In this declaratory judgment action to determine insurance coverage for environmental damage at multiple sites, plaintiffs move to renew and reargue the decision of Justice Ira Gammerman, dated December 24, 2003, which, applying a particular allocation formula, dismissed the action against various defendants for lack of justiciability, based upon the failure of the alleged projected damages to reach the levels of coverage of certain excess insurers.

Plaintiffs Long Island Lighting Company (LILCO) and KeySpan Corporation, [*2]collectively referred to herein as KeySpan,^[FN1] allege some of the damage figures for the manufactured gas plant (MGP) sites, upon which the prior decision was predicated, have increased substantially, and that Justice Gammerman, in the decision, allowed for reconsideration under such circumstances. In addition, KeySpan seeks a different method of formulating the damage numbers other than using present discounted-value formula of the prior decision. Plaintiffs seek to calculate the damages to include an inflation factor, so called nominal damages, or, in the alternative, KeySpan would seek to calculate the damages based upon constant dollars. KeySpan reasons that discounting to net present-value is done when future costs are paid at an earlier time to reflect the time value of money. In this case, plaintiffs allege that the ultimate payout by the insurers will be done over time, many years into the future, and that the net present-value calculations used on the original motion would not be fair, and do not reflect the reality of the situation.

KeySpan seeks a declaration that, under the respective policies issued by the 16 excess insurers for the period covering 1953 to 1986, defendants have a duty to defend and indemnify plaintiffs for environmental damage arising from contamination caused by the operation of seven manufactured gas plants (MGPs), and for environmental damage caused by LILCO's dumping at the Syosset Landfill Superfund site and the Metal Bank site.^[FN2]

The MGP sites were located in Bay Shore, Hempstead, Glen Cove, Patchogue, Rockaway Park, Sag Harbor and Halesite. During the time that the MGP plants were operational, they utilized either coal carbonization, carburetted water gas, or oil gasification at various times to manufacture and produce gas for light and heat. These processes produced solid and liquid residues in addition to gas and other marketable by-products. Over time, the residues produced at the plants dispersed and contaminated plant properties, and with gradual discharge, pollutants have spread to adjoining properties and waterways.

The MGPs became operational between 1859 for Sag Harbor and 1904 for Glen Cove. They were decommissioned beginning in 1917 with Glen Cove. All of the plants were closed down by the late 1950's, when natural gas became available through cross-country pipelines.

Only the Bay Shore plant continued to intermittently produce gas until 1973, when it was finally decommissioned.

Plaintiffs offer no specific information about particular leaks, spills, drips or discharges at any of the seven MGP plants. They assert that while the plants were in operation, there were spills, leaks, discharges, or drips on the property of the various sites, which, over time, have migrated or seeped into the groundwater and nearby waterways, contaminating these areas as well. Keyspan argues that the insurance carriers are liable for both the initial pollution and the subsequent dispersion of pollutants over time, and that pollution represented by this continuous process implicates all named policies covering the period from 1953 to 1986. After the plants [*3]closed, there were no further discharges, leaks, drips or spills, and, during later years, the volume of pollution at each plant had reached its maximum level prior to the underwriting of most of the subject policies.

Previously, defendant Lexington Insurance Company (Lexington) moved for summary judgment dismissing the MGP claims for lack of justiciability. Lexington posited that the projected damages at each site be allocated amongst the various policies on a pro-rata time on the risk basis, in accordance with the Appellate Division's decision in Consolidated Edison Co. of New York v Allstate Ins. Co. (283 AD2d 322 [1st Dept 2001]). Defendants Allianz Underwriters Insurance Company (Allianz), American Re-Insurance Company (American Re), Century Indemnity Company (Century), Continental Casualty Company (Continental), Dairyland Insurance Company (Dairyland), GAN National Insurance Company (GAN), and Northern Assurance Company of America (Northern) all cross-moved for the same relief.

Defendants contended, for purposes of the motion only, that the pollution damage at the plants was continuous and not attributable to one specific period, and that the pollution had attained its peak volume prior to the inception of most of the policies in issue; and it would be inequitable to permit KeySpan to select a year or group of years, and subject those policies to answer for the entire liability on any particular site. Defendants urged that allocation of the damages equally amongst the subject policies will distribute the risk in a more even fashion and would serve to streamline the trial of the action, by eliminating the high-end excess policies, that would be unlikely to be reached, even were plaintiff given the benefit of the largest allocation permissible in one year.

During the pendency of the original motion, the Court of Appeals issued its opinion in Consolidated Edison Co. of New York, Inc. v Allstate Ins. Co. (98 NY2d 208 [2002]), which affirmed the previously cited Appellate Division decision. Justice Gammerman, through the Special Referee for discovery, requested that the parties submit additional papers addressing the following issues:

1) whether and to what extent the LILCO insurance policies contain

provisions relating to allocation different from those considered by the

Court of Appeals in Con Edison;

2) whether there are proposed alternative means of allocation;

3) the latest estimates for past and future damages at the sites at issue;

4) the effect of the Con Ed decision on the pending motions.

KeySpan had an opportunity to supplement its damage figures and to propose another method of computation. Plaintiffs did provide new figures, using a nominal damages approach that included a factor for inflation. These figures, however, were not properly presented and documented. As a consequence, the court rejected them and employed the projections that defendants set forth that they received in discovery, which were computed in a net present-value format, as was done in Con Edison. Justice Gammerman, following the methodology employed in Con Edison, took the highest cost scenario at the most expensive site, which was $60,544,000 for Hempstead, and spread that over the 33-year period from1953 to 1986, resulting in a pro rata allocation of $1,834,667 for each year. Based upon this allocation, the court granted summary judgment dismissing all claims against defendants Lexington, Allianz, Continental, Dairyland, GAN National, and Northern. Defendants Century and American Re were granted partial [*4]summary judgment dismissing claims under particular policies and for particular sites.

The court's decision also recognized that the damage projections could change during the pendency of the action, and allowed for reconsideration of this issue upon a proper showing. Plaintiffs' motion requests such reconsideration, citing a substantial increase in past costs and larger projection at Bay Shore, Glen Cove and Rockaway Park sites, based upon more recent studies of those sites. As a consequence of these increased past costs, plus the higher projections of future costs, KeySpan argues that its claims impact upon certain of the policies previously dismissed, so that now they might be reached in this litigation. In addition, KeySpan has provided cost figures in three formats: 1) the previously used present discounted-value;

2) constant dollars with no discounting or increase for inflation; and 3) nominal dollars that use an inflation factor over a number of years.

Initially, KeySpan supported the instant application with the affidavit of Lawrence Liebs, KeySpan's Director of Environmental Asset Management. Defendants argued, as they had previously on the original motion, that the Liebs affidavit should not be considered, because it is in violation of the parties' stipulation, wherein defendants agreed not to depose Mr. Liebs and KeySpan agreed not to use him as a witness at trial or on a motion. This problem has been solved. KeySpan has submitted, with its reply, the affidavit of Timothy W. Devitt, Director of LECG Corp. (LECG), the company that did the actual analysis and projections of the damages along with LECG's report thereon. This documentation stands as new evidence and provides sufficient basis for reconsideration, in the form of renewal, under CPLR 2221 (e), as contemplated by Justice Gammerman in the subject decision. In addition, since the court had before it the concept of nominal damages, but did not examine the rational for not using discounted net present value, the motion also provides a basis for reargument in that a legal issue was overlooked. See CPLR 2221 (d ).

To that end, I will reexamine the method and figures for allocation. The three new sets of

damage figures present the following highest cost scenarios for each of the sites:^[FN3]

SitePresent ValueConstant DollarsNominal Dollars

Bay Shore182, 485, 967198, 307, 421208, 506, 587

Glen Cove 27, 275, 343 41, 813, 111 56, 349, 946

Halesite 18, 689, 171 26, 175, 231 33, 997, 731

Hempstead 40, 686, 805 57, 280, 235 73, 547, 641

Patchogue 12, 420, 187 18, 100, 172 24, 276, 668

Rockaway 58, 392, 238 64, 109, 562 68, 258, 825

Sag Harbor 16, 221, 269 22, 703, 676 28, 430, 133

The Court of Appeals in the Con Edison decision ( supra at 224) recognized that "there are different ways to prorate liability among successive policies." The Court clearly indicated that the formula used by the trial court in Con Edison was one of many possible acceptable approaches to this particular problem. It went on to state that other approaches are not foreclosed [*5]in either determining justiciability or damages at trial. Id. at 225. The Court was principally commenting on methods of proration, and did not focus on how the projections were computed, whether on a present-value, constant-dollar or nominal-dollar basis, because all it had was present-value figures. Different methods of computation also must be viewed in the specific factual context of this case.

KeySpan has cogently argued that the computations based upon present-value analysis are premised upon an incorrect factual proposition, namely that the damages are going to be paid at the conclusion of the case, as opposed to over time. Defendants argue that the court should use the discounted damage figures, because that approach was sanctioned in Con Edison. This ignores the fact that the only proration approach before the Con Edison court utilized present-value figures, and no other viable proration alternatives were offered for consideration. Here, plaintiffs have suggested two alternatives— nominal damages and constant-dollar

damages— that do not suffer from the factual anomaly discussed above.

The nominal figure reflects an inflation rate of 1.8% over a long term period in excess of 20 years. There is no economic evidence presented to support this inflationary factor over such a long-term period. Here, the figures represent, at best, projections of future costs based on contingencies that may not occur. It would be speculative to add an inflation factor in the absence of any economic evidence. The constant-dollar analysis appears the best suited to this case. The damages will not be discounted to present value, but will reflect the dollar amounts as those dollars are actually expended by KeySpan over time.

Having selected the constant-dollar cash flow methodology, the highest cost scenarios at each site must be divided by 33, representing the number of policy years, to determine the cut-off points at which the high-end excess policies will not likely be reached for damage at each site. Such analysis yields the following:

SiteConstant DollarsOne Year Figure

Bay Shore198, 307, 4216, 009, 316

Glen Cove 41, 813, 1111, 267, 064

Halesite 26, 175, 231 793, 189

Hempstead 57, 280, 235 1, 735, 765

Patchogue 18, 100, 172 548, 490

Rockaway 64, 109, 562 1, 942, 714

Sag Harbor 22, 703, 676 687, 990

All policies incepting above the respective levels for each named site in the right hand column will not be reached in this action, and the claims against said policies are not justiciable and should be dismissed.

Accordingly, it is

ORDERED that the motion to renew and reargue is granted and the prior decision is modified as follows:

1. All claims against all policies of the original moving defendants incepting above $ 6,009,316 are dismissed with respect to the Bay Shore site.

2. All claims against all policies of the original moving defendants incepting above $ 1,267,064 are dismissed with respect to the Glen Cove site.

3. All claims against all policies of the original moving defendants incepting [*6]above $ 793,189 are dismissed with respect to the Halesite site.

4. All claims against all policies of the original moving defendants incepting above $ 1,735,765 are dismissed with respect to the Hempstead site.

5. All claims against all policies of the original moving defendants incepting above $ 548,490 are dismissed with respect to the Patchogue site.

6. All claims against all policies of the original moving defendants incepting above $ 1,942,714 are dismissed with respect to the Rockaway Park site.

7. All claims against all policies of the original moving defendants incepting above $ 687,990 are dismissed with respect to the Sag Harbor site.

8. KeySpan shall settle an order on notice within 20 days of the entry of this decision specifying as to each moving defendant the claims against each policy of the defendants that are dismissed with respect to the particular sites in question.

9. The parties are directed to appear for a status conference on January 25, 2005

at 9:30am in Room 208.

Dated: January 11, 2005

ENTER:

Helen E. Freedman, J.S.C.

Appearances

Attorneys for Plaintiff Long Island Lighting Company and Keyspan Corporation

Dickstein Shapiro Morin & Oshinsky LLP

1177 Avenue of the Americas

New York, New York 10036-2714

By: Nanci K. Ship, Esq.

(212) 835-1400

Attorneys for Defendant Continental Casualty Company

Ford Marrin Esposito Witmeyer & Gleser, LLP

Wall Street Plaza, 23rd Floor

New York, New York 10005

By: Jody M. Tawfik, Esq. and James Adrian, Esq.

(212 269-4900

Attorneys for Defendant Certain Underwriters of Lloyds and London

Mendes & Mount

750 7th Avenue

New York, New York 10019 [*7]

By: Robert P. Firriolo, Esq.

Attorneys for Defendant Insurance Company of North America (INA/IINA)

Siegal & Napierkowski

220 Lake Drive East, Suite 304

Cherry Hill, NJ 08002

By: Lawrence A. Nathanson, Esq.

Attorneys for Defendant Dairyland

Fischbein, Badillo, Wagner, Harding

48 South Service Road, Ste 300

Melville, New York 11747-2335

By: Richard A. Fogel, Esq.

Attorneys for Defendant Northern Assurance Company of America

Christie, Pabarue, Mortensen & Young

Three School Street

Boston, Massachusetts 02108-4317

By: John D. Frumer, Esq.

Attorneys for Defendant Lexington Insurance Company

Law Offices of Martin P. Lavelle

110 William Street

New York, New York 10038

By: Dean J. Vigliano, Esq.

Attorneys for Defendant Protective National Insurance Company of Omaha

Bergadano, Zichello & McIntyre

420 Lexington Avenue

New York, New York 10170

By: Marian Hertz, Esq.

Attorneys for Defendant American Reinsurance Company

Landman Corsi Ballaine & Ford, P.C.

120 Broadway, 27th Floor

New York, New York 10271-0079

By: Michael L. Gioia, Esq. [*8]

Attorneys for Defendant Gan National Insurance Company

Herrick, Feinstein LLP

2 Park Avenue

New York, New York 10016

By: Jonathan Kline, Esq.

Attorneys for Defendant Northern Assurance Company of America

Christie, Pabarue, Mortensen and Young

1880 JFK Boulevard, 10th Floor

Philadelphia, PA 19103

By: Catherine O. Raymond, Esq.

Attorneys for Defendant Republic Insurance Company

Kevin G. Snover, Esq.

816 Deer Park Avenue

P.O. Box 2310

North Babylon, New York 11703

Attorneys for Defendant U.S. Fire Insurance Company

Hardin, Kundla, McKeon, Poletto & Polifroni, P.C.

673 Morris Avenue

Springfield, New Jersey 07081

By: Janet L. Poletto, Esq.

Attorneys for Defendant General Reinsurance Corp.

Skadden Arps Slate Meagher & Florm

4 Times Square

New York, New York 10036

By: Michael Balch, Esq.

Attorneys for Defendant First State Insurance Company

Melito & Adolfson, P.C.

233 Broadway

New York, New York 10279

By: Steven G. Adams, Esq.

Attorneys for Defendant Siegal & Napierkowski [*9]

O'Melveny & Myers, LLP

Citigroup Center

153 East 53rd Street, 54th Floor

New York, New York 10022-4611

By: John L. Altieri, Jr. Esq.

Attorneys for Allianz Underwriters Insurance Company

Garrity, Graham, Favetta & Flinn

One Lackawanna Plaza

Montclair, New Jersey 07042

By: Antonio D. Favetta, Esq.