Opinions of the United
1996 Decisions States Court of Appeals
for the Third Circuit
6-20-1996
Chemical Leaman v. Aetna Casualty & Surety
Precedential or Non-Precedential:
Docket 93-5777,93-5794
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"Chemical Leaman v. Aetna Casualty & Surety" (1996). 1996 Decisions. Paper 154.
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_______________
No. 93-5777 & 93-5794
_______________
CHEMICAL LEAMAN TANK LINES, INC.
v.
THE AETNA CASUALTY AND SURETY COMPANY;
and CERTAIN UNDERWRITERS AT LLOYDS, LONDON,
subscribing to Insurance Policies Numbers
WAR 6771, WAR 6772/A, C62P 10-117, L62P 10-117,
64P 3-121, L64P 3-121A, L64P 3-121B, C64P 3-121B,
C65P 5-119, C65P 5-119A, L65P 5-119A, L66P 5-119A,
C67P 4-158, L67P 4-158, C68P 2-116, L68P 2-116,
C68P 2-116A, C68P 2-116B, L68P 2-116A, L68P 2-116B,
C71-03-03-13, L71-03-03-13, C71-03-03-13A,
C71-03-03-13B, L71-03-03-13A, L71-03-03-13B,
C74-03-18-02, 77-01-19-23, 77-01-19-23A, C77-01-19-23B,
79-04-19-10, C80-02-19-09, C80-02-19-09B, L80-02-09A,
L80-02-19-09A, L80-02-19-09B, C83-02-19-09,
L83-02-19-09A, L83-02-19-09B, L83-02-19-09C
ROBIN ANTHONY GILDART JACKSON, an Underwriter at Lloyds,
London, individually and in his capacity as representative
Underwriter at Lloyds, London for certain subscribing
Underwriters at Lloyds, London who subscribed to certain
liability insurance policies issued to plaintiff Chemical
Leaman Tank Lines, Inc.; ACCIDENT AND CASUALTY COMPANY OF
WINTERTHUR; ALBA GENERAL INSURANCE COMPANY LTD.; ALLIANZ
CORNHILL INTERNATIONAL INSURANCE PLC, FORMERLY KNOWN AS
ALLIANZ INTERNATIONAL INSURANCE COMPANY LTD.; ANGLO-FRENCH
INSURANCE COMPANY LTD.; ARGONAUT NORTHWEST INSURANCE
COMPANY; ASSICURAZIONI GENERALI SPA; BALOISE FIRE INSURANCE
COMPANY; BELLEFONTE INSURANCE COMPANY LTD.; BRITISH NATIONAL
LIFE INSURANCE SOCIETY LTD.; CNA INTERNATIONAL REINSURANCE
CO. LTD., FORMERLY KNOWN AS CNA REINSURANCE OF LONDON LTD.;
DELTA LLOYD NON-LIFE INSURANCE COMPANY; DOMINION INSURANCE
COMPANY LTD.; DRAKE INSURANCE COMPANY LTD.; EDINBURGH
INSURANCE COMPANY; EXCESS INSURANCE COMPANY LTD.; FIDELIDADE
INSURANCE COMPANY; FOLKSAM INTERNATIONAL INSURANCE COMPANY
(U.K.) LTD.; HELVETIA ACCIDENT SWISS INSURANCE COMPANY;
INDEMNITY MARINE ASSURANCE COMPANY, LTD.; LEXINGTON
INSURANCE COMPANY LTD.; LONDON & OVERSEAS INSURANCE COMPANY,
LTD.; LONDON & EDINBURGH INSURANCE COMPANY, LTD.; LONDON &
SCOTTISH ASSURANCE CORPORATION, LTD.; GAN MINSTER INSURANCE
COMPANY, FORMERLY KNOWN AS MINSTER INSURANCE COMPANY LTD.;
NATIONAL CASUALTY COMPANY; NATIONAL CASUALTY INSURANCE OF
AMERICA, LTD.; NEW LONDON REINSURANCE COMPANY, LTD.; NORTH
ATLANTIC INSURANCE COMPANY LTD., FORMERLY KNOWN AS BRITISH
NATIONAL INSURANCE CO. LTD.; ORION INSURANCE COMPANY LTD.;
PINE TOP INSURANCE COMPANY LTD.; RIVER THAMES INSURANCE
COMPANY LTD.; SCOTTISH LION INSURANCE COMPANY; SOVEREIGN
MARINE AND GENERAL INSURANCE COMPANY, LTD.; SPHERE INSURANCE
COMPANY LTD.; ST. KATHERINE INSURANCE COMPANY LTD.;
STRONGHOLD INSURANCE COMPANY LTD.; SWISS UNION GENERAL
INSURANCE COMPANY LTD.; TAISHO MARINE & FIRE INSURANCE
COMPANY (EUROPE) LTD., FORMERLY KNOWN AS TAISHO MARINE &
FIRE INSURANCE COMPANY (U.K.) LTD.; TOKIO MARINE & FIRE
INSURANCE COMPANY (U.K.) LTD.; TUREGUM INSURANCE COMPANY
LTD.; UNIONAMERICA INSURANCE COMPANY; UNITED STANDARD
INSURANCE COMPANY LTD.; WINTERTHUR SWISS INSURANCE COMPANY;
WORLD AUXILIARY INSURANCE CORPORATION LTD.; YASUDA INSURANCE
COMPANY (U.K.) LTD. (hereinafter collectively referred to as
"Jackson & Companies"),
Appellants at No. 93-5777
AETNA CASUALTY AND SURETY COMPANY ("AETNA"),
Appellant at No. 93-5794
_______________________________________________
On Appeal from the United States District Court
for the District of New Jersey
(D.C. Civil Action No. 89-cv-1543 )
___________________
Argued September 26, 1994
Decided October 12, 1995
Petition for Panel Rehearing Granted
and Opinion and Judgment Vacated
December 15, 1995
Submitted on Petition for Panel Rehearing
December 15, 1995
Before: SCIRICA, NYGAARD and McKEE, Circuit Judges
(Filed June 20, 1996)
HENRY LEE, ESQUIRE (ARGUED)
GARY P. SCHULZ, ESQUIRE
JOHN G. McANDREWS, ESQUIRE
HANNAH M. O'DRISCOLL, ESQUIRE
Mendes & Mount
750 Seventh Avenue
New York, New York 10019
WILLIAM J. HANLEY, ESQUIRE
Ronca, McDonald & Hanley
5 Regent Street, Suite 517
Livingston, New Jersey 07039
Attorneys for Appellants at No. 93-5777
BRIAN J. COYLE, ESQUIRE (ARGUED)
PETER E. MUELLER, ESQUIRE
HARWOOD LLOYD, ESQUIRE
130 Main Street
Hackensack, New Jersey 07601
WILLIAM H. JEFFRESS, JR., ESQUIRE
Miller, Cassidy, Larroca & Lewin
2555 M Street, N.W., Suite 500
Washington, D.C. 20037
EDWARD M. DUNHAM, JR., ESQUIRE
Miller, Dunham & Doering
1515 Market Street, 13th Floor
Philadelphia, Pennsylvania 19102
Attorneys for Appellant,
Aetna Casualty and Surety Company
KEVIN B. CLARK, ESQUIRE (ARGUED)
JOHN P. DEAN, ESQUIRE
CONRAD J. SMUCKER, ESQUIRE
Willkie, Farr & Gallagher
Three Lafayette Centre, Suite 600
1155 21st Street, N.W.
Washington, D.C. 20036
Attorneys for Appellee,
Chemical Leaman Tank Lines, Inc.
THOMAS W. BRUNNER, ESQUIRE
Wiley, Rein & Fielding
1776 K Street, N.W.
Washington, D.C. 20006
Attorney for Amicus Curiae Appellant,
Insurance Environmental Litigation Association
KAREN L. JORDAN, ESQUIRE
Office of Attorney General of New Jersey
Department of Law & Public Safety
Richard J. Hughes Justice Complex
Trenton, New Jersey 08625
Attorney for Amicus Curiae Appellee, State of New Jersey,
New Jersey Department of Environmental Protection & Energy
__________________
OPINION OF THE COURT
__________________
SCIRICA, Circuit Judge.
Chemical Leaman Tank Lines, Inc. brought this
declaratory judgment action against Aetna Casualty and Surety
Company and the London Market Insurers, seeking a declaration
that defendants' insurance policies covered the cost of
environmental clean-up at Chemical Leaman's Bridgeport, New
Jersey facility. After a three week trial, a jury found Chemical
Leaman was entitled to partial coverage under several policies.
Thereafter the New Jersey Supreme Court decided Morton Intern.,
Inc. v. General Acc. Ins. Co., 629 A.2d 831 (N.J. 1993), cert.
denied, 114 S. Ct. 2764 (1994), which interprets several key
provisions of comprehensive general liability insurance policies
in the context of environmental pollution. Defendant insurers
now appeal, contending the district court incorrectly instructed
the jury on whether Chemical Leaman "expected or intended" to
cause environmental damage under Morton. We believe Mortonrequires an
inquiry into the insured's subjective intent to cause
environmental harm, unless "exceptional circumstances" support a
presumption of the insured's subjective intent. Therefore we
conclude the district court's jury instructions were proper.
Defendant insurers raise several other issues on
appeal. They argue the district court mistakenly limited the
applicability of the policies' pollution exclusion clause,
incorrectly adopted the "continuous trigger" theory as New Jersey
law, and ignored the prejudicial effect of Chemical Leaman's
failure to file its claims for coverage in a timely manner. They
also dispute the district court's exclusion of evidence relating
to environmental contamination at other Chemical Leaman
facilities. We will affirm the district court's holdings on the
pollution exclusion clause, the "continuous trigger" theory, and
timely notice. We also conclude that the exclusion of certain
evidence was within the sound discretion of the district court.
I. Background
A. Contamination at the Bridgeport Facility
Chemical Leaman Tank Lines, Inc., a tank truck company
that specializes in the transport of chemicals and other liquids,
operates a number of tank truck cleaning facilities around the
country, including one in Bridgeport, New Jersey. At the
Bridgeport facility, Chemical Leaman disposed of rinsewater
contaminated with chemical residue during the cleaning process
into a water treatment system designed by Harry Elston, Chemical
Leaman's Manager of Real Estate and Engineering, and Harry
Wagner, a professional sanitary engineer. At its inception in
1960, the Bridgeport water treatment system consisted of three
unlined ponds connected by "tee pipes." The ponds were intended
to purify rinsewater by filtering out contaminants as the water
seeped into the soil. The designers of the system believed that
the forces of gravity would separate contaminates from the
rinsewater, and that natural processes of aerobic and anaerobic
microbial degradation would break down trace contaminants. An
overflow pipe drained from the final pond of the water treatment
system into an adjacent swamp in order to allow water to escape
in the case of heavy rains.
In September 1961, an Inspector with the New Jersey
Division of Fish Game & Wildlife informed Chemical Leaman that
its water treatment system was "not satisfactory." In response,
Chemical Leaman constructed two additional aeration lagoons and a
settling lagoon with a limestone bed. The lagoons were designed
to function in the same manner as the first three ponds. But the
overflow pipe still drained from the last lagoon into the
neighboring swamp.
Water pollution inspectors with the New Jersey
Department of Health observed discharge from the overflow pipe
into the swamp in November 1968. They found the discharge to be
"highly pollutional" and ordered Chemical Leaman to submit a plan
to improve its water treatment system. In May 1969, Chemical
Leaman submitted a plan, but state regulators found it to be
unsatisfactory. Thereafter state regulators and Chemical Leaman
unsuccessfully attempted to reach agreement. Finally, on January
28, 1974, Chemical Leaman and the New Jersey Department of
Environmental Protection entered into a consent decree in which
Chemical Leaman agreed to construct an approved water treatment
facility. In 1975, Chemical Leaman arranged for its wastewater
to be treated by Du Pont and ceased to use the system of ponds
and lagoons. Subsequently, Chemical Leaman drained the ponds and
lagoons, dredged them, and filled them with brickbat, sand and
concrete.
In 1980, a routine survey by the New Jersey Department
of Environmental Protection discovered groundwater contamination
at and around the Bridgeport site. Subsequent investigations
established that the ponds and lagoons were the primary source of
groundwater contamination on the site, and that several private
wells near the facility were either contaminated or threatened
with contamination. The federal Environmental Protection Agency
placed the Bridgeport site on the Superfund National Priorities
List in 1984, and, in 1985, Chemical Leaman entered into a
consent order with the EPA. Chemical Leaman admitted liability
under the Comprehensive Environmental Response, Compensation and
Liabilities Act ("CERCLA") and agreed to remediate the Bridgeport
site or to pay for its remediation.
Chemical Leaman gave notice of claims to Aetna in April
1988, and to the London Market insurers ("LMI") in March 1989.
Aetna and the LMI refused to defend or indemnify Chemical Leaman
for costs incurred in connection with the clean-up of the
Bridgeport site. Chemical Leaman then filed this suit.
B. The Insurance Policies
Chemical Leaman purchased comprehensive general
liability insurance from Aetna covering successive years from
April 1, 1959 through April 1, 1985. It purchased excess
comprehensive general liability policies covering the same period
from the LMI. The LMI challenge the district court's
interpretation of several provisions of the policies purchased by
Chemical Leaman. Because Aetna has withdrawn from this appeal,
we need not discuss its policies.
The LMI policies were standard form "occurrence-based"
policies, meaning they insured against "occurrences" as defined
in the policies. The insuring clause in the LMI policies
typically stated that the LMI agreed:
[s]ubject to the limitations, terms and
conditions [of the policy] to indemnify the
Assured for all sums which the Assured shall
be obligated to pay by reason of the
liability . . . imposed upon the Assured by
law, . . . for damages . . . on account of:
. . . (ii) Property Damage . . . caused by or
arising out of each occurrence.
The LMI policies defined "occurrence" as "[a]n accident or a
happening or event or a continuous or repeated exposure to
conditions which unexpectedly and unintentionally results
in . . . property damage . . . during the policy period"
(emphasis added). The combined effect of the insuring clause and
the definition of "occurrence" is to preclude coverage for
property damage that is expected or intended by the insured. On
appeal, the LMI contend the district court incorrectly instructed
the jury on the legal standard by which to evaluate Chemical
Leaman's expectation or intention to cause property damage.
Each LMI policy in effect from 1971 to 1985 also
contained a pollution exclusion clause. The LMI policies in
effect from April 1, 1971 to April 1, 1974, and from April 1,
1977 to April 1, 1985 contained the standard form exclusion known
as NMA 1685. NMA 1685 does not cover personal injury or property
damage caused by seepage, pollution, or contamination unless
"such seepage, pollution or contamination is caused by a sudden,
unintended and unexpected happening during the period of [the]
insurance." The LMI policies in effect from April 1, 1974 to
April 1, 1977 contained the standard industry pollution exclusion
clause, the so-called "ISO" pollution exclusion, which precludes
coverage for pollution and contamination, unless the "discharge,
dispersal, release or escape is sudden and accidental." Both the
ISO pollution exclusion clause and the NMA 1685 pollution
exclusion clause focus on the insured's intention and expectation
to discharge pollutants, not on the insured's intention or
expectation to cause property damage. On appeal, the LMI argue
the pollution exclusion clauses bar coverage under the 1971 to
1985 policies because Chemical Leaman's discharges of pollutants
were not sudden, unintended, or unexpected.
Finally, the LMI policies require the insured to
provide written notice "as soon as practicable" following an
occurrence. The LMI argue that Chemical Leaman's failure to
comply with this provision bars coverage.
II. Procedural History
Chemical Leaman filed this declaratory judgment action
in 1989 after the insurers' refusal to indemnify it for the costs
of environmental clean-up at the Bridgeport facility. Following
extensive discovery, the parties filed cross-motions for summary
judgment on various grounds. The district court granted partial
summary judgment in favor of Chemical Leaman, holding that New
Jersey law applied, and that the "owned property exclusion" did
not bar coverage for the costs of remediation of onsite soil
contamination designed to correct injury to surrounding
properties. See Chemical Leaman Tank Lines, Inc. v. Aetna Cas. &
Sur. Co., 788 F. Supp. 846 (D.N.J. 1992).
After subsequent cross-motions for summary judgment,
the district court held Chemical Leaman bore the burden of
proving it did not subjectively expect or intend the damage to
the soil and groundwater for which it sought coverage. SeeChemical Leaman
Tank Lines, Inc. v. Aetna Cas. & Sur. Co., 817 F.
Supp. 1136, 1146 (D.N.J. 1993). It also found Chemical Leaman's
actions were not so "reprehensible" as to objectively establish
that it expected or intended to cause damage. Id. The court
then denied the cross-motions for summary judgment because there
remained genuine issues of fact about Chemical Leaman's
subjective intent. Id. at 1152.
The district court also held as a matter of law that
damage to the soil and groundwater occurred during the April 1,
1960 to April 1, 1961 policy year because Chemical Leaman began
depositing rinsewater in the ponds during that time period. The
district court noted that from 1960 to 1975, Chemical Leaman
disposed of 10,000 to 20,000 gallons of rinsewater into the ponds
each day, but did not find that property damage occurred during
that period as a matter of law. Id. Rather, it ruled that New
Jersey follows the "continuous trigger" theory and that factual
issues remained as to whether Chemical Leaman suffered
continuous, indivisible property damage from 1961 to 1985.
The district court interpreted the pollution exclusion
clauses in the LMI's post-1971 policies as precluding coverage
"when the insured has caused the discharge of contaminants or
pollutants, unless the discharge was neither expected nor
intended from the standpoint of the insured." Id. at 1157. On
the basis of the pollution exclusion clauses, the district court
granted partial summary judgment in favor of defendants as to
soil damage on the post-1971 policies. It denied summary
judgment with respect to groundwater contamination, and did not
address contamination to the surrounding wetlands. Id. Finally,
the district court held Chemical Leaman's failure to give timely
notice of its claims did not preclude insurance coverage because
the delay had not prejudiced the defendant insurers. Id. at
1157-58.
Before trial, Chemical Leaman filed a motion in limineto exclude
evidence relating to waste disposal sites other than
Bridgeport. The district court granted the motion, holding the
other-site evidence more prejudicial than probative and unduly
time consuming.
After a three week trial, the jury found that Chemical
Leaman was entitled to coverage for damage to the soil and
wetlands under the April 1, 1960 to April 1, 1971 policies, and
to coverage for damage to the groundwater under the April 1, 1960
to April 1, 1981 policies. In reaching its verdict, the jury
answered detailed interrogatories on Chemical Leaman's intent and
expectation to cause property damage and to discharge pollutants
during each policy year. After oral argument before this Court,
Chemical Leaman and Aetna settled all claims arising from this
dispute. The LMI now appeals the district court's legal
determinations and the jury's verdict.
We have jurisdiction to review the final judgment of
the district court under 28 U.S.C. 1291. The district court
held New Jersey law governs, which the parties do not dispute.
Chemical Leaman Tank Lines, Inc. v. Aetna Cas. & Sur. Co., 788 F.
Supp. at 851. As a federal court sitting in diversity, we must
apply the substantive law of New Jersey. Borse v. Pierce Goods
Shop, Inc., 963 F.2d 611, 613 (3d Cir. 1992). Our review of the
district court's interpretation of New Jersey law is plenary.
Wiley v. State Farm Fire & Cas. Co., 995 F.2d 457, 459 (3d Cir.
1993).
III. Occurrence-Based Insurance Policies
and "Expected or Intended"
Chemical Leaman purchased "occurrence-based"
comprehensive general liability insurance from the LMI that
provided coverage for "[a]n accident or a happening or event or a
continuous or repeated exposure to conditions which unexpectedly
and unintentionally results in . . . property damage." The LMI
contend that because Chemical Leaman "expected" or "intended" to
cause property damage at the Bridgeport site, the policies do not
provide coverage.
New Jersey courts have been called upon repeatedly to
interpret the "expected/intended" clause in occurrence-based
insurance policies. They have sought to balance the need to
compensate victims against the public policy of deterring
intentional wrongdoing by denying coverage for its consequences.
In companion cases, Voorhees v. Preferred Mut. Ins. Co., 607 A.2d
1255 (N.J. 1992), and SL Industries, Inc. v. American Motorists
Ins. Co., 607 A.2d 1266 (N.J. 1992), the New Jersey Supreme Court
addressed how the "expected/intended" clause should be
interpreted in order to strike the correct balance.
In Voorhees, the New Jersey Supreme Court held the
accidental nature of an occurrence is determined by analyzing
whether the insured subjectively intended or expected to cause an
injury. Voorhees v. Preferred Mut. Ins. Co., 607 A.2d at 1264.
The court explained:
That interpretation prevents those who
intentionally cause harm from unjustly
benefitting from insurance coverage while
providing injured victims with the greatest
chance of compensation consistent with the
need to deter wrong-doing. It also accords
with an insured's objectively-reasonable
expectation of coverage for unintentionally-
caused harm.
Id. at 1264. The court emphasized, "[e]ven when the actions in
question seem foolhardy and reckless, the courts have mandated an
inquiry into the actor's subjective intent to cause injury." Id.
The court also recognized an "exceptional
circumstances" exception to the subjective intent inquiry.
When the actions are particularly
reprehensible, the intent to injure can be
presumed from the act without an inquiry into
the actor's subjective intent to injure.
That objective approach focuses on the
likelihood that an injury will result from an
actor's behavior rather than on the
wrongdoer's subjective state of mind.
Id. at 1265. The court cited to sexual assault against children
as an example of an act that is "so inherently injurious" that an
intent to injure can be presumed. Id.
In SL Industries, the court confronted the question
"whether any intent to injure will render the resulting injury
intentional [and preclude coverage], whether the wrongdoer must
intend the specific injury that results, or whether there is some
middle ground between the two approaches." SL Industries, Inc.
v. American Motorists Ins. Co., 607 A.2d at 1277 (emphasis in
original). After evaluating alternative theories, the court
adopted the "middle ground," which it summarized as follows:
Assuming the wrongdoer subjectively intends
or expects some sort of injury, that intent
will generally preclude coverage. If there
is evidence that the extent of the injuries
was improbable, however, then the court must
inquire as to whether the insured
subjectively intended or expected to cause
that injury. Lacking that intent, the injury
was "accidental" and coverage will be
provided.
Id. at 1278. SL Industries involved an allegation of intentional
fraud that "presupposes a general subjective intent to injure."
Accordingly the New Jersey Supreme Court remanded the cases for a
determination of whether the injury suffered by the victim was
improbable, and if so, whether the insured intended or expected
the victim's actual injuries. Id. at 1279. The court noted this
approach "conforms to an insured's objectively-reasonable
expectations and provides the victim the greatest possibility of
additional compensation consistent with the goal of deterring
intentional wrongdoing." Id.
The New Jersey Supreme Court addressed the
expected/intended clause of comprehensive general liability
policies in the environmental pollution context in Morton
Intern., Inc. v. General Acc. Ins. Co., 629 A.2d 831 (N.J. 1993),
cert. denied, 114 S. Ct. 2764 (1994). It attempted to apply the
principles established in Voorhees and SL Industries, but was
forced to "acknowledge the impracticality of adherence to the
general rule that `we will look to the insured's subjective
intent to determine intent to injure.'" Id. at 879. The court
then elaborated upon Voorhees' "exceptional circumstances"
exception, which allows an intent to injure to be presumed
without inquiry into the actor's subjective intent.
[W]e hold that in environmental-coverage
litigation a case-by-case analysis is
required to determine whether, in the context
of all the available evidence, "exceptional
circumstances exist that objectively
establish the insured's intent to injure."
Voorhees, 607 A.2d at 1265. Those
circumstances include the duration of the
discharges, whether the discharges occurred
intentionally, negligently, or innocently,
the quality of the insured's knowledge
concerning the harmful propensities of the
pollutants, whether regulatory authorities
attempted to discourage or prevent the
insured's conduct, and the existence of
subjective knowledge concerning the
possibility or likelihood of harm.
Id. at 879-80. The court cautioned, "insureds held responsible
for remediation of environmental pollution vary significantly in
their degree of culpability for the harm caused by pollutant
discharges." Therefore, "[a] general rule in environmental-
pollution coverage litigation that would permit intent to injure
to be presumed simply on the basis of a knowing discharge of
pollutants would be unjustified." Id. at 879.
The New Jersey Supreme Court applied the factors it had
outlined to determine whether "exceptional circumstances"
supported the presumption of an intent to cause property damage.
It noted Morton and predecessors had polluted Berry's Creek to
such an extent that "[f]or a stretch of several thousand feet,
the concentration of mercury . . . [was] the highest found in
fresh water sediments in the world." Id. at 834. This damage
was caused by the discharge of pollutants from a mercury-
processing plant over a period of at least eighteen, and perhaps
as many as forty-five, years. Id. at 882. Moreover, for at
least eighteen years the discharges had been intentional, even
though the company knew they would cause environmental harm.
Despite repeated complaints by regulatory agencies, Morton
engaged in "a pattern of `stonewalling' . . . characterized by
promises of compliance that consistently were unfulfilled." Id.
On the basis of these facts, the court held, it "would have
ignored reality to conclude that [Morton's] predecessors did not
know that the mercury and its effluents was [sic] harmful to the
land over which it coursed and the waters into which it fell."
Id. at 884. Therefore, it held as a matter of law that the
property damage was not caused by an "occurrence" within the
meaning of the applicable insurance policies.
Morton's presumption of an insured's subjective intent
to cause property damage from egregious circumstances does not
hinge on whether the insured should have expected or intended to
cause injury. This would be akin to a negligence standard. If
negligent acts did not fall within the definition of a covered
occurrence, then there would be no point in purchasing
comprehensive general liability insurance. Pittston Co. v.
Allianz Ins. Co., 905 F. Supp. 1279, 1301 (D.N.J. 1995). While
Morton pragmatically acknowledges courts should not "ignore
reality" when exceptional circumstances establish the insured's
subjective intent to injure, the insured's subjective intent to
cause injury remains the relevant inquiry under the occurrence
language.
In Morton, the New Jersey Supreme Court also addressed
the applicability of SL Industries' improbability rule in
environmental pollution coverage litigation. It explained:
Turning to the question of whether
environmental injury was intended or
expected, we first observe that although the
magnitude of damage to Berry's Creek and the
surrounding areas may exceed any intention or
expectation attributable to Morton's
predecessors, we do not consider differences
in harm relating to severity of environmental
damage give rise to a finding of
"improbability" of harm that invokes the need
for evidence of subjective intent. SL
Industries, supra. . . . The holding of SL
Industries was based on the Appellate
Division's ruling . . . that in a coverage
action arising from a fight between two young
teenagers in which one sustained a broken
hip, a factual issue was presented because of
the inherent improbability that the skirmish
would result in a hip fracture. No such
inherent "improbability" can be ascribed to
the environmental damage attributable to
Morton's predecessors.
Morton Intern., Inc. v. General Acc. Ins. Co., 629 A.2d at 882
(citations omitted). Therefore the court concluded it did not
have to inquire into Morton's subjective intent to cause the
specific environmental damage at issue.
In this case, the district court interpreted New Jersey
law on the "expected/intended" clause before the New Jersey
Supreme Court's decision in Morton. Nevertheless, it instructed
the jury to determine whether Chemical Leaman subjectively
expected or intended to cause property damage at the Bridgeport
site. At the end of trial, on the LMI's Rule 50(a) motion for
judgement as a matter of law, the district court found that the
harm to the environment caused by the Bridgeport water treatment
system was improbable as a matter of law. The district court
also held Chemical Leaman's actions were not so reprehensible as
to justify the presumption of an intent to cause property damage
under the "exceptional circumstances" exception. It concluded
Chemical Leaman was not "throwing toxic waste out into the
meadow-lands" as Morton and its predecessors had done; rather, it
had "designed and built the facility to prevent [harm to the
environment]." Chemical Leaman Tank Lines, Inc. v. Aetna Cas. &
Sur. Co., 817 F. Supp. at 1146.
On appeal, the LMI argue the district court's jury
instructions on the expected/intended issue were erroneous and
inconsistent with New Jersey law. They also assert the harm at
the Bridgeport site was not improbable as a matter of law.
Finally, they contend "exceptional circumstances" objectively
establish Chemical Leaman's intent to cause property damage. Our
review of jury instructions is plenary. See Hook v. Ernst &
Young, 28 F.3d 366, 370 (3d Cir. 1994). A jury charge, taken as
a whole, must "fairly and adequately" submit the issues in the
case to the jury. Id.
A. Jury Instruction on Expected/Intended
The district court instructed the jury that it should
find for Chemical Leaman if Chemical Leaman did not subjectively
expect or intend damage to the soil, groundwater, or wetlands at
the Bridgeport site. Midway through the trial, the court
instructed the jury:
There are three kinds of damage at issue in
this case--soil contamination, groundwater
contamination, and swamp contamination . . .
You must evaluate Chemical Leaman by what you
believe were its actual, subjective
expectations or intentions with regard to
causing soil, groundwater and swamp damage .
. .
At the end of the trial, the district court again instructed the
jury:
"EXPECTED OR INTENDED" -- FOCUS ON DAMAGE
In determining Chemical Leaman's
expectations and intentions in the context of
basic coverage, you are instructed to focus
on whether the specific property damage was
expected or intended. You are not to
consider whether the acts which caused that
property damage were intentional acts. I
give you this instruction because it is New
Jersey law the unintended results of
intentional acts may be covered by
defendants' insurance policies. Thus, even
though Chemical Leaman may have knowingly and
intentionally committed the acts that
ultimately led to the environmental damage at
the Bridgeport site, there still may be
insurance coverage as long as you find that
Chemical Leaman did not expect or intend the
specific property damage that is the subject
matter of this litigation, namely the
contamination of the soil, groundwater, or
wetlands.
"EXPECTED OR INTENDED" -- SPECIFIC DAMAGE STANDARD
I further instruct you that, in deciding
whether Chemical Leaman subjectively expected
or intended to cause property damage, you
must consider whether Chemical Leaman
subjectively expected or intended the very
damage that is the subject matter of this
case. Thus, it is not sufficient for you to
find that Chemical Leaman expected or
intended any injury -- such as injury to the
environment generally. Rather, you must
determine whether Chemical Leaman expected or
intended the actual property damage that it
is now required to clean-up.
In addition, special interrogatories were submitted to the jury
on Chemical Leaman's expectation and intention to cause damage to
the soil, groundwater, and wetlands.
The LMI contend the district court's final jury
instruction was erroneous because it instructed the jury "to
focus on whether the specific property damage"--namely
contamination to the soil, groundwater, or wetlands--"was
expected or intended." They argue the district should have
instructed the jury that if Chemical Leaman "expected or
intended" to cause some injury to the environment generally, then
coverage was precluded unless the extent of the injury was
improbable. The LMI rely on SL Industries, in which the New
Jersey Supreme Court stated:
Assuming the wrongdoer subjectively intends
or expects some sort of injury, that intent
will generally preclude coverage. If there
is evidence that the extent of the injuries
was improbable, however, then the court must
inquire as to whether the insured
subjectively intended or expected to cause
that injury. Lacking that intent, the injury
was "accidental" and coverage will be
provided.
SL Industries, Inc. v. American Motorists Ins. Co., 607 A.2d at
1278. The LMI contend Chemical Leaman intended to cause some
injury because Chemical Leaman knew the rinsewater contained
contaminants, and knew the contaminants would seep into the soil
when deposited in the containment ponds. They assert Chemical
Leaman also knew discharges from the overflow pipe would drain
into the swamp. Therefore, they argue, Chemical Leaman intended
"some sort of injury" as a matter of law, and coverage was
precluded unless the extent of injury was improbable.
Although the LMI's argument possesses a certain appeal,
we believe the New Jersey Supreme Court would reject it. An
insured who intentionally discharges a known pollutant generally
intends "some sort of harm," however de minimis, and the harm
that actually results is usually a probable result of the
discharge. Accordingly, the LMI's reading of SL Industries would
result in a general rule precluding coverage based on the knowing
discharge of a pollutant. But in Morton Intern., Inc. v. General
Acc. Ins. Co., 629 A.2d at 879-80, the New Jersey Supreme Court
held "a general rule . . . [precluding coverage] simply on the
basis of a knowing discharge of pollutants would be unjustified."
The LMI's reading of SL Industries' "some sort of injury"
language conflicts with Morton.
Moreover, in SL Industries, the New Jersey Supreme
Court confronted the problem of insurance coverage for injury
caused by intentional, tortious conduct, namely intentional
fraud. But intentional tort cases are an imperfect analogy in
the context of environmental pollution. The insured who commits
an intentional tort like fraud possesses some knowledge of the
nature of the harm likely to result and intends to cause such
harm. Also, most intentional torts are committed in a single,
discrete, and temporally limited incident. In the context of
environmental pollution, the insured's knowledge concerning the
harmful propensities of pollutants and the likelihood of harm to
the environment may be less complete and may vary significantly
over time. For example, it is a matter of historical fact that
many insureds, acting in accordance with standard industry
practices, intentionally discharged pollutants into unlined
containment ponds or other inadequate waste treatment systems,
but were unaware that groundwater damage would eventually result.
In Morton, the New Jersey Supreme Court acknowledged
the unsuitability of prior case law on the expected/intended
provision in environmental pollution coverage litigation.
Morton, 629 A.2d at 879 ("In applying our holding in Voorhees to
claims seeking coverage for property-damage caused by
environmental pollution under occurrence-based CGL policies, we
acknowledge the impracticality of adherence to the general rule
that `we will look to the insured's subjective intent to
determine intent to injure.'"). We believe the New Jersey
Supreme Court would similarly reject a wooden application of SL
Industries' "some sort of injury" language, and would instead
look to the general principles underlying the interpretation of
insurance-policy provisions involving intentional conduct. As
stated by the New Jersey Supreme Court:
Our goal is to interpret the insurance
provisions in light of the insured's
objectively reasonable expectations. . . .
[W]e must attempt to reconcile two goals:
that of deterring intentional wrongdoing by
precluding insurance indemnification, and
that of providing victims with compensation
to the extent that compensation will not
interfere with deterring injurious behavior.
SL Industries, Inc. v. American Motorists Ins. Co., 607 A.2d at
1278. We will apply these principles in this case.
In the environmental pollution context, the insured's
appreciation of the magnitude and nature of harm likely to be
caused by a discharge of pollutants is relevant in determining
whether insurance coverage should be precluded.
When the injury caused significantly exceeds
the injury intended or expected . . . then it
is hard to characterize the injury as truly
"intentional." . . . Moreover, if the
tortfeasor did not intend or expect to cause
the resulting harm, denying coverage will not
deter the harmful conduct. In that case,
there is no policy justification for denying
the victim the possibility of additional
compensation.
SL Industries, Inc. v. American Motorists Ins. Co., 607 A.2d at
1278. If an insured does not understand the causal connection
between the discharge of a pollutant and the property damage that
results, deterrence is not served by precluding insurance
coverage. Moreover, where an insured does not intend or expect
property damage of a particular nature to result from its
discharge of pollutants, the insured has an "objectively
reasonable expectation" of coverage should such property damage
later manifest itself. For these reasons, we cannot agree with
the LMI's contention that some intent to cause any sort of
environmental harm will preclude insurance coverage for all
environmental harm under New Jersey law. Rather we believe the
New Jersey Supreme Court would inquire into the insured's intent
or expectation to cause environmental harm of a particular sort,
for example, whether the insured intended damage to the soil,
groundwater, or wetlands. Where the insured intends or expects
such harm, coverage is precluded, unless, of course, the injury
was improbable. On the other hand, an insured's intent to cause
environmental harm of one sort will not preclude coverage for
other kinds of unintended and unexpected environmental harm. For
example, an insured's intent to cause soil damage will not
preclude coverage for unintended and unexpected damage to the
groundwater or wetlands.
The district court's jury instruction fairly and
adequately asked the jury to consider whether Chemical Leaman
expected or intended injury to the soil, groundwater, or
wetlands. The instruction also allowed the jury to consider the
nature and extent of Chemical Leaman's knowledge regarding the
likelihood of harm as that knowledge evolved over time. There
was ample evidence supporting the jury's conclusion that Chemical
Leaman did not expect or intend to cause property damage.
Chemical Leaman presented evidence that it believed the system of
unlined ponds would cleanse contaminated rinsewater. Although
Chemical Leaman intentionally discharged known pollutants, a
reasonable jury could find, and the jury here did find, Chemical
Leaman did not expect or intend damage to the soil, groundwater
or wetlands. In light of the jury's findings, Chemical Leaman is
entitled to insurance coverage for the costs of clean-up of
environmental damage. Because Chemical Leaman did not expect or
intend damage to the soil, groundwater, or wetlands, we need not
inquire whether the property damage at the Bridgeport site was an
improbable result of Chemical Leaman's actions.
B. The "Exceptional Circumstances" Exception
The LMI contend that under Voorhees' "exceptional
circumstances" exception, Chemical Leaman's intent to cause
property damage should be presumed as a matter of law.
As we have noted, in Morton the New Jersey Supreme
Court set forth several factors to be considered in evaluating
whether exceptional circumstances exist. These include:
the duration of the discharges, whether the
discharges occurred intentionally,
negligently, or innocently, the quality of
the insured's knowledge concerning the
harmful propensities of the pollutants,
whether regulatory authorities attempted to
discourage or prevent the insured's conduct,
and the existence of subjective knowledge
concerning the possibility or likelihood of
harm.
Morton Intern., Inc. v. General Acc. Ins. Co., 629 A.2d at 879-
80. We believe the New Jersey Supreme Court designed the
"exceptional circumstances" exception to apply only to egregious
conduct. This much is apparent from the court's use of child
sexual abuse as an illustration of conduct that is "so inherently
injurious" as to warrant a presumption of intent to injure. Id.at 879.
Because "insureds held responsible for remediation of
environmental pollution vary significantly in their degree of
culpability for the harm caused by pollutant discharges," we
believe "[a] general rule in environmental-pollution coverage
litigation that would permit intent to injure to be presumed
simply on the basis of a knowing discharge of pollutants would be
unjustified." Id. at 879-880.
Instead Morton mandates "a case-by-case analysis . . .
in order to determine whether, in the context of all the
available evidence, exceptional circumstances exist." Id.
Morton is instructive in considering the level of culpability
required to allow intent to injure to be presumed in the
environmental context. In Morton, the insured intentionally
discharged mercury-laden compounds directly into streams over a
lengthy period of time. The Department of Health and state
engineers made repeated demands for compliance and the insured
consistently disregarded its own promises to remediate the
discharge. Morton, 629 A.2d at 882. "[T]he record fairly
reflect[ed] a pattern of `stonewalling' on the part of [the
insured], characterized by promises of compliance that
consistently were unfulfilled." Id.
We believe a reasonable jury could find Chemical Leaman
did not engage in a "pattern of stonewalling." On the contrary,
a jury could conclude that Chemical Leaman's behavior suggests a
good faith effort at compliance with agency demands. Chemical
Leaman initially designed the Bridgeport wastewater treatment
system to purify contaminated rinseate in 1960. The designers of
the system believed that the sandy bottom of the unlined ponds
would purify the contaminated rinsewater by acting as a natural
filter, and the overflow pipe was intended as a safety valve to
prevent a rupture in the berms of the containment ponds in the
event of heavy rain. When an inspector from the Pollution Unit
of the New Jersey Division of Fish, Game & Wildlife advised
Chemical Leaman of an unsatisfactory discharge into a neighboring
swamp in September 1961, Chemical Leaman responded by
constructing a second set of lagoons and the final settling
lagoon. Seven years later, water pollution inspectors from the
New Jersey Department of Health concluded discharges from the
lagoon were pollutional and, in February 1969, ordered Chemical
Leaman to submit plans for a system to properly treat the
effluent. In May 1969, Chemical Leaman submitted a plan for a
new rinsewater treatment system. The New Jersey Department of
Health rejected this plan and over the next four years the
parties attempted to resolve their dispute until January 1974,
when they entered into a consent judgment. This history can
hardly be described as "a pattern of `stonewalling' . . .
characterized by promises of compliance that consistently were
unfulfilled." Morton, 629 A.2d at 882. Accordingly,
"exceptional circumstances" do not exist here that would permit a
presumption of Chemical Leaman's subjective intent to cause
property damage.
IV. Pollution Exclusion Clauses
The April 1, 1971 to April 1, 1985 LMI policies
contained pollution exclusion clauses barring coverage for
discharges of pollutants, unless such discharges were "sudden and
accidental" or "sudden, unintended, and unexpected." The LMI
argued to the district court that coverage was precluded because
the discharge of pollutants at the Bridgeport site was not
"sudden." The district court rejected the LMI's argument,
relying on a line of New Jersey cases beginning with Broadwell
Realty Serv., Inc. v. Fidelity & Cas. Co., 528 A.2d 76 (N.J.
Super. App. Div. 1987). It held the word "sudden" is ambiguous--
sometimes carrying a temporal meaning and sometimes meaning
"unexpected"--and should not be interpreted to exclude coverage
for environmental harm caused by gradual discharges over a
prolonged period. It concluded, "[t]he pollution exclusion
precludes coverage when the insured has caused the discharge of
pollutants, unless the discharge was neither expected nor
intended from the standpoint of the insured." Chemical Leaman
Tank Lines, Inc. v. Aetna Cas. & Sur. Co., 817 F. Supp. at 1157.
The district court then granted partial summary judgment to the
insurers with respect to soil damage because Chemical Leaman
intended to discharge contaminants into the soil. At trial, the
jury found Chemical Leaman expected and intended discharges to
the swamp, but not to the groundwater. On appeal, the LMI
contest their liability for groundwater damage.
Subsequent to the district court's decision, the New
Jersey Supreme Court addressed the standard form pollution
exclusion clause in Morton Intern., Inc. v. General Acc. Ins.
Co., 629 A.2d at 847-76. The New Jersey Supreme Court expressly
overruled Broadwell, because it believed that the word "sudden"
was not ambiguous. It held "`sudden' possesses a temporal
element, generally connoting an event that begins abruptly or
without prior notice or warning," and concluded that "the phrase
`sudden and accidental' in the standard pollution-exclusion
clause describes only those discharges, dispersals, releases, and
escapes of pollutants that occur abruptly or unexpectedly and are
unintended." Id. at 847. Nevertheless, the court refused to
enforce the standard pollution exclusion as written because it
found the insurance industry had misled state regulators in
securing its approval. Instead, the court held the pollution
exclusion clause precludes coverage if the insured intentionally
discharges a known pollutant, regardless of whether the insured
expected or intended to cause property damage:
[W]e perceive that regulators would
reasonably have understood the effect of the
clause to have denied coverage for the
intentional discharge, dispersal, release, or
escape of known pollutants, whether or not
the eventual damage was intended or expected
from the standpoint of the insured. The
industry's presentation of the clause to
regulators described it as a clarification of
the "intended and expected" clause of the
basic "occurrence" definition "so as to avoid
any question of intent," and could fairly be
understood as an attempt to override the
issue whether damage was intended by
excluding coverage for intentional discharges
of known pollutants. Accordingly, we
construe and give effect to the standard
pollution-exclusion clause only to the extent
that it shall preclude coverage for
pollution-caused property damage caused by an
"occurrence" if the insured intentionally
discharged, dispersed, released, or caused
the escape of a known pollutant.
Id. at 848 (emphasis in the original).
On appeal, the LMI contend the district court
incorrectly instructed the jury that the pollution exclusion
clause precludes coverage only if Chemical Leaman intentionally
discharged known pollutants into the groundwater. First, the LMI
argue Morton established that the word "sudden" has a temporal
connotation--meaning "abrupt"--and precludes coverage for gradual
discharges, dispersals, releases, or escapes. Because Chemical
Leaman discharged contaminated rinsewater over a prolonged
period, they argue, coverage should be precluded. The LMI
acknowledge Morton's regulatory estoppel holding generally
prevents enforcement of the "sudden" requirement, but assert
Morton does not apply to the LMI because (1) several of their
policies contain the non-standard NMA 1685 pollution exclusion,
and (2), they were not party to the misrepresentations made to
regulatory authorities. Second, the LMI argue that even if
Morton's regulatory estoppel holding applies, the pollution
exclusion clause bars coverage because Chemical Leaman
intentionally discharged known pollutants. They argue the
district court erred in requiring proof that Chemical Leaman
intended discharge into the groundwater, as opposed to into the
environment generally.
A. Regulatory Estoppel
1. Non-Standard Pollution Exclusion
In Morton, the New Jersey Supreme Court applied
regulatory estoppel to the ISO standard pollution exclusion
clause and did not address coverage issues relating to non-
standard pollution exclusion clauses. Morton Intern., Inc. v.
General Acc. Ins. Co., 629 A.2d at 881. The LMI argue that
Morton's regulatory estoppel holding should not prevent
enforcement of the term "sudden" in the non-standard NMA 1685
pollution exclusion clause contained in certain of their
policies. We believe this argument lacks merit. Both the ISO
standard pollution exclusion and the non-standard NMA 1685
pollution exclusion use the term "sudden." The NMA 1685
exclusion closely tracks the language of the standard pollution
exclusion, and both pollution exclusion clauses came into use at
about the same time. Indeed, the LMI argue the NMA 1685
exclusion and the standard exclusion are identical in scope
because both exclude coverage for non-abrupt, non-sudden
discharges and releases of pollutants. See also Potomac Elec.
Power Co. v. California Union Ins. Co., 777 F. Supp. 968, 978
n.23 (D.D.C. 1991) (defendant insurers admit there is "no
material difference" between standard pollution exclusion and NMA
1685 pollution exclusion). The New Jersey Supreme Court refused
to enforce the term "sudden" in Morton because the insurance
industry mislead state regulators as to its effect when obtaining
approval for the standard pollution exclusion clause. We do not
believe the New Jersey Supreme Court would enforce the term
"sudden" in non-standard pollution exclusion clauses simply
because other language in those clauses varies slightly from that
in the standard pollution exclusion. Therefore we conclude that
Morton's regulatory estoppel holding applies to the NMA 1685
pollution exclusion as well as the standard pollution exclusion.
2. Application of Regulatory Estoppel to the LMI
The LMI also argue that Morton's regulatory estoppel
holding should not be applied to them because they did not
affirmatively deceive New Jersey regulators in securing approval
of the standard pollution exclusion. We cannot agree. The LMI's
policies contained the standard pollution exclusion precluding
coverage for non-sudden discharges or releases of pollutants.
They also contained the NMA 1685 pollution exclusion, which
closely parallels the language of the standard exclusion.
Approval of the standard pollution exclusion clause was secured
through misrepresentations to regulatory authorities. Regardless
of whether the LMI themselves directly misrepresented the effect
of the term "sudden" in the pollution exclusion clauses, they
benefitted from the misleading explanation of the effect of the
standard pollution exclusion submitted to state regulators by
insurance industry trade groups. The LMI did not independently
submit information to New Jersey regulators or attempt to explain
the full impact of the term "sudden" in the pollution exclusion
clauses they used. Under these circumstances, we believe the
New Jersey Supreme Court would not enforce the term "sudden" in
the policies issued by the LMI.
B. Intentional Discharge
The LMI also argue the district court should not have
required separate findings with regard to intent to discharge
into the soil, wetlands, and groundwater. They contend that if
Chemical Leaman intended any discharge, whether to the soil,
groundwater, or wetlands, then the pollution exclusion clauses
preclude coverage for all property damage arising from that
discharge. Because the district court granted partial summary
judgment to the insurers with respect to discharges into the
soil, the LMI argue, the district court should also have denied
coverage for all resulting property damage, including groundwater
damage. The effect of the LMI's argument would be to require
judgment in their favor as a matter of law on all policies
containing a pollution exclusion. The LMI raised this argument
before the district court in a Rule 50(b) motion. The district
court refused to consider the argument because the LMI had not
raised it in their prior Rule 50(a) motion. Chemical Leaman Tank
Lines, Inc. v. Aetna Cas. & Sur. Co., No. 89-1543, slip op. at 4
(D.N.J. November 8, 1993).
Motions for judgment as a matter of law must be made
before submission of the case to the jury and must "specify the
judgment sought and the law and facts on which the moving party
is entitled to judgment" under Fed. R. Civ. P. 50(a)(2). We
have reviewed the portions of the record cited to by the LMI in
their brief, and conclude that the LMI did not specify the "law
and facts" entitling them to judgment in their summary judgment
motion, their Joint Trial Brief, or their Rule 50(a) motion
before the district court. The LMI assert they adequately raised
the argument because they objected to the district court's jury
instruction on the pollution exclusion clauses, stating:
There was one other thing with respect to the
pollution exclusion. Just to be perfectly
clear. It's not my understanding that the
law even where it does not recognize a
temporal element for the sudden. It is not
required that there be an intent or an
expectation to discharge a particular medium,
rather it's the discharge itself and where it
goes. This should not be the subject of the
deliberation of the jury.
An objection to a jury charge can serve as a predicate for a
later Rule 50(b) motion only if the district court explicitly
treated the objection as a Rule 50(a) motion. Bonjorno v. Kaiser
Aluminum & Chemical Corp., 752 F.2d 802, 814-15 (3d Cir. 1984)
("A request for jury instructions may suffice to fulfill the
requirement that a motion for a directed verdict be made before
granting a JNOV only if it is clear the district court treated
the request as a motion for a directed verdict and ruled on it as
such."), cert. denied, 477 U.S. 908 (1986); Lowenstein v. Pepsi-
Cola Bottling Co. of Pennsauken, 536 F.2d 9, 11 (3d Cir.) (same),
cert. denied, 429 U.S. 966 (1976). The district court did not
treat the LMI's objection to the jury charge as a Rule 50(a)
motion. Accordingly, we believe the district court correctly
declined to hear the LMI's argument on their Rule 50(b) motion.
"It is clear under our jurisprudence that this court
cannot reverse the district court's decision denying [a] Rule
50(b) motion for j.n.o.v. on the basis of an argument the [a
party] failed to raise in support of its predicate Rule 50(a)
motion for a directed verdict." Simmons v. City of Philadelphia,
947 F.2d 1042, 1077 (3d Cir. 1991), cert. denied, 503 U.S. 985
(1992); see also Lightning Lube, Inc. v. Witco. Corp., 4 F.3d
1153, 1172 (3d Cir. 1993) ("In order to preserve an issue for
judgment pursuant to Rule 50(b), the moving party must timely
move for judgement as a matter of law at the close of the
nonmovant's case, pursuant to Rule 50(a), and specify the grounds
for that motion."). The LMI did not raise their argument in
their Rule 50(a) motion. Therefore we will not address it on
appeal.
We believe the LMI's objection to the district court's
jury instruction was also insufficient to preserve their argument
for appeal under Fed. R. Civ. P. 51. In order to preserve an
objection to a jury instruction, a party must "object[] thereto
before the jury retires to consider its verdict, stating
distinctly the matter objected to and the grounds of the
objection." Fed. R. Civ. P. 51. The purpose of Rule 51 is to
"afford the trial judge an opportunity to correct the error in
her charge before the jury retires to consider its verdict and to
lessen the burden on appellate courts by diminishing the number
of rulings at the trial which they may be called on to review."
Dunn v. HOVIC, 1 F.3d 1371, 1379 (3d Cir.) (in banc), modified,
13 F.3d 58, and cert. denied, 114 S. Ct. 650 (1993). We believe
the LMI's objection did not identify the issue they now argue on
appeal with sufficient clarity to give the trial judge notice of
a possible error in the instruction. Not only was the objection
difficult to understand because of its convoluted grammar, but
the objection did not specify the authority upon which it was
based. Therefore the LMI's objection failed to comply with Rule
51's requirement that an objection "stat[e] distinctly . . . the
grounds of the objection" and did not preserve the LMI's argument
for appeal. See United States v. Zannino, 895 F.2d 1, 17 (1st
Cir), ("Judges are not expected to be mindreaders. Consequently,
a litigant has an obligation to spell out its arguments squarely
and distinctly, or else forever hold its peace."), cert. denied,
494 U.S. 1082 (1990).
"In the absence of a party's preservation of an
assigned error for appeal, we review for plain error, and our
power to reverse is discretionary." Fashauer v. New Jersey
Transit Rail Operations, Inc., 57 F.3d 1269, 1289 (3d Cir. 1995).
Particularly in the civil context, we exercise our power to
reverse for plain error sparingly. Id.; see also United States
v. Carson, 52 F.3d 1173, 1188 (2d Cir. 1995) ("plain error review
is only appropriate in the civil context where the error is so
serious and flagrant that it goes to the very integrity of the
trial."), cert. denied, 116 S. Ct. 934 (1996). Because we do not
believe any mistake in the district court's jury instructions on
the pollution exclusion clause was so fundamental as to amount to
plain error, we decline to exercise our discretion to reverse.
V. Other-Site Evidence
Before trial, Chemical Leaman made a motion in limineto exclude
evidence relating to environmental problems at other
tank truck cleaning facilities it operated. The district court
granted this motion under Federal Rule of Evidence 403 because it
found the probative value of the evidence substantially
outweighed by the danger of unfair prejudice, jury confusion, and
undue waste of time. Chemical Leaman Tank Lines, Inc. v. Aetna
Cas. & Sur. Co., No. 89-1543, slip op. at 4-5 (D.N.J. March 17,
1993).
The LMI argue the district court abused it discretion
in excluding evidence of environmental pollution at other
Chemical Leaman cleaning facilities. They contend the evidence
from other sites tended to establish Chemical Leaman knew its
system of unlined ponds at Bridgeport would cause property
damage, including harm to the groundwater. They also insist that
such evidence should have been allowed to impeach the testimony
of Harry Elston, the designer of all Chemical Leaman's waste
treatment facilities, even if not allowed in their case-in-chief.
We review the district court's rulings on the admissibility of
evidence for an abuse of discretion. See Tait v. Armor Elevator
Co., 958 F.2d 563, 568 (3d Cir. 1992).
The district court noted the evidence the LMI sought to
introduce had limited probative value because its relevance
depended upon an extended chain of reasoning linking it to the
Bridgeport site:
the jury would have to evaluate the various
explanations offered by Chemical Leaman on
why its knowledge of alleged problems at
other sites did not translate into an
expectation or intention that the rinsewater
treatment system in Bridgeport would cause
damage. These explanations include, among
others, whether damage actually occurred at
the other sites; and whether the geological
and other conditions at the other sites were
significantly different or substantially the
same as at Bridgeport. . . . [T]he probative
value of the proffered other site evidence is
remote because it necessarily depends upon
these intermediate findings.
Chemical Leaman Tank Lines, Inc. v. Aetna Cas. & Sur. Co., No.
89-1543, slip op. at 4-5 (D.N.J. March 17, 1993). The district
court believed that for the jury properly to evaluate this
evidence, a series of mini-trials relating to each site would
have been required. Such mini-trials, the court concluded, would
cause undue delay and mislead and confuse the jury as to the
ultimate factual issue, namely Chemical Leaman's subjective
intent to cause harm at the Bridgeport site. Id. Moreover, the
district court held that the other site evidence carried with it
a significant danger of unfair prejudice. On the basis of such
evidence, the court noted, the jury might have ignored New Jersey
law on the insured's subjective intent and applied an objective
test assessing whether "Chemical Leaman should have known that
its rinsewater treatment system would cause damage." Id.
In light of the district court's balancing of the
probative value of the proffered evidence against its prejudicial
effect and the potential for jury confusion and delay, we cannot
say the district court abused its discretion in excluding the
other site evidence.
VI. Continuous Trigger
The New Jersey Supreme Court adopted the "continuous
trigger" theory to identify the time of an "occurrence" in Owens-
Illinois, Inc. v. United Ins. Co., 650 A.2d 974 (N.J. 1994). The
continuous trigger theory recognizes that "when progressive
indivisible injury or damage results from exposure to injurious
conditions for which civil liability may be imposed, courts may
reasonably treat the progressive injury or damage as an
occurrence within each of the years of a CGL policy." Id. at
995.
The conceptual underpinning of the
continuous-trigger theory, then, is that
injury occurs during each phase of
environmental contamination--exposure,
exposure in residence (defined as further
progression of environmental injury even
after exposure has ceased), and manifestation
of disease.
Id. at 981.
In Owens-Illinois, the New Jersey Supreme Court also
addressed the allocation of losses between multiple insurers and
the insured when the continuous trigger theory establishes an
occurrence in several different policy years. It held "[a] fair
method of allocation appears to be one that is related both to
the time on the risk and the risk assumed," id. at 995, "i.e.,
proration on the basis of policy limits, multiplied by years of
coverage," id. at 993.
Owens-Illinois involved a suit for personal injuries
resulting from exposure to asbestos, but the New Jersey Supreme
Court made clear the continuous trigger theory extends to
property damage claims resulting from long-term environmental
contamination. It concluded, "[p]roperty-damage cases are
analogous to the contraction of disease from exposure to toxic
substances like asbestos. Like a person exposed to toxic
elements, the environment does not necessarily display the
harmful effects until long after the initial exposure." Id. at
983; see also Astro Pak Corp. v. Fireman's Fund Ins. Co., 665
A.2d 1113, 1117 (N.J. Super. App. Div.) (same), certif. denied,
670 A.2d 1065 (N.J. 1995).
Although considering the issue before the New Jersey
Supreme Court's decision in Owens-Illinois, the district court
applied the continuous trigger theory, ruling all of the LMI's
policies from 1960 through 1985 had been triggered by the
environmental contamination at the Bridgeport site, unless a
policy exclusion barred coverage. Chemical Leaman Tank Lines,
Inc. v. Aetna Cas. & Sur. Co., 817 F. Supp. at 1153-54. The
district court also held that all insurance policies activated by
a continuing occurrence are jointly and severally liable to
policy limits for property damage resulting from the occurrence.
Id.
On appeal, the LMI contend the New Jersey Supreme Court
would not recognize the continuous-trigger theory. In light of
the intervening decision in Owens-Illinois, this argument is
meritless. On the other hand, the LMI correctly dispute the
district court's holding that all policies are jointly and
severally liable under the continuous trigger theory. Because
the New Jersey Supreme Court rejected joint and several liability
in favor of a risk-based allocation of liability among applicable
insurance policies in Owens-Illinois, we will remand this matter
to the district court for a reallocation of liability between the
insurers and among the triggered policies in accordance with
Owens-Illinois.
The LMI also contend that Chemical Leaman failed to
prove property damage occurred during each policy year from 1960-
70, and therefore the district court erred in finding as a matter
of law that property damage occurred in the 1960-61 policy year,
and in denying their summary judgement motion with respect to the
1961-70 policy years. Under the continuous trigger theory,
exposure to the harm causing agent is sufficient to trigger
potential coverage. Actual manifestation of the injury is not
required, so long as there is a continuous, indivisible process
resulting in damage. Owens-Illinois, Inc. v. United Ins. Co.,
650 A.2d at 981 ("injury occurs during each phase of
environmental contamination--exposure, exposure in residence . .
. and manifestation of disease"); Morrone v. Harleysville Mut.
Ins., 662 A.2d 562, 564 (N.J. Super. App. Div. 1995) (exposure to
gasoline sufficient to trigger occurrence). It is undisputed
that Chemical Leaman discharged contaminated rinsewater into the
unlined ponds and lagoons in every year from 1960-70. Moreover,
the district court found as a factual matter that "contaminated
rinsewater from the three settling ponds started migrating
through the soil to underlying groundwater almost immediately
after beginning pond operation in 1960." Chemical Leaman Tank
Lines, Inc. v. Aetna Cas. & Sur. Co., 817 F. Supp. at 1148.
Accordingly, the district court correctly concluded as a matter
of law that property damage occurred upon initial exposure in
1960, and should have concluded as a matter of law that property
damage occurred in each policy period from 1961-70. The LMI, of
course, were not prejudiced by the district court's error.
Finally, the LMI assert the district court incorrectly
instructed the jury on the meaning of "property damage" in the
underlying policies. Specifically, they object to the
instruction that "Chemical Leaman may be entitled to coverage
under the defendants' insurance policies for property damage that
occurs during a policy period, but that originally began during
an earlier policy period." They argue Chemical Leaman was
required to prove "actual injury" during each policy period, and
the jury incorrectly equated exposure to pollutants with property
damage. Under the continuous trigger theory, proof of actual
injury in the sense of manifestation of injury is not required.
The jury could find property damage occurred during a policy
period so long as there is proof that a continuous, indivisible
process of injury occurred during that period. The district
court's jury charge was not erroneous.
VII. Late Notice
Chemical Leaman failed notify its insurers of its claim
relating to the Bridgeport facility until 1988, four years after
it entered into a consent decree with the EPA admitting liability
under CERCLA, and even longer after the underlying events that
harmed the environment. The LMI assert this failure violated the
notice provisions of the policies and relieves them from any
obligation to provide insurance coverage.
An insurer that seeks to disclaim coverage based upon
untimely notice from its insured under an occurrence-based policy
must demonstrate that it has suffered "appreciable prejudice."
Cooper v. Government Employees Ins. Co., 237 A.2d 870 (N.J.
1968); Med. Inter Ins. Exchange v. Health Care Ins. Exchange, 651
A.2d 1029, 1033 (N.J. Super. App. Div.), certif. denied, 658 A.2d
728 (N.J. 1995). Lower courts in New Jersey have identified two
relevant factors in determining whether an insurer has suffered
prejudice justifying a denial of coverage: "whether substantial
rights have been irretrievably lost by virtue of the failure of
the insured to notify the carrier in a timely fashion," Morales
v. National Grange Mut. Ins. Co., 423 A.2d 325, 329 (N.J. Super.
Law Div. 1980), and whether "the likelihood of success of the
insurer in defending against the [underlying claim]" has been
adversely affected, id. at 330. Applying this two part test, the
district court found the LMI had suffered no prejudice because
material evidence had not been irretrievably lost, and no
meritorious defense existed to Chemical Leaman's underlying
liability under CERCLA. Chemical Leaman Tank Lines, Inc. v.
Aetna Cas. & Sur. Co., 817 F. Supp. 1136, 1158-59 (D.N.J. 1993).
The LMI contend the district court erred in holding
Chemical Leaman's contractual obligation to notify it of claims
arose, at the earliest, in 1984. They argue that obligation
arose as much as twenty years earlier, when Chemical Leaman
received complaints of environmental pollution from various
regulatory bodies. We disagree. Chemical Leaman could not have
known of the liabilities for which it seeks coverage until the
EPA placed the Bridgeport site on the Superfund National
Priorities List in 1984. Prior New Jersey state actions against
Chemical Leaman had sought only non-monetary injunctive relief.
Because 1984 was the earliest practicable date by which Chemical
Leaman could have given notice to the LMI, the LMI's assertions
that potential valuable evidence was lost prior to 1984 are
irrelevant. While the LMI also argue that evidence was lost, and
witnesses died, between 1984 and 1988, they have not disputed
that "a wealth of relevant documentary evidence remains intact."
Id. at 1159. Moreover, the LMI had extensive opportunities to
depose, and later cross-examine, Harry Elston, the designer of
the Bridgeport site. Accordingly, the district court correctly
found that the LMI had not irretrievably lost any substantial
right due to Chemical Leaman's untimely notice.
In addition, the LMI assert that Chemical Leaman's
failure to give timely notice adversely affected their ability to
defend against the underlying claim. But the district court held
no prejudice had resulted:
Chemical Leaman, as owner and operator of the
Bridgeport facility, is strictly liable under
CERCLA for damages for injury to, destruction
of, or loss of natural resources, as well as
for the reasonable costs of assessing such
damage to natural resources, and all costs of
removal, remediation, or other necessary
response costs. Chemical Leaman's liability
for these damages is retroactive, joint, and
several, and imposed regardless of fault.
Defendants do not contend that a meritorious
challenge exists to the findings, made in the
1985 consent order . . . . Nor do defendants
assert there is a meritorious defense to the
EPA's allegation that the presence of
hazardous substances at the Bridgeport
facility and their migration to surrounding
soils and groundwater constitute a release
within the meaning of section 101(22) of
CERCLA, 42 U.S.C. 9601(222). Accordingly,
the court finds that defendants have not
shown a likelihood of success in defending
Chemical Leaman against claims under CERCLA.
Defendants also ask this court to find
that timely notice would have resulted in a
likelihood that the insurance carriers would
have reached a more favorable settlement.
However, defendants fail to demonstrate what
better arrangement the insurance carriers
would have been able to obtain if they had
assumed Chemical Leaman's defense upon timely
notice.
Id. On appeal, the LMI have not advanced any arguments that
cause us to doubt the district court's conclusion.
Finally, the LMI question whether the New Jersey
Supreme Court would apply the two part Morales test in
determining whether an insurer has suffered appreciable
prejudice. But the LMI have not directed us to any New Jersey
precedent that questions the vitality of Morales. Accordingly,
their contention lacks merit.
VIII. Discovery Misconduct
The LMI assert that Chemical Leaman willfully
suppressed the identity of relevant witnesses and failed to
produce certain documents. After trial, the LMI moved for relief
from the judgment and a new trial under Federal Rule of Civil
Procedure 60(b)(3). The district court denied the motion,
although it believed a "close question" had been presented.
After reviewing the record and the arguments of the parties, we
conclude the district court did not abuse its discretion in
denying the LMI's motion.
IX. Conclusion
For the foregoing reasons, we will affirm the district
court except as to the allocation of liability among applicable
policies. We will remand to the district court for a
reallocation of damages among applicable policies in accordance
with the New Jersey Supreme Court's holding in Owens-Illinois,
650 A.2d at 993-95.
Chemical Leaman Tank Lines v. Aetna Casualty, et al.
Nos. 93-5777/5794
McKEE, Circuit Judge, concurring in part, and dissenting in part.
I must respectfully dissent from part III of the
majority opinion because I do not agree with the majority's
interpretation of Morton International, Inc. v. General Accident
Ins. Co. of America 629 A.2d 831 (N.J. 1993), cert denied, 114 S.
Ct. 2764 (1994). I believe Morton mandates an objective inquiry
in disputes such as this. Because the district court's jury
instruction improperly focused on Chemical Leaman's subjective
intent, I would remand this matter to the district court for
retrial to determine if "exceptional circumstances" objectively
established Chemical Leaman's intent to cause injury, and if so,
whether the extent of the resulting injury was foreseeable.
I. The Evolution of The "Intent" Analysis in
"Occurrence-Based" Policies
Although the majority's analysis has much to commend
it, I believe that a more thorough discussion of the evolution of
New Jersey's law in this area is necessary to fully understand
Morton. An appreciation of the development of that law casts a
different light upon the portions of Morton that control our
analysis.
A. Atlantic Employers Ins. Co. v. Tots & Toddlers Pre-
School Day Care Center, Inc.
Our analysis must begin with, and be guided by a
discussion of Atlantic Employers, because it used language that
the court would later cite and which I believe has caused my
colleagues to take an incorrect analytical turn. In Atlantic
Employers, parents of children who had been sexually abused sued
the owners and operators of a day care center where the abuse
purportedly took place. The company that insured the center then
brought a declaratory judgment action to determine its obligation
to defend or indemnify the owners for any recovery the plaintiffs
might win in their personal injury suits based upon negligence
and intentional tort.
The day care center's insurance policy insured against
damage resulting from an "occurrence." An "occurrence" included
injury or damage that was "neither expected nor intended by the
insured." Atlantic Employers, 571 A.2d at 303. The policy also
contained an exclusion for violations of penal statutes or
ordinances. The Appellate Division first noted the general rule
that "coverage does exist . . . 'for the unintended results of an
intentional act, but not for damages assessed because of an
injury intended to be inflicted.'" Id. (citation omitted). The
court stated:
There seems to be no dispute that if . . .
Robert Knighton sexually molested the
children, then he had the requisite level of
intent to be found guilty of sexual
molestation, based on the criminal statutes
of this State. But appellants insist that
this does not necessarily mean that he
intended the damages or injuries incurred by
the children as a result of such actions. . .
. Further, they insist that the existence of
such intent cannot automatically be imputed
to the other insureds under the policy so as
to exclude coverage. . . . We reject this
position.
Id. The court then examined cases from other jurisdictions in
order to analyze the insureds' argument in context with
developing law. The court noted that some jurisdictions employed
a subjective test in determining insurance coverage under these
circumstances, and some relied upon an objective test. The court
concluded that public policy mandated an objective approach.
As a matter of public policy
and logic we conclude that the
better rule warrants application of
the objective approach. A
subjective test suggests that it is
possible to molest a child and not
cause some kind of injury, an
unacceptable conclusion. . . .
. . . It is simply against
public policy to indemnify a person
for a loss incurred as a result of
his[/her] own willful wrongdoing.
Id. at 304. Thus, the court held that policy, as well as logic,
required an "objective approach" as an exception to the general
rule.
B. Prudential Property & Casualty Ins. Co. v. Karlinski
Within a year and a half of Atlantic Employers, the
Appellate Division decided Karlinski. There, insured's 13-year
old son (James) had engaged in a prearranged fight with a 14-year
old (Mark) in which Mark had fallen and suffered a broken hip.
The court was asked to determine if a homeowner's policy
obligated the plaintiff insurer to defend and indemnify the
defendant. The policy excluded coverage for "'bodily injury . .
. which is expected or intended by the insured.'" Karlinski, 598
A.2d at 919. The motion court granted the insurer's motion for
summary judgment noting that the son of the insured "'instigated
the fight and threw the first blow and started the fight. As far
as I am concerned, it is intentional conduct and the coverage
doesn't apply.'" Id. The motion judge also concluded that "a
broken 'leg' [Mark actually suffered a broken hip] was not an
extraordinary consequence of the fight." Id.
On appeal the court aptly noted, "[t]he appeal requires
that we again explore the frequently visited but still unclearly
charted area of liability coverage for intentional torts which
produce unintended results." Id. The court went on to observe:
Our review of New Jersey
authorities satisfies us that . . .
it is difficult to ascertain a
clear weight of authority on the
subject of liability insurance
coverage for unintended results of
intentional acts. Differing
combinations of variables, such as
the language of the exclusion
clause, the nature of the harm and
its relationship to the intentional
act, and the availability of relief
to the injured party, appear to
influence the extent to which our
decisions have inquired into the
nature of the intent.
Id. at 921. The court then stated:
[W]e hold that, when a coverage
exclusion is expressed in terms of
bodily injury expected or intended
by the insured, and where the
intentional act does not have an
inherent probability of causing the
degree of injury actually
inflicted, a factual inquiry into
the actual intent of the actor to
cause that injury is necessary.
Id.
C. Voorhees v. Preferred Mutual Ins. Co.
In Voorhees, a parent was sued for statements she had
made at a public meeting where she had questioned the competency
of her child's teacher. The teacher claimed she had suffered
emotional distress and mental anguish as a result of the parent's
conduct. The teacher alleged that the parent had acted
"willfully, deliberately, recklessly and negligently," in making
false accusations that had damaged the teacher professionally,
and subjected her to public ridicule. Voorhees, 607 A.2d at
1257. Medical evidence established that the emotional distress
the teacher complained of had resulted in "'an undue amount of
physical complaints,' including 'headaches, stomach pains,
nausea, . . . [and] body pains.'" Id. at 1258.
The parent had a homeowner's policy that provided
coverage for liability arising from "bodily injury" caused by an
"occurrence." The policy defined an "occurrence" as an
"accident," and excluded coverage for bodily injury intentionally
caused by the insured. The insurer relied upon this language and
refused to defend the insured against the teacher's suit,
asserting that the claims were based on the insured's intentional
act and that the complaint sought damages for a "personal" rather
than a "bodily" injury. The parent eventually sued her carrier
for damages resulting from its refusal to provide a defense and
indemnify her. Both parties moved for summary judgment.
The trial court granted the insurer's motion ruling
that the complaint did not allege the kind of "bodily injury"
that would be covered under the policy. A divided panel of the
Appellate Division reversed.
The New Jersey Supreme Court noted that the duty to
defend under the policy was not triggered "absent a potentially-
coverable occurrence." Id. at 1262. In assessing whether the
insured's statements constituted a potentially coverable
occurrence, the court first held that "the accidental nature of
an occurrence is determined by analyzing whether the alleged
wrongdoer intended or expected to cause an injury." Id. at 1264.
As to what constitutes an "intent to injure," the court noted
that the general trend in the law appeared to require an inquiry
into the actor's subjective intent to cause injury:
We adhere to the prevalent New
Jersey rule and hold that the
accidental nature of an occurrence
is determined by analyzing whether
the alleged wrongdoer intended or
expected to cause an injury. If
not, then the resulting injury is
"accidental," even if the act that
caused the injury was intentional.
That interpretation prevents those
who intentionally cause harm from
unjustly benefitting from insurance
coverage while providing injured
victims with the greatest chance of
compensation consistent with the
need to deter wrong-doing. It also
accords with an insured's
objectively-reasonable expectation
of coverage for
unintentionally-caused harm.
Even if the operative question
is the intent to injure rather than
to act, the question of what
constitutes an "intent to injure"
remains. The key issue is whether
the court must find a subjective
intent to injure, or whether it can
presume an intent to injure from
the objective circumstances. In
that regard, our inquiry parallels
that taken in interpreting policy
exclusions for intentional acts.
Those exclusions preclude coverage
for injuries expected or intended
by the insured. Case law
interpreting those policy
exclusions, in addition to that
interpreting the definition of
"occurrence," is thus relevant.
The general trend appears to
require an inquiry into the actor's
subjective intent to cause injury.
Even when the actions in question
seem foolhardy and reckless, the
courts have mandated an inquiry
into the actor's subjective intent
to cause injury.
Id. at 1264.
The court, however, recognized that:
When the actions are
particularly reprehensible, the
intent to injure can be presumed
from the act without an inquiry
into the actor's subjective intent
to injure. That objective approach
focuses on the likelihood that an
injury will result from an actor's
behavior rather than on the
wrongdoer's subjective state of
mind.
Id. at 1265. The Voorhees court reasoned that the insured's
actions there were a far cry from the type of egregious behavior
that had justified an objective approach in Atlantic Employers.
The court held that "[a]bsent exceptional circumstances that
objectively establish the insured's intent to injure," the
insured's subjective intent to injure must govern. Id. The
Voorhees court's reference to "exceptional circumstances" was
clearly intended to recognize the need for an objective test in
the specific circumstances it confronted in Atlantic Employers,
and it foreshadowed the test it would proclaim in Morton.
Although the court in Voorhees felt that there was
little evidence of a subjective intent to injure the teacher, the
court never had to address this question because the plaintiff
had also alleged that the insured had acted negligently. The
allegation of negligence presupposed the absence of a subjective
intent to injure and stated a claim for a potentially coverable
occurrence thus triggering the insurer's duty to defend. See Id.
Accordingly, the court affirmed plaintiff's award of summary
judgment.
D. SL Industries, Inc. v. American Motorists Ins. Co.
In SL Industries, an employee had filed suit against
his employer alleging age discrimination and common law fraud as
a result of the employer eliminating his position. The employee
sought recovery for the alleged bodily injury that resulted. The
employer was insured under a policy in which the insurer agreed
to defend and indemnify the employer for all sums resulting from
a bodily injury caused by an "occurrence." "Occurrence" was
defined as an "'accident . . . which results in bodily injury . .
. neither expected nor intended from the standpoint of the
insured.'" SL Industries, 607 A.2d at 1269-70.
The employer settled the suit and then brought a
declaratory judgment action against its insurer to establish its
right to indemnification. The Law Division granted the insurer
summary judgment, but the Appellate Division reversed, holding
that although intended harm was not covered under the policy, the
policy did provide coverage for the unforeseen results of
intentional conduct. The court then remanded the case to the Law
Division to determine whether the employee's emotional distress
had been intended or whether it was foreseeable.
On appeal, the New Jersey Supreme Court had to
determine if the general intent to injure that is inherent in a
claim of fraud necessarily incorporates the intent to cause the
specific injury (emotional distress), or whether proof of a
subjective intent to cause the specific injury is required. Id.at 1277-
1279. The court began its analysis of the required
intent by examining the differing approaches taken by earlier
cases.
Our courts have taken
different approaches to the
question of how specifically the
insured must have intended the
resulting injury. Employing the
"Lyons" test, some courts have
held that a subjective intent to
injure ends the inquiry and
precludes coverage. Under that
approach, if there is a subjective
intent to injure then any injury
that results from the action will
be deemed "intentional," even if
the injury is different from or
greater than that intended. . . .
On the other hand, some courts
have indicated that to preclude
coverage if the injury that
actually occurred was not a
probable outcome of the wrongful
act is unfair [discussing
Karlinski]. . . . However, in those
circumstances in which the facts
indicate that the acts in which the
insured engaged were unlikely to
result in the degree or type of
injury that in fact occurred, an
inquiry into the subjective intent
to cause the resulting injury is in
order.
A third approach is even more
likely to lead to coverage. In
Hanover Insurance Group v. Cameron,
the court rejected the insurance
company's argument that to preclude
coverage only the intent to harm
need be demonstrated. The court
indicated that "intent" would only
be found when the actual
consequences that resulted from the
act were intended, or when the
actor was substantially certain
they would result.
To determine which approach to
adopt, we refer to the general
principles underlying the
interpretation of insurance-policy
provisions involving intentional
conduct.
The Lyons test . . . precludes
coverage in some cases in which an
insured could reasonably expect
coverage. When the injury caused
significantly exceeds the injury
intended or expected and is an
improbable consequence of the
wrongful act that caused it, then
it is hard to characterize the
injury as truly 'intentional.' The
injury, from the standpoint of the
insured, is 'accidental,' and could
thus be deemed an occurrence.
Moreover, if the tortfeasor did not
intend or expect to cause the
resulting harm, denying coverage
will not deter the harmful conduct.
In that case, there is no policy
justification for denying the
victim the possibility of
additional compensation. As the
Karlinski court noted, precluding
coverage 'even if the actual harm
far exceed[s] the consequences
which might reasonably be expected
by the insured . . . diminishes
the injured party's realistic
possibility of recovery more than
it impacts upon the insured
tortfeasor.'
On the other hand, an approach
allowing coverage whenever the
adverse consequences intended by
the tortfeasor did not precisely
match the actual consequences of
their wrongful actions undermines
the basic policy against
indemnifying wrongdoers.
We believe the Karlinski test
presents the most reasonable
approach. . . . Assuming the
wrongdoer subjectively intends or
expects to cause some sort of
injury, that intent will generally
preclude coverage. If there is
evidence that the extent of the
injuries was improbable, however,
then the court must inquire as to
whether the insured subjectively
intended or expected to cause that
injury. Lacking that intent, the
injury was 'accidental' and
coverage will be provided.
Id. at 1277-78 (citations omitted).
Accordingly, the court affirmed the Appellate
Division's judgment remanding the case to the Law Division to
determine whether the employee's emotional distress had been a
probable outcome of the insured's general intent to injure, and
if not, whether the insured had the subjective intent to injure
the employee. See Id. at 1279.
E. Morton International, Inc. v. General Accident Ins.
Co.
Finally, in Morton, the New Jersey Supreme Court had to
apply the law of "occurrence-based" insurance policies to the
very different realm of injuries to the environment. There, the
insured, Morton International, sued primary and excess CGL
insurers seeking reimbursement for costs incurred in defending a
suit filed by the Department of Environmental Protection (DEP),
as well as indemnity for cleanup and remediation expenses
resulting from the DEP proceeding. Morton, 629 A.2d at 834-835.
Morton's predecessors, including Ventron Corporation, had
polluted a body of water known as Berry's Creek to such an extent
that "[f]or a stretch of several thousand feet, the concentration
of mercury in Berry's Creek [was] the highest found in fresh
water sediments in the world." Id. at 834. Morton's claims were
derived from Ventron as well as other prior owners of the land.
See Id.. The DEP sued Ventron and other prior owners to compel
them to pay for remediating the pollution of Berry's Creek and
the surrounding area. The environmental damage had been caused
by discharges from a mercury-processing plant operated for forty
years by the various defendants. See New Jersey Department of
Environmental Protection v. Ventron Corp., 468 A.2d 150 (N.J.
1983).
In the underlying suit to establish liability, the New
Jersey Supreme Court affirmed the Appellate Division's judgment
holding the defendants jointly and severally liable. The court
reasoned that the discharge of mercury constituted an abnormally
dangerous activity, and imposed strict liability against all
defendants. See Id. at 160.
Morton then commenced a declaratory judgment action to
determine its right to indemnification from the various insurers
that had provided primary and excess coverage while the mercury-
processing plant was in operation. The primary issue that the
court had to determine was whether the pollution resulted from an
"occurrence" under the applicable policies. To qualify as an
"occurrence" the environmental damage must not have been
"expected nor intended from the standpoint of the insured."
Morton, 629 A.2d at 836. The trial court granted the insurer's
motion for summary judgment. The Appellate Division reversed
holding that the trial court had "focused improperly on the
manner in which the injury had been caused and had erroneously
concluded that the policy did not provide coverage for the
unexpected result of a deliberate act." Id. at 877 (citation
omitted).
The Appellate Division also relied upon Atlantic
Employers to conclude that "'[t]he intentional character of the
act is the basis for the inference that the insured either
intended or was manifestly indifferent to the prospect of
injury.'" Id. (citation omitted). In reaching this conclusion,
the Appellate Division (without the benefit of either Voorhees or
SL Industries) noted that the "'substantial environmental
pollution over a long period'" together with the knowledge by
Morton's predecessors that "'the substance being discharged . . .
was toxic and harmful'" rendered unacceptable a conclusion that
no harm had been expected." Id. (citation omitted).
On appeal to the New Jersey Supreme Court, Morton
argued that the Appellate Division's reliance on Atlantic
Employers improperly equated the discharge of pollutants with
child molestation as acts that could be deemed intentionally
injurious as a matter of law. Morton further argued that "the
Appellate Division improperly invoked an objective standard for
determining whether harm had been intended or expected under the
`occurrence'-based policies, ignoring the long-standing principle
that coverage exists for the unintended results of intentional
acts." Id.
The court began its analysis by acknowledging the
unique circumstances that surround issues of insurance coverage
for environmental damage.
In applying our holding in
Voorhees to claims seeking coverage
for property-damage caused by
environmental pollution under
occurrence-based CGL policies, we
acknowledge the impracticality of
adherence to the general rule that
"we will look to the insured's
subjective intent to determine
intent to injure." Although
insureds may concede that
pollutants -- even known pollutants
-- had been intentionally
discharged, those insureds are
virtually certain to insist that
the resultant harm was unintended
and unexpected. Absent "smoking
gun" testimony from a disgruntled
employee, proof of subjective
intent to cause environmental harm
will rarely be available in
[environmental insurance] coverage
litigation.
We noted in Voorhees that an
alternative to proof of subjective
intent to injure existed in those
cases in which the insured's
"actions are particularly
reprehensible, [so that] the intent
to injure can be presumed from the
act without an inquiry into the
actor's subjective intent to
injure." We cited Atlantic
Employers . . . as illustrative of
conduct that was so inherently
injurious as to warrant the
conclusion that intent to injure
could be presumed. . . . We are
unpersuaded that
environmental-pollution litigation
should generally be included in
that category of cases, typified by
Atlantic Employers, in which
reprehensible conduct justifies a
presumption that injury was
intended.
Id. at 879 (citations omitted) (emphasis added).
Instead of relying upon such an unwarranted presumption
and thereby extending the "public policy and logic" of Atlantic
Employers, the court called for an individualized inquiry based
upon the facts of each case.
[I]nsureds held responsible for
remediation of environmental
pollution vary significantly in
their degree of culpability for the
harm caused by pollutant
discharges. A general rule in
environmental-pollution coverage
litigation that would permit intent
to injure to be presumed simply on
the basis of a knowing discharge of
pollutants would be unjustified.
Instead, we hold that in
environmental-coverage litigation a
case-by-case analysis is required
in order to determine whether, in
the context of all the available
evidence, "exceptional
circumstances [exist] that
objectively establish the insured's
intent to injure."
Id. at 879-80 (citation omitted) (emphasis added). The term
"exceptional circumstances" had been used in Voorhees. As noted
above, there, the court stated that, absent exceptional
circumstances, the subjective intent of the insured controlled
whether there was an "occurrence" under an occurrence-based
insurance policy. In Voorhees, the court had stated that it was
adopting the majority view that requires proof of a
transgressor's subjective intent. Voorhees at 607 A.2d at 1255.
The court, however, had also noted that "[w]hen the
actions are particularly reprehensible, the intent to injure can
be presumed from the act without an inquiry into the actor's
subjective intent to injure." Id. at 1265. In the context of
Atlantic Employers, the reprehensible actions of child
molestation did indeed "'[a]s a matter of public policy and logic
. . . warrant[] application of the objective approach.'" Id.
Then, the court used the language that separates me from my
colleagues. The court added: "[a]bsent exceptional circumstancesthat
objectively establish the insured's intent to injure, we
will look to the insured's subjective intent to determine intent
to injure." Id. (emphasis added).
III. Morton Applied to the Instant Dispute
In Morton, the court was careful to distinguish the
policy considerations in pollution coverage cases from those that
dictated an objective approach in all cases of child molestation.
"We are unpersuaded that environmental-pollution litigation
should generally be included in that category of cases, typified
by Atlantic Employers, in which reprehensible conduct justifies a
presumption that injury was intended." Morton, 629 A.2d at 879.
This does not mean, as the majority suggests, that the alleged
polluter's subjective intent controlled. It only means that the
act of polluting is not so reprehensible that "public policy and
logic" require a presumption that the resulting harm is intended
as a matter of law. Rather, the circumstances surrounding the act
of polluting must be examined in each case to determine if, in
that particular situation, they objectively establish an intent
to harm the environment, thereby negating an occurrence.
The court then listed those circumstances that would
objectively establish this intent.
Those circumstances include the
duration of the discharges, whether
the discharges occurred
intentionally, negligently, or
innocently, the quality of the
insured's knowledge concerning the
harmful propensities of the
pollutants, whether regulatory
authorities attempted to discourage
or prevent the insured's conduct,
and the existence of subjective
knowledge concerning the
possibility or likelihood of harm.
Id. at 880. Accordingly, I cannot agree when my colleagues
state, "[w]e believe the New Jersey Supreme Court designed the
'exceptional circumstances' exception to apply only to egregious
conduct." Majority Op. at 27. One can only determine if conduct
is egregious by examining the "exceptional circumstances" in
which it occurred. Indeed, an examination of those circumstances
may well establish that a particular polluter's conduct was not
egregious at all.
The majority's error is reflected in what the court in
Morton did. It did not require proof of the subjective intent to
pollute on the part of the insured or its predecessors. Rather,
it examined the record and determined that the circumstances
before it objectively established an intent to harm. "In
determining whether in the context of this record the trial court
properly concluded, as a matter of law, that Morton's
predecessors had intended or expected environmental injury, we
focus on those factors [i.e. the "exceptional circumstances"]
that we previously have identified to be significant." Morton,
629 A.2d at 882. The court then noted the duration of the
discharge, the intentional nature of the discharge, the insured's
knowledge of the likely environmental harm, and the history of
"stonewalling." In conclusion, the court noted that its
examination of these circumstances confirmed that "damage
qualitatively comparable to that found to exist . . . must have
been anticipated by Morton's predecessors on the basis of . . .
prolonged knowledge of and avoidance of compliance with
complaints by regulatory officials." Id. at 884.
This is consistent with the court's pronouncement that
the mere fact of polluting, even to the egregious extent present
in Morton, was not by itself, such reprehensible conduct that it
required a conclusive presumption of an intent to harm.
Moreover, the "exceptional circumstances" include "the existence
of subjective knowledge concerning the possibility or likelihood
of harm." However, subjective knowledge is not used to
definitively determine if the insured expected or intended
environmental damage. Rather, the insured's subjective knowledge
is but one of those "exceptional circumstances" that determine if
an "occurrence" has taken place. It is not the start and finish
of that inquiry as the majority's reasoning suggests.
The Morton court concluded that exceptional
circumstances established as a matter of law that there had been
no occurrence as Morton's predecessors had to have expected the
pollution they caused. The objective nature of this conclusion
is evident because the court clearly stated that is was not
deciding whether Morton's predecessors "intended" (i.e.
"subjectively") the damage:
Without determining that such
damage was intended, we find
inescapable the conclusion that
damage qualitatively comparable to
that found to exist in the Ventron
litigation must have been
anticipated by Morton's
predecessors on the basis of their
prolonged knowledge of and
avoidance of compliance with
complaints by regulatory officials
that the company was discharging
unacceptable emissions, including
mercury compounds, into Berry's
Creek. Based on that conclusion,.
. . as a matter of law the property
damage to Berry's Creek and the
surrounding area was not caused by
an "occurrence" within the meaning
of the term in the various CGL
policies.
Id. at 884 (emphasis added).
In adopting prior law (particularly the holding in
Karlinski) to environmental insurance coverage, the court in
Morton noted that subjective evidence of the polluter's intent
did not become relevant merely because the extent of pollution
was greater than anticipated.
Turning to the question
whether environmental injury was
intended or expected, we first
observe that although the magnitude
of the damage to Berry's Creek and
the surrounding areas may exceed
any intention or expectation
attributable to Morton's
predecessors, we do not consider
that differences in harm relating
to the severity of environmental
damage give rise to a finding of
"improbability" of harm that
invokes the need for evidence of
subjective intent. Whether
Morton's predecessors anticipated
that discharges of untreated
effluent on the plant site and into
Berry's Creek for more than forty
years would cause environmental
harm of the severity described . .
. hardly demonstrates that the
extent of the injury was
"improbable." The holding in SL
Industries was based on the
Appellate Division's ruling in
Karlinski, that in a coverage
action arising from a fight between
two young teenagers in which one
sustained a broken hip, a factual
issue of subjective intent was
presented because of the inherent
improbability that the skirmish
would result in a hip fracture. No
such inherent "improbability" can
be ascribed to the environmental
damage attributable to Morton's
predecessors.
Id. at 882 (citations omitted).
The majority notes that the district court held that
Chemical Leaman's actions were not so
reprehensible as to justify the presumption
of an intent to cause property damage under
the "exceptional circumstances" exception. It
concluded that Chemical Leaman was not
"throwing toxic waste out into the meadow-
lands" as Morton and its predecessors had
done; rather, it had "designed and built the
facility to prevent [harm to the
environment]."
Majority Op. at 20. (emphasis added). The "exceptional
circumstances" test, however, is not an "exception," but the rule
that is to be applied in environmental coverage cases. In
addition, although Chemical Leaman was not reducing Berry Creek
to one of the world's great environmental disasters as was the
case in Morton, there is nevertheless testimony from which a
reasonable jury could conclude that "exceptional circumstances"
objectively establish Chemical Leaman's intent to harm the
environment.
The majority holds that after Morton, a court can
determine that an insured is entitled to indemnification under an
occurrence-based policy as a matter of law absent "exceptional
circumstances." My colleagues suggest that "exceptional
circumstances" merely
define when no reasonable jury could find the
insured did not intend or expect to cause
property damage because objective
circumstances--evidence of prolonged,
intentional, or flagrant discharges of known
pollutants in the face of regulatory
disapproval--establish that the insured must
have intended property damage. The presence
of "exceptional circumstances" requires a
court to enter judgment as a matter of law.
Their absence, of course, does not prevent a
jury from finding an insured "expected" or
"intended" to cause property damage.
See Majority Op. at n.7. However, Morton did not quantify the
factors it identified as objectively establishing intent to
pollute. Rather, the "case-by-case analysis" was necessary for
the fact finder to make an individualized determination of
whether the nature of those factors in a particular case
justified denying coverage in lieu of the limitations contained
in the insurance contract. Thus, I agree that the absence of the
factors detailed at footnote 7 of the majority opinion "doe[] not
prevent a jury from finding an insured 'expected' or 'intended'
to cause property damage," but not for the reason stated by the
majority. Rather, it is because "subjective knowledge concerning
the possibility or likelihood of harm" is one of the "exceptional
circumstances" that a jury must also consider. Accordingly, if an
insured knows that its actions will most likely harm the
environment, just one, brief, discharge of a known pollutant by
one who had otherwise complied with regulatory authorities could
preclude coverage under an occurrence-based insurance policy.
The majority argues that Morton cannot be read as
creating an objective test for intent because an insured who
"intentional[ly] discharges a known pollutant generally intends
'some sort of harm,' however de minimis, and the harm that
actually results is usually a probable result of the discharge."
Thus, (the majority suggests) an objective test "would result in
a general rule precluding [all] coverage based on the knowing
discharge of a pollutant." Majority Op. at 23. That is,
however, precisely why it is necessary to use "exceptional
circumstances" to prove intent to harm objectively in pollution
cases. If the resulting inquiry establishes that the insured did
objectively "intend" to harm the environment, the inquiry into
the foreseeability of the actual damage makes perfect sense.
The majority expresses a further concern that reading
Morton to require anything other than subjective intent "would be
akin to a negligence standard [,and] [i]f negligent acts did not
fall within the definition of a covered occurrence, then there
would be no point in purchasing comprehensive general liability
insurance." Majority Op. at 18 (citing Pittston Co. v. Allianz
Ins. Co., 905 F. Supp. 1279, 1301 (D.N.J. 1995)). A properly
guided inquiry into "exceptional circumstances," however, does
not equate with a negligence standard. It assigns the cost of
environmental remediation not based upon negligence, but upon the
"degree of culpability for the harm caused by pollutant
discharges." Morton, 629 A.2d at 879.
IV. The Exceptional Circumstances of The Bridgeport Site.
Throughout the time the pond and lagoon system was in
use there were repeated discharges of waste through the overflow
pipe to the adjacent swamp. In fact, the very purpose of the
overflow pipe was to allow for these discharges. An Inspector
observed the discharge from the last pond during a September 12,
1961 visit and thereafter observed similar discharges on about
half of his visits to the Bridgeport site. In November 1968,
water pollution inspectors from the New Jersey Department of
Health again observed the discharge from the overflow pipe in the
last lagoon. Although it was characterized as a sporadic
"trickle", an engineer employed by Chemical Leaman (Elston), and
at least one other employee admitted that the overflow pipe did
discharge into the swamp throughout the time the pond and lagoon
system was in use. Moreover, there was evidence that by 1974,
the path of this "trickle" from the last impoundment could "be
easily seen by looking for a 75-foot wide lane of dead trees" in
the swamp.
The Morton court concluded that the discharge of
pollutants there was intentional once the polluters knew it was
unacceptable. Morton, 629 A.2d at 882. There, the repeated
demands of the Department of Health that the owner halt the
discharges or install adequate treatment facilities were
regularly ignored. Id. Here, the intentional nature of the
discharge is also evident. Chemical Leaman intentionally
designed its waste treatment system so that the overflow pipe
would discharge into the swamp. Furthermore, even under the
subjective framework that the jury was given to review the
evidence, it concluded that Chemical Leaman's releases were
intentional. That conclusion is supported by the record and
Chemical Leaman cannot now successfully argue that the discharges
were anything but intentional. Indeed, Chemical Leaman's denials
illustrate the concern expressed in Morton that a polluter may
admit to the discharge, but would never admit to intentionally
polluting the environment. That concern could only be
satisfactorily addressed by the objective test that the majority
today rejects.
Here, as in Morton, the intentional nature of the
discharge is confirmed by Chemical Leaman's continued evasion of
the State's demands to stop the discharge. The unacceptable
condition of the discharge from the overflow pipe into the swamp
was brought to Chemical Leaman's attention by a governmental
inspector in September of 1961. Although Chemical Leaman
installed three more lagoons in an attempt to alleviate this
situation, the overflow pipe remained a staple of the Bridgeport
site and in 1968, Chemical Leaman was still discharging wastes
into the lagoon.
State officials regularly informed Chemical Leaman that
the effluent flowing from the overflow pipe constituted an
unacceptable discharge into the swamp. In 1961, FGW told
Chemical Leaman that the discharge was an unacceptable condition
and that the resulting pollution should be stopped within a year.
Subsequently, in 1968, the NJDOH told Chemical Leaman that "the
waste emanating from the lagoon is highly pollutional and [that]
immediate measures [should] be taken to eliminate this discharge
or to sufficiently treat the waste prior to discharge" and in
1969, Chemical Leaman was ordered to find an alternative method
of waste treatment.
Chemical Leaman argues that it was not aware of the
harmful propensities of its pollutants because it was not
discharging pure chemicals, but rather "trace amounts" of these
chemicals in highly diluted rinsewater. The uncontroverted
evidence, however, clearly showed that at least by 1968, Chemical
Leaman was alerted that the discharge into the swamp was "highly
pollutional" even in its diluted form. Furthermore, as noted
above, however diluted the discharge may have been, it was
sufficiently potent to sculpt the 75-foot wide path of dead trees
into the environmental landscape it touched.
It is certainly true that Chemical Leaman is more
sympathetic than the polluters in Morton, who engaged in a
deliberate pattern of "stonewalling" characterized by promises of
compliance that went unfulfilled. Morton, 629 A.2d at 882. As
the majority notes, Chemical Leaman apparently thought that its
natural filtration system would reduce the danger of pollution.
In fact, it was designed to do just that. Nevertheless, the
record here could clearly support a finding that Chemical Leaman
was "stonewalling" regulatory authorities. There is a pattern of
unfulfilled promises of compliance to state agency requests to
abate the polluting discharge.
Even after officials caught Chemical Leaman discharging
into the swamp in 1968 and ordered it to find a better way to
treat wastes in 1969, Chemical Leaman did not improve the waste
treatment system until the summer of 1975, when it entered into a
disposal contract with Du Pont. In the interim, 40 to 50 million
gallons of contaminated waste water had been processed using the
same treatment system.
Thus, from 1961, when the State first notified Chemical
Leaman that the discharge to the swamp was unacceptable, until
1975, when Chemical Leaman began off-site disposal at the Du Pont
plant, Chemical Leaman responded to regulatory agencies with
promises of compliance that went unfulfilled. Chemical Leaman
was informed that the discharge to the swamp was unacceptable.
Although the state did not articulate why the discharge was
improper, it is difficult to imagine what other reason Chemical
Leaman could have attributed to the state's concern if not the
impact of the discharge upon the environment. It is clear from
Chemical Leaman's own argument in this regard that it never
attempted to ascertain the reason for the State's concern.
Nevertheless, assuming arguendo that in 1961 Chemical
Leaman could not ascertain that its system was damaging the
environment, there is no dispute that Chemical Leaman learned
that the discharges to the swamp were likely to cause harm as of
November of 1968, when it was expressly told that "the waste
emanating from the lagoon is highly pollutional and [that]
immediate measures [should] be taken to eliminate this discharge
or to sufficiently treat the waste prior to discharge." Even
more telling is Harry Elston's concession at trial that both at
the time of FGW's inspections in 1961 and 1962, and at the point
when NJDOH issued its order in 1969, he knew that Chemical
Leaman's discharge into the swamp was causing some damage to the
swamp. Finally, it should be noted that Chemical Leaman never
obtained the required permits for its waste disposal cite. Thus,
it took regulatory authorities even longer to discover the
"highly pollutional" discharge. Once the cite was discovered,
Chemical Leaman's compliance with regulatory agencies was less
than exemplary.
Chemical Leaman discharged approximately 100 million
gallons of contaminated waste water into its unlined ponds and
lagoons for the fifteen years that the Bridgeport site was in
operation. The bottom of those lagoons was only two and a half
feet above the groundwater, and the insurers' expert testified
that the soil, groundwater, and swamp contamination was the
probable result of this discharge. That testimony was not
refuted by Chemical Leaman's expert even though Chemical Leaman
argues on appeal that their unlined treatment system was the
state of the art.
I cannot say that such a course of conduct does not
negate the existence of an occurrence under New Jersey law.
V. Conclusion
Courts that have addressed the issue of the kind of
intent that would negate insurance coverage under an occurrence-
based policy have been guided by certain policy considerations.
Courts have attempted to maximize the possibility that victims be
compensated for their injuries while minimizing indemnification
of the wrongdoer. See Voorhees, 607 A.2d. at 1264. They have
also been concerned that the law in this area deterred
wrongdoers. See SL Industries, 607 A.2d at 1278. Looking to
"exceptional circumstances" to objectively determine intent to
harm the environment does just that. To the extent that those
circumstances suggest that the insured did not intend
environmental harm, and cooperated with regulatory authorities to
avoid it, the insured will likely be indemnified for the cost of
remediation under an occurrence policy even where it discharged a
known pollutant. To the extent that those circumstances
establish a protracted and/or deliberate discharge, however, a
disregard for the environment, knowledge of the properties of a
pollutant, "stonewalling" regulatory agencies and the insured's
subjective knowledge of the possibility of harm; "public policy
and logic" require that the insured, and not its insurers, pay
the cost of environmental cleanup. That allocation of cost deters
persons from closing their eyes to the environmental impact of
their activities.
Furthermore, this is consistent with the long-standing
doctrine of enforcing insurance contracts in a manner that is
consistent with the reasonable expectations of the parties. An
insured cannot reasonably expect to escape the "occurrence-based"
limits on its right to indemnification where "exceptional
circumstances" establish its culpability for pollution.
Similarly, an insurer should be able reasonably to expect that it
will not be required to reimburse such a polluter for the
environmental damage so callously caused.
This is the result the New Jersey Supreme Court sought
to promote in Morton. Yet, the rule we adopt today will give
polluters comfort and allow them to discharge pollutants in
relative safety because of the obvious impracticality of
establishing their subjective intent to harm the environment.
Since the New Jersey Supreme Court recognized the impracticality
of a subjective approach in environmental coverage disputes, I
find it difficult to believe that it intended this result. The
majority concludes that the New Jersey Supreme Court established
a subjective standard in environmental insurance disputes while
proclaiming such a rule to be so impractical as to be unworkable.
As a result, our holding places insurers in the impossible
situation the New Jersey Supreme Court sought to avoid by its
thoughtful pronouncement of an objective "exceptional
circumstances" test in disputes over liability for cleaning up
pollution.