A New York Appellate Court has ruled a hazardous
materials exclusion did not relieve an insurer of its obligation to defend a
recycling plant operator from claims the Plant is spreading a foul odor. Hillcrest Coatings, Inc. v. Colony Ins. Co.,
2017 NY App. Div. LEXIS 4519 (NY 4th Dept. June 9, 2017). The five-judge
panel partially upheld the lower court decision finding the insurer had a duty
to defend because the source of the odor behind the underlying suit against
Hillcrest Coatings is not necessarily hazardous materials.
Hillcrest operated a glass and paper recycling
facility in New York. Nearby residents filed suit against Hillcrest
complaining it operated its facility in a negligent fashion by allowing
hazardous materials and other substances to be discharged into areas where
plaintiffs worked and resided. Plaintiffs also alleged the operation of
the Hillcrest facility created a pervasive foul odor.
Hillcrest sought coverage under its general liability
policy. The policy contained a hazardous materials exclusion, which
barred coverage for bodily injury or property damage occurring as a result of
the release or escape of “hazardous materials.” Under the policy,
“hazardous materials” were defined as pollutants which, in turn, were defined
as “any solid, liquid, gaseous or thermal irritant or contaminant, including
smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste
includes materials to be recycled, reconditioned or recleaned.”
The insurer maintained at summary judgment that its
policy’s hazardous materials exclusion barred coverage for the claims related
to foul odors. The trial court denied the
motion and the New York Appellate Court affirmed, stating the insurer failed to
prove the hazardous material exception precludes coverage. The Appellate Court noted foul odors are not
always caused by the discharge of hazardous waste. Because a reasonable possibility of coverage
existed, the Court held the insurer’s motion for summary judgment was properly
denied.
The Appellate Court did not state whether the insurer had a duty to indemnify
for the odor claims Plaintiffs alleged were cause by the discharge of hazardous
waste. Rather, the Appellate Court’s decision reaffirmed that in New
York, the duty to defend is “exceedingly broad” and exists where there is a
“reasonable possibility of coverage.”
