Benjamin v. State Farm Ins. Co.

• Decision Date: 17 August 2017
• Docket Number: Civil No. 15-4123 (JBS/AMD)
• Parties: NIMROD BENJAMIN and MARNIE BENJAMIN, Plaintiffs, v. STATE FARM INSURANCE COMPANY and CLARENDON NATIONAL INSURANCE, Defendants.
• Court: U.S. District Court — District of New Jersey

NIMROD BENJAMIN and MARNIE BENJAMIN, Plaintiffs, v. STATE FARM INSURANCE COMPANY and CLARENDON NATIONAL INSURANCE, Defendants.

Civil No. 15-4123 (JBS/AMD)

UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY

August 17, 2017

HONORABLE JEROME B. SIMANDLE

OPINION

APPEARANCES:

Jonathan Wheeler, Esq.

LAW OFFICES OF JONATHAN WHEELER

1617 JFK Boulevard, Ste. 1270

One Penn Center

Philadelphia, PA 19103

Attorney for Plaintiffs

Craig D. Gottilla, Esq., and David F. Swerdlow, Esq.

WINDELS MARX LANE & MITTENDORF

120 Albany Street Plaza, 6th Floor

New Brunswick, NJ 08901

Attorneys for Defendant State Farm Insurance Company

John Donovan Shea, Esq., and William Wendell Cheney, III, Esq.

LITCHFIELD CAVO LLP

1800 Chapel Ave. West, Ste. 360

Cherry Hill, NJ 08002

Attorneys for Defendant Clarendon National Insurance

SIMANDLE, District Judge:

Table of Contents

I. INTRODUCTION ........................ 2

II. PROCEDURAL AND FACTUAL BACKGROUND ............. 3

A. Procedural Background ................. 4

B. Factual Background .................. 6

1. The Underground Storage Tank and Remediation . . . 6

2. Clarendon Policy, Claim, and Denial ....... 10

3. State Farm Policy, Claim, and Denial ...... 16

4. Defendants' Expert Report ............ 22

III. STANDARD OF REVIEW ................... 25

IV. ANALYSIS ......................... 26

A. Clarendon ...................... 28

1. Section I: "Land" not covered under Coverage A . 29

2. Section II: "Occurrence" during the policy period . .......................... 32

3. Section II: Pollution Exclusion ......... 37

4. Section II: Owned Property Exclusion ...... 46

5. Pro-Rata, Time on the Risk Allocation ...... 53

6. Bad Faith Claim ................. 55

B. State Farm ...................... 56

1. Section I: "Land" not covered .......... 57

2. Section II: "Occurrence" during the policy period . .......................... 60

3. Section II: Pollution Exclusion ......... 64

4. Bad Faith Claim and Punitive Damages ...... 67

V. CONCLUSION ........................ 68

I. INTRODUCTION

This is an action by husband and wife Plaintiffs Nimrod and Marnie Benjamin against two insurance companies, Defendant State Farm Insurance Company ("State Farm") and Defendant Clarendon National Insurance ("Clarendon"), as the holders of policies of insurance issued by the Defendants for premises located at 72 Wynnewood Drive, Voorhees, New Jersey 08043. Plaintiffs allege that the Defendants breached their contractual obligations to pay benefits to Plaintiffs for a physical loss to the insured premises, concerning leakage of heating oil from a previously unknown underground storage tank, under their respective policies of insurance. [Docket Item 1-2 at 5-6.] Unbeknownst toPlaintiffs when they purchased this residential property and obtained these insurance policies, the underground leakage had occurred many years prior.

Pending before the Court are State Farm's Motion for Summary Judgment [Docket Item 27] and Clarendon's Motion for Summary Judgment [Docket Item 28].

For the reasons set forth below, the Court will grant in part and deny in part State Farm's Motion for Summary Judgment and will grant in part and deny in part Clarendon's Motion for Summary Judgment.

II. PROCEDURAL AND FACTUAL BACKGROUND¹

A. Procedural Background

On or about April 29, 2015, Plaintiffs filed a complaint in the Superior Court of New Jersey, Law Division, Camden County against three parties: State Farm, Clarendon, and the U.S. Department of Housing and Urban Development ("HUD"). [Docket Item 1-2 at 2.] Plaintiffs alleged that both State Farm and Clarendon had issued policies of insurance covering Plaintiffs' premises located at 72 Wynnewood Drive, Voorhees, New Jersey ("the Property") and wrongfully failed to pay benefits under those policies after "a release of heating oil from a previously unknown underground heating oil tank." [Id. at 5-6.] Plaintiffs alleged that HUD "was the record owner of [those] premises . . . prior to ownership by Plaintiffs" and knew or should have known about the tank and breached its duty to disclose the presence ofthe tank to Plaintiffs. [Id. at 5-7.]

HUD removed the case to federal court on June 17, 2015, pursuant to 28 U.S.C. §§ 1442(a)(1) on the grounds that it had "federal defenses to raise against the action against it, including but not limited to sovereign immunity from suit in state courts, sovereign immunity from suits of this type, absence of privity of contract with Plaintiffs under federal law, [and] failure to state a claim upon which relief may be granted under federal law." [Docket Item 1 at 4.] No party filed a motion to remand at that time.

HUD filed its answer on July 8, 2015. [Docket Item 5.] State Farm, in its answer, filed a cross-claim for contribution "from all other parties, presently named or later impleaded, in the event that State Farm is determined to be liable to plaintiffs." [Docket Item 11 at 6.] HUD filed its answer to the cross-claim on July 28, 2015. [Docket Item 14.]

On November 25, 2015, HUD filed a Motion to Dismiss for lack of jurisdiction. [Docket Item 19.] In lieu of filing a response in opposition, Plaintiffs' counsel filed a letter indicating that "Plaintiffs [did] not oppose entry of an Order granting dismissal of the claims against federal Defendant HUD[.]" [Docket Item 21.] The Court subsequently granted the Motion to Dismiss [Docket Item 22]; ordered dismissal of thecross-claim against HUD [Docket Item 26]; and terminated HUD as a party on February 26, 2016.

In due course, State Farm filed a Motion for Summary Judgment. [Docket Item 27.] Clarendon filed its Motion for Summary Judgment on the same day. [Docket Item 28.] Plaintiffs filed their respective Responses in Opposition [Docket Items 29, 30]. State Farm filed its Reply [Docket Item 35], as did Clarendon [Docket Item 36.]

B. Factual Background

1. The Underground Storage Tank and Remediation

Plaintiff Nimrod Benjamin purchased the Property, a foreclosed townhouse, on January 2, 2004. [Docket Item 27-4 ¶ 1.] He and Marnie Benjamin married in 2008. [Docket Item 28-2 ¶ 4.] The Property was constructed in 1976-77; "[a]t the time it was constructed, it was reportedly equipped with an underground heating oil tank ([underground storage tank or] UST) system" (hereinafter "UST"). [Id. ¶¶ 2-3.] Plaintiffs were unaware, at least until 2012 and possibly until May 2014, that the underground heating oil tank existed on the Property. [Docket Item 27-4 ¶¶ 2, 4; 28-2 ¶ 7.]² At all times during Plaintiffs'ownership of the Property, it was heated by oil drawn from an above-ground oil tank, which had been previously installed in the garage in 2002. [Docket Items 27-4 ¶ 3; 28-2 ¶¶ 9-10.] Although a Voorhees township official notified Mr. Benjamin by letter on January 3, 2012 that the Property contained a UST "that did not appear to be in use," the Benjamins did not believe that the instructions regarding the UST in that letter were applicable to them since they did not know a UST was on the property and were aware only of the above-ground tank. [Docket Item 28-2 ¶¶ 12-14.]

In late May of 2014, Plaintiffs hired Superior Tank and Energy Company of Bristol, Pennsylvania, to remove the UST and dispose of it. [Docket Item 27-4 ¶ 5.] When it was removed, 200 gallons of oil were reportedly pumped out of the UST and transported to be recycled. [Docket Item 28-2 ¶ 18.] At that time, a municipal inspector who was present suspected a fuel oil discharge, the New Jersey Department of Environmental Protection ("NJDEP") was notified, and Plaintiffs were directed to remediate the Property by notice dated May 30, 2014. [Docket Item 27-4 ¶ 6.]

Plaintiffs subsequently hired Moore's Tank Services, Inc. ("Moore's") to investigate potential soil and groundwater contamination in the area where the UST had been; on July 21,2014, Moore's collected soil samples and subsequently found fuel-oil impacted soil in the side yard and under the garage. [Docket Item 28-2 ¶¶ 21-22.] Moore's also determined that groundwater had been contaminated by fuel oil. [Id. ¶ 23.] Moore's issued a report to the Benjamins on August 27, 2014, wherein it stated:

(1) Soil contamination extended from the location of the UST along the side of the house, about 12 feet into the yard toward the midpoint of the house, ended "near at the rear of the house," and extended under the house;

(2) Contamination did not migrate toward the street or the garage in the vicinity of the former tank;

(3) Contaminated soil appeared to increase away from the location of the UST toward the rear of the property and was encountered closer to the surface further from that location (Mr. Moore believed this suggested "the possibility of a second source of contamination or an older spill that has migrated";

(4) Elevated benzene levels indicated apparent degradation of the heating oil and "suggest[ed] an older spill";

(5) The Benjamins should immediately begin remediation; and(6) "Age dating at least one sample, but three are recommended, will indicate the age of the plume."

[Docket Items 28-2 ¶¶ 24-26; 27-4 ¶ 8, citing Docket Item 27-2 at 67-69.]

Plaintiffs had Precision Testing Labs, Inc., test the soil as recommended by Moore's. Precision issued a report on September 4, 2014, stating that the "C&L age of the petroleum on [the relevant sample] is estimated to be greater than 20 years old." [Docket Items 28-2 ¶ 28; 27-4 ¶ 9, citing Docket Item 27-2 at 71 (emphasis in original).] Precision's report continued: "The model [we used to determine this] can estimate the age of #2 heating oil (or diesel fuel) up to 20 years old within a range of plus or minus two years." [Docket Item 27-2 at 72.]

Plaintiffs hired Moore's to remediate the soil and groundwater that reflected the existence of the heating oil and to prepare a Remedial Action Report. [Docket Items 28-2 ¶ 30; 28-5 at 4-23.] In the course of the remediation process, Moore's excavated and replaced 221.2 tons of impacted soil (reflecting an area of 35' x 20' x 10.5' deep or a volume of approximately 272...