
    Technicon Electronics Corporation, Appellant, v American Home Assurance Company et al., Defendants, and Atlantic Mutual Insurance Company et al., Respondents.
    Argued June 7, 1989;
    decided June 30, 1989
    
      POINTS OF COUNSEL
    
      Jerold Oshinsky, Paul A. Feigenbaum, Nicholas J. Zoogman, Robert H. Shulman, Nancy A. Markowitz and Murray D. Sacks for appellant.
    I. The court below incorrectly determined that defendants-respondents do not have a duty to defend Technicon in the two underlying actions. (Colon v Aetna Life & Cas. Ins. Co., 66 NY2d 6; International Paper Co. v Continental Cas. Co., 35 NY2d 322; Seaboard Sur. Co. v Gillette Co., 64 NY2d 304; Servidone Constr. Corp. v Security Ins. Co., 64 NY2d 419; Villa Charlotte Bronte v Commercial Union Ins. Co., 64 NY2d 846; Prashker v United States Guar. Co., 1 NY2d 584; Schwamb v Firemen’s Ins. Co., 41 NY2d 947; Ruder & Finn v Seaboard Sur. Co., 52 NY2d 663; Bryam Hills Cent. School Dist. v State Ins. Fund, 97 AD2d 495.) II. The court below erred in automatically applying the pollution exclusion to Technicon’s legally authorized waste disposal practices. (McGroarty v Great Am. Ins. Co., 43 AD2d 368, 36 NY2d 358; Michaels v Mutual Mar. Off., 472 F Supp 26; State of New York v INA Underwriters Ins. Co., 133 Misc 2d 430; Evans v Aetna Cas. & Sur. Co., 107 Misc 2d 710; City of Northglenn v Chevron U.S.A., 634 F Supp 217; Bayersdorfer v Massachusetts Protective Assn., 20 F Supp 489, 105 F2d 595; McLaughlin v 
      
      Connecticut Gen. Life Ins. Co., 565 F Supp 434; Thomas J. Lipton, Inc. v Liberty Mut. Ins. Co., 34 NY2d 356; American Motorists Ins. Co. v General Host Corp., 667 F Supp 1423.) III. The court below further erred in holding that an EPA statutory demand letter does not institute a "suit” that activates an insurance company’s defense obligation. (United States v Wade, 546 F Supp 785; State of New York v Shore Realty Corp., 759 F2d 1032; United States v Stringfellow, 661 F Supp 1053; Wagner Elec. Corp. v Thomas, 612 F Supp 736; Clarke v Fidelity & Cas. Co., 55 Misc 2d 327; Continental Cas. Co. v Cole, 809 F2d 891; Fireman’s Fund Ins. Cos. v Ex-Cell-O Corp., 662 F Supp 71, 682 F Supp 34; New Castle County v Hartford Acc. & Indem. Co., 673 F Supp 1359; Detrex Chem. Indus. v Employers Ins. of Wausau, 681 F Supp 438.)
    
      Thomas R. Newman, Sidney Rosen, Barry G. Saretsky and Allen L. Sheridan for Atlantic Mutual Insurance Company and another, respondents.
    I. The court below correctly determined that Technicon’s intentional discharges of waste materials into waterways over several years in the regular course of its business were not "sudden and accidental” and, therefore, coverage for Technicon is precluded by the unambiguous terms of the pollution exclusion. (Claussen v Aetna Cas. & Sur. Co., 676 F Supp 1571; Fireman’s Fund Ins. Cos. v Ex-Cell-O Corp., 702 F Supp 1317; City of Northglenn v Chevron U.S.A., 634 F Supp 217; Schiff Assocs. v Flack, 51 NY2d 692; Autotronic Sys. v Aetna Life & Cas., 89 AD2d 401; Breed v Insurance Co. of N. Am., 46 NY2d 351; EAD Metallurgical v Aetna Cas. & Sur. Co., 701 F Supp 399; State of New York v Amro Realty Corp., 679 F Supp 99; Hayes v Maryland Cas. Co., 688 F Supp 1513.) II. The court below correctly held that the purely informational EPA letter did not commence a "suit” which Centennial or Atlantic Mutual were obligated to defend. (United States v Rohm & Haas Co., 669 F Supp 672; D’Imperio v United States, 575 F Supp 248.)
    
      John G. McAndrews and Henry Lee for Lloyds, London and another, respondents.
    I. The court below correctly construed the pollution exclusion to bar insurance coverage for claims arising out of nonsudden or intentional discharges of industrial wastes into the environment. (Continental Ins. Co. v Colangione, 107 AD2d 978; Ford Nursing Home Co. v Fireman’s Ins. Co., 86 AD2d 736; Matter of Town of Huntington v Hartford Ins. Group, 69 AD2d 906; Continental Cas. Co. v Plattsburgh Beauty & Barber Supply, 48 AD2d 385; United 
      
      States Fid. & Guar. Co. v Star Fire Coals, 856 F2d 31; Borden, Inc. v Affiliated FM Ins. Co., 682 F Supp 927, 865 F2d 1267; Claussen v Aetna Cas. & Sur. Co., 676 F Supp 1571, 865 F2d 1217; Powers Chemco v Federal Ins. Co., 144 AD2d 445; Bretton v Mutual of Omaha Ins. Co., 110 AD2d 46.) II. The New York statutorily mandated pollution exclusion between 1971 and 1982 and the legislative history surrounding its enactment and repeal confirm the existence of a temporal requirement in the pollution exclusion. (Ferres v City of New Rochelle, 68 NY2d 446; Eaton v New York City Conciliation & Appeals Bd., 56 NY2d 340; Matter of Ames Dept. Stores v Assessor of Town of Concord, 102 AD2d 9; Grich v Wood & Hyde Leather Co., 74 AD2d 183; Matter of Long Is. Antique Gun Collectors Assn. v Frank, 53 AD2d 644; Rosalia v Hartford Acc. & Indem. Co., 48 Misc 2d 862; Fireman’s Fund Ins. Cos. v Ex-Cell-O Corp., 702 F Supp 1317; United States Fid. & Guar. Co. v Murray Ohio Mfg. Co., 693 F Supp 617; Quotron Sys. v Gallman, 39 NY2d 428.) III. Judicial disagreements about the interpretation of an insurance policy term or clause do not establish the existence of ambiguity. (Breed v Insurance Co. of N. Am., 46 NY2d 351; Hartigan v Casualty Co. of Am., 227 NY 175.) IV. Even the Department of Environmental Conservation regulations requiring liability insurance coverage by owners and operators of hazardous waste facilities recognize a temporal meaning to the term "sudden”. V. The allegations of knowing long-term discharges of toxic wastes into the environment found in the Maldonado pleadings are solely and entirely within the pollution exclusion and thereby bar insurance coverage. (Colon v Aetna Life & Cas. Ins. Co., 66 NY2d 6; Seaboard Sur. Co. v Gillette Co., 64 NY2d 304; International Paper Co. v Continental Cas. Co., 35 NY2d 322; Zurich-American Ins. Cos. v Atlantic Mut. Ins. Cos., 139 AD2d 379; Kasper v Town of Smithtown, 123 AD2d 743; Kotick v Desai, 123 AD2d 744; Fertico Belgium v Phosphate Chems. Export Assn., 100 AD2d 165; Clarke v Fidelity & Cas. Co., 55 Misc 2d 327.)
    
      Robert N. Sayler, William F. Greaney, Laura L. Sardo, Philip H. Gitlen and Neil J. Levine for The Chemical Manufacturers Association and others, amici curiae.
    
    I. By construing general allegations to defeat coverage and ignoring alternative allegations that create a potential for coverage, the lower court’s decision violated fundamental tenets of New York law governing an insurer’s defense obligations. (Ruder & 
      
      Finn v Seaboard Sur. Co., 52 NY2d 663; International Paper Co. v Continental Cas. Co., 35 NY2d 322; Lee v Aetna Cas. & Sur. Co., 178 F2d 750.) II. The so-called "pollution exclusion” is an intentional polluter’s exclusion, and does not bar coverage for environmental harm that was neither expected nor intended by the policyholder. (United States Fid. & Guar. Co. v Thomas Solvent Co., 683 F Supp 1139; New Castle County v Hartford Acc. & Indem. Co., 673 F Supp 1359; Sincoff v Liberty Mut. Fire Ins. Co., 11 NY2d 386; Allstate Ins. Co. v Klock Oil Co., 73 AD2d 486; Claussen v Aetna Cas. & Sur. Co., 676 F Supp 1571; Steyer v Westvaco Corp., 450 F Supp 384; Aetna Cas. & Sur. Co. v Martin Bros. Container & Timber Prods. Corp., 256 F Supp 145; Autotronic Sys. v Aetna Life & Cas., 89 AD2d 401.) III. The temporal construction of the "pollution exclusion” is impossible to apply. IV. The availability of insurance coverage for environmental liabilities is consistent with CERCLA’s strict liability scheme and the risk-spreading function of liability insurance.
    
      Timothy C. Russell and Patricia A. Gotschalk for Lumbermens Mutual Casualty Company, amicus curiae.
    
    I. The unambiguous language of the pollution exclusion as well as its function within the insurance contract as a whole, operate to exclude coverage with respect to discharges of pollutants that are not both "sudden” and "accidental”. (American Home Prods. Corp. v Liberty Mut. Ins. Co., 565 F Supp 1485, 748 F2d 760; Bretton v Mutual of Omaha Ins. Co., 110 AD2d 46, 66 NY2d 1020; American Cas. Co. v Minnesota Farm Bur. Serv. Co., 270 F2d 686; Claussen v Aetna Cas. & Sur. Co., 676 F Supp 1571, 865 F2d 1217; Great Lakes Container Corp. v National Union Fire Ins. Co., 727 F2d 30; United States Fid. & Guar. Co. v Star Fire Coals, 856 F2d 31; United States Fid. & Guar. Co. v Murray Ohio Mfg. Co., 693 F Supp 617; Hayes v Maryland Cas. Co., 688 F Supp 1513; United States Fid. & Guar. Co. v Korman Corp., 693 F Supp 253; Fireman’s Fund Ins. Cos. v Ex-Cell-O Corp., 702 F Supp 1317.) II. The court below concluded correctly that the letter sent by the ERA to Technicon does not constitute the institution of a "suit”. (State of New York v Amro Realty Corp., 697 F Supp 99; Clarke v Fidelity & Cas. Co., 55 Misc 2d 327; Weston v City Council of Charleston, 2 Pet [27 US] 449; Detrex Chem. Indus. v Employers Ins. of Wausau, 681 F Supp 438; Solo Cup Co. v Federal Ins. Co., 619 F2d 1178, 449 US 1033; Simon v Maryland Cas. Co., 353 F2d 608; Fisher v Hartford Acc. & Indem. Co., 329 F2d 352; Seaboard Sur. Co. v Gillette Co., 64 NY2d 304; Ruder & Finn v Seaboard Sur. Co., 52 NY2d 663.)
    
      Thomas W. Brunner, James M. Johnstone and John W. Cavilia for Insurance Environmental Litigation Association and others, amici curiae.
    
    I. The court below correctly held that the pollution exclusion unambiguously bars coverage. (United States Fid. & Guar. Co. v Star Fire Coals, 856 F2d 31; United States Fid. & Guar. Co. v Murray Ohio Mfg. Co., 693 F Supp 617; American Motorists Ins. Co. v General Host Corp., 667 F Supp 1423; Claussen v Aetna Cas. & Sur. Co., 676 F Supp 1571, 865 F2d 1217; Fireman’s Fund Ins. Cos. v Ex-Cell-O Corp., 702 F2d 1317; Borden, Inc. v Affiliated FM Ins. Co., 682 F Supp 927, 865 F2d 1267; Centennial Ins. Co. v Lumbermens Mut. Cas. Co., 677 F Supp 342; Hayes v Maryland Cas. Co., 688 F Supp 1513; United States Fid. & Guar. Co. v Korman Corp., 693 F Supp 253; EAD Metallurgical v Aetna Cas. & Sur. Co., 701 F Supp 399.) II. A straightforward interpretation of the pollution exclusion supports the public goals of assuring environmental safety and the stability of the insurance system. (Theatre Guild Prods. v Insurance Corp. of Ireland, 25 AD2d 109, 19 NY2d 656; Bretton v Mutual of Omaha Ins. Co., 110 AD2d 46, 66 NY2d 1020; Metpath, Inc. v Birmingham Fire Ins. Co., 86 AD2d 407; Breed v Insurance Co. of N. Am., 46 NY2d 351; Government Employees Ins. Co. v Kligler, 42 NY2d 863; Novak v All City Ins. Co., 43 NY2d 854.) III. The court below correctly held that the PRP letter is not a "suit” and would not trigger the insurers’ duty to defend. (Clarke v Fidelity & Cas. Co., 55 Misc 2d 327; Solo Cup Co. v Federal Ins. Co., 619 F2d 1178, 449 US 1033; Pacific Resins & Chems. v United States, 654 F Supp 249; D'Imperio v United States, 575 F Supp 248.)
   OPINION OF THE COURT

Bellacosa, J.

We agree with the Appellate Division that plaintiff Technicon is not entitled to be provided a defense by defendants insurers because the pollution exclusion from coverage provision in the applicable primary comprehensive general liability insurance policy is unambiguously plain and operative. The alleged wrongdoing in the underlying personal injury action, in which Technicon was sued and for which, as plaintiff in this action, it seeks a declaration of rights against the insurers, consisted of intentional, long-term discharge of toxic waste chemicals from Technicon’s manufacturing plant into Frontera Creek in Humacao, Puerto Rico. The United States Environmental Protection Agency has also importuned Technicon to participate and lead in the clean-up. As a matter of law, the conduct at issue was not an "accidental” occurrence which would qualify as an exception to the pollution exclusion from coverage provision of the policy.

In February 1985, several residents of Ciudad Cristiana Urbanization, a residential community adjacent to the plant, sued Technicon in Superior Court, Puerto Rico. The action seeks damages for personal injuries allegedly suffered from exposure to toxic chemicals intentionally discharged by Technicon into the nearby waterway. The complaint alleges in part:

"1. For several years and up to the present defendant * * * Technicon Electronics Corp. [has] been discharging into Front-era Creek * * * toxic wastes which include heavy metals such as mercury [emphasis added].

* * *

"4. The discharge by defendants of toxic wastes * * * has been made and is being made knowingly” (emphasis added).

A month later, the United States Environmental Protection Agency (EPA) notified Technicon by letter that it might be potentially responsible for the clean-up costs in the Frontera Creek pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 USC § 9601 [CERCLA]).

In a certified answer, submitted by Technicon’s personally retained counsel, addressed to the residents’ lawsuit, Technicon conceded that it had intentionally, albeit lawfully in its view, discharged production wastes from the manufacture of its blood sample analysis machines into a creek which flowed into Frontera Creek.

Technicon then notified insurers Centennial and Atlantic Mutual of the personal injury action and demanded that the insurers, as providers of Technicon’s primary comprehensive general liability (CGL) insurance, undertake its defense. When they refused, Technicon sought a declaratory judgment against them and 15 other named insurance companies, averring that the claims asserted against Technicon in the Puerto Rico action and in the EPA letter are covered by the insuranee policies and that, therefore, the insurers are obligated to defend and indemnify it.

The insurers answered that their respective CGL policies exclude from coverage any loss resulting from the discharge or dispersal of toxic chemicals or pollutants, the exception to that exclusion from coverage being only if the discharge is "sudden and accidental”.

On cross motions, Supreme Court granted Technicon’s motion for partial summary judgment concluding that the pollution exclusion from coverage was not operative. The Appellate Division reversed, granted partial summary judgment to the insurers, and declared "that the pollution exclusion clause is unambiguous * * * and operates to relieve [the insurers] of any obligation to defend or indemnify Technicon” (141 AD2d, at 130). That court also rejected Technicon’s argument that the EPA demand letter instituted "a suit” which also triggered the insurers’ obligation to defend. Technicon’s motion for leave to appeal to this court was granted with the customary certified question.

The dispositive issue is whether Technicon’s concededly intentional discharges into the waterway were both sudden and accidental within the meaning of the exception to the pollution exclusion from coverage. If the discharge is not both sudden and accidental, the exception is inapplicable and, therefore, the pollution exclusion from coverage provision is operative. We conclude that the occurrence was not accidental within the meaning of the policy provision.

The waste discharges cannot be viewed as "accidental” within the meaning of the exception to the pollution exclusion clause in this case where the gravamen of the underlying complaint against Technicon, the insured, in the personal injury action is that it knowingly discharged the pollutants into the waterway.

The duty to defend insureds — long recognized as broader than that to indemnify — is derived from the allegations of the complaint and the terms of the policy. If the complaint contains any facts or allegations which bring the claim even potentially within the protection purchased, the insurer is obligated to defend (Ruder & Finn v Seaboard Sur. Co., 52 NY2d 663, 669-670). Moreover, when an exclusion clause is relied upon to deny coverage, the insurer has the burden of demonstrating that the "allegations of the complaint cast that pleading solely and entirely within the policy exclusions, and, further, that the allegations, in toto, are subject to no other interpretation” (International Paper Co. v Continental Cas. Co., 35 NY2d 322, 325).

In this case, the insurers referenced their policy obligation to damages "caused by an occurrence”. An "occurrence” is then defined as "an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured”. Thus, under the "occurrence” definition of this policy, any unintended or unexpected damage will be covered as an "accident” without regard to the nature of the event causing it. Intended or expected damage is excluded from coverage.

This general coverage provision is followed by an express pollution exclusion provision which narrows the type of event for which coverage is afforded and, in turn, by an exception to that exclusion which would revive the coverage. The pollution exclusion provision and its exception were included in Technicon’s liability insurance policies pursuant to a statutory mandate (see, Insurance Law former § 46 [13], [14]; L 1971, ch 765), the mandatory aspect of which has been repealed (see, Insurance Law § 1113, L 1982, ch 856). The pollution exclusion clause provides: "This insurance does not apply * * * to bodily injury or property damage arising out of discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any water course or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental” (emphasis added).

The first question, then, is whether the pollution exclusion is applicable at all. To be so, the complaint with respect to which coverage is sought must allege a discharge, dispersal, release or escape of a toxic or hazardous waste which has actually resulted in pollution. If so, the damage from the discharge of the hazardous waste is excluded from coverage by the express exclusion clause, despite qualifying as an "occurrence” within the general terms of the policy. Here, the plaintiffs residents in the underlying complaint clearly asserted Technicon discharged pollutants that, as alleged, resulted in harm to the environment. The next question is whether the exception at the tail of the exclusion provision saves the coverage by neutralizing the exclusion clause. For that, the discharge, dispersal, release or escape must be "sudden and accidental”. Since the exception is expressed in the conjunctive, both requirements must be met for the exception to become operative. Stated conversely, discharges that are either nonsudden or nonaccidental block the exception from nullifying the pollution exclusion.

Technicon argues that its discharge of toxic waste was "accidental” because it allegedly did not intend to cause environmental harm or the specific injuries claimed by the plaintiffs in the Puerto Rico action. That argument fails because the pollution exclusion clause, by its own terms, does not distinguish between intended or unintended consequences of intentional discharges; rather, it excludes from coverage liability based on all intentional discharges of waste whether consequential damages were intended or unintended. If the discharge was intentional, the disqualifying exclusion clause is operative and there is no coverage because the exception clause lacks its springboard. Inasmuch as the underlying complaint alleges and Technicon’s answer concedes that its dumping of wastes was deliberate, the occurrence cannot be "accidental” within the meaning of th°e policy. To accept Technicon’s interpretation of the pollution exclusion clause would otherwise render that clause meaningless in context.

A word is necessary about Allstate Ins. Co. v Klock Oil Co. (73 AD2d 486) because it is strongly relied on by Technicon. The case is clearly inapposite. The complaint in Klock alleged unintentional accidental discharge. The court held that as long as the escape of gasoline was alleged to be accident, it could be sudden even though the discharge was undetected for a substantial period of time (id., at 488). The court then added, "if the resulting damage could be viewed as unintended by the fact finder, the total situation could be found to constitute an accident * * * and therefore within the coverage afforded by Allstate” (73 AD2d, at 489). Technicon’s reliance on Klock and the quoted dictum are unavailing because the court was not there addressing the discharge of pollutants — the critical policy language here — but rather the resulting damage argumentation construct. McGroarty v Great Am. Ins. Co. (36 NY2d 358), used by Klock in that connection, is a case which did not even concern the pollution exclusion clause but rather turned on the term "accident” in the context of a policy covering property damage "caused by an accident”. The policy in McGroarty made the fulcrum of coverage rest on the injurious results, not the precipitating discharge acts themselves. In sharp contrast, the pollution exclusion clause at issue here is directed at the polluting act itself — the discharge, dispersal or escape.

Similarly unpersuasive is Technicon’s claim that as long as the discharge was legal, according to its belief and answering allegations, the pollution exclusion provision is displaced from its policy. The plain language of the exclusion clause does not support this interpretation. It makes no mention of the legality of the discharge. Notably, when the statute mandating the inclusion of the pollution exclusion provision in all general liability insurance contracts was added to the Insurance Law in 1971 — Technicon’s policy was acquired during that period— opponents of the legislation stressed that even those who "observe the laws and rules scrupulously and discharge materials from his facility only in strict conformity with the concentrations, quantities or conditions set forth in the laws, regulations and permits * * * [are] stripped * * * of [the] ability to insure against this event” (see, Mem in opposition, NYS Dept of Commerce, Governor’s Bill Jacket, L 1971, ch 765; see also, Mem in opposition, Niagara Mohawk Power Corporation, Governor’s Bill Jacket, L 1971, ch 765). The change in policy, reflected in the statutory elimination of the mandatory inclusion of the clause, is unavailing to Technicon’s position.

Having decided that Technicon’s intentional discharge of toxins into the waterway was not "accidental” within the meaning of the relationship of the exception clause to the pollution exclusion provision, we need not rule on the conjunctive prerequisite bringing the exception into play — suddenness —because it would be superfluous here.

Likewise, we need not decide whether the EPA demand' letter constituted the institution of a "suit” qualifying for duty to defend coverage as that claim by Technicon is equally subsumed within the primary analysis and holding.

Accordingly, the order of the Appellate Division should be affirmed, with costs, and the certified question not answered as unnecessary.

Chief Judge Wachtler and Judges Simons, Kaye, Alexander, Titone and Hancock, Jr., concur.

Order affirmed, etc.  