NL Industries, Inc. v. Commercial Union Ins. Cos.

• Decision Date: 11 June 1996
• Docket Number: Civ. No. 90-2125 (WHW).
• Citation: 926 F. Supp. 1213
• Parties: NL INDUSTRIES, INC., Plaintiff, v. COMMERCIAL UNION INS. COS., Defendant. COMMERCIAL UNION INS. COS., Third-Party Plaintiff, v. CERTAIN UNDERWRITERS AT LLOYD'S, et al., Third-Party Defendants. NL INDUSTRIES, INC., Plaintiff, v. CERTAIN UNDERWRITERS AT LLOYD'S, et al., Third-Party Defendants.
• Court: U.S. District Court — District of New Jersey

926 F. Supp. 1213

NL INDUSTRIES, INC., Plaintiff, v. COMMERCIAL UNION INS. COS., Defendant.

COMMERCIAL UNION INS. COS., Third-Party Plaintiff, v. CERTAIN UNDERWRITERS AT LLOYD'S, et al., Third-Party Defendants.

NL INDUSTRIES, INC., Plaintiff, v. CERTAIN UNDERWRITERS AT LLOYD'S, et al., Third-Party Defendants.

Civ. No. 90-2125 (WHW).

United States District Court, D. New Jersey.

May 23, 1996.

As Amended June 11, 1996.

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Andrew T. Berry, Kevin J. Connell, McCarter & English, Newark, New Jersey, for Plaintiff NL Industries, Inc.

Joni F. Mason, Rivkin, Radler & Kremer, Newark, New Jersey, for Defendant Commercial Union Insurance Co.

Michael J. O'Mara, Crawshaw, Mayfield, Riordan, Turner, O'Mara, Donnelly, Thomas & McBride, Cherry Hill, New Jersey, for Defendant Lexington Insurance Co.

Joseph R. McDonough, Graham, Curtin & Sheridan, Morristown, New Jersey, for Defendant Insurance Company of North America.

Mitchell S. Cohen, Mound, Cotton & Wollan, New York City, for Defendant International Insurance Co.

Edward G. D'Alessandro, Jr., D'Alessandro & Jacovino, Florham Park, New Jersey, for Defendant International Surplus Lines Insurance Co.

William B. McGuire, Tompkins, McGuire & Wachenfeld, Newark, New Jersey, for Defendant Certain Underwriters at Lloyd's.

Agnes A. Reiss, Cuyler Burk, Parsippany, New Jersey, for Allstate Insurance Co., successor-in-interest to Defendant Northbrook Excess and Surplus Insurance Co.

OPINION

WALLS, District Judge.

In this action, NL Industries, Inc. ("NL") seeks a declaration of the responsibilities of the defendants and third-party defendants under various comprehensive general liability ("CGL") and environmental impairment liability ("EIL") insurance policies for NL's liability for property damage and bodily injury allegedly resulting from environmental contamination at various sites (the "environmental claims") and exposure to chemicals and other substances (the "miscellaneous claims"). It also wants damages for breach of contractual duties under the policies.

NL and seven of the insurers now move for partial summary judgment with regard to choice of law on the environmental claims.

I. Background

On May 30, 1990, NL filed two complaints against CU. The first, No. 90-2124, asked the Court to determine CU's duties with regard to certain products liability claims. The second, the one currently before the Court, requested the same relief with regard to the environmental and other claims. NL later identified 125 specific environmental claims as well as 224 miscellaneous claims. Subsequently, NL added 15 new environmental claims, for a total of 140. These 140 claims involve 93 sites in 28 states. Of the 140 claims, 45 are in New Jersey, 17 in Texas, 9 in Pennsylvania, 8 in Michigan, 7 in California, 6 in Illinois, 6 in Missouri, and the rest are scattered in 21 other states. See International Surplus Br., at 10-11. Of the 93 sites, 21 are in New Jersey.¹ Id. at 11.

CU then impleaded Certain Underwriters at Lloyd's and other British Companies ("Lloyd's"), Insurance Company of North America ("INA"), and Northbrook Excess and Surplus Insurance Co. ("Northbrook"). Later, NL filed an amended complaint, adding some claims and parties. Besides CU, the amended complaint seeks relief against 14 other defendants and third-party defendants: Aetna Casualty & Surety Co. of America ("Aetna"), Lexington Insurance Co. ("Lexington"), Midland Insurance Co. ("Midland"), First State Insurance Co. ("First State"), American Centennial Insurance Co. ("American Centennial"), Stonewall Underwriters,² Utica Mutual Insurance Co. ("Utica"), National Union Fire Insurance Co. of Pittsburgh, PA ("National Union"), International Insurance Co. ("IIC"), International Surplus Lines Insurance Co. ("International Surplus"), Evanston Insurance Co. ("Evanston"), and Lloyd's, INA, and Northbrook. Subsequently, the Court dismissed NL's claims against National Union, American Centennial, and Evanston.

In January 1991, the magistrate judge ordered that discovery focus on 20 representative sites, 10 chosen by NL and 10 by the insurers. Since two of NL's sites were identical to two of the insurers, discovery focused on a total of 18 sites.

In January 1993, the magistrate judge stayed discovery with regard to four of the 18 sites, and told the parties to select sites to be subject to summary judgment motions and trial. In April 1993, the parties jointly selected two sites — one in Granite City, Illinois (the "Granite City site") and the other in Portland, Oregon (the "Portland site"). Evidently, each site only reflects one claim.

In May 1993, the Court granted International Surplus and IIC's motion for summary judgment as to various claims, including those arising from Portland site, and denied their motion with regard to the Granite City site.

NL first moved for partial summary judgment against CU on choice of law with regard to both the product liability and environmental claims in November 1990. In July 1991, the then District Judge granted both motions, applying New Jersey law. In making this determination, he followed the then-controlling New Jersey Supreme Court opinion, State Farm Mutual Automobile Insurance Co. v. Estate of Simmons, 84 N.J. 28, 417 A.2d 488 (1980). CU did not appeal. Rather, NL and CU entered into a settlement under which CU agreed to pay NL's defense costs regarding the product liability claims.

Subsequently, additional product liability claims were filed against NL. When CU declined to pay NL's defense costs for these, NL again moved for partial summary judgment against CU for choice of law. In response, CU argued that a recent New Jersey Supreme Court opinion, Gilbert Spruance Co. v. Pennsylvania Manufacturers' Association Insurance Co., 134 N.J. 96, 629 A.2d 885 (1993), had changed the law in this area. Under Gilbert Spruance, CU claimed, the Court should apply New York, rather than New Jersey, law.

In May 1994, that District Judge granted NL's motion for partial summary judgment against CU, applying New Jersey law to both the product liability and environment claims. On appeal, the Third Circuit reversed. The Third Circuit noted that the District Court had wrongly "conflated the environmental coverage action with the lead paint coverage action." NL Industries, Inc. v. Commercial Union Ins. Co., 65 F.3d 314, 324 n. 8 (3d Cir.1995). Further, it ruled that

after Gilbert Spruance, New Jersey's choice of law rules require not only that environmental coverage claims be considered separately from other claims (such as for product liability), but also that they be considered in the site-specific framework, which is distinct from the customary, modified contacts analysis still applicable in other coverage contexts.

Id. at 323. While the Third Circuit held that New York law should apply to the product liability claims, it explicitly noted that "we do not reach the other claims e.g., the environmental claims." Id. at 329.

Now, NL moves again for partial summary judgment, arguing that, with regard to the environmental claims, this Court should apply New Jersey law to all the sites. Seven of the insurers — CU, INA, IIC, Lloyd's, Lexington, International Surplus, and Allstate (as successor-in-interest to Northbrook) — also move for partial summary judgment. However, they contend that the Court should apply New York law or, in the alternative, Illinois and/or Oregon law.

II. Analysis

A. Whether a choice-of-law question arises in this matter

NL requests that the Court make a choice of law decision for all of the environmental sites in this case, not just the two representative sites. The Court will deal with this request below. However, for now, four states clearly have an interest in the substantive issues raised in this motion: New Jersey, New York, Illinois, and Oregon.

Before a choice-of-law question arises, though, there must actually be a conflict between the potentially applicable bodies of law. See Oil Shipping B.V. v. Sonmez Denizcilik Ve Ticaret A.S., 10 F.3d 1015, 1018 (3d Cir.1993). If the laws of the forum state and those of the relevant foreign jurisdiction do not differ, there is a "false conflict" and the court need not decide the choice-of-law issue. In re Complaint of Bankers Trust Co., 752 F.2d 874, 882 (3d Cir.1984).

A choice-of-law issue arises in this matter because the Court's resolution of at least two important legal questions in this lawsuit depends in part on what state's law it applies. See Lucker Mfg. v. Home Ins. Co., 23 F.3d 808, 813 (3d Cir.1994). First, the states have variously interpreted the "sudden and accidental" discharge exception found in the pollution-exclusion clause of the comprehensive liability policies such as those issued to NL in this case. In Morton International, Inc. v. General Accident Insurance Co. of America, 134 N.J. 1, 629 A.2d 831 (1993), the New Jersey Supreme Court interpreted the standard "sudden and accidental" exception as having a temporal element, and describing discharges of pollutants that "occur abruptly or unexpectedly and are unintended." Id. at 29, 629 A.2d 831. However, the court refused to enforce the standard pollution-exclusion clause as written. It noted that, in obtaining regulatory approval for this language, the insurance industry had "grossly mislead" New Jersey and other states' insurance regulatory agencies as to the clause's actual effect on coverage for pollution damage. Thus, the court ruled that it would give effect to the clause "only to the extent that it shall preclude coverage for pollution-caused property damage caused by an `occurrence' if the insured intentionally discharged, dispersed, released, or caused the escape of a known pollutant."³Id. at 31, 629 A.2d 831. The Illinois Supreme Court also held in favor of the insured with regard to the standard pollution-exclusion clause, however on different grounds. In Outboard Marine Corp. v. Liberty...