CPC Intern., Inc. v. Northbrook Excess & Surplus Ins. Co.

Decision Date03 December 1991
Docket NumberNos. 91-1580,91-1734,s. 91-1580
Citation962 F.2d 77
PartiesCPC INTERNATIONAL, INC., Plaintiff, Appellant, v. NORTHBROOK EXCESS & SURPLUS INSURANCE CO., Defendant, Appellee. . Heard
CourtU.S. Court of Appeals — First Circuit

William H. Allen, Saul B. Goodman, William F. Greaney, J. Gregory Sidak and Covington & Burling, Washington, D.C., on brief for The American Petroleum Institute, The American Fiber Mfrs. Ass'n, The Chemical Mfrs. Ass'n, Intern. Business Machines Corp., and Olin Corp., amici curiae.

Philip J. McGuire with whom Charles L. Philbrick, Gleason, McGuire and Shreffler, Chicago, Ill., Stephen W. Miller, Clark, Ladner, Fortenbaugh & Young, Philadelphia, Pa., Kenneth P. Borden, Linda E. Buffardi, and Higgins, Cavanagh & Cooney, Providence, R.I., were on brief for appellee.

Thomas W. Brunner, Marilyn E. Kerst, Lon A. Berk, and Wiley, Rein & Fielding, Washington, D.C., on brief for Insurance Environmental Litigation Ass'n, amicus curiae.

Jerome P. Facher with whom Neil Jacobs, Michelle D. Miller, Linda Sandstrom Simard, Hale and Dorr, Boston, Mass., David L. Harris, Stephen H. Skoller, Lowenstein, Sandler, Kohl, Fisher & Boylan, P.C., Roseland, N.J., John F. Bomster, Mark O. Denehy, and Adler, Pollock, Sheehan, Inc., Providence, R.I., were on brief for appellant.

John A. MacDonald, Deputy Atty. Gen., with whom Robert J. Del Tufo, Atty. Gen., John F. Dickinson, Deputy Atty. Gen., Frank X. Cardiello, Deputy Atty. Gen., and Mary C. Jacobson, Deputy Atty. Gen., Trenton, N.J., were on brief for the State of N.J., amicus curiae.

Before CAMPBELL and TORRUELLA, Circuit Judges, POLLAK, * Senior District Judge.

LOUIS H. POLLAK, Senior District Judge.

In this diversity case an appeal has been taken from the order of the Rhode Island District Court granting summary judgment in favor of the defendant-appellee, Northbrook Excess and Surplus Insurance Co. (Northbrook), an Illinois insurance company, and against the plaintiff-appellant, CPC International Inc. (CPC).

CPC is a New Jersey-based, Delaware-incorporated, food and chemicals manufacturer which does business throughout the United States and in numerous foreign countries. CPC brought suit in a New Jersey state court for a declaratory judgment of coverage, under an excess comprehensive general liability (CGL) policy issued by Northbrook; CPC's object was to be reimbursed for the expenses incurred in paying compensation for, and remedying, damage caused by polluting chemicals that evidently had migrated from the land surrounding the Rhode Island plant of Peterson/Puritan Inc., a CPC subsidiary, to adjacent land, seriously compromising the local water supply. After removal to the District Court for New Jersey, the case was transferred to the District Court for Rhode Island. That court, having determined that New Jersey law governed the dispute, concluded that, on the facts before the court the CGL policy's pollution exclusion clause insulated Northbrook from liability to CPC. The clause, which bars coverage for discharges of pollutants except when such discharges are "sudden and accidental" (an exception strongly relied on by CPC), has been construed by judges of the New Jersey Superior Court (New Jersey's first instance court of general jurisdiction) and by two panels of the Superior Court's Appellate Division (New Jersey's intermediate appellate court) but not by the New Jersey Supreme Court. The grant of summary judgment in Northbrook's favor turned on the Rhode Island District Court's prediction that the New Jersey Supreme Court, when it considers the issue, will reject the reading of the "sudden and accidental" exception to the CGL pollution exception clause which the Appellate Division has adopted. The correctness of the district court's divination of New Jersey law is the dominant question presented on this appeal.

I. The History of the Litigation
A. Events Leading Up to the Litigation

In 1968, CPC acquired the Puritan Aerosol Company--a manufacturer of, inter alia, flea spray, hair spray, spot remover and oven cleaner--located on seventeen acres fronting on the Blackstone River in Cumberland, Rhode Island. Under CPC's auspices, Puritan Aerosol acquired a new name--Peterson/Puritan--but continued doing the same business at the same old stand. (At length, in 1987, CPC was to sell Peterson/Puritan to another company, Hi-Port Industries, Inc.).

In 1982, Lincoln, a town next door to Cumberland, sued Peterson/Puritan for contamination of the wells constituting Lincoln's water supply. The basis of the suit was a geohydrological study prepared for the Environmental Protection Agency (EPA) by Goldberg-Zoino & Associates (GZA), an environmental engineering firm, subsequent to the discovery, in 1979, of pollution in the Lincoln and Cumberland water supply systems. Lincoln's suit was settled in 1984 for $780,000--a sum paid by Northwestern National Insurance Company (Northwestern National), the carrier which provided CPC with primary general liability coverage up to a $1,000,000 ceiling. Meanwhile, acting pursuant to the Resource Conservation and Recovery Act (RCRA), 42 U.S.C. § 6973, et seq., EPA, in 1982, had advised Peterson/Puritan that it would have to clean up its act. This initiated a process of EPA-Peterson/Puritan investigation and negotiation that matured in May of 1987 in a consent order, pursuant to the Comprehensive Environmental Response, Compensation and Liability Act, (CERCLA), 42 U.S.C. § 9601 et seq., which (1) identified Peterson/Puritan as the source of numerous hazardous substances migrating into the groundwater, and (2) committed Peterson/Puritan to conduct a Remedial Investigation/Feasibility Study (RIFS) as a predicate to necessary remediation. Some six weeks before the execution of the consent order, Northwestern National, CPC's primary liability carrier, had advised CPC and Northbrook, CPC's excess liability carrier, that the primary coverage of $1,000,000 was exhausted.

Thereupon, in a "reservation-of-rights" letter dated April 27, 1987, Northbrook advised CPC that it had no obligation to provide excess coverage. One of the grounds relied on by Northbrook was the policy's pollution exclusion clause, which bars liability for personal injury or property damage "arising out of the discharge ... of ... toxic chemicals ... or other ... pollutants into or upon land, the atmosphere or any water course or body of water; but this exclusion does not apply if such discharge ... is sudden and accidental."

B. The Litigation

(1) The New Jersey phase:

On July 21, 1987, CPC filed its complaint against Northbrook in the Superior Court for Bergen County, New Jersey. Alleging that "Peterson/Puritan has incurred and continues to incur expenses for which CPC has assumed liability with respect to both the Town of Lincoln and EPA claims," and further alleging that "Northwestern has stated that its policy limits have been exhausted," the complaint sought (1) a declaration of Northbrook's obligation to "pay in full up to its policy limits [$25,000,000] all of CPC's ultimate net loss as defined by its policy with respect to the Town of Lincoln and EPA claims," and (2) damages "incurred to date by CPC or which may be incurred by CPC in responding to the claims by the Town of Lincoln and EPA up to Northbrook's policy limits," plus costs, etc. Northbrook, invoking diversity jurisdiction, promptly removed the suit to the District Court for New Jersey. Somewhat over a year later, CPC filed a motion for partial summary judgment; Northbrook countered with a motion to transfer the case to the District Court for Rhode Island, pursuant to 28 U.S.C. § 1404(a). In a bench opinion dealing with the transfer motion, Judge Bissell addressed the considerations which, under Gulf Oil v. Gilbert, 330 U.S. 501, 67 S.Ct. 839, 91 L.Ed. 1055 (1947), give some content to the amorphous statutory standard ("for the convenience of parties and witnesses, in the interest of justice"), and concluded that transfer was appropriate. At the close of his opinion, Judge Bissell made the following observations with respect to the law to be applied:

The choice of law considerations at this point are very much unresolved and accordingly would not weigh one way or the other in my view.

As far as the interest in the community, however, is concerned, in this Court's view, the primary interest involved here is that of the State of Rhode Island in terms of the funding and expeditious consummation of cleanup and its interest in the pollution of its waters generally. Indeed, I think it can well and clearly be said that Rhode Island has an interest in having insurers promptly accept responsibility for their obligations, if any, particularly when those obligations, if they exist, will promote the assistance to the environment of the State of Rhode Island. Those considerations are perhaps a little bit ethereal and may vary from case to case, but they are not to be ignored.

To be sure, New Jersey has an interest as well in having its insured receive the benefit of its bargain. However, if under choice of law principles it turns out that New Jersey law is selected for purposes of construction of the insurance contract and the scope of the responsibility of the Defendant, our sister court in Rhode Island is just as capable as this Court would be in analyzing, construing and applying New Jersey state law on that point.

Accordingly, on February 27, 1989, venue shifted from the District of New Jersey to the District of Rhode Island.

(2) The Rhode Island phase

(a) Choice of Law

Following transfer to Rhode Island, CPC filed a motion for a declaration that New Jersey substantive law governed the controversy. Northbrook, in response, contended that the law of Rhode Island, the site of the pollution, or, in the alternative, the law of Illinois, the state in...

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