author: Hancock, Jr., J.

text:
    LIN Broadcasting Corporation et al., Appellants, v Metromedia, Inc., et al., Respondents. In the Matter of LIN Broadcasting Corporation et al., Appellants, v Metromedia, Inc., et al., Respondents.
    Argued May 31, 1989;
    decided June 30, 1989

      POINTS OF COUNSEL

      Robert B. Fiske, Jr., Guy Miller Struve, Joan I. Greco, Susan L. Merrill, Robert S. Rifkind, Lawrence M. Rolnick and Peter L. Skolnik for appellants.
    I. The decision of the court below is contrary to the law and policy of rights to purchase. (Loika v

      Howard, 103 AD2d 874; Metropolitan Transp. Auth. v Bruken Realty Corp., 67 NY2d 156; Cortese v Connors, 1 NY2d 265.) II. The court below, in a basic violation of procedure, found facts in favor of the movant on a motion to dismiss. (Amusement Business Underwriters v American Intl. Group, 66 NY2d 878; Kushner v King, 126 AD2d 466; Leon v Lukash, 121 AD2d 693; Quigley v Capolongo, 53 AD2d 714, 43 NY2d 748; Rock-land Light & Power Co. v City of New York, 289 NY 45; Hellenic Greek Orthodox Church v City of Schenectady, 81 AD2d 959; Sanders v Winship, 57 NY2d 391; Pollnow v Poughkeepsie Newspapers, 107 AD2d 10, 67 NY2d 778; Guadagno v Colonial Coop. Ins. Co., 101 AD2d 947; Four Seasons Hotels v Vinnik, 127 AD2d 310.)

      Arthur L. Liman, Samuel J. Silverman, Robert S. Smith and Clyde Allison for respondents.
    I. The court below correctly held that a first refusal offer may be revoked if the underlying third-party sale is rescinded. (R. I. Realty Co. v Terrell, 254 NY 121; Metropolitan Transp. Auth. v Bruken Realty Corp., 67 NY2d 156; London v Joslovitz, 279 App Div 252, 957; Concert Radio v GAF Corp., 108 AD2d 273, 73 NY2d 766.) II. There is no merit to LIN’s claim that the court below engaged in impermissible fact finding. (Sutton v East Riv. Sav. Bank, 55 NY2d 550; Bethlehem Steel Co. v Turner Constr. Co., 2 NY2d 456; State of New York v Peerless Ins. Co., 108 AD2d 385, 67 NY2d 845; Mihlovan v Grozavu, 72 NY2d 506; Groonstad v Robins Dry Dock & Repair Co., 203 App Div 33; Quigley v Capolongo, 53 AD2d 714, 43 NY2d 748.) III. LIN’s conduct in undermining the Bell transaction estops it from relying on that transaction to force a sale. (Chautauqua County Fedn. of Sportsmens Club v Caflisch, 15 AD2d 260.)
   OPINION OF THE COURT

Hancock, Jr., J.

We have held that a right of first refusal or preemptive right — as distinguished from an option — does not “give its holder the power to compel an unwilling owner to sell; it merely requires the owner, when and if he decides to sell, to offer the property first to the party holding the preemptive right so that he may meet a third-party offer or buy the property at some other price set by a previously stipulated method”. (Metropolitan Transp. Auth. v Bruken Realty Corp., 67 NY2d 156, 163.) In this appeal, the determinative question is one that our court has not addressed: whether a contractual right of first refusal, which has been triggered by a contract to sell to a third party, may be exercised during the specified duration of the right but after the third-party transaction has been abandoned. In other words, is an offer, once made to the holder of a right of first refusal, irrevocable for the period of time set forth in the first refusal clause? The Appellate Division concluded that such an offer is not irrevocable and dismissed the proceeding and the action brought by the first refusal offeree. For reasons which follow, we agree with this conclusion and, accordingly, affirm.

I

Following the Federal Communications Commission’s 1981 authorization of cellular telephone service, LIN Broadcasting Corporation and LIN Cellular Communications Corporation (collectively LIN) and Metromedia, Inc. and Metromedia Company (collectively Metromedia) agreed to enter the business jointly in the New York City and Philadelphia markets. The companies formed a partnership, Cellular Telephone Company (CTC), to serve the New York City market and a corporation, AW ACS, Inc., for the Philadelphia area. The parties entered into two contracts — the New York partnership agreement and the Philadelphia stock agreement — which, among other things, gave each party a right of first refusal to buy the other party’s interest before the other party could sell to a third party. In pertinent part, the New York agreement provided:

"§ 7.2

"Right of First Refusal — Third Party Transactions. No Partner shall sell, transfer or otherwise dispose of its Ownership Interest to a third party except * * * after giving the other Partners a right of first refusal to acquire such Ownership Interest as provided in this Section 7.2. Any Partner desiring to transfer its Ownership Interest shall first offer such Ownership Interest to the other Partners, by written notice, at the same price and upon the same terms offered by an Offeror. * * * During a period of 45 days after such written notice is received, each other Partner shall have the exclusive right to purchase its Pro Rata share of such Ownership Interest at the appropriate portion of the cash price and otherwise upon the terms and conditions of the offer”.

The Philadelphia stock agreement contained two clauses, section 7 (c) and section 8, relating to the right of first refusal. Section 7 (c) gave each stockholder a "right of first refusal”

substantially like that contained in section 7.2 of the New York agreement except that the buying stockholder had 60 days to exercise its right. Section 8 provided, in part:

"§ 8

"Consolidation and Sale of Assets. Notwithstanding anything herein to the contrary * * * [t]he right to sell or otherwise transfer the shares specified in this Section 8 shall be subject to a right of first refusal whereby the selling stockholder shall notify the other stockholder in writing that it has received a bona fide offer from the third party to acquire all or substantially all of such assets. The other stockholder shall have ten days within which to request appraisal of the value of the shares. An appraisal committee shall be promptly established * * *. Within thirty days after the receipt of the written appraisal, the other stockholder shall have the right to purchase the shares of the selling stockholder at the Appraised Value”.

On June 30, 1986, Metromedia entered into a contract with Southwestern Bell Corporation (Bell) under which Bell agreed to purchase various assets from Metromedia for a total price of $1.65 billion. Included in the proposed transaction were Metromedia’s interests in the New York and Philadelphia cellular telephone businesses. The contemplated sale was expressly conditioned upon Metromedia’s having obtained "waivers of all rights of first refusal held by third parties”.

Thereafter, in compliance with the two first refusal clauses, Metromedia sent two letters dated July 14, 1986 to LIN advising it of the proposed sale to Bell of its interests in the New York and Philadelphia joint ventures. Metromedia stated that the portion of the total sales price allocable to the New York and Philadelphia interests were $273,510,000 and $94,860,000, respectively, for a total of $368,370,000. Each letter informed LIN of the terms pertaining to the sale of the particular interest and notified it of its rights to purchase under the applicable first refusal clause upon the terms and conditions being offered by Bell.

Following receipt of the July 14 letters, various exchanges took place between LIN and Metromedia concerning questions raised by LIN as to whether the proposed sale to Bell violated other unrelated provisions of the New York and Philadelphia agreements; whether the proposed sale violated the consent decree in United States v American Tel. & Tel. (552 F Supp 131, affd sub nom. Maryland v United States, 460 US 1001); and whether the portion of the total price in the sale contract with Bell allocated to the cellular telephone businesses was inflated. During the course of these communications, LIN and Metromedia agreed to a series of extensions of LIN’s rights under the New York agreement culminating in a final extension giving LIN until September 26, 1986 to exercise its right of first refusal for the New York interests. In addition, in a letter dated July 23, 1986, LIN stated that because Metromedia was selling all of its stock in the Philadelphia business, the applicable provision of the Philadelphia contract was section 8, not section 7 (c), and that it was, therefore, requesting an appraisal.

Subsequently, Metromedia decided to keep its interests in the cellular telephone businesses. After renewed negotiations with Bell, the parties amended their June 30, 1986 agreement deleting these assets, among others, from the sale and reducing the purchase price by $453,000,000. On September 11, 1986, Metromedia notified LIN in two letters that it had decidéd to retain its New York and Philadelphia interests and that the first refusal offers were no longer valid. LIN responded on September 18, 1986 by sending Metromedia notices purporting to exercise its first refusal rights under the New York contract and signifying its intention to proceed with the appraisal process under section 8 of the Philadelphia agreement.

LIN then commenced the instant litigation: a specific performance action to compel Metromedia to sell to LIN its New York interests and a proceeding pursuant to CPLR 7601 to expedite the appraisal of Metromedia’s Philadelphia interests. There is no dispute that the first refusal provisions of these agreements were triggered when Metromedia entered into a binding agreement to sell its interests in the cellular telephone businesses to Bell. Nor is there any question that prior to LIN’s letter of September 18, 1986 purporting to exercise its preemptive rights under the New York agreement and requesting that the appraisal procedures in the Philadelphia agreement go forward, Metromedia and Bell had abandoned their agreement for Bell’s purchase of the cellular telephone interests.

The IAS court denied Metromedia’s motions to dismiss both the specific performance action and the CPLR 7601 proceeding and granted LIN’s petition to require the appraisal under the Philadelphia stock agreement. It held in substance that the first refusal offers could not be validly revoked although the underlying third-party transaction had been abandoned. On appeal the Appellate Division, in a well-reasoned opinion, unanimously reversed, concluding that neither the New York nor Philadelphia agreement contained a provision conferring an irrevocable right to compel a sale, and that, in the absence of such language there "is nothing to prohibit a partner or shareholder from in good faith changing its mind about selling at any time prior to the invocation of the right of first refusal” (139 AD2d 124, 133).

II

The effect of a right of first refusal, also called a preemptive right, is to bind the party who desires to sell not to sell without first giving the other party the opportunity to purchase the property at the price specified (see, R. I. Realty Co. v Terrell, 254 NY 121, 124; Burbach v Sinram, 237 NY 600; Garcia v Callender, 125 NY 307, 312; 1A Corbin, Contracts § 261, at 471 [1963]; 6 American Law of Property § 26.64, at 507 [Casner ed 1952]). Such right of first refusal differs from an option in significant respects. Unlike an option — in essence, an offer which by contract is to be kept open (see, 1 Williston, Contracts § 61A [3d ed]; Restatement [Second] of Contracts § 25; 1 Corbin, Contracts § 43 [1963]) — a right of first refusal does not, at the time it is given, include an operative offer. Rather, it is a restriction on the power of one party to sell without first making an offer of purchase to the other party upon the happening of a contingency: the owner’s decision to sell to a third party. Under a right of first refusal, the only offer involved is one to be made in the future, if and when the owner reaches agreement with a third-party purchaser. Also, unlike an option — which creates in the optionee a power to compel an unwilling seller to sell at the agreed price — a right of first refusal contemplates a willing seller who desires to part with the property (see, Metropolitan Transp. Auth. v Bruken Realty Corp., supra, at 163; R. I. Realty Co. v Terrell, supra, at 124). In sum, a right of first refusal merely provides that before an owner sells, it will first give the other party a chance to buy (1A Corbin, Contracts § 261, at 474 [1963]).

Before discussing whether a right of first refusal, once triggered, becomes a binding option, two points must be briefly addressed. First, we observe, as did the Appellate Division, that neither the New York nor the Philadelphia agreement purported to bestow an irrevocable right to compel a sale (139 AD2d, at 133). Indeed, no wording in either agreement can be construed as giving LIN anything more than a standard right of first refusal. Both the caption of section 7.2 of the New York agreement and the text of the provision refer to the right being granted to the nonselling partner as a "Right[ ] of First Refusal”. Similarly, section 7 (c) and section 8 of the Philadelphia agreement describe the right conferred on a nonselling stockholder as a "right of first refusal”. Moreover, neither of Metromedia’s letters of July 14 notifying LIN of the proposed sale to Bell can be read as granting to LIN any rights other than what it already had by virtue of the first refusal clauses. The first refusal offers made in these letters to LIN are not by their terms irrevocable.

Second, we reject the contention that LIN’s request for an appraisal of Metromedia’s AW ACS stock under section 8 of the Philadelphia agreement constituted an acceptance of Metromedia’s first refusal offer contained in the July 14, 1986 letter. The appraisal process under section 8 serves only as the mechanism for supplying the term essential for the exercise of the first refusal right, the price at which the nonselling stockholder may buy. Instead of accepting the offer at the price and on the terms of the third-party transaction (as in § 7.2 of the New York agreement and § 7 [c] of the Philadelphia agreement), a nonselling stockholder which has requested an appraisal under section 8 has the right, within 30 days, to purchase the shares of the selling stockholder at the appraised value. The nonselling stockholder, however, is not bound to purchase. Once the appraisal is received, its rights to accept or reject the purchase at the appraised value are no different from those of any first refusal offeree.

Ill

We turn then to the general proposition of law that LIN would have us adopt as the rule in this State: that a first refusal offer, once made, is irrevocable for the period specified in the first refusal clause. In effect, LIN argues that a right of first refusal constitutes a conditional option. The right is transformed into a binding option, LIN says, when the event triggering the first refusal rights takes place. We do not believe that such rule comports with general principles of contract law or with the theory of first refusal rights.

The obvious effect of the right of first refusal is to give to the nonselling party a power to control and restrict the other party’s right to sell to a third party. The clause itself operates as a restriction by preventing a party from making a sale without first making the first refusal offer. When, as here, the selling party has fully complied with its obligations under the first refusal clause by not selling without first making the required offer, the nonselling party has received the bargained-for performance. The intended effect of the clause as a means of restricting or preventing a sale to a third party has been realized. There is no basis for requiring the selling party to render more than its promised performance, as LIN would have us do, by keeping the offer open for the period specified in the first refusal clause, thus giving the first refusal offer all of the attributes of an option (see, 1 Williston, Contracts § 61A, at 198 [3d ed 1957]).

The distinctions between a right of first refusal and an option have been thoroughly defined in the treatises and in the decisions of this State (see, discussion, supra, at 60), and there is nothing to prevent the contracting parties, if they choose, from simply agreeing on a provision that a first refusal offer, once made, must remain open for a specified time, making it an option. Moreover, to read into a right of first refusal such an unspecified additional provision would be contrary to the general rule at common law that an offer may be withdrawn at any time before it is accepted (see, 1 Williston, Contracts § 55, at 176 [3d ed]; Restatement [Second] of Contracts § 42).

LIN argues, however, that — notwithstanding the lack of an irrevocability provision — the law should require that the first refusal offer be kept open for acceptance even after the contemplated third-party sale has been abandoned. It maintains that the Appellate Division, in deciding to the contrary, mistakenly presupposed that the primary purpose of a right of first refusal is to restrict third-party sales. The true purpose, LIN contends, is "to enable the right holder to eventually purchase the property”, a purpose which is frustrated if the offer may be withdrawn before acceptance. While there is authority to the effect that the primary purpose of an option "is to enable a particular person to buy, not to prevent anyone from selling” (Simes & Smith, Future Interests, at 1154 [2d ed 1956]), we have found none for the proposition that this is the intended purpose of a first refusal right.

The construction of the right of first refusal proposed by LIN would clearly impose substantial risks and disadvantages on the party contemplating a sale. The act of making a first refusal offer would carry with it the risk of ultimate loss of the property even though the offeror later changes its mind and decides to keep the property after renouncing the third-party sale. With the benefit of what has become an option, the offeree could wait until the end of the option period and buy if the first refusal price is advantageous, or decline to buy if the property has declined in value and the offered price is no longer attractive. The risks of changes in market price would fall entirely on the first refusal offeror. The offeree would have no risk.

We see no reason why — when, as here, the offeree has received the bargained-for effect of the first refusal clause and the third-party sale has been abandoned — the first refusal offeree should have the substantial additional advantage of holding the offeror’s property subject to the risk of an irrevocable option for the remainder of the stipulated period. When the parties themselves have not agreed on this allocation of risks and benefits in their agreement, the law should not impose it on them.

The relevant case law from other jurisdictions supports the proposition that a first refusal offer is not irrevocable (see, Anderson v Stewart, 149 Neb 660, 668, 32 NW2d 140, 144-145 [1948] [offeror under right of first refusal not obligated to keep offer open for "any definite length of time but could withdraw at any time she desired provided it had not been unconditionally accepted”]; see also, Leb v Hoover, 1982 WL 5637 [No. 5717, Ct App Ohio, Dec. 28, 1982] [since the first refusal right "is dependent upon the seller’s intent to sell he may, as with offers in general, revoke that intent, and therefore the offer, at any time prior to acceptance thereof’, citing Anderson v Stewart, supra]; cf., Long v Wayble, 48 Ore App 851, 618 P2d 22, 25 [1980]).

We do not find Henderson v Nitchke (470 SW2d 410 [Tex Ct Civ App 1971]), relied on by LIN, to be persuasive authority for the proposition that a first refusal offer should be irrevocable. The Henderson court found it significant that the first refusal right in suit specified a 60-day period during which the offer could be accepted. For this reason, it distinguished Anderson v Stewart (supra) where the first refusal offer was open-ended. In our view, however, that a first refusal clause contains a specific time limitation has no bearing on whether it should be given the effect of a binding option. Such time limit merely provides a definite date beyond which the first refusal offer, if still outstanding, may no longer be accepted so that the parties may know when they are free to go forward with the contemplated third-party sale. Moreover, Vorpe v Key Is. (374 So 2d 1035 [Fla Dist Ct App 1979]), on which LIN also relies, is not in point, since in that case the first-party offeree had committed itself to match the third-party offer before that sale was rescinded by court order.

We reject LIN’s contention that Friedman v Sommer (63 NY2d 788) is in some way inconsistent with the conclusion that a first refusal offer should not be irrevocable. There, we simply held that an offer made to a tenant in a cooperative conversion contained no "assurance that it [would] be held open” so as to make it irrevocable under UCC 2-205. The fact that the offer was, by its terms, "non-exclusive” was merely an additional indication that it was not irrevocable. Nothing in Friedman supports the proposition for which LIN apparently cites it: that because an offer is exclusive it follows that it is also irrevocable. That an offeree is the only person who can accept an offer while it is open does not mean that the offer cannot be withdrawn before it is accepted.

Nor is anything in Quigley v Capolongo (53 AD2d 714, affd on mem 43 NY2d 748) to the contrary. In Quigley, after the proposed third-party sale was withdrawn, the owners and the third-party purchaser disguised the sale as a five-year lease with an option to purchase for the obvious purpose of defeating plaintiffs’ right of first refusal. The Appellate Division in granting specific performance to plaintiffs, did "not feel it necessary to decide” what the outcome would have been if the prior third-party sale had been canceled "in good faith” prior to acceptance of the first refusal offer (53 AD2d, at 715).

Because Metromedia’s first refusal offers were withdrawn before acceptance, the Appellate Division properly dismissed LIN’s complaint and petition. Accordingly, the order should be affirmed, with costs.

Judges Simons, Kaye, Alexander, Titone and Bellacosa concur; Chief Judge Wachtler taking no part.

Order affirmed, with costs.

      . Although the parties initially disagreed over whether section 7 (c) or section 8 of the Philadelphia agreement controlled, both sides now concede that only section 8 applies to the transaction.

      . LIN’s reliance on Turner v Shirk (49 Ill App 3d 764, 364 NE2d 622) for the proposition that a demand to proceed to arbitration renders a right of refusal irrevocable is misplaced for two reasons. First, the Turner court specifically stated that the purchaser was exercising a conditional option not a right of first refusal (see, id., at 624-625). Inasmuch as conditional options are different from rights of first refusal (see, infra, at 62), the case provides no support for LIN’s proposition. Second, the buyer in Turner, unlike LIN, had accepted the offer before it was revoked by committing himself to purchase at the appraised price (see, id., at 623).

      . LIN also argues, relying on Quigley v Capolongo (53 AD2d 714) that its action and proceeding should not have been dismissed because there is a factual dispute as to whether Metromedia acted in bad faith to prevent LIN from exercising its rights of first refusal. LIN failed to raise this contention in its petition, in its complaint, or in the affidavits in opposition to the motions to dismiss. Accordingly, it is not preserved for our review.


source: Caselaw Access Project

author: Bellacosa, J.

license: Public Domain

text:
    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.


author: Alexander, J.

text:
    In the Matter of Gregory B. et al. Saint Dominic’s Home, Respondent, v Gregory F., Appellant, et al., Respondent. In the Matter of Willie John B., Jr. Cardinal McCloskey Children’s and Family Services, Respondent, v Willie B., Appellant. In the Matter of Delores B. Cardinal McCloskey Children’s and Family Services, Respondent, v Willie B., Appellant.
    Argued June 6, 1989;
    decided July 6, 1989

      POINTS OF COUNSEL

      Marie Michelle Charles for appellant in the first above-entitled proceeding.
    I. Parental rights should not be involuntarily and permanently terminated solely because that result would be in the best interest of the child. (Santosky v Kramer, 455 US 745; Matter of Sheila G., 61 NY2d 368.) II. When the failure of a parent to personally care for and financially support his child results from the parents’ incarceration, parents’ parental rights cannot be permanently terminated on the ground of neglect. (Matter of Anonymous, 104 Misc 2d 985; Montgomery v Kelly, 661 F Supp 1051; Matter of Peter L., 59 NY2d 513.)

      Richard J. Warren and Richard Colodny for respondent in the first above-entitled proceeding.
    I. Chapter 911 of the Laws of 1983 provided that an incarcerated parent’s right to withhold consent to an adoption of a child shall no longer be dispensed with on the basis of that incarceration. However, pursuant to the same law, the incarcerated parent’s rights may now be terminated, similar to any other parent, on the grounds of permanent neglect. (Matter of Brian G., 122 Misc 2d 659.) II. The father permanently neglected the subject children pursuant to Social Services Law § 384-b by substantially and continuously or repeatedly failing to plan for their future despite the diligent efforts of petitioner agency to encourage and strengthen the parental relationship through its efforts with appellant and his chosen planning resource, the children’s paternal grandmother. (Matter of Star Leslie W., 63 NY2d 136; Matter of Jamie M., 63 NY2d 388.) III. The disposition of the trial court terminating parental rights and committing the custody and guardianship of the children to Saint Dominic’s Home and the Commissioner of Social Services for adoption was proper and therefore should be affirmed. (Matter of Star Leslie W., 63 NY2d 136; Matter of Irene O., 38 NY2d 776.)

      Kenneth Rabb and Lenore Gittis, Law Guardians in the first above-entitled proceeding.
    I. Although incarcerated, appellant was required by Social Services Law § 384-b to plan for the future of his sons. (Matter of Orlando F., 40 NY2d 103; Matter of Star Leslie W., 63 NY2d 136; Matter of Louise Wise Servs. [Febra], 135 AD2d 385; Matter of Hime Y., 52 NY2d 242; Matter of LeBron, 140 AD2d 276; Matter of Roxann Joyce M., 75 AD2d 872; Matter of Marilyn H., 106 Misc 2d 972; Matter of John W, 63 AD2d 750; Matter of Karas, 59 AD2d 1022, 43 NY2d 646; Matter of Joyce T., 65 NY2d 39.) II. The finding of permanent neglect was supported by clear and convincing evidence that despite the agency’s diligent efforts to strengthen appellant’s relationship with his children, appellant failed to plan for them for a period of more than one year. (Matter of Jamie M., 63 NY2d 388; Matter of Star Leslie W., 63 NY2d 136.)

      Douglas Haigh Reiniger for intervenors in the first above-entitled proceeding.
    I. Parents have a duty to plan for their children’s future. II. Parents, despite incarceration, have a duty to formulate and act to accomplish a realistic and feasible plan for the future of their children. (Matter of Raymond "M”, 81 Misc 2d 70; Matter of Orlando F., 40 NY2d 103; Matter of Seith SS, 66 AD2d 914; Matter of Jamie Y., 92 AD2d 696; Matter of Star Leslie W., 63 NY2d 136; Matter of

      Jamie M., 63 NY2d 388; Matter of Eugene MM, 132 AD2d 780; Matter of Stella B., 130 Misc 2d 148.)

      Ruth N. Cassell for appellant in the second and third above-entitled proceedings.
    I. Cardinal McCloskey Children’s and Family Services failed to prove by clear and convincing evidence that Willie B. failed to plan for the future of his children despite diligent efforts by the agency to assist him in strengthening his relationship with his children. (Meyer v Nebraska, 262 US 390; Skinner v Oklahoma, 316 US 535; May v Anderson, 345 US 528; Lassiter v Department of Social Servs., 452 US 18; Matter of Sanjivini K., 47 NY2d 374; Matter of Sheila G., 61 NY2d 368; Matter of Jamie M., 63 NY2d 388; Matter of Yvonne II., 121 AD2d 766; Matter of Lisa L., 117 AD2d 931.) II. The court below committed error by failing to consider long-term foster care or open adoption in this case of an incarcerated father who has established a relationship with his children. (Matter of Elizabeth Q., 126 AD2d 905; Matter of Nicole TT., 109 AD2d 919; Matter of Dana Marie E., 128 Misc 2d 1018; Matter of Kevin R., 112 AD2d 462; Matter of Peter John "DD”, 48 AD2d 956; Matter of Jamal B., 119 Misc 2d 808; Matter of Joyce T., 65 NY2d 39; Matter of McDevitt, 176 App Div 418; People ex rel. Sibley v Sheppard, 54 NY2d 320; Matter of Raana Beth N., 78 Misc 2d 105.)

      David H. Berman and Gerald E. Bodell for respondent in the second and third above-entitled proceedings.
    I. The agency demonstrated by the requisite standard of proof that the father failed to visit consistently or plan for the future of the children. (Matter of Orlando F., 40 NY2d 103; Matter of Barbara P., 71 Misc 2d 965; Matter of Jones, 59 Misc 2d 69; Matter of Ikem B., 73 AD2d 359; Matter of Charlotte II., 98 AD2d 859; Matter of Hime Y., 52 NY2d 242.) II. The agency made diligent efforts sufficient to satisfy the statutory standard. (Matter of Karas, 59 AD2d 1022, 43 NY2d 646; Matter of Seith SS, 66 AD2d 914; Matter of Jennifer VV., 99 AD2d 882; Matter of Charlotte II., 98 AD2d 859; Matter of Candie Lee W., 91 AD2d 1106; Matter of Kimberly Marie DD., 93 AD2d 919, 60 NY2d 556; Matter of Ray A. M., 37 NY2d 619; Matter of Raymond "M” 81 Misc 2d 70.) III. The court below correctly found that the best interests of the children mandate granting of the petition and terminating parental rights. (Matter of Irene O., 38 NY2d 776; Matter of Judy V., 60 AD2d 719.) IV. The issue of “open adoption” is not properly before the court.
      (Matter of Shannon B., 70 NY2d 458; Atlantic Cement Co. v Fidelity & Cos. Co., 63 NY2d 798.)
   OPINION OF THE COURT

Alexander, J.

The common issue presented on these appeals is whether the evidence adduced in each case supported a finding that the incarcerated parent "permanently neglected” his child within the meaning of Social Services Law § 384-b (7) (a), thus justifying the termination of his parental rights and the concomitant freeing of his child for adoption. For the reasons that follow, we conclude that the termination of parental rights was, in each case, proper and supported by clear and convincing evidence.

I

Matter of Gregory B.

Evidence was presented at the fact-finding hearing that respondent father has been incarcerated since August 1980 and is currently serving a prison sentence of 10 to 20 years at Green Haven Correctional Facility upon his felony conviction. His children, Gregory and Kareem, were born on December 28, 1979 and November 20, 1980 respectively. Should respondent serve the maximum term imposed, his children will be well into their majorities by the time of his release. Gregory, now 9 years old, and Kareem, now 8 years old, entered foster care on October 24, 1981 pursuant to voluntary placement agreements executed by their mother placing them under the supervision of petitioner St. Dominic’s Home, an authorized child care agency. Petitioner placed Gregory and Kareem, along with their older half-brother Quaron, in the same foster family with whom all three boys have resided since November 1981. Although it appears that Gregory and Kareem suffer from various physical and psychological maladies, with Kareem having required periodic hospitalization for an asthmatic condition, both children continue to thrive in their original foster home and their foster parents apparently wish to adopt them.

In July 1986, petitioner filed petitions in Family Court under Social Services Law § 384-b (7) seeking to terminate the rights of both biological parents on the ground of permanent neglect and to free the children for adoption. At the fact-finding hearing petitioner presented evidence of having actively encouraged and nurtured the parent-child relationship by arranging numerous visits between respondent and his children at prison and by attempting to secure the assistance of relatives offered by respondent as possible custodians for Gregory and Kareem. Respondent’s initial plan was to have the children live with his mother until his release from prison. In a foster care review proceeding held in 1985, however, it was determined that discharge of the children to their paternal grandmother was not a viable option because she was neither physically nor emotionally up to the task of raising two young children with Gregory’s and Kareem’s special needs. No appeal was taken from this ruling. When advised of the court’s decision, respondent’s only alternative plan was to have his children remain in foster care until his eventual return to society.

Based on this evidence, Family Court concluded that the children had been permanently neglected by both parents "despite the agency’s efforts to nurture all available familial resources” and specifically noted that "[t]he term of imprisoned parents must be a factor in evaluating the viability of their plan for the future of their children”. After holding a dispositional hearing at which it concluded that the best interests of both children would be served by the termination of parental rights, the court terminated the parental rights of both biological parents and transferred guardianship and custody of the children to petitioner and the Commissioner of Social Services for the purpose of adoption. On respondent’s appeal from Family Court’s order, the Appellate Division affirmed, without opinion.

Matter of Willie John B.

Matter of Delores B.

Evidence was presented at the joint fact-finding hearing that respondent father has been incarcerated since April 1979 and is currently serving two concurrent sentences of 25 years to life for murder at the Green Haven Correctional Facility. His children, Willie and Delores, were born on August 10, 1975 and August 16, 1979 respectively. Willie, who is now 13 years old, has been in the care of petitioner Cardinal McCloskey Children’s and Family Services since July 1, 1977 and his foster parents wish to adopt him; Delores, now 9 years old, has been in the care of petitioner since July 31, 1980 and her foster parents wish to adopt her also. The minorities of both children will be over if and when respondent is finally released from prison.

In June 1984, petitioner instituted two separate proceedings in Family Court to terminate the parental rights of respondent and to free the children for adoption. It was established at the fact-finding hearing that petitioner was diligent in its efforts to foster the parent-child relationship by bringing the children to prison to meet with their father and by contacting relatives who might be able to care for the children. Petitioner’s efforts to assist respondent secure a permanent home for the children, however, proved futile because the relatives contacted — respondent’s two sisters and his mother — were either unwilling, unable, or ill-suited to the task of raising Willie and Delores. The only other plan respondent offered, like that of the respondent in Matter of Gregory B., was to keep his children in foster care until such time as he might be released from prison.

Notwithstanding respondent’s failure to provide either Willie or Delores with a realistic alternative to foster care, Family Court dismissed the petition relating to Delores, concluding that respondent did all he could in light of his status of incarceration to maintain contact with and plan for the future of his daughter. The court reasoned that the 1983 statutory reforms pertaining to incarcerated parents — precluding a court from terminating parental rights solely on the basis of incarceration — compelled the conclusion that "adoption can be prevented by a prisoner who expresses real interest in his child and maintains contact insofar as possible although he has never been and can never be a real parent no matter how great his desires” (Matter of Delores B., 130 Misc 2d 484, 485). With respect to Willie, however, the court made a finding of permanent neglect, concluding that even prior to his incarceration respondent had failed to plan for Willie’s future. After a dispositional hearing, the court terminated respondent’s parental rights in respect to Willie and transferred guardianship and custody of Willie to petitioner and the Commissioner of Social Services for the purpose of adoption.

A majority of the Appellate Division reversed the order of Family Court dismissing the petition relating to Delores, concluding that court had erred in determining that the 1983 statutory reforms precluded a finding of permanent neglect by the incarcerated father. The Appellate Division therefore granted the petition and ordered that the matter be remitted to Family Court for a dispositional hearing. On remand, Family Court adjudged Delores to be a permanently neglected child, terminated respondent’s parental rights in respect to her, and authorized petitioner and the Commissioner of Social Services to consent to her adoption. In respect to Willie, the Appellate Division majority affirmed Family Court’s order, concluding that the record evidence supported that court’s finding of permanent neglect.

Justice Ellerin, concurring in part and dissenting in part, agreed with the majority that the evidence supported a finding of permanent neglect as to both children but questioned whether, in light of the potential emotional harm that might result from a permanent severing of ties between the children and their biological father, "the termination of parental rights here should be coupled with provision for the continuation of some contacts between these children and their biological father” (141 AD2d 100, 117). Noting that the record in the case was not sufficiently developed to permit the court to decide what type of continuing contacts, if any, might be appropriate, Justice Ellerin suggested that there should be a hearing held in conjunction with any future adoption proceedings "to determine whether the child’s best interests will be served by providing for some continued contacts with the biological father and, if so, the nature and extent of such contacts” (141 AD2d, at 118, supra).

Justice Carro dissented separately, concluding that respondent’s incarceration imposed "an external impossibility on his ability to provide a home for his children” and therefore precluded a finding of permanent neglect (141 AD2d, at 112, supra). Justice Carro reasoned that respondent did not seek to abdicate his parental obligations but merely sought to fulfill them "through a combination of meaningful contacts with his children and long-term foster care” and that such long-term foster care was a viable option under the statutory scheme in the circumstances presented (141 AD2d, at 113-114, supra). Justice Carro argued further that if termination of parental rights is indicated, then hearings should be held to determine whether the best interests of the children would be served by "open” adoptions permitting continuing contacts between the children and their biological father.

In Matter of Gregory B., leave to appeal was granted to respondent by an order of this court. In Matter of Willie John B. the appeal is here as of right on the two-Justice dissent at the Appellate Division (CPLR 5601 [a]). In Matter of Delores B., respondent appeals pursuant to CPLR 5601 (d) from the judgment of Family Court terminating his parental rights which judgment brings up for review the prior order of the Appellate Division reversing Family Court’s order dismissing the petition and remanding for a dispositional hearing. We now affirm in all three cases.

II

Before an order may be entered terminating parental rights upon the ground of permanent neglect, "the statute requires proof before Family Court that [the parent] failed to maintain contact with or plan for the future of [his or her] child for a period of one year after the child came into the custody of an authorized agency notwithstanding the agency’s diligent efforts to encourage and strengthen the parental relationship” (Matter of Star Leslie W., 63 NY2d 136, 140; Social Services Law § 384-b [7]). The threshold determination to be made in any neglect proceeding, of course, is whether the child care agency exercised diligent efforts to strengthen and nurture the parent-child relationship (Matter of Jamie M., 63 NY2d 388; Matter of Sheila G., 61 NY2d 368). "Those efforts must include counseling, making suitable arrangements for visitation, providing assistance to the parents to resolve or ameliorate the problems preventing discharge of the child to their care and advising the parent at appropriate intervals of the child’s progress and development” (Matter of Star Leslie W., 63 NY2d, at 142, supra).

Here, the record amply supports the determinations of the lower courts that the respective petitioners fulfilled their statutory obligation to nurture the parent-child relationship; in each case, the agency arranged for visitation between respondent and his child, communicated with respondent and kept him apprised of his child’s progress, and assisted respondent in formulating a plan for his child’s future. The requirement of due diligence by the agency having been satisfied, therefore, the focus of our analysis turns to an examination of the individual efforts of each respondent to maintain contact with and plan for the future of his children.

As we noted in Matter of Star Leslie W. (63 NY2d, at 142-143, supra), "[t]he requirement is several: the parent must maintain contact with the child and also realistically plan for [his or her] future. A default in performing either may support a finding of permanent neglect” (see, Matter of Orlando F., 40 NY2d 103, 110). Although both respondents in the instant appeals clearly satisfied the contact requirement of the statute by periodically meeting with their children at their places of incarceration and by communicating with the social workers assigned to their respective cases, the lower courts determined that they had each failed to adequately plan for the future of their children. "[T]he planning requirement contemplates that the parent shall take such steps as are necessary to provide a home that is adequate and stable, under the financial circumstances existing, within a reasonable period of time. Good faith alone is not enough; the plan must be realistic and feasible” (Matter of Star Leslie W., 63 NY2d, at 143, supra). Whether or not the planning requirement will be deemed satisfied will, of course, vary depending on the facts and circumstances which, we have noted, "must be scrutinized and weighed carefully in rendering decisions in such delicate human affairs” (Matter of Orlando R., 40 NY2d, at 111-112, supra).

In each of the instant cases, respondent’s initial plan was to place his children with a relative pending his release from prison. In Matter of Gregory B., respondent sought to place his children with his mother; in Matter of Willie John B. and Matter of Delores B., respondent first sought to place his children with his sister and then attempted to contact another sister before turning to his mother as a possible custodian for the children. When these plans proved unworkable, the only other plan offered by each respondent was to keep his children in foster care while maintaining contact with them during the period of incarceration. Such plan, however, was rejected by the Appellate Division in each case as being neither viable nor realistic.

On these appeals, respondents argue that the 1983 statutory reforms precluding the termination of parental rights based solely on the fact of incarceration do not permit a court to make a finding of permanent neglect where an incarcerated father has maintained contact with his children but simply does not have the family resources to provide a realistic alternative to foster care during the period of his incarceration. Thus, respondents contend, the lower courts erred in terminating their parental rights merely because they could not produce a relative who was willing and able to care for their children while they remained in prison. We disagree.

Until the Legislature amended the Social Services Law in 1983, an incarcerated parent was presumed unable to maintain contact with or plan for the future of his child and thus a finding of permanent neglect while the parent was incarcerated was precluded (see, Social Services Law former § 384-b [7] [d] [ii]). Yet, although the incarcerated parent was excused from the contact and planning requirements of the statute, the consent of such parent was not required before his or her child could be released for adoption (see, Domestic Relations Law former § 111 [2] [d]). To correct this anomaly in the statutory scheme and to prevent the automatic termination of parental rights of incarcerated persons, the Legislature changed the law by removing the status of incarceration as a basis for the termination of parental rights and by recognizing the continuing parental obligations of incarcerated parents to their children (see, Social Services Law § 384-b [7] [d], as amended by L 1983, ch 911, §§ 2, 3; Domestic Relations Law § 111 [2], as amended by L 1983, ch 911, § 4; Correction Law § 619, added by L 1983, ch 911, § 5; Mem of Executive Department, Council Children and Families explaining purpose of L 1983, ch 911, 1983 McKinney’s Session Laws of NY, at 2706; Mem of Governor Cuomo approving L 1983, ch 911, 1983 McKinney’s Session Laws of NY, at 2816). The amended law requires the incarcerated parent to cooperate with the authorized child care agency in planning for the child and in arranging visits and further requires the agency to exercise diligent efforts to arrange visitation between the child and the incarcerated parent within the correctional facility (see, Social Services Law § 384-b [7] [e] [ii]; [f] [5]; see also, Correction Law § 619).

In its findings accompanying the statutory reforms, the Legislature declared: "A parent who has been incarcerated should also fulfill, while actually incarcerated, the obligations of a parent as described in the provisions of section three hundred eighty-four-b of the social services law relating to the termination of parental rights upon the ground of permanent neglect. However, such ground of permanent neglect should recognize the special circumstances and need for assistance of an incarcerated parent to substantially and continuously or repeatedly maintain contact with, or plan for the future of his or her child. An incarcerated parent who has failed to fulfill these obligations may have his or her. parental rights terminated upon such ground” (Legislative findings, L 1983, ch 911, § 1 [emphasis supplied]). It is plain from these findings that the enacted reforms were in no way intended to excuse incarcerated parents from the requirement that they plan for their child’s future. To the contrary, the statutory amendments explicitly recognize the planning responsibilities of incarcerated parents and state that the failure to meet those responsibilities may result, as with any other parent, in the termination of parental rights.

It is true that the Legislature acknowledged the "special circumstances” of an incarcerated parent and intended that those circumstances be considered in evaluating such parent’s efforts to meet the statutory contact and planning requirements. Certainly, in light of the drastic consequences of failing to plan, courts should not set unrealistically high standards in evaluating a parent’s planning efforts (see, Matter of Orlando F., 40 NY2d, at 111, supra) and this directive undoubtedly applies with special force in cases where the parent is incarcerated and thus severely hampered in the ability to act on behalf of his or her child. This does not mean, however, that the Legislature intended to approve a plan of indefinite foster care for the child of an incarcerated parent who is serving a lengthy prison term and who cannot provide the child with an alternative living arrangement. Although the statutory scheme favors keeping a child with the natural parent where practicable and stresses the importance of exercising diligent efforts to foster and maintain the cohesiveness of the family unit, "permanence in a child’s life also has been given a priority, because the Legislature has determined that a normal family life in a permanent home offers the best opportunity for a child to develop and thrive” (Matter of Joyce T., 65 NY2d 39, 47; Social Services Law § 384-b [1] [a]). Thus, we have acknowledged that a primary purpose of the statute is to provide "a fair and timely basis to free a child for adoption” and that "[w]hen it is clear that natural parents cannot offer a normal home for a child, and 'continued foster care’ is not an appropriate plan, the statute directs that a permanent home be sought” (Matter of Joyce T., 65 NY2d, at 47, supra; Social Services Law § 384-b [1] [a] [i], [iv]).

As we explained in Matter of Joyce T. (65 NY2d, at 47-48, supra [emphasis supplied]): "[T]he Legislature in section 384-b clearly did not contemplate foster care as a permanent condition, or even a desired goal for the long, indefinite duration, because prolonged foster care is not in a child’s best interests. The Legislature found that unnecessarily protracted stays in foster care deprive children of positive, nurturing family relationships, and therefore — by section 384-b — it provided timely procedures for termination of parental rights, thus furthering the best interests, needs and rights of the child by freeing the child for adoption. In connection with parental termination, in this State, foster care is viewed as a temporary way station to adoption or return to the natural parents, not the purposeful objective for a permanent way of life.” In light of the plainly expressed understanding of the Legislature regarding the specific, limited role of foster care and the special importance of permanency in the life of a child, we conclude that an incarcerated parent may not satisfy the planning requirement of the statute where the only plan offered is long-term foster care lasting potentially for the child’s entire minority. Put simply, relegating a child to foster care until he or she is no longer a child is not a viable plan because it is patently inconsistent with the purpose of foster care and, more importantly, it deprives the child of that quality of "permanency” found by the Legislature to be so essential to proper growth and development.

Finally, we are not unmindful of the psychological harm that may possibly result from severing the bonds between a child and his or her biological parent, particularly where the child is older and has strong emotional attachments to the birth family (see, Matter of Joyce T., 65 NY2d 39, 46, n 2, supra; see generally, Matter of Anthony, 113 Misc 2d 26). Such concerns have been increasingly well documented in recent years, prompting some to advocate "open” adoptions in which the court supplements an order of adoption with a provision directing that the adopted child have continuing contacts and visitation with members of his or her biological family (see, Matter of Anthony, 113 Misc 2d 26, supra; see generally, Davis, Use and Abuse of the Power to Sever Family Bonds, 12 NYU Rev of L & Social Change 557; Amadio and Deutsh, Open Adoption: Allowing Adopted Children to "Stay in Touch” with Blood Relatives, 22 J Fam L 59).

We express no opinion as to whether such contacts generally would be helpful and appropriate once parental rights have been terminated and the child has been adopted into a new family or whether a court should have the discretionary authority to order such contacts. We note, however, that the "open” adoption concept would appear to be inconsistent with this State’s view as expressed by the Legislature that adoption relieves the biological parent "of all parental duties toward and of all responsibilities for” the adoptive child over whom the parent "shall have no rights” (Domestic Relations Law § 117 [1] [a]; Matter of Best, 66 NY2d 151). Although adoptive parents are free, at their election, to permit contacts between the adopted child and the child’s biological parent, to judicially require such contacts arguably may be seen as threatening the integrity of the adoptive family unit. In any event, "open” adoptions are not presently authorized. If they are to be established, it is the Legislature that more appropriately should be called upon to balance the critical social policy choices and the delicate issues of family relations involved in such a determination.

Accordingly, the orders of the Appellate Division in Matter of Gregory B. and Matter of Willie John B. should be affirmed, without costs; in Matter of Delores B., the judgment appealed from and the order of the Appellate Division brought up for review should be affirmed, without costs.

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

. In Matter of Gregory B. and Matter of Willie John B.: Order affirmed, without costs.

In Matter of Delores B.: Judgment appealed from and order of the Appellate Division brought up for review affirmed, without costs.

      . Respondent will not become eligible for parole until June 1990.

        . Respondent is not the father of Quaron who already has been adopted by the foster family.

      . The mother has not appealed from Family Court’s order terminating her parental rights.

      . The mother was not a party to the proceedings. It appears that she executed a surrender for Willie’s adoption in May 1981 and subsequently had her parental rights relating to Delores terminated by order of Family Court in September 1983.

      . Family Court also ordered a specific psychological evaluation of Willie to determine whether visits between Willie and respondent would be helpful to Willie and, further, directed that there be visitation between Willie and Delores until such time as Willie is adopted.