Leksi, Inc. v. Federal Ins. Co.

• Decision Date: 29 May 1990
• Docket Number: Civ. A. No. 88-4123(SSB).
• Citation: 736 F. Supp. 1331
• Parties: LEKSI, INC., Plaintiff, v. FEDERAL INSURANCE COMPANY, St. Paul Fire & Marine Insurance Company, the Atlantic Mutual Insurance Company, and Hartford Accident & Indemnity Company, Defendants.
• Court: U.S. District Court — District of New Jersey

736 F. Supp. 1331

LEKSI, INC., Plaintiff, v. FEDERAL INSURANCE COMPANY, St. Paul Fire & Marine Insurance Company, the Atlantic Mutual Insurance Company, and Hartford Accident & Indemnity Company, Defendants.

Civ. A. No. 88-4123(SSB).

United States District Court, D. New Jersey.

May 29, 1990.

Montgomery, McCracken, Walker & Rhoads by Mary F. Platt, Cherry Hill, N.J., for plaintiff.

Clark, Ladner, Fortenbaugh & Young by James B. Burns, Haddonfield, N.J., for defendant Federal Ins. Co.

Gallagher, Wheeler, Reilly & Lachat by Richard T. Barth, Woodbury, N.J., and Adams, Duque & Hazelton by Mitchell Lathrop and Kathleen Kenny, New York City, for defendant St. Paul Fire & Marine Ins. Co.

Morgan, Melhuish, Monaghan, Arvidson, Arbutyn & Lisowski by Kevin E. Wolff, Livingston, N.J., for defendant Atlantic Mut. Ins. Co.

Slimm, Dash & Goldberg by Bruce E. Barrett, Westmont, N.J., for defendant Hartford Acc. & Indem. Co.

OPINION

BROTMAN, Senior District Judge.

Presently before the court is plaintiff Leksi, Inc.'s motion for summary judgment as to the law to be applied to comprehensive general liability clauses (hereinafter "CGL" clauses) contained in policies issued by defendants. New Jersey law is more liberal in finding coverage than is the law of Pennsylvania, the place of the contract.¹ Consequently, Leksi, the insured, seeks to apply the law of New Jersey.

I. FACTS AND PROCEDURE

Leksi Inc., formerly known as Sartomer Resins, Inc., and Sartomer Industries, Inc., is a Delaware corporation which, at all relevant times, owned and operated plants in Essington and Westchester, Pennsylvania. The primary product manufactured at these plants is used in false teeth. It is alleged that byproducts in this manufacturing process were transported to various landfills in New Jersey. More specifically, Leksi is a party-defendant in the New Jersey Department of Environmental Protection v. Gloucester Environmental Management Services, Inc., Civil No. 84-152(SSB) (D.N.J.) (the GEMS landfill enforcement action) and United States v. Rohm & Haas Co., 85-4386(JFG) (D.N.J.) (the Lipari enforcement action) actions. On November 20, 1989, Leksi was permitted to amend its complaint to include duty to defend and indemnification claims arising out of its status as a defendant in AT & T v. Transtech Indus., Inc., (the Carlstadt enforcement action), and as a putative defendant in the Bridgeport action in which NJDEP has issued a directive.² Leksi seeks a declaration of coverage in these cases.

The defendants are Federal Insurance Company, St. Paul Fire and Marine Insurance Company, Atlantic Mutual Insurance Company, and Hartford Accident and Indemnity Company. Defendants issued CGL policies that were in effect, consecutively, from September 30, 1966 through March 2, 1985. These policies were negotiated, signed, and delivered in Pennsylvania, and all premiums were paid there. These policies, however, contain no choice of law provisions. See Transcript of Oral Argument (April 20, 1990) at 16 (hereinafter "Transcript").

Leksi initially filed a motion for partial summary judgment on the choice of law and duty to defend issues. The parties were directed to bifurcate the briefing with the choice of law issue to be determined first, so that discovery on the duty to defend question would be properly framed within the context of whatever state's law would govern that determination.

II. DISCUSSION

Under the doctrine of Erie R.R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), a federal court must apply the choice of law rules of the state in which it sits. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 1021, 85 L.Ed. 1477 (1941); Shuder v. McDonald's Corp., 859 F.2d 266, 269 (3d Cir. 1988). The choice of law rule to be applied in New Jersey in insurance coverage disputes was recently stated in State Farm Automobile Mutual Ins. Co. v. Estate of Simmons, 84 N.J. 28, 417 A.2d 488 (1980). There, the New Jersey Supreme Court acknowledged the general rule that "the law of the place of the contract ordinarily governs the choice of law because this rule will generally comport with the reasonable expectations of the parties governing the principal situs of the insured risk during the term of the policy and will furnish needed certainty and consistency in the selection of applicable law." Id. at 37, 417 A.2d at 492 (citing, inter alia, Buzzone v. Hartford Accident & Indemnity Co., 23 N.J. 447, 458, 129 A.2d 561, 567 (1957)). The New Jersey Supreme Court went on to state:

We thus hold that, in an action involving the interpretation of an automobile liability insurance contract, the law of the place of the 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. (emphasis added). In reaching this result, the Supreme Court of New Jersey embraced the significant interest analysis set forth in the Restatement (Second) of Conflicts §§ 6, 193 (1971).

Plaintiff argues that New Jersey's interest in the cleanup of landfills within its boundaries overrides any other state's interests. Plaintiff relies in part on Sandvik, Inc. v. Continental Ins. Co., 724 F.Supp. 303 (D.N.J.1989), in which Judge Lechner transferred an insurance coverage dispute to the Eastern District of Pennsylvania because of Pennsylvania's dominant interest in determining the coverage issue, as the toxic wastes were located there. Sandvik involved only a transfer under 28 U.S.C. § 1404(a), and not an actual determination that the law of the site of the landfill applied. Plaintiff further argues that it is no longer possible to obtain uniform interpretation of a single contract because of Klaxon and State Farm, and its equivalent, in other states. See Transcript at 6.

Defendant insurance companies argue that the parties are in Pennsylvania for the most part: the Leksi plants were in Pennsylvania, the insurance contract was signed in Pennsylvania, and the premiums were paid there. Although New Jersey clearly has an overriding interest in the cleanup of the landfills located within the state, defendants characterize this litigation as a contract dispute that will determine who pays for the cleanup, not whether there will be such a cleanup. Defendants also rely on the following language of Judge Davis in Gilbert Spruance Co. v. Pennsylvania Manufacturers' Association Ins. Co., Civil No. L-8840-88 (Camden County, Law Div. June 26, 1989):

Pennsylvania is the appropriate forum, and the law of the Commonwealth of Pennsylvania must be followed. And I state that for the following reasons: One, the contracts between PMA and Gilbert Spruance Company were negotiated in the Commonwealth of Pennsylvania. Not only were they negotiated in Pennsylvania, they were executed in Pennsylvania. In addition, the parties are in Pennsylvania. And as far as performance of the terms of those contracts, the performance is in the Commonwealth of Pennsylvania, such as billing for premiums and the payments thereof.

Of course, that raises the question, why should ... anyone think that New Jersey should be the forum, a choice of law forum? Well, the only reason that has been put before the court is that there's a landfill problem in New Jersey, and one piece of the activity of the insured had something to do allegedly with some property in New Jersey, keeping in mind that no one has an interest in New Jersey between the contracted parties.... I think that it would be an absolute mistake on the part of any tribunal to utilize the nature of the tort as one of the factors to throw into the balance to determine what law should apply in a particular case.... There would be no consistency, which is totally repugnant to the nature of the bargaining process.

Exhibit O to Defendants' Joint Memorandum of Law.

Resolution of this issue turns on how it is characterized; it can be viewed either as a dispute between private parties over the interpretation of a private contract, or as a dispute over insurance coverage in relation to environmental enforcement actions. The facts of this case are somewhat unique in that the plant which allegedly generated the toxic waste is not located in the forum state. Cf. Sharon Steel v. Aetna Casualty and Surety Co., Civil No. 87-2306 (Utah 3d Dist. July 20, 1988) (applying law of Utah, although New York was the place of contract, because the property from which the pollution emanated was in Utah); Witco Corp. v. Travelers Indemnity Co., 1987 WL 65060, 1987 U.S.Dist. LEXIS 14295 (D.N.J.1987) (applying New Jersey law rather than law of the place of contracting because quality of New Jersey's interest in environment superseded New York's interest in determining contractual issue, where the toxic wastes allegedly came from insured's New Jersey plant). Although each case presented to the court by the parties is similar to the situation pending before the court, none is identical.

The Restatement (Second) of Conflict of Laws § 6(2) sets forth the following principles for determining what law applies in the absence of a statutory directive:

(a) the needs of the interstate and international systems,

(b) the relevant policies of the forum (c) the relevant policies of other interested states and the relative interests of those states in the determination of the particular issue,

(d) the protection of justified expectations,

(e) the basic policies underlying the particular field of law,

(f) certainty, predictability and uniformity of result, and

(g) ease in the determination and application of the law to be applied.

The Restatement further states that the following contacts should be taken into account:

(a) the place of contracting,

(b) the place of negotiating the contract,

(c) the place of performance,

(d) the location of the

...