SI Venture Holdings, LLC v. Catlin Speciality Insurance Company

Filing 25

OPINION AND ORDER re: 7 MOTION for Summary Judgment . filed by SI Venture Holdings, LLC, 13 CROSS MOTION for Summary Judgment re-filed per instruction. filed by Catlin Speciality Insurance Company. For the reasons set fo rth above, SI's motion is DENIED, and Catlin's cross-motion is GRANTED. The Clerk of the Court is directed to close both motions (Dkt. Nos. 7 and 13), and this case. SO ORDERED. (As set forth in this Order.) (Signed by Judge Shira A. Scheindlin on 7/10/2015) (ajs)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

x
SI VENTURE HOLDINGS, LLC,
Plaintiff,
OPINION AND ORDER
- against 14 Civ. 2261 (SAS)
CATLIN SPECIALTY INSURANCE,
Defendant.

---------------------------------------------------- )(
SHIRA A. SCHEINDLIN, U.S.D.J.:
I.

INTRODUCTION AND BACKGROUND
This case presents an issue of first impression under New York law -

whether a contract that requires an insured party to seek approval from its insurer
before expending funds for environmental clean-up is void as against public
policy. The facts are not in dispute. SI Venture Holdings ("SI"), a real estate
development company, entered into an insurance contract with Catlin Specialty
Insurance ("Catlin") that included the following provision ("Consent Provision"):
The Insurer shall pay on behalf of the Insured for Clean-Up Costs
and related Claim Expense in excess of the Deductible stated in
the Declarations because of a Pollution Condition 1 discovered by
The contract defines "Pollution Condition" as "the actual or alleged
discharge, dispersal, release, seepage, migration, growth, or escape of," inter alia,
-1-

the Insured during the Policy Period . . . but only if the Insured
notifies the Insurer of the Pollution Condition, in writing, during
the Policy Period or any applicable Extended Reporting Period.
. . . The Insured shall not assume or admit liability, make any
payment, consent to any judgment, settle any Claim or Protective
Third Party Claim or incur any Clean-Up Cost, Claim Expense or
Protective Third Party Claims Expense without prior written
consent of the Insurer, which consent shall not be unreasonably
withheld. The Insurer shall not be liable for any expense,
settlement, assumed obligation or admission to which it has not
consented.2
In February 2013, SI tested the soil of one of its properties in Staten Island, only to
discover that it was contaminated with petroleum.3 The level of contamination was
such that SI thought that it was obligated — based on its understanding of New
York law — to transport the soil to a disposal site in New Jersey.4 SI did so.
Then, six months later, it sent a notice of claim to Catlin, requesting coverage of

“toxic chemicals . . . waste materials, contaminants, or other irritants, into or upon
land, the atmosphere, any structure on land, the atmosphere contained within that
structure, or any watercourse or body of water, including groundwater.” Catlin
Site Pollution Liability Insurance Policy, Exhibit B to Affirmation of Scott E.
Agulnick, Counsel for SI Ventures, in Support of SI Venture’s Motion for
Summary Judgment, at 6.
Defendant’s 56.1 Statement of Undisputed Material Facts (“Def.
56.1”) ¶¶ 2, 4 (emphasis added). Accord Plaintiff’s Response to Defendant’s 56.1
Statement of Undisputed Material Facts (“Pl. 56.1”) ¶¶ 2, 4.
2

3

See Def. 56.1 ¶ 6; Pl. 56.1 ¶ 6.

4

See id.
-2-

$250,000 worth of clean-up costs.5 Catlin denied that request, citing SI’s failure to
comply with the Consent Provision.6
SI concedes that it did not seek Catlin’s consent before embarking on
the soil disposal. Nor does SI dispute that by failing to obtain such consent, SI
breached the Consent Provision. Instead, SI argues that the Consent Provision is
unenforceable as against public policy, because it impedes compliance with
environmental regulations. According to SI, if an insured party must seek approval
from its insurer before incurring clean-up costs, the practical effect will be that less
clean-up takes place — to the public’s detriment. Therefore, SI has moved for
summary judgment, asking the Court to set aside the Consent Provision, and to
require Catlin to reimburse SI the amount that it expended in connection with the
soil disposal. Catlin has cross-moved for summary judgment, asking the Court to
enforce the Consent Provision — and accordingly, to release Catlin from any
putative coverage obligations.7 For the reasons set forth below, SI’s motion in

5

See Def. 56.1 ¶ 5; Pl. 56.1 ¶ 5.

6

See Def. 56.1 ¶ 8; Pl. 56.1 ¶ 8.

Summary judgment is appropriate where, as here, “there is ‘no
genuine issue as to any material fact and . . . the movant is entitled to judgment as a
matter of law.’” Rivera v. Rochester Genesee Reg’l Transp. Auth., 743 F.3d 11, 19
(2d Cir. 2014) (quoting Fed. R. Civ. P. 56(c)) (some quotation marks omitted).
Accord Windsor v. United States, 699 F.3d 169, 192 (2d Cir. 2012), aff’d, 133 S.
Ct. 2675 (2013) (quotations and alterations omitted) (“[A]n issue of fact [exists] if
7

-3-

DENIED, and Catlin’s motion is GRANTED.
II.

APPLICABLE LAW
A.

Construction of Insurance Contracts
Under New York law, “unambiguous provisions of an insurance

contract must be given their plain and ordinary meaning, and the interpretation of
such provisions is a question of law for the court.”8 Pursuant to this general rule,
consent-to-settle provisions — requiring insured parties to give insurers notice
before entering into voluntary settlement agreements — are “routinely enforced” as
“a condition precedent to coverage.”9 This same is true, moreover, of settlements
between private actors and public agencies that arise from enforcement actions. In
2008, for example, the New York Court of Appeals enforced a consent-to-settle
provision against Bear Stearns, in connection with a settlement that it entered into

the evidence is such that a reasonable jury could return a verdict for the nonmoving
party.”).
8

White v. Continental Cas. Co., 9 N.Y.3d 264, 267 (2007).

Continental Cas. Co.v. Ace Am. Ins. Co., No. 07 Civ. 958, 2009 WL
857594, at *3 (S.D.N.Y. Mar. 31, 2009) (applying New York law). Accord TLC
Beatrice Int’l Holdings v. Cigna, No. 97 Civ. 8589, 2000 WL 282967, at *4 (Mar.
16, 2000) (enforcing an insurance contract whose “plain language . . . require[d]
that the insured obtain the written consent of the insurer before agreeing to settle a
claim[] [a]s a condition precedent to coverage”) (internal citation omitted); AIU
Ins. Co. v. Valley Forge Ins. Co., 758 N.Y.S.2d 16, 17 (1st Dep’t 2003)
(“Inasmuch as [the insurer] . . . did not take part in the settlement negotiations or
agree to the [settlement], [it] is not required to contribute to that settlement.”).
9

-4-

with the Securities and Exchange Commission (“SEC”).10 And Judge Katherine
Forrest of this District recently enforced a similar provision against Northrop
Grumman, in connection with an informal agreement it made with the United
States Navy to spearhead the clean up of land adjacent to a weapons plant.11
B.

Void as Against Public Policy
There is no magic formula for determining when a contract — or a

particular provision of a contract — is void as against public policy.12 Under New
York law, “[a]n agreement may be unenforceable [] as contrary to public policy
even in the absence of a direct violation of a criminal statute, if the sovereign has
expressed a concern for the values underlying the policy implicated.”13 A contract
is “contrary to public policy, not only if it directly violates a statutory prohibition .

10

See Vigilant Ins. Co. v. Bear Stearns, 10 N.Y.3d 170, 177-78 (2008).

See Travelers Indem. Co. v. Northrop Grumman Corp., 999 F. Supp.
2d 552 (S.D.N.Y. 2014).
11

See Madison Square Garden v. NHL, No. 07 Civ. 8455, 2008 WL
4547518, at *7 (S.D.N.Y. Oct. 10, 2008) (“There is no absolute rule by which to
determine what contracts are against public policy, but each case must be
determined from all the circumstances thereof.”). See also Southwestern Sugar &
Molasses Co. v. River Terminals Corp., 360 U.S. 411, 421 (1959) (invalidating an
agreement “on grounds of public policy” demands “an informed and particularized
insight into the factual circumstances of the case”).
12

Walter v. Fullwood, 675 F. Supp. 155, 161 (S.D.N.Y. 1987) (applying
New York law and reviewing cases).
13

-5-

. . but also if it is contrary to the social judgment on the subject implemented by the
[relevant] statute.”14
III.

DISCUSSION
SI argues that the Consent Provision “conflicts with [] and

contravenes” numerous environmental regulations, because it leaves insured
parties in a position — theoretically — of having to finance clean-up without the
benefit of reimbursement.15 In practice, this means that insured parties will be
unwilling (or in some cases, unable) to comply with environmental regulation
“expeditious[ly]” — an outcome that would clearly imperil the public interest.16
There are two problems with SI’s position. First, clauses such as the
Consent Provision are routinely enforced, which means that even if SI’s position
were appealing on policy grounds, adopting it would effectively “revolutionize”
New York insurance law.17 Second, SI’s argument sweeps too broadly. The rule

In re Estate of Walker, 64 N.Y.2d 354, 359 (1985). Accord Plaintiff’s
Memorandum of Law in Support of Summary Judgment (“Pl. Mem.”), at 5-6
(collecting cases).
14

15

Pl. Mem. at 7.

Plaintiff’s Reply Memorandum of Law in Further Support of
Summary Judgment (“Reply”), at 6.
16

Defendant’s Memorandum of Law in Support of Cross-Motion for
Summary Judgment (“Def. Mem.”), at 1.
17

-6-

that SI proposes would be unfair to insurers, because it would preclude even
reasonable withholding of consent to reimburse an insured party’s clean-up costs.
A.

This Court Declines to Revolutionize New York Insurance Law
SI has pointed to no case — nor have I been able to locate one — in

which a consent provision, like the one at issue here, was deemed unenforceable on
public policy grounds. On the other side, by contrast, Catlin has pointed to ample
case law in which consent provisions have been enforced. The consensus among
New York courts (and federal courts applying New York law) is clear — consent
provisions are typically upheld to their letter.18
SI responds by pointing out that none of the cases invoked by Catlin
directly addressed the public policy argument that SI presses here — so the
question is open.19 That is true. But it hardly follows that the cases invoked by
Catlin are irrelevant. Silence can be revealing. That no court has ruled on the
public policy implications of consent provisions suggests that few, if any, courts
have confronted such challenges — which in turn suggests that such challenges are

18

See id. at 11.

See Reply at 5. See also Southwestern Sugar & Molasses Co, 360
U.S. at 421 (explaining that the decision to invalidate an agreement “on grounds of
public policy . . . [cannot be] underst[ood] apart from an informed and
particularized insight into the factual circumstances of the case”).
19

-7-

rarely, if ever, made.20
In short, SI’s argument is either legally innovative or legally
precarious — and very likely both. Either way, it is not the role of this Court,
exercising diversity jurisdiction, to take the radical step that SI’s position would
require. On appeal, SI will have an opportunity to request certification to the New
York Court of Appeals (and the Second Circuit will have discretion to order such
certification sua sponte), at which point the proper institution — the final arbiter of
state law — will be able to entertain SI’s argument.21 For now, federalism
This is surely not the first time that a consent provision, strictly
construed, stands to impact the public interest. In Vigilant Insurance v. Bear
Stearns, for example, the New York Court of Appeals had to decide whether a
consent provision — identical in substance to the one here — foreclosed Bear
Stearns’ coverage claim after it entered into a settlement with the SEC without
having first obtained consent from its insurer. See 10 N.Y.3d 170. The argument
that SI champions in this case — that policy considerations cast doubt on contract
terms that discourage compliance — would also have applied in Vigilant Insurance
(albeit in a more attenuated fashion, because financial compliance rarely involves
the same kind of temporal urgency as environmental compliance). Nevertheless,
the Court of Appeals saw no need to explore the policy implications of the consent
provision it ultimately enforced according to its “plain and ordinary meaning.” Id.
at 177 (internal citations omitted). This observation is suggestive (though not
dispositive) of the state of New York law. See Giuffre Hyundai, Ltd. v. Hyundai
Motor Am., 756 F.3d 204, 209 (2d Cir. 2014) (quoting DiBella v. Hopkins, 403
F.3d 102, 111 (2d Cir. 2005)) (when sitting in diversity, federal courts should aim
to “‘predict how the forum state’s highest court would decide [an] issue[].’”).
Accord Licci ex rel. Licci v. Lebanese Canadian Bank, SAL, 739 F.3d 45, 48 (2d
Cir. 2013).
20

If this Court were empowered to certify questions to the New York
Court of Appeals, I would be inclined to do so in this case. But this Court is not so
21

-8-

principles counsel in favor of rejecting that argument.
B.

The Equities Favor Catlin
The second problem with SI’s position is that it would effectively

strip Catlin — and, by extension, all insurers — of the ability to reasonably object
to compliance-related expenditures that an insured party intends to make. As
written, the parties’ agreement prohibits Catlin from “unreasonably with[holding]”
consent with regard to, inter alia, clean-up costs.22 Therefore, had SI requested
Catlin’s consent, and had Catlin decided to withhold it, SI would have had legal
recourse — it could have sought to enforce the “consent shall not be unreasonably
withheld” clause against Catlin, and to seek recovery, on that basis, for whatever
hardship Catlin’s withholding of consent might have caused. Notably, SI makes
no effort to argue that the “consent shall not be unreasonably withheld” clause is
somehow inoperative, or that it affords insufficient protection. Instead, SI focuses
empowered. Certification must wait for appeal. See N.Y. Comp. Codes R. &
Regs. tit. 22, § 500.27 (“Whenever it appears to the Supreme Court of the United
States, any United States Court of Appeals, or a court of last resort of any other
state that determinative questions of New York law are involved in a case pending
before that court for which no controlling precedent of the Court of Appeals exists,
the court may certify the dispositive questions of law to the Court of Appeals.”).
See Def. 56.1 ¶ 4 (“The Insured shall not assume or admit liability,
make any payment, consent to any judgment, settle any Claim or Protective Third
Party Claim or incur any Clean-Up Cost, Claim Expense or Protective Third Party
Claims Expense without prior written consent of the Insurer, which consent shall
not be unreasonably withheld.”) (emphasis added).
22

-9-

on (hypothetical) scenarios in which an insured party (1) requests consent from its
insurer, (2) receives no consent, but (3) is still required (by law) to proceed with,
and foot the bill for, compliance efforts. According to SI, the mere possibility of
this outcome — enabled by enforcement of the Consent Provision here — would
discourage compliance and imperil the public good.
SI’s argument proves too much. According to SI, even when an
insurer’s decision to withhold its consent with regard to specific clean-up costs is
reasonable, that result would still contravene the public interest. It is hard to
believe that the requirements of public policy would so dramatically curtail
insurers’ rights. Under the rule advocated by SI, insurers would never be able to
withhold consent regarding proposed clean-up costs, no matter how exorbitant or
excessive. But an insurance company should be allowed to negotiate for some
mechanism to refuse to underwrite unreasonable expenditures incurred by insured
parties, which is just what the Consent Provision provides.
To be sure, if the agreement here did not contain a clause prohibiting
Catlin from unreasonably withholding its consent — if Catlin had carte blanche,
under the terms of the agreement, to refuse all reasonable requests — a different
outcome might well be warranted. In the abstract, SI’s concerns about insurers

-10-

“imped[ing]” environmental clean-up are certainly valid.23 In practice, however,
there is little reason to think SI’s concerns will materialize. As it stands, Catlin is
prohibited — by the very same provision that SI seeks to have invalided — from
unreasonably refusing to reimburse an insured party for clean-up costs.24 As
written, the Consent Provision strikes a sensible balance between competing
interests. If and when the New York courts consider the question, they may
conclude that policy considerations require disrupting this balance. In the absence
of further guidance, however, I decline to draw that conclusion here.

Reply at 6. In this vein, it would certainly be a different situation if SI
had been ordered — for example, by a court or administrative agency — to engage
in the soil disposal. In that case, strictly enforcing the Consent Provision would
likely contravene public policy, because SI would have no choice in the matter,
and the purpose behind the Consent Provision — to “ensure[] that [insurers are]
given the opportunity to [work] with insured[s] in managing the costs for a cleanup before they are incurred” — would no longer be served by the Provision’s
enforcement. Def. Mem. at 14. If the clean-up costs were compulsory, i.e., if they
were set at a non-negotiable level by a regulatory body of some kind, there would
be no latitude for “managing costs.” And it would plainly grate against the public
interest to let insurers walk away from costs involuntary incurred by insured
parties, simply because of a notice requirement — which, under such
circumstances, would be a mere formality.
23

Nor does the parties’ course of dealing give SI any reason to think that
Catlin is prone to unreasonably withhold consent for environmental clean-up. In
fact, SI never requested such consent — and it has presented no other evidence to
suggest that Catlin would likely have failed to be cooperative in the event that
consent had been requested. See Def. 56.1 ¶ 5; Pl. 56.1 ¶ 5; Def. Mem. at 14-15.
24

-11-

IV.

CONCLUSION

For the reasons set forth above, Si's motion is DENIED, and Catlin's
cross-motion is GRANTED. The Clerk of the Court is directed to close both
motions (Dkt. Nos. 7 and 13), and this case.

Dated:

New York, New York
July 10, 2015

-12-

-AppearancesFor Plaintiff:
Scott E. Agulnick, Esq.
Greenblatt Lesser LLP
Two University Plaza
Hackensack, NJ 07601
[phone]
For Defendant:
Patrick M. Tomovic, Esq.
Hodgson, Russ, LLP
140 Pearl Street, Suite 100
Buffalo, NY 14202
[phone]

-13-