J. Josephson, Inc. v. Crum & Forster Ins. Co.

• Decision Date: 16 April 1993
• Citation: 265 N.J.Super. 230,626 A.2d 81
• Court: New Jersey Superior Court
• Parties: J. JOSEPHSON, INC., Plaintiff, v. CRUM & FORSTER INS. CO., Fireman's Fund Ins. Co., Hartford Accident & Indemnity Co., Lumbermens Mutual Casualty Co., Pacific Employers Ins. Co., and Zurich-American Ins. Co., Defendants. . Decided:

Page 230

265 N.J.Super. 230

626 A.2d 81

J. JOSEPHSON, INC., Plaintiff, v. CRUM & FORSTER INS. CO., Fireman's Fund Ins. Co., Hartford Accident & Indemnity Co., Lumbermens Mutual Casualty Co., Pacific Employers Ins Co., and Zurich-American Ins Co., Defendants.

Superior Court of New Jersey, Law Division Bergen County.

Decided: April 16, 1993.

Ellis I. Medoway, and Thomas Cinti, Haddonfield, on behalf of plaintiff, J. Josephson, Inc. (Archer & Greiner attorneys).

Dennis Smith, Morristown, on behalf of defendant, Crum & Forster Ins. Co. (McElroy, Deutsch & Mulvaney attorneys).

Barry A. Kustin, Somerville, on behalf of defendant, Fireman's Fund Ins. Co. (Golden, Rothschild, Spagnola & DiFazio attorneys).

John M. Bowens, Bedminster, on behalf of defendant, Hartford Acc. & Indem. Co. (Purcell, Ries, Shannon, Mulcahy & O'Neill attorneys).

Wendy Smith, Roseland, on behalf of defendant, Lumbermens Mut. Cas. Co. (Sellar Richardson attorneys).

James A. Pinderski, Chicago, IL, of the Illinois Bar, pro hac vice on behalf of defendant, Lumbermens Mut. Cas. Co. (Tressler, Soderstrom, Maloney & Priess attorneys).

Gail Russell, Parsippany, on behalf of Pacific Employers Ins. Co. (Mudge, Rose, Guthrie, Alexander & Ferdon attorneys).

Peter Petrou, Morristown, on behalf of Zurich-American Ins. Co. (Cuyler, Burke & Matthews attorneys).

NAPOLITANO, J.S.C.

I. INTRODUCTION

The plaintiff, J. Josephson, Inc. (Josephson), seeks a declaration of insurance coverage as well as indemnification for costs incurred in connection with the remediation of waste sites and the defense of environmental claims in which Josephson has been named as a potentially responsible party (PRP). Josephson here moves to apply New Jersey law to the interpretation of the pollution exclusion clause contained in the various policies at issue. ¹ This court grants Josephson's application.

II. FACTS

Josephson, a Georgia corporation, is a manufacturer of wallcoverings with its sole place of business in South Hackensack, New Jersey. Certain wastes are produced as a by-product of this activity. Between 1978 and 1987, Josephson purchased comprehensive general liability insurance contracts from the various defendant carriers through John M. Riehle, Inc., a New York insurance broker. A representative of Riehle negotiated the terms of the policies with Josephson in New Jersey and the premium payments were paid out of Josephson's New Jersey bank accounts to the defendant insurance carriers. Additionally, the defendant insurance carriers performed annual on-site inspections for underwriting purposes at the plaintiff's New Jersey facility.

During this time, Josephson contracted with third party waste haulers to transport and dispose of the by-product waste. The waste haulers retained by Josephson were licensed in New Jersey and disposed of the waste at appropriately licensed facilities. Subsequently, New Jersey and federal agencies implicated Josephson as a PRP for cleanup activity at five hazardous waste sites. Three of the named sites are located in New Jersey, while the fourth site is located in New York and the fifth in Pennsylvania. After being notified of its potential liability, Josephson submitted a claim to the defendant carriers. The carriers denied coverage based on the pollution exclusion clause, a paradigm of which states This insurance does not apply ... to bodily injury or 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 course or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental. [emphasis added]

Brief for plaintiff at 21.

Josephson here moves to apply the law of New Jersey in determining the extent of coverage provided under the pollution exclusion clause contained in the various policies.

III. LAW

Absent a choice of law provision, the traditional rule of lex loci contractus provided that the law of the state where the contract was created governed the substantive law applied to the interpretation of a contract. Buzzone v. Hartford Accident and Indemnity, Co., 23 N.J. 447, 452, 129 A.2d 561 (1957). The New Jersey Supreme Court in State Farm, etc., Ins. Co. v. Simmons' Estate, 84 N.J. 28, 417 A.2d 488 (1980), modified this basic rule with respect to casualty insurance contracts by establishing an exception to the general rule. The State Farm court held that:

[I]n an action involving the interpretation of a[ ] [casualty] insurance contract, the law of the place of contract will govern the determination of the rights and liabilities of the parties under the insurance policy. This rule is to be applied unless the dominant and significant relationship of another State to the parties and the underlying issue dictates that this basic rule should yield.

Id. at 37, 417 A.2d 488.

State Farm's substantial interest test has found utility in analyzing and resolving choice of law issues arising in environmental litigation, and it gives rise to the seminal case on this subject matter which guides this court, Johnson Matthey v. Pa. Mfrs.' Ass'n, 250 N.J.Super. 51, 593 A.2d 367 (App.Div.1991). There, the Appellate Division addressed whether New Jersey or Pennsylvania law applied to the interpretation of a general liability clause in an environmental casualty policy providing coverage only for "sudden and accidental" pollution. Johnson Matthey, Inc. (JMI) was a Pennsylvania corporation with its headquarters and primary business in Pennsylvania. In addition to its Pennsylvania enterprises, JMI owned and operated a manufacturing plant in Winslow, New Jersey that disposed of its waste in New Jersey landfills. After these New Jersey landfills were designated by state and federal authorities for cleanup activity, JMI's insurers, asserting that the pollution was not "sudden and accidental," denied coverage.

The Johnson Matthey court held that New Jersey law applied to the pollution exclusion clause because New Jersey had a substantial interest in the remediation of hazardous waste sites located within its borders, even though the State was not the place where the contract was signed. Id. at 61, 593 A.2d 367. New Jersey's interest, the court stated, "extends to assuring that casualty insurance companies fairly recognize the legal liabilities of their insureds." Id. at 57, 593 A.2d 367. The Johnson Matthey court explained that "[t]he existence or absence of insurance proceeds [could] very well determine whether or not a waste site is remediated or a toxic tort victim is compensated." Id. In support of its decision, the Johnson Matthey court further reasoned that although Pennsylvania was the place of contracting, JMI owned and operated, at the time of contracting, a New Jersey plant that produced hazardous waste. Thus, the casualty policies at issue were specifically purchased to cover this risk and it was reasonable to assume that the contracting parties contemplated that New Jersey law would apply to the New Jersey sites. Id. at 60, 593 A.2d 367.

Recently, in Gilbert Spruance Co. v. Pa. Mfrs.' Ass'n, 254 N.J.Super. 43, 603 A.2d 61 (App.Div.1992), the Appellate Division again was confronted with deciding whether to apply New Jersey or Pennsylvania law when interpreting the "sudden and accidental" language in an environmental casualty policy. Gilbert Spruance, a Pennsylvania corporation suing for declaration of coverage, manufactured paint in Philadelphia, Pennsylvania. Hazardous waste products produced from its Philadelphia operations were deposited in a New Jersey landfill, resulting in environmental contamination. This contamination raised health and safety concerns that were New Jersey's sole connection to the parties and the contract at issue. Determining that this sole connection amounted to a substantial interest, the Gilbert Spruance court held that New Jersey law applied to the interpretation of the general liability clause. The court concluded:

New Jersey Courts should interpret according to New Jersey substantive law a pollution exclusion clause contained in a comprehensive general liability insurance policy, wherever written, which was purchased to cover an operation or activity, wherever its principle location, which generates toxic wastes that predictably come to rest in New Jersey and impose legal liabilities there on the insured.

Id. at 51, 603 A.2d 61 (emphasis added).

Previously, a New Jersey risk has been defined as "a property or operation owned, occupied or conducted in New Jersey". Johnson Matthey, 250 N.J.Super. at 62, 593 A.2d 367. Gilbert Spruance was significant because it expanded the realm of what is meant by covering a New Jersey risk. The new definition of "risk" articulated by the Gilbert Spruance court referred not only to facilities owned by the insured at the time of contracting, not only to New Jersey waste storage facilities where the insured's toxic or hazardous waste could have "predictably come to rest" in New Jersey irrespective of the state in which the waste was generated, but also to a New Jersey entity likely to be liable for clean-up costs irrespective of the state in which the waste was generated. Moreover, the opinion emphasized that New Jersey's particular interest in providing adequate funding for the clean-up of contaminated in-state sites is best served by applying New Jersey law to the interpretation of the pollution exclusion clause.

In reaching its conclusion, the Gilbert Spruance court relied heavily on the United States District Court's decision in Leksi, Inc. v. Federal Ins. Co., 736 F.Supp. 1331 (D.N.J.1990). Leksi, a Delaware corporation, owned and operated manufacturing plants in Pennsylvania. The plants' toxic by-products were transported to various New Jersey landfills. The location of the waste sites was...