In Travelers Indem. Co., et al. v. Northrop Grumman Corp., 2017 U.S. App. LEXIS 1471 (2d Cir. Jan. 27, 2017), a unanimous panel of the Second Circuit upheld a lower court's rulings that an insured is not entitled to coverage for certain cleanup costs under its environmental insurance policies due to inadequate and untimely notice of the pollution claims.

In an unpublished Summary Order, the Second Circuit affirmed a New York federal court’s findings in favor of the insurers, Travelers Indemnity Co. and Century Indemnity Co., which had declined coverage of claims filed against the insured, Northrop Grumman Corp., over contamination at several Long Island sites. The Court found Grumman waited far too long to notify the insurers of some of the claims, and did not take sufficient measures to notify the insurers of other claims.

Grumman had operated a 600-acre naval aircraft manufacturing and testing facility in Bethpage, New York, starting in the 1930s.  Within the original boundaries of the facility is an 18-acre parcel now constituting the Bethpage Community Park (the “Park”), which Grumman donated to the Town of Oyster Bay in October 1962.  “The Park sits on what used to be ‘sludge drying beds,’ where Grumman placed wastewater treatment sludge generated from its plants,” the ruling noted. Id., Slip Op. at 3. In connection with its operations at the facility, Grumman used and stored contaminants such as trichloroethylene, or TCE, a toxic liquid used as a degreaser for metal parts.  Eventually, a large plume of groundwater contamination developed below the facility extending across more than 2,000 acres on Long Island. In this regard, in the early 2000s the Park’s soil was found to contain high levels of TCE.

From 1968 to 1985, Grumman purchased primary and excess lability insurance policies from Travelers that included two claims-made environmental hazard polices for 1983 and 1984. From 1951 to 1968, Grumman had also purchased primary and excess liability coverage from Century. 

Grumman sought coverage for claims brought in 1984 by, inter alia, the New York State Department of Environmental Conservation (“DEC”) for contamination at the Bethpage facility, based on notice Grumman mailed in 1984 to its insurance broker. In 1984, Grumman had received a package from the DEC including a letter indicating that it would potentially be held responsible for contamination cleanup.  In the District Court, Grumman asserted that it mailed the package to Travelers, but the insurer apparently never received it. That notice was sent by the broker to an incorrect address, and the Second Circuit found “affirmative, albeit circumstantial evidence that Travelers never received the [notice] letter.” Id., Slip Op. at 9.   

The Court noted: “A predicate to effective notice in these circumstances was Travelers' receipt of the 1984 package including the 1983 Potentially Responsible Person ("PRP") letter, or at least a presumption in favor of such receipt. No such presumption can be drawn from Grumman's transmittal of the 1984 package to an insurance broker.” Id., Slip Op. at 8. The Court further stated that “in New York, the duty to provide notice is not satisfied merely by placing the notice in the mail; rather, the specific insurer to whom notice is due must actually or presumptively have received such notice,” id., and went onto find that “in the absence of a presumption in favor of, or any evidence supporting, Travelers’ receipt of the 1984 package, we conclude that notice was not adequately provided to Travelers as to the facility claim, and coverage is barred on that basis.” Id., Slip Op. at 10.

Century, on the other hand, did receive the 1984 package, but the Court found that the notice was “substantially inadequate” because it “did not identify any Century policies under which coverage was sought.” Id. at 10. Therefore, the Court found Grumman’s obligation to provide separate notice as to each policy under which it seeks coverage was not fulfilled. The Court also found that Grumman did not provide timely notice of other claims pertaining to the Bethpage facility as well, contrary to what was required by both the Travelers and Century policies. See Slip Op. at 11-13. 

Accordingly, the Second Circuit affirmed the District Court rulings that Grumman failed to provide adequate notice to Travelers and Century of the claims in question. This case serves as a reminder to both policyholders and insurers of New York courts’ rigorous review of notice of claim issues given an insurance policy’s notice requirements.

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