by the state's highest court and attempt to discern or "predict" state law on novel questions based on lower court decisions and general legal principles. Thus, Stonewall may not be the definitive word on New York allocation of coverage responsibility for multiyear torts. However, the New York Court of Appeals (New York's highest court; unlike other states, New York trial courts are called the "Supreme" court) has not suggested any rejection of Stonewall's approach, making it likely that the New York high court will eventually expressly adopt the Stonewall view of prorata allocation.

Left open after Stonewall is the showing a policyholder must make to prove unavailability of insurance in order to avoid proration of coverage responsibility to the policyholder. In Olin, a pollution liability coverage matter, the federal trial court in Manhattan held that the Stonewall exception to prorata allocation "applied only where insurance is unavailable in the marketplace." 986 F. Supp. at 843.

The Olin case arose out of an EPA order requiring Olin to cleanup a fertilizer plant site near Williamston, North Carolina. An earlier opinion sets forth the underlying facts in some detail. (See Olin Corp. v. Insurance Co. of North America, 972 F. Supp. 189 S.D.N.Y. 1997). After jury trial, it was determined that there was injury to property covered by insurance for the years 1958 through 1985. However, Olin was self-insured for the 1971 through 1985 period.

Olin argued that under Stonewall it had been deprived of the opportunity to obtain insurance because of the presence of the "sudden and accidental" pollution exclusion in post-1970 liability policies. Under New York law, this exclusion permits pollution coverage only if the pollution liability stems from an abrupt or rapid discharge rather than the gradual release of pollutants that took place at the Olin plant in North Carolina. However, the court found that this standard exclusion in the Commercial General Liability Policy (CGL) did not make insurance unavailable because Olin could have purchased environmental impairment liability (EIL) insurance beginning at least as early as 1980 and that Olin could have kept in force this claims-made form of insurance.

As a consequence of its failure to purchase five years' worth of EIL insurance, Olin will be required to shoulder 14 years worth of the 27-year pollution period at its plant. …