Hatco Corp. v. WR Grace & Co.-Conn.

Decision Date05 October 1992
Docket NumberCiv. A. No. 89-1031.
Citation801 F. Supp. 1334
CourtU.S. District Court — District of New Jersey
PartiesHATCO CORPORATION, Plaintiff, v. W.R. GRACE & CO. — CONN., Defendant and Third Party Plaintiff, v. ALLSTATE INSURANCE COMPANY (as Successor to Northbrook Excess and Surplus Insurance Company), American Employers' Insurance Company; Certain Underwriters at Lloyd's, London and the London Market Companies; Commercial Union Insurance Company; Continental Casualty Company; Unigard Security Insurance Company, Third-Party Defendants.

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Randy Paar, Elizabeth A. Sherwin, Jerold Oshinsky, Anderson Kill Olick & Oshinsky, New York City, Anthony Marchetta, Hannoch Weisman, Roseland, N.J., for W.R. Grace & Co. — Conn.

Martin P. Lavelle, Newman & Harrington, P.C., New York City, Kenneth F. Mullaney, Jr., Dwyer Connell & Lisbona, Montclair, N.J., for third-party defendant Unigard Sec. Ins. Co.

Peter G. Hermes, Peter C. Netburn, Peabody & Arnold, Boston, Mass., James W. Christie, James B. Burns, Clark Ladner Fortenbaugh & Young, Haddonfield, N.J., for third-party defendants American Employers' Ins. Co. and Commercial Union Ins. Co.

Thomas J. Quinn, Eileen McCabe, Mendes & Mount, New York City, William J. Hanley, Ronca, McDonald & Hanley, Livingston, N.J., for third-party defendants Certain Underwriters at Lloyd's, London and London Market Ins. Companies.

Stuart C. Levene, Ford, Marrin, Esposito & Witmeyer, New York City, for Continental Cas. Co.

Philip G. McGuire, Gleason, McGuire & Shreffler, Chicago, Ill., Bruce A. Tritsch, Feinberg & Fritsch, Rahway, N.J., for All-state Ins. Co. (as Successor to Northbrook Excess and Surplus Insurance Co.)

OPINION

WOLIN, District Judge.

In an Opinion dated July 27, 1992, published at 801 F.Supp. 1309, the Court addressed a number of motions between a predecessor-in-title and successor-in-title to an industrial site located in Fords, New Jersey at which substantial polluting activities have occurred for more than three decades. This Opinion addresses a different aspect of environmental cleanup litigation: the battle between an insured and its insurers for coverage to pay for the costs of remediating the contaminated site.

Insurance is a vital component of our society, through which individuals, corporations and other entities help assure their future economic stability in the face of unexpected liabilities. As the regulatory tide has turned sharply against waste disposal practices once commonly engaged in, insureds have called in increasing numbers on their insurers to pay for staggering liabilities being retroactively imposed on them pursuant to state and federal environmental laws. These liabilities were in large part unforeseen and unpredicted by either insurers or insureds. Unlike the relationship that typically exists between jointly liable parties under environmental laws, however, the relationship between insureds and their insurers was voluntarily entered into, and is governed by contract. Thus, whatever policy considerations might be implicated by the tremendous impact of environmental cleanup liabilities, in the face of legal insurance contracts, the allocation of risks between insureds and insurers for liabilities imposed by the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA") as amended, 42 U.S.C. § 9601 et seq., requires that the Court do no more than apply contract law principles to determine the parties' rights.

Before the Court are a number of motions for summary judgment filed by both defendant/third-party plaintiff W.R. Grace & Co. — Conn. ("Grace") and the third-party defendant insurance companies (the "Insurers").

BACKGROUND

Between 1959 and 1978, Grace operated an industrial chemical manufacturing facility in Fords, New Jersey known as the Hatco Chemical Division. The operation was purchased by Grace as an ongoing business that specialized in the production of lubricants, plasticisers and other chemicals for use in manufacturing applications. As by-products of these manufacturing operations, the Hatco facility emitted a wide variety of primarily organic chemical compounds, including various esters, phthalates and alcohols. Early in Grace's ownership of the plant, effluent containing these chemicals was pumped directly into streams and ditches that drained directly into the Passaic River.

The waste streams from the manufacturing operations contained large amounts of product that, if re-captured, could be reprocessed and sold. At some point in the early to mid 1960s, Grace constructed unlined ponds that were intended to hold the effluent so that the useful product could be recovered. Later, under pressure from state and local regulatory agencies to curtail the flow of toxic waste directly into the surface waters of the State, Grace constructed clay-lined lagoons and a sewer trunk line that tied into a regional sewerage authority's lines, so that its effluent could be treated. In addition to surface water pollution, government agencies took enforcement measures to abate air pollution caused by the evaporation into the air of the organic waste effluent that was held in the ponds and lagoons.

Discovery in this case has also revealed that the ponds were used to dump other chemicals that had been used in the manufacturing process. Heat transfer fluids containing polychlorinated biphenyls ("PCBs"), used in high-temperature reaction processes, were dumped by employees of Grace from 55 gallon drums directly into the ponds. The phthalic anhydride production facility produced naphthalene effluent as a waste product that was pumped directly onto the soil. Thick tarry residues left in the reaction vessels after distillation of phthalic anhydrides, called "bottoms", were removed from the vessels and dumped in a pile directly on the ground next to the phthalic anhydride plant.

Grace sold the Hatco facility, a predecessor corporation of the plaintiff in this action, the Hatco Corporation ("Hatco"). Hatco filed the primary action in this case against Grace in 1989. It seeks indemnification and contribution under CERCLA and contract for all sums expended to remove hazardous substances disposed of on-site and to remediate lands damaged by the disposals.1 Grace in turn has sued its primary and excess insurers for indemnification, because it claims that all of the damages for which it may be found liable to Hatco fall within the meaning of "occurrences" under the primary and excess comprehensive general liability policies, and are therefore covered by the policies.

The insurance policies implicated by Grace's third party complaint include those in effect both during and after the years it owned the Hatco facility. Many issues have been raised by the parties as to the meaning of numerous provisions in the policies related to the scope of coverage, exclusions from coverage and other issues. The relevant details of the policies will be addressed in the context of the discussion of each motion.

DISCUSSION
I. Standard for Summary Judgment

Summary judgment shall be granted if "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); see Hersh v. Allen Products Co., 789 F.2d 230, 232 (3d Cir. 1986). In making this determination, a court must draw all reasonable inferences in favor of the non-movant. Meyer v. Riegel Products Corp., 720 F.2d 303, 307 n. 2 (3d Cir.1983), cert. dismissed, 465 U.S. 1091, 104 S.Ct. 2144, 79 L.Ed.2d 910 (1984). Whether a fact is "material" is determined by the substantive law defining the claims. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 2510, 91 L.Ed.2d 202 (1986); United States v. 225 Cartons, 871 F.2d 409, 419 (3d Cir.1989).

"At the summary judgment stage the judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Anderson, 477 U.S. at 249, 106 S.Ct. at 2511. Summary judgment must be granted if no reasonable trier of fact could find for the non-moving party. Id.

II. Grace's Motion For Summary Judgment On the Issue of Trigger of Coverage

Grace seeks summary judgment holding that all insurance policies in effect from the first disposal of a pollutant through the date of manifestation of any contamination afford coverage to a claim of continuous environmental contamination. Grace thereby seeks a declaration that New Jersey law follows the "continuous trigger" theory of insurance coverage. For the reasons that follow, the Court will grant Grace's motion in part and deny it in part.

A. Maryland Casualty Policies and Excess Policies Following Form

Under primary insurance policies issued by Maryland Casualty Company ("Maryland Casualty") to Grace between 1961 and 1973, Maryland Casualty agreed2

To pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of ... injury to or destruction of property, including the loss of use thereof, caused by occurrence.

"Occurrence" is defined in those policies as

either an accident or a continuous or repeated exposure to conditions which result during the policy period in injury to or destruction of ... property including the loss of use thereof which is accidentally caused and ... tangible or physical property, including the loss of use thereof.
All damages arising out of such exposure to substantially the same general conditions shall be considered as arising out of one occurrence.

"Property damage" is undefined in the Maryland Casualty policies covering the years 1961 t...

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