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District Court Re-Affirms that Claims-Made Policies Mean What They Say

Blogs, Insurance Coverage

The United States District Court for the Southern District of New York recently issued a lengthy decision addressing insurance coverage for claims stemming from environmental contamination by Northrop Grumman Corporation (“Northrop”) at multiple locations. Travelers Indemnity Co. v. Northrop Grumman Corp. et al, 1:12-cv-03040-KBF (Oct. 31, 2013). This decision came in the form of a thoughtful and detailed denial of Grumman’s motion for reconsideration of the Court’s Opinion and Order, dated July 3, 2012, which determined that Century Indemnity Co. (“Century”) had no duty to defend Grumman in the Town of Oyster Bay Action, as well as, a ruling granting summary judgment in favor of Travelers Indemnity Company (“Travelers”) with respect to the Bethpage Facility Claim, and in favor of both insurers with respect to the Calverton Claim. Each of these rulings is grounded in Northrop’s failure to provide timely notice.

While the Court’s analysis as to each of the three claims is of interest, the most significant portion of the Court’s decision relates to coverage for the Bethpage Facility Claim. Travelers issued Northrop a claim- made environmental hazard policy to Grumman for the period January 1, 1983, to January 1, 1984 (the 1983 Policy”). That policy provides that it covers applicable bodily injury, property damage, or other economic loss which (1) arose out of an environmental hazard and (2) occurred in the policy territory, “PROVIDED ALWAYS THAT … A claim is first made against the insured and reported to The Travelers during the policy period, or during the extended reporting provision.” Notably, Northrop did not purchase the extended reporting period for the 1983 Policy. On January 19, 1984, Travelers issued a second claims-made environmental hazard policy covering the period January 1, 1984, to January 1, 1985 (the “1984 Policy”). 

By way of letter dated December 6, 1983, it was alleged that Northrop was subject to liability under CERCLA for response costs and damages to the natural resources of the State of New York at and around the Bethpage facility. The letter was date-stamped “received,” by Northrop’s legal department on December 13, 1983. It was not until January 26, 1984, however, that Northrop sent a copy of the notice of claim letter to its broker with a request that the information is sent to Travelers.

In its decision, the Court explained that pursuant to the terms of the 1983 Policy, coverage would only be available if Northrop provided Travelers notice before the policy term ended, on January 1, 1984. Because it did not, the Court found that there was no coverage under the 1983 Policy. In reaching this holding, the Court applied the clear policy language and rejected Northrop’s arguments that (a) because it purchased the 1984 Policy, it received seamless coverage for all claims occurring and reported during the 1983 and 1984 periods, and (b) that the extended reporting provision should be read to allow a reasonable grace period of reporting “eleventh hour” claims made against the policyholder toward the end of the claim period. In rejecting these arguments, the Court noted that to agree with Northrop would require that it rewrite the clear and unambiguous language of the 1983 policy. 

In short, the Court followed the policy language to a T (as it should) and refused to find coverage, even though Northrop reported the claim while it was still insured by Travelers, albeit under the 1984 Policy.

An appeal of this ruling, as well as the others contained in the Court’s decision, will follow.

For a copy of the Northrop Decision, click here