A Primer on the Pollution Exclusion in New York and the Duty to Defend

In June and July of this year, the New York Court of Appeals and the Second Circuit each rendered a new decision on the proper scope and application of the pollution exclusion under New York law with respect to the duty to defend. In Belt Painting Corp. v. TIG Insurance Co., 100 N.Y.2d 377 (N.Y. 2003), the New York Court of Appeals held that an absolute pollution exclusion did not unambiguously exclude coverage for a personal injury claim asserting injury based on paint fumes inside an office building. In W.R. Grace & Co. v. Continental Casualty Co., 332 F.3d 145 (2d Cir. 2003), the Second Circuit held that New York's historical statutory proscription against the insurance of nonsudden, nonaccidental pollution vitiated a policy provision granting coverage for “gradual pollution.” The Second Circuit also confirmed in an important choice-of-law ruling that New York courts will not apply the law of various “site states” to a general liability policy; rather, New York courts will apply the single law of the state with the greatest contacts to the dispute. These cases provide further guidance to practitioners regarding (a) the limited scope of the pollution exclusion under New York law to nonenvironmental type claims, (b) the priority given to New York Insurance Law '46(13)-(14) in the face of conflicting policy provisions, and (c) the growing certainty that New York courts will apply the law of a single state to interpret a policy covering multiple risks in various locations.

Belt Painting Corp.

In Belt Painting, the insured was a painting subcontractor sued by an individual alleging that he was injured as a result of inhaling paint or solvent fumes in an office building where the policyholder was performing stripping and painting work. The insured submitted the claim to its general liability insurer, which denied coverage based on the application of the policy's absolute pollution exclusion. The provision excluded coverage for “`Bodily injury' or 'property damage' which would not have occurred in whole or part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants at any time.” The policy defined “pollutants” as “any solid, liquid, gaseous or thermal irritant or contaminant including smoke, vapor, soot, fumes, acid, alkalis, chemicals and waste.”

The trial court granted summary judgment with respect to the duty to defend to the insurer; the Appellate Division reversed and granted summary judgment to the insured; and the Court of Appeals affirmed judgment in favor of the insured.

The Court of Appeals, in a concise but informative opinion authored by Chief Judge Judith S. Kaye, provided a helpful overview of New York's standard policy construction rules and the historical debates surrounding the “sudden and accidental” and “absolute” pollution exclusions. The court noted that New York courts will review insurance policies in light of “common speech” and “the reasonable expectations of a businessperson” and that exclusions must unambiguously negate coverage, “with any ambiguity resolved against the insurer.” 100 N.Y.2d at 383.

The court reviewed its own decisions in the pollution exclusion field, noting that the court had rejected the application of the pollution exclusion to asbestos exposure injury in Continental Casualty Co. v. Rapid-American Corp., 80 N.Y.2d 630 (N.Y. 1993) (ruling on a “sudden and accidental” pollution exclusion), and to lead paint poisoning in Westview Assoc. v. Guaranty Nat'l Ins. Co., 95 N.Y.2d 334 (N.Y. 2000) (ruling on an absolute pollution exclusion). 100 N.Y.2d at 383-84.

The court observed that the major debate surrounding the “sudden and accidental” pollution exclusion turned on the meaning accorded to the term “sudden” and located New York squarely within the camp of jurisdictions that give a temporal component to the term, thus requiring pollution to be both abrupt and unexpected in order to fit within the exception to the exclusion. 100 N.Y.2d at 385. With respect to the absolute pollution exclusion, the court noted that the major debate turned on the application of the exclusion to “incidents that are not classic environmental pollution.” Id. at 386. Citing Continental Casualty, the court appeared to place New York within the group of courts that have found the exclusion to be ambiguous when applied to personal injury claims “arising out of a more direct contact with a substance that may fall into the exclusion's broad definition of 'pollutant.'” Id. The court pointed to the reasoning in Continental Casualty that terms such as “dispersal,” “discharge,” “irritant” or “contaminant” are “terms of art in environmental law used with reference to damage or injury caused by disposal or containment of hazardous waste.” Id.

Turning to the particular claim before it, the court found that the absolute pollution exclusion was ambiguous when applied to injury based on indoor exposure to paint or solvent fumes. The court rejected the insurer's argument that the inclusion of the word “fumes” in the definition of “pollutant” mandated application of the exclusion, finding that “[t]his argument … proves too much.” 100 N.Y.2d at 387. The court noted that under the insurer's interpretation, “any 'chemical,' or indeed, any 'material to be recycled,' that could 'irritate' person or property would be a 'pollutant.'” Id. The court also found that the terms “discharge, dispersal, seepage, migration, release or escape” could not be unambiguously understood to refer to the drifting of fumes a short distance from the area of the insured's intended use that results in inhalation injuries to a bystander. Id. at 387-88.

Finally, the court ruled that the exclusion's deletion of the reference to dispersals “into or upon land, the atmosphere or any water course or body of water,” found in earlier forms of the absolute pollution exclusion, did not help the insurer's case. 100 N.Y.2d at 388. The court believed those words to be redundant in the earlier exclusion and thus concluded that the absence of the words did not “eliminate or overcome the environmental implications of the terms 'discharge, dispersal, seepage, migration, release or escape.” Id.

The court did not issue a general proclamation as to all non-environmental claims and was careful to word its holding as a finding of ambiguity in the particular circumstances presented. 100 N.Y.2d at 387-88. Nonetheless, the court's observations about the schism among jurisdictions with respect to the treatment of “incidents that are not classic environmental pollution,” and apparent alignment of its precedents with those jurisdictions finding an ambiguity in such circumstances, suggests that the Court of Appeals will be unlikely to extend the application of the pollution exclusion (in either form) outside the traditional pollution context. The court, however, has not ruled out the possibility of reaching contrary results in different circumstances.

W.R. Grace

W.R. Grace involves a decade-long dispute over insurance coverage for traditional environmental contamination claims at, ultimately, 200 sites located in 40 states. The only issues on appeal to the Second Circuit concerned the duty to defend by Continental Casualty under three policies issued in 1973, 1976 and 1983 to W.R. Grace. The other insurers in the case had dropped out, and Grace and Continental had settled the duty to indemnify question.

The 1973 and 1976 policies were unusual in that they affirmatively provided coverage for gradual pollution, providing that Continental's limit would be “$200,000 each claim and $200,000 in the aggregate for injury to or destruction of property arising from gradual pollution or continuous discharge, leakage, or overflow of smoke, fumes, waste or other materials.” 332 F.3d at 148. These policies were written while New York had a statutory proscription against insuring gradual pollution. As set forth in New York Insurance Law '46(13)-(14), which went into effect on Sept. 1, 1971, insurance policies issued in New York were required to exclude coverage for claims arising out of “pollution or contamination caused by the discharge, dispersal, release or escape of any pollutants, irritants or contaminants into or upon land, the atmosphere or any water course or body of water unless such discharge, dispersal, release or escape is sudden and accidental.” N.Y. Ins. Law '46(13) (McKinney Supp. 1976) (repealed 1982). This statute was repealed effective Sept. 1, 1982. The question with these policies was (a) whether the repeal should be applied retroactively to allow the policies to provide coverage for gradual pollution, and (b) whether the term “sudden” could be construed to permit coverage for gradual pollution.

The 1983 policy had the same clause as the 1973 and 1976 policies providing coverage for gradual pollution but was issued after the repeal of Section 46, so there was no question about the legality of the clause. A different question arose, however, over whether the policy meant to provide any real-dollar coverage for gradual pollution because the insured's deductible for the gradual pollution coverage was the same as the limit of liability.

Grace also appealed the lower court's choice-of-law ruling. The court held that New York law would govern policy construction issues as to all sites, while Grace argued that the law of the state where each site was located should control.

The Second Circuit rejected the insured's appeal as to the 1973 and 1976 policies, remanded for further proceedings regarding the 1983 policy, and held that liability policies covering multiple sites must be construed under the law of the single state with the greatest contacts to the dispute.

With respect to the 1973 and 1976 policies, the Second Circuit held that it was required to interpret the policies to be in compliance with Section 46. 332 F.3d at 156 (citing Green v. Republic Steel Corp., 37 N.Y.2d 554, 558 (N.Y. 1975) (“[P]ublic policy proscribes any provision of [a] contract that is in violation of statute.”)). The court thus held that the 1973 and 1976 policies were permitted only to insure “sudden and accidental” pollution.

Grace conceded that the pollution at issue was gradual (and therefore not “sudden” when “sudden” is given the temporal meaning of “abrupt”), but nonetheless argued that the court should not apply the “abrupt” meaning to “sudden” because New York's decisions providing this construction post-dated the 1973 policy. The court stated that: “Grace's argument is, to be kind, creative.” 332 F.3d at 157. The Second Circuit held that there was no judicial understanding in 1973 that “sudden” meant only “unexpected”. Id. It further held that there was no precedent for not applying to previously issued policies the New York Court of Appeals decisions construing the term “sudden” to mean “abrupt.” Id. at 158 n. 12 (noting that each New York decision applied its holding to policies issued in the 1970s).

Grace also argued that the court should give retroactive effect to the repeal of Section 46. The court rejected this invitation as well, noting that the repeal did not represent a shift in public policy, which consistently remained the state's intention that gradual polluters pay to clean up their environmental contamination. The repeal of Section 46 merely recognized that if polluters could not obtain insurance coverage, they would go “bankrupt or disappear leaving no one to answer financially for the cleanup.” 332 F.3d at 160 (quoting Oates v. State of New York, 597 N.Y.S.2d 550, 553 (N.Y. Ct. Cl. 1993)). The court thus concluded that the public policy did not change, only “an understanding of the best way of effecting that policy.” Id.

With respect to the 1983 policy, the Second Circuit observed that Section 46 had no applicability as it was repealed before the policy was issued. Also, the policy made clear that the clause providing coverage for gradual pollution amended a “sudden and accidental” pollution exclusion also found within the policy. The only question was whether the policy afforded any coverage at all for gradual pollution because the $500,000 deductible for this coverage was the same dollar amount as the policy limit for this coverage. Grace pointed out an important distinction, however ' the deductible specified that it pertained to both defense and indemnity while the policy limit applied only to indemnity. Grace thus argued that the policy meant to cover defense costs beyond the $500,000 amount incurred by the insured. The Second Circuit found a disputed issue of fact and remanded for further proceedings. Interestingly, the court noted that the district court could consider extrinsic evidence in deciding this duty to defend issue, while simultaneously recognizing that a prior Second Circuit opinion had stated that “it is unclear whether New York law allows reference to extrinsic evidence in determining the duty to defend.” 332 F.3d at 162 (quoting International Bus. Machs. Corp. v. Liberty Mut. Fire Ins. Co., 303 F.3d 419, 426 (2d Cir. 2002)).

As a precursor to these substantive rulings, the Second Circuit provided a lengthy opinion on the choice-of-law issue, rejecting Grace's multi-state approach and ruling firmly in favor of applying a single state's law to all issues of policy construction. The court stated that “Grace's choice-of-law argument ' that the laws of as many as fifty states should simultaneously govern the same clause of the same insurance policy ' would be amusing, had it not been advanced with such sincerity.” 332 F.3d at 154. Looking to New York's “center of gravity” or “grouping of contacts” test, the court held that the law of the state with the most significant contacts to the matter in dispute should control. Grace did not dispute that this state was New York. The Second Circuit held that comment b to Section 193 of the Restatement (Second) of Conflict of Laws specifically recognized that the location of an insured risk (which normally receives great weight in an insurance dispute) will receive less significance “where the policy covers a group of risks that are scattered throughout two or more states.” 332 F.3d at 153. Moreover, the Second Circuit held that the vast majority of New York courts favored the application of a single state's law to an insurance policy; the court explicitly refused to follow two unpublished trial court decisions reaching a contrary result. 332 F.3d at 154 n.8. Finally, the court observed that the application of a single state's law was “far more likely to be consistent with the expectations of the parties” who were unlikely to intend “to subject each insurance policy to as many as fifty conflicting interpretations.” 332 F.3d at 156.

These two recent decisions of the New York Court of Appeals and the Second Circuit are worthwhile opinions to review for experienced insurance coverage practitioners and newcomers alike. The Belt Painting decision provides an excellent historical overview of the major debates surrounding the “sudden and accidental” and absolute pollution exclusions, while the Grace decision will serve as the foundational choice-of-law decision for multisite policies and an important source regarding the purpose and effect of repealed Section 46 of New York Insurance Law. The Grace decision may also have an important effect on future duty to defend decisions under New York law insofar as it suggests that a court may consider extrinsic evidence in deciding the scope of the insurer's defense obligation.

In June and July of this year, the New York Court of Appeals and the Second Circuit each rendered a new decision on the proper scope and application of the pollution exclusion under New York law with respect to the duty to defend. In Belt Painting Corp. v. TIG Insurance Co. , 100 N.Y.2d 377 (N.Y. 2003), the New York Court of Appeals held that an absolute pollution exclusion did not unambiguously exclude coverage for a personal injury claim asserting injury based on paint fumes inside an office building. In W.R. Grace & Co. v. Continental Casualty Co., 332 F.3d 145 (2d Cir. 2003), the Second Circuit held that New York's historical statutory proscription against the insurance of nonsudden, nonaccidental pollution vitiated a policy provision granting coverage for “gradual pollution.” The Second Circuit also confirmed in an important choice-of-law ruling that New York courts will not apply the law of various “site states” to a general liability policy; rather, New York courts will apply the single law of the state with the greatest contacts to the dispute. These cases provide further guidance to practitioners regarding (a) the limited scope of the pollution exclusion under New York law to nonenvironmental type claims, (b) the priority given to New York Insurance Law '46(13)-(14) in the face of conflicting policy provisions, and (c) the growing certainty that New York courts will apply the law of a single state to interpret a policy covering multiple risks in various locations.

Belt Painting Corp.

In Belt Painting, the insured was a painting subcontractor sued by an individual alleging that he was injured as a result of inhaling paint or solvent fumes in an office building where the policyholder was performing stripping and painting work. The insured submitted the claim to its general liability insurer, which denied coverage based on the application of the policy's absolute pollution exclusion. The provision excluded coverage for “`Bodily injury' or 'property damage' which would not have occurred in whole or part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants at any time.” The policy defined “pollutants” as “any solid, liquid, gaseous or thermal irritant or contaminant including smoke, vapor, soot, fumes, acid, alkalis, chemicals and waste.”

The trial court granted summary judgment with respect to the duty to defend to the insurer; the Appellate Division reversed and granted summary judgment to the insured; and the Court of Appeals affirmed judgment in favor of the insured.

The Court of Appeals, in a concise but informative opinion authored by Chief Judge Judith S. Kaye, provided a helpful overview of New York's standard policy construction rules and the historical debates surrounding the “sudden and accidental” and “absolute” pollution exclusions. The court noted that New York courts will review insurance policies in light of “common speech” and “the reasonable expectations of a businessperson” and that exclusions must unambiguously negate coverage, “with any ambiguity resolved against the insurer.” 100 N.Y.2d at 383.

The court reviewed its own decisions in the pollution exclusion field, noting that the court had rejected the application of the pollution exclusion to asbestos exposure injury in Continental Casualty Co. v. Rapid-American Corp., 80 N.Y.2d 630 (N.Y. 1993) (ruling on a “sudden and accidental” pollution exclusion), and to lead paint poisoning in Westview Assoc. v. Guaranty Nat'l Ins. Co., 95 N.Y.2d 334 (N.Y. 2000) (ruling on an absolute pollution exclusion). 100 N.Y.2d at 383-84.

The court observed that the major debate surrounding the “sudden and accidental” pollution exclusion turned on the meaning accorded to the term “sudden” and located New York squarely within the camp of jurisdictions that give a temporal component to the term, thus requiring pollution to be both abrupt and unexpected in order to fit within the exception to the exclusion. 100 N.Y.2d at 385. With respect to the absolute pollution exclusion, the court noted that the major debate turned on the application of the exclusion to “incidents that are not classic environmental pollution.” Id. at 386. Citing Continental Casualty, the court appeared to place New York within the group of courts that have found the exclusion to be ambiguous when applied to personal injury claims “arising out of a more direct contact with a substance that may fall into the exclusion's broad definition of 'pollutant.'” Id. The court pointed to the reasoning in Continental Casualty that terms such as “dispersal,” “discharge,” “irritant” or “contaminant” are “terms of art in environmental law used with reference to damage or injury caused by disposal or containment of hazardous waste.” Id.

Turning to the particular claim before it, the court found that the absolute pollution exclusion was ambiguous when applied to injury based on indoor exposure to paint or solvent fumes. The court rejected the insurer's argument that the inclusion of the word “fumes” in the definition of “pollutant” mandated application of the exclusion, finding that “[t]his argument … proves too much.” 100 N.Y.2d at 387. The court noted that under the insurer's interpretation, “any 'chemical,' or indeed, any 'material to be recycled,' that could 'irritate' person or property would be a 'pollutant.'” Id. The court also found that the terms “discharge, dispersal, seepage, migration, release or escape” could not be unambiguously understood to refer to the drifting of fumes a short distance from the area of the insured's intended use that results in inhalation injuries to a bystander. Id. at 387-88.

Finally, the court ruled that the exclusion's deletion of the reference to dispersals “into or upon land, the atmosphere or any water course or body of water,” found in earlier forms of the absolute pollution exclusion, did not help the insurer's case. 100 N.Y.2d at 388. The court believed those words to be redundant in the earlier exclusion and thus concluded that the absence of the words did not “eliminate or overcome the environmental implications of the terms 'discharge, dispersal, seepage, migration, release or escape.” Id.

The court did not issue a general proclamation as to all non-environmental claims and was careful to word its holding as a finding of ambiguity in the particular circumstances presented. 100 N.Y.2d at 387-88. Nonetheless, the court's observations about the schism among jurisdictions with respect to the treatment of “incidents that are not classic environmental pollution,” and apparent alignment of its precedents with those jurisdictions finding an ambiguity in such circumstances, suggests that the Court of Appeals will be unlikely to extend the application of the pollution exclusion (in either form) outside the traditional pollution context. The court, however, has not ruled out the possibility of reaching contrary results in different circumstances.

W.R. Grace

W.R. Grace involves a decade-long dispute over insurance coverage for traditional environmental contamination claims at, ultimately, 200 sites located in 40 states. The only issues on appeal to the Second Circuit concerned the duty to defend by Continental Casualty under three policies issued in 1973, 1976 and 1983 to W.R. Grace. The other insurers in the case had dropped out, and Grace and Continental had settled the duty to indemnify question.

The 1973 and 1976 policies were unusual in that they affirmatively provided coverage for gradual pollution, providing that Continental's limit would be “$200,000 each claim and $200,000 in the aggregate for injury to or destruction of property arising from gradual pollution or continuous discharge, leakage, or overflow of smoke, fumes, waste or other materials.” 332 F.3d at 148. These policies were written while New York had a statutory proscription against insuring gradual pollution. As set forth in New York Insurance Law '46(13)-(14), which went into effect on Sept. 1, 1971, insurance policies issued in New York were required to exclude coverage for claims arising out of “pollution or contamination caused by the discharge, dispersal, release or escape of any pollutants, irritants or contaminants into or upon land, the atmosphere or any water course or body of water unless such discharge, dispersal, release or escape is sudden and accidental.” N.Y. Ins. Law '46(13) (McKinney Supp. 1976) (repealed 1982). This statute was repealed effective Sept. 1, 1982. The question with these policies was (a) whether the repeal should be applied retroactively to allow the policies to provide coverage for gradual pollution, and (b) whether the term “sudden” could be construed to permit coverage for gradual pollution.

The 1983 policy had the same clause as the 1973 and 1976 policies providing coverage for gradual pollution but was issued after the repeal of Section 46, so there was no question about the legality of the clause. A different question arose, however, over whether the policy meant to provide any real-dollar coverage for gradual pollution because the insured's deductible for the gradual pollution coverage was the same as the limit of liability.

Grace also appealed the lower court's choice-of-law ruling. The court held that New York law would govern policy construction issues as to all sites, while Grace argued that the law of the state where each site was located should control.

The Second Circuit rejected the insured's appeal as to the 1973 and 1976 policies, remanded for further proceedings regarding the 1983 policy, and held that liability policies covering multiple sites must be construed under the law of the single state with the greatest contacts to the dispute.

With respect to the 1973 and 1976 policies, the Second Circuit held that it was required to interpret the policies to be in compliance with Section 46. 332 F.3d at 156 (citing Green v. Republic Steel Corp ., 37 N.Y.2d 554, 558 (N.Y. 1975) (“[P]ublic policy proscribes any provision of [a] contract that is in violation of statute.”)). The court thus held that the 1973 and 1976 policies were permitted only to insure “sudden and accidental” pollution.

Grace conceded that the pollution at issue was gradual (and therefore not “sudden” when “sudden” is given the temporal meaning of “abrupt”), but nonetheless argued that the court should not apply the “abrupt” meaning to “sudden” because New York's decisions providing this construction post-dated the 1973 policy. The court stated that: “Grace's argument is, to be kind, creative.” 332 F.3d at 157. The Second Circuit held that there was no judicial understanding in 1973 that “sudden” meant only “unexpected”. Id. It further held that there was no precedent for not applying to previously issued policies the New York Court of Appeals decisions construing the term “sudden” to mean “abrupt.” Id. at 158 n. 12 (noting that each New York decision applied its holding to policies issued in the 1970s).

Grace also argued that the court should give retroactive effect to the repeal of Section 46. The court rejected this invitation as well, noting that the repeal did not represent a shift in public policy, which consistently remained the state's intention that gradual polluters pay to clean up their environmental contamination. The repeal of Section 46 merely recognized that if polluters could not obtain insurance coverage, they would go “bankrupt or disappear leaving no one to answer financially for the cleanup.” 332 F.3d at 160 (quoting Oates v. State of New York , 597 N.Y.S.2d 550, 553 (N.Y. Ct. Cl. 1993)). The court thus concluded that the public policy did not change, only “an understanding of the best way of effecting that policy.” Id.

With respect to the 1983 policy, the Second Circuit observed that Section 46 had no applicability as it was repealed before the policy was issued. Also, the policy made clear that the clause providing coverage for gradual pollution amended a “sudden and accidental” pollution exclusion also found within the policy. The only question was whether the policy afforded any coverage at all for gradual pollution because the $500,000 deductible for this coverage was the same dollar amount as the policy limit for this coverage. Grace pointed out an important distinction, however ' the deductible specified that it pertained to both defense and indemnity while the policy limit applied only to indemnity. Grace thus argued that the policy meant to cover defense costs beyond the $500,000 amount incurred by the insured. The Second Circuit found a disputed issue of fact and remanded for further proceedings. Interestingly, the court noted that the district court could consider extrinsic evidence in deciding this duty to defend issue, while simultaneously recognizing that a prior Second Circuit opinion had stated that “it is unclear whether New York law allows reference to extrinsic evidence in determining the duty to defend.” 332 F.3d at 162 (quoting International Bus. Machs. Corp. v. Liberty Mut. Fire Ins. Co., 303 F.3d 419, 426 (2d Cir. 2002)).

As a precursor to these substantive rulings, the Second Circuit provided a lengthy opinion on the choice-of-law issue, rejecting Grace's multi-state approach and ruling firmly in favor of applying a single state's law to all issues of policy construction. The court stated that “Grace's choice-of-law argument ' that the laws of as many as fifty states should simultaneously govern the same clause of the same insurance policy ' would be amusing, had it not been advanced with such sincerity.” 332 F.3d at 154. Looking to New York's “center of gravity” or “grouping of contacts” test, the court held that the law of the state with the most significant contacts to the matter in dispute should control. Grace did not dispute that this state was New York. The Second Circuit held that comment b to Section 193 of the Restatement (Second) of Conflict of Laws specifically recognized that the location of an insured risk (which normally receives great weight in an insurance dispute) will receive less significance “where the policy covers a group of risks that are scattered throughout two or more states.” 332 F.3d at 153. Moreover, the Second Circuit held that the vast majority of New York courts favored the application of a single state's law to an insurance policy; the court explicitly refused to follow two unpublished trial court decisions reaching a contrary result. 332 F.3d at 154 n.8. Finally, the court observed that the application of a single state's law was “far more likely to be consistent with the expectations of the parties” who were unlikely to intend “to subject each insurance policy to as many as fifty conflicting interpretations.” 332 F.3d at 156.

These two recent decisions of the New York Court of Appeals and the Second Circuit are worthwhile opinions to review for experienced insurance coverage practitioners and newcomers alike. The Belt Painting decision provides an excellent historical overview of the major debates surrounding the “sudden and accidental” and absolute pollution exclusions, while the Grace decision will serve as the foundational choice-of-law decision for multisite policies and an important source regarding the purpose and effect of repealed Section 46 of New York Insurance Law. The Grace decision may also have an important effect on future duty to defend decisions under New York law insofar as it suggests that a court may consider extrinsic evidence in deciding the scope of the insurer's defense obligation.