ELR Citation: ELR 20255
No(s). 89-7035 (2d Cir. Oct 18, 1989)

The court holds that under New York law, environmental cleanup costs are "damages" under a comprehensive general liability insurance policy and that a demand letter from the Louisiana Department of Environmental Quality (DEQ) is a "suit" under the policy. Part of the insured's operations involved selling salvage oil and chemical wastes to an oil recycler. The recycler was sued by neighbors of its dump site who alleged personal injuries and property damages from pollutants emanating from the dump site, and received a demand letter from DEQ. The court first holds that the certification of final judgment under Federal Rule of Civil Procedure 54(b) was properly issued. The insurer's duty to defend was separable from the other claims presented, and was appropriate for final judgment. The court next holds that the insurer has a duty to defend the insured in the private actions. An insurer can be excused from its duty to defend only if as a matter of law there is no possible basis on which the insurer might be held to indemnify the insured. The court next holds that the DEQ's demand letter is a "suit" under the policy. It commenced a formal proceeding against the insured that represents the hallmarks of litigation, and is sufficiently adversarial to constitute a suit under New York law and within the meaning of the policy. The insurer was aware of the possibility of a suit regarding toxic chemicals as shown by the pollution exclusion clause it included in the policy. The court holds that under New York law, remedial costs for the cleanup of a waste site constitute damages. The insurer's policy does not define damages, and thus may include funds necessary for restoration of third parties' properties. An ordinary businessperson reading the policy would have believed him- or herself covered for the demands and potential damage claims now being asserted in the DEQ administrative proceeding.

Counsel for Appellant
Barry R. Ostrager
Simpson, Thacher & Bartlett
One Battery Park Plaza, New York NY 10004
(212) 483-9000

Counsel for Appellees
Hugh N. Fryer
Fryer, Ross & Gowen
551 Fifth Ave., New York NY 10176
(212) 286-0099

Before NEWMAN, CARDAMONE and WINTER, Circuit Judges.