Source: http://www.lexology.com, July 21, 2015
By: John R. Casciano and Nina S. Thanawala, Steptoe & Johnson LLP
In SI Venture Holdings LLC v. Catlin Specialty Insurance, No. 14-CV-2261, 2015 U.S. Dist. LEXIS 89925 (S.D.N.Y. July 10, 2015), the US District Court for the Southern District of New York, applying New York law, granted an insurer’s motion for summary judgment based on the insured’s failure to comply with a prior consent provision in the site pollution liability insurance policy before incurring environmental clean-up costs.  The court also denied the insured’s motion for summary judgment, which was based on an argument that the consent provision was unenforceable as against public policy.
After discovering that soil on one of its New York properties was contaminated with petroleum, the insured transported the soil to a disposal location in New Jersey.  Id. at *2.  Six months afterdisposing of the contaminated soil, the insured submitted a claim to the insurer for its incurred clean-up costs.  Id.  The insurer denied coverage on the basis that the insured did not comply with a prior consent provision in the insurance policy.  Id.  The prior consent provision stated, in relevant part, “The Insured shall not . . . 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.”  Id. at *1-2 (emphasis in original).  The insured filed a declaratory judgment action in state court to determine coverage.  The case was removed to federal court, and both the insured and the insurer filed motions for summary judgment.
The insured argued that the prior consent provision was void as against public policy because it hinders compliance with environmental regulations and that the insured was therefore entitled to coverage from its insurer.  Id. at *3.  The insured contended that such prior consent provisions place insured parties at unreasonable risk of being denied reimbursement from their insurers if they front the expenses of quickly cleaning up a contaminated area without first obtaining the insurer’s consent.  Id. at *6-7.  The insurer argued that prior consent provisions are typically enforced and that adoption of the insured’s position would effect a fundamental change in New York insurance law.  Id. at *7-8.
Citing consensus among New York court and courts applying New York law that consent provisions are “upheld to their letter,” the court ruled for the insurer.  Id. at *8.  The court noted that no court appears to have ruled on the issue of whether consent provisions can be void as against public policy and stated “it is not the role of this Court, exercising diversity jurisdiction, to take the radical step that [the insured’s] position would require.”  Id. at *8-10.
The court also ruled that the equities favored the insurer because under the insured’s position, “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.”  Id. at *12 (emphasis in original).
The SI Ventures Holdings decision confirms that New York law consistently upholds consent provisions in insurance policies.