Adron, Inc. v. Home Ins. Co.

• Decision Date: 22 July 1996
• Citation: 292 N.J.Super. 463,679 A.2d 160
• Parties: ADRON, INC., Plaintiff-Appellant, v. The HOME INSURANCE COMPANY, First State Insurance Co., Hartford Accident and Indemnity Co., Columbia Casualty Company, and the Insurance Company of North America, Defendants-Respondents, and The Insurance Company of the State of Pennsylvania, Commerce & Industry Insurance Co., National Union Fire Insurance, Birmingham Fire Insurance Co., Employers Insurance of Wausau, North River Insurance Company, Highlands Insurance Company, Northbrook Property and Casualty Company, and Mission Insurance Co., Defendants.
• Court: New Jersey Superior Court — Appellate Division

Page 463

292 N.J.Super. 463

679 A.2d 160

ADRON, INC., Plaintiff-Appellant, v. The HOME INSURANCE COMPANY, First State Insurance Co. Hartford Accident and Indemnity Co., Columbia Casualty Company, and the Insurance Company of North America Defendants-Respondents and The Insurance Company of the State of Pennsylvania, Commerce & Industry Insurance Co., National Union Fire Insurance Birmingham Fire Insurance Co., Employers Insurance of Wausau, North River Insurance Company, Highlands Insurance Company, Northbrook Property and Casualty Company, and Mission Insurance Co., Defendants.

Superior Court of New Jersey, Appellate Division.

Argued May 15, 1996.

Decided July 22, 1996.

Andrew Muscato, Newark, for appellant (Whitman, Breed, Abbott & Morgan, attorneys; Mr. Muscato, John V. Thornton and John M. O'Reilly, on the brief; Mr. Muscato and John V. Thornton, on the reply brief).

Mary Ellen Scalera, Livingston, for respondent, The Home Insurance Company (Morgan, Melhuish, Monaghan, Arvidson, Abrutyn & Lisowski, attorneys; Ms. Scalera, of counsel, and on the brief; Heidi P. Rubin Cohen, on the brief).

John M. Bowens, Bedminster, for respondents, First State Insurance Company and Hartford Accident And Indemnity Company (Purcell, Ries, Shannon, Mulcahy & O'Neill, attorneys; Mr. Bowens, of counsel, and on the brief; David C. Barry, on the brief).

Paul Leodori, Cherry Hill, for respondent, The Insurance Company of North America (Ruggerio, Leodori & Celentano, attorneys; Mr. Leodori, of counsel, and on the brief).

Laura A. Foggan, Washington, DC, (pro hac vice) of Wiley, Rein & Fielding and Wendy L. Mager, Princeton, amicus curiae for Insurance Environmental Litigation Association (Smith, Stratton, Wise, Heher & Brennan, attorneys; Ms. Mager, on the brief; Ms. Foggan, Susan D. Sawtelle and Steven D. Silverman, of counsel).

Before Judges SHEBELL, STERN and NEWMAN.

The opinion of the court was delivered by

SHEBELL, P.J.A.D.

Plaintiff, Adron, Inc., a long-time manufacturer of fragrances, caused, commencing in 1960, numerous fifty-five-gallon drums of hazardous material by-product to be buried on its site in East Hanover. Its 1984 sale of the plant triggered the requirements of the Environmental Cleanup Responsibility Act (ECRA) ( N.J.S.A. 13:1K-6 to -13) now known as the Industrial Site Recovery Act (ISRA). To consummate the sale, plaintiff entered into a consent order with the Department of Environmental Protection (DEP) to monitor and remediate pollution on the site. Thereafter, plaintiff submitted various cleanup plans to DEP based on data obtained from monitoring wells drilled on and soil samples taken from the property. As cleanup progressed, DEP asserted plaintiff had contaminated groundwater.

Plaintiff subsequently filed this declaratory judgment action against defendants, its comprehensive general liability ("CGL") insurers, for indemnity from the costs of cleanup. Defendants maintained that the pollution was confined to plaintiff's site, and that the "owned property" exclusion in the policies prevented indemnification.

Ultimately DEP approved, subject to ongoing monitoring, plaintiff's cleanup plan. Thereafter, DEP issued two directives under the Spill Compensation and Control Act (Spill Act) ( N.J.S.A. 58:10-23.11 to -23.11z) alleging that plaintiff and various other parties in the region had contaminated area groundwater. Plaintiff moved to amend its complaint for coverage against the Spill Act claims as it pertained to this site, and defendants moved for summary judgment. The Law Division judge granted summary judgment to defendants on the basis that plaintiff had failed to establish that it had been forced to pay any damages for off-site contamination. The judge, in a written opinion dated September 15, 1993, denied plaintiff's motion to amend reasoning that plaintiff's Spill Act claims were better added to an action then pending in Middlesex County, where plaintiff had sought insurance coverage against the Spill Act claims for sites other than this. On October 4, 1993, plaintiff moved for reconsideration, and on October 22, 1993, following a second hearing, the judge entered an order denying that motion. Plaintiff appeals.

Plaintiff now argues that questions of material fact as to contamination of groundwater precluded the judge from granting defendants summary judgment, and that the judge erred in denying plaintiff's motion to amend its complaint to add its claim for insurance coverage of this site against DEP's Spill Act claims.

Plaintiff, a New York corporation manufacturing flavors and fragrances at several facilities, maintained a facility on eleven acres on Route 10 in East Hanover. The site included several buildings housing processing, laboratory, storage, maintenance and administrative facilities. Activities included blending of flavor and fragrance ingredients, extracting and distilling natural fragrances and flavors, and research and development. The complex was located above the Buried Valley aquifer system, designated a "sole source aquifer" by the United States Environmental Protection Agency (EPA) because the aquifer supplied water to fifty percent or more of the area's population.

On September 27, 1984, plaintiff executed a contract with Unilever United States, Inc. (Unilever) to sell the property and its manufacturing operations. On October 4, 1984, plaintiff submitted its initial ECRA disclosure statement. In November 1984, plaintiff provided DEP with its Site Evaluation Submission (SES) and Geohydrologic Investigation and Consultation report (GIC) that had been prepared for it by Dames & Moore (Dames), the company it had retained to investigate the site and assist in any necessary remediation.

The submissions identified several possible sources of contamination found on the property, including: the spilling of chemicals from two buildings that caught fire in 1947 and 1960 and the leaching into the soil of water used to fight those fires; plaintiff's filling, in the early 1960s, a low-lying area with drums containing "hard residue" generated after the manufacture of certain products; and plaintiff's burying at several points on the property, also in the early 1960s, fifty-five-gallon drums filled with "hard residue" and by-products of distillation. Among the commercially hazardous substances identified as having been used by plaintiff in manufacturing were methylene chloride and toluene, solvents used in the extraction process, and trichloroethylene (TCE), "a solvent" used for "removing grease" and cleaning equipment.

Five monitoring wells and several test pits were created. One of the wells, MW-5, was mistakenly drilled on a neighboring property. The GIC report indicated that, although not all chemicals were found in all monitoring wells and soil samples, hazardous chemicals such as methylene chloride, 1-2-dichloroethane, chloroform, carbon tetrachloride, toluene and TCE were present in varying degrees in groundwater samples taken from the different monitoring wells, including MW-5, while toluene, ethyl benzene and chloroform were among the chemicals found in the soil. TCE and other hazardous chemicals were detected in several off-site wells in the East Hanover area. The GIC report listed proposed cleanup procedures and remediation cost estimates.

DEP conducted a preliminary site inspection, and on December 18, 1984, sent plaintiff a preliminary inspection report including its findings and requirements under ECRA. On December 21, 1984, it entered into an administrative consent order with DEP regarding cleanup of the property. On April 3, 1985, Dames filed an addendum to its earlier GIC report. In addition to specifying the various hazardous substances detected in the groundwater and soil samples at the property, the addendum listed several conclusions, one of which was that "[c]ompounds which may be associated with [plaintiff's] manufacturing processes were identified in Test Pit N and groundwater samples." The addendum added that "[u]ntil the quality of groundwater entering the site can be established, it is not possible to identify the source of groundwater contamination."

In a letter to plaintiff in May 1985, DEP reviewed plaintiff's submissions, and concluded that two samples from the five monitoring wells "indicate that activities ... [on plaintiff's site] ... have led to contamination of ground water." It directed plaintiff to continue monitoring the area and to drill additional test wells to facilitate a "thorough hydrogeological investigation." On July 16, 1985, DEP directed plaintiff to prepare a sampling and cleanup plan, and Dames continued investigating the site. Dames's subsequent sampling plan report identified eleven areas at the site as "areas of investigation" requiring further study in order to delineate possible hazardous substances on the property. Meanwhile, drums of contaminants were being removed, and tested, in accordance with the sampling plan. Dames discovered approximately 3500 fifty-five-gallon drums buried in cell areas no. 2, 3, 4 and 5 of Area S-6, and estimated that over 500 additional drums were buried in area S-5.

In a letter to DEP in June 1987, Dames updated activities at the site and related the results of its 1984 and 1987 soil and water analyses. Comparing the "priority pollutant volatile compounds" detected in both sets of groundwater samples across the site to the compounds found in the subsoils of cell area 4, Dames reported that only three compounds--methylene chloride, TCE and toluene--were found in both the water and the soils. As of 1987, however, only methylene chloride and TCE were detected in both water and soil samples. In MW-2, "located immediately downgradient" of drum cell 4, Dames found that methylene chloride was the only priority pollutant volatile compound present. Dames then concluded that "[s]ince different suites of compounds are found in Cell No. 4 and ground water samples obtained both across the...