Du-Wel Products, Inc. v. U.S. Fire Ins. Co.

• Decision Date: 26 October 1989
• Docket Number: DU-WEL
• Citation: 565 A.2d 1113,236 N.J.Super. 349
• Parties: PRODUCTS, INC., a Michigan corporation, Plaintiff-Appellant/Cross-Respondent, v. UNITED STATES FIRE INSURANCE COMPANY, a New York corporation, Westchester Fire Insurance Company, a New York corporation, Defendants-Respondents/Cross-Appellants, and Crum and Forster, Inc., Defendant.
• Court: New Jersey Superior Court — Appellate Division

Page 349

236 N.J.Super. 349

565 A.2d 1113

DU-WEL PRODUCTS, INC., a Michigan corporation Plaintiff-Appellant/Cross-Respondent, v. UNITED STATES FIRE INSURANCE COMPANY, a New York corporation, Westchester Fire Insurance Company, a New York corporation Defendants-Respondents/Cross-Appellants and Crum and Forster, Inc., Defendant.

Superior Court of New Jersey Appellate Division.

Argued Sept. 19, 1989.

Decided Oct. 26, 1989.

Philip R. Sellinger, for appellant/cross-respondent (Sills Beck Cummis Zuckerman Radin Tischman & Epstein, Kenneth F. Oettle and Philip R. Sellinger, of counsel, Marc S. Berman, on the brief).

Kenneth A. Seltzer, for respondents/cross-appellants (Vitiello, Seltzer, Terkowitz & Vitiello, Kenneth A. Seltzer, of counsel, Kimberly G. Kingsland and Kenneth A. Seltzer, on the brief).

Before Judges PRESSLER, LONG and LANDAU.

The opinion of the court was delivered by

PRESSLER, P.J.A.D.

Plaintiff Du-Wel Products, Inc., a Michigan corporation, brought this declaratory judgment coverage action against its comprehensive general liability carriers, defendants United States Fire Insurance Company and Westchester Fire Insurance Company. It seeks recovery for a loss in excess of half-a-million dollars it incurred complying with a consent order entered by the United States Environmental Protection Agency (EPA) requiring it to clean up a landfill in Michigan to which toxic sludge generated by its electroplating process had been transported by an independent state licensed hauler between 1968 and 1977. ¹ Following trial the judge rendered an oral opinion concluding that coverage was unavailable both under the pollution exclusion clause of the policies and their definition of "occurrence." A conforming judgment was entered dismissing the action, and plaintiff appeals.

I. THE ISSUES

The primary issue before us is whether the trial judge correctly construed the occurrence and pollution exclusion provisions of the policies in the context of the facts before him. By way of preliminary comment, we note that a prior ruling in the action, made by a different judge, determined that the law of Michigan applied to the policy interpretation issues. That ruling was never challenged; Michigan law was applied by the trial judge; and our review is based on Michigan law as well.

We further point out, as a preliminary matter, that because the judge viewed these two clauses as preclusive of plaintiff's claim, he did not address defendants' other major defense to coverage, namely, the contention that the named insured was not plaintiff but its wholly owned subsidiary, Hartford Metal Protection, Inc., whose name was changed some time after its acquisition by plaintiff to Du-Wel Hartford, Inc. (Hartford). The gravamen of this contention is that although the toxic waste was generated by Hartford, the EPA never made a claim against Hartford, the consent order was signed by Du-Wel, and the cleanup costs were paid by Du-Wel. We gather then that the argument is that Du-Wel is in effect an uncovered stranger to the policies. Defendants' brief on appeal makes clear that they have not abandoned this defense, which was fully tried, and hence, if we should reverse on the interpretive issue, they are nevertheless entitled to findings of fact and a decision on the named-insured issue. ²

There are two additional interlocutory rulings which are before us and which require decision only if we disagree with the trial judge's construction and application of the occurrence and pollution exclusion clauses. The first is the pretrial ruling made by the motion judge, not the trial judge, that even if successful, plaintiff would not be entitled to an award of counsel fees pursuant to R. 4:42-9(a)(6). The basis of this ruling was the judge's perception that since Michigan law applied to the policy interpretation issues, it also governed the insured's right to recover counsel fees incurred as the result of the liability insurer's wrongful refusal to provide the requested defense and indemnity.

The second of these interlocutory rulings is the subject of defendants' cross-appeal. Prior to trial, they moved for leave to file a third-party complaint against American Bankers Insurance Company of Florida. The gravamen of the proposed complaint was that that carrier had also, during the period in question, issued a policy of comprehensive general liability coverage to plaintiff insuring against the same risks and, therefore, owed defendants contribution or indemnification. That motion, opposed by plaintiff, who itself had made no claim against American Bankers, was denied by the motion judge on the grounds both of untimeliness and defendants' failure to demonstrate, at least on the motion, that American Bankers was "a viable third-party defendant" who had issued a comparable policy.

We hold that neither the occurrence nor the pollution exclusion clause preclude coverage, that defendants are entitled to a disposition by the trial court of their named-insured defense, that the motion judge erred in his conclusion that the benefit of R. 4:42-9(a)(6) was not available to plaintiff, and that the denial of defendants' motion for leave to file a third-party complaint did not constitute an abuse of discretion.

II. OCCURRENCE AND POLLUTION EXCLUSION

The policies in question ³ provide for the insurers' undertaking to

pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury or property damage to which this insurance applies, caused by an occurrence....

"Occurrence" is defined as

an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured.

The pollution exclusion excepts from coverage

property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any water cause or body of water, but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental. [Emphasis added]

The questions before the trial court, therefore, were first whether, as construed by Michigan law, Du-Wel met the "occurrence" provision in that the damage caused by the dumping of its sludge was neither expected nor intended from its standpoint and, second, whether for purposes of the policy, as construed by Michigan law, Du-Wel came within the exception to the pollution exclusion in that the discharge of contaminants was "sudden and accidental."

Before addressing the facts adduced and as found by the trial court, we must make clear that there have been significant events in the development of Michigan law since the judge rendered his oral opinion. The first of these was the decision by the Michigan Court of Appeals in Upjohn Company v. New Hampshire Insurance Company, 178 Mich.App. 706, 444 N.W.2d 813 (1989), which affirmed a written circuit court opinion. The trial judge was aware of the appealed circuit court opinion, appreciated its lack of precedential value, and agreed to wait for a reasonable time for the opinion of the Court of Appeals. It was not forthcoming during the six-month period following the close of the evidence, and the trial judge quite properly decided to wait no longer. As he said at the outset of his oral opinion:

Upjohn was the cornerstone of plaintiff's legal argument respecting the law of Michigan, Upjohn was an unreported opinion. The Court learned that the defendants had filed notices of appeal from the adverse decision of the trial judge. The matter has been pending before the appeal court in Michigan but has not yet been resolved.

While the result of the Upjohn case no doubt would have been important to this Court's determination, the Court has reached the point where it simply cannot wait any longer.

The second significant event was the decision by the United States District Court in U.S. Fidelity and Guar. Co. v. Thomas Solvent Co., 683 F.Supp. 1139 (W.D.Mich.1988), decided shortly before the trial court's opinion and not brought to its attention. While it is unfortunate that the trial judge did not have the benefit of these authorities, it is clear that they now constitute a critical component of the law which we must consider in reviewing this matter.

We address first Upjohn, supra. As we read that opinion, which deals with precisely the same two clauses in issue here, it declares that as a matter of Michigan insurance law, the occurrence definition requires the extension of coverage for long-term polluting activity of the insured provided that the resultant damage for which coverage is sought was neither intended nor anticipated by the insured. It further declares, as a matter of Michigan law, that applicability of the exception to the pollution clause is not precluded by a long-term or continuous exposure. All that is required to qualify for the exception to the exclusion is that the continuous discharge of the pollutants be unintended (i.e., accidental) and unexpected (i.e., sudden). U.S. Fidelity & Guar. Co., supra, similarly holds in the context of the duty to defend. In short, then, we understand Michigan law to hold that damage to the property of others caused by intentional polluters is not indemnifiable under both the occurrence definition and the pollution exclusion but that damage caused by accidental or even ordinarily negligent polluters who neither intend nor expect the ensuing damage is indemnifiable despite long-term and repeated polluting activity. See also Jonesville Prod. v. Transamerica Ins. Group, 156 Mich.App. 508, 402 N.W.2d 46 (1986), app. den. 428 Mich. 897 (1987). Michigan law is, consequently, not materially different from New Jersey's. See, e.g., CPS Chemical Co. v. Continental Ins., 222...