Param Petroleum Corp. v. Commerce and Industry Ins. Co.

• Decision Date: 02 January 1997
• Citation: 296 N.J.Super. 164,686 A.2d 377
• Parties: , 65 USLW 2552 PARAM PETROLEUM CORPORATION, Plaintiff-Appellant, v. COMMERCE AND INDUSTRY INSURANCE COMPANY, Defendant-Respondent.
• Court: New Jersey Superior Court — Appellate Division

Page 164

296 N.J.Super. 164

686 A.2d 377, 65 USLW 2552

PARAM PETROLEUM CORPORATION, Plaintiff-Appellant, v. COMMERCE AND INDUSTRY INSURANCE COMPANY, Defendant-Respondent.

Superior Court of New Jersey Appellate Division.

Submitted Dec. 3, 1996.

Decided Jan. 2, 1997.

Valore Law Firm, Linwood, for plaintiff-appellant (Jeffrey H. Sutherland, on the brief).

Crawshaw, Mayfield, Riordan, Turner, O'Mara, Donnelly, Thomas & McBride, Cherry Hill, for defendant-respondent (Michael J. O'Mara, on the brief).

Before Judges KLEINER and COBURN.

The opinion of the court was delivered by

COBURN, J.S.C. (temporarily assigned).

This is a declaratory judgment action. Plaintiff, a New Jersey Corporation, sues on a liability insurance policy relating solely to property located within this State. The insurance policy contains a forum-selection clause establishing a foreign state, where the insurance company is located, as the only place where litigation may be commenced. The question is whether we should decline jurisdiction. If not, the next question is whether we should accept the policy's choice-of-law provision which requires that the insured's rights be governed by the law of the foreign state.

Plaintiff Param Petroleum Corp. (Param), a small, "one-man" New Jersey Corporation, owns and operates a gasoline service station in Burlington, New Jersey. Defendant Commerce and Industry Insurance Company (Commerce) is a New York corporation. One of its areas of specialty is insurance for pollution liability.

Commerce issued Param an "Underground Storage Tank Third-Party Liability and Corrective Action Policy" for the period April 7, 1994 to April 7, 1995. The policy was issued to cover pollution liability stemming from the underground gasoline storage tanks on plaintiff's gasoline station in New Jersey. The pertinent portion of the policy provides:

In the event that the Insured and the Company dispute the meaning, interpretation or operation of any term, condition, definition or provision of this Policy resulting in litigation, arbitration or other form of dispute resolution, the Insured and the Company agree that the law of the State of New York shall apply and that all litigation, arbitration or other form of dispute resolution shall take place in the State of New York.

In October 1994, the New Jersey Department of Environmental Protection advised Param that gasoline and gasoline derivatives from its underground storage tanks had been discovered in a nearby municipal sewage treatment plant. Param's attempts to obtain the benefits of its insurance policy with Commerce were unsuccessful. Consequently, Param filed a declaratory judgment action in Burlington County, the location of the insured gasoline station. Commerce moved to dismiss the action without prejudice based upon the forum-selection clause. The trial court granted the motion on that ground. Consequently, it did not reach the choice-of-law question. Plaintiff Param appeals. We reverse.

In Kubis & Perszyk Assoc., Inc. v. Sun Microsystems, Inc., 146 N.J. 176, 680 A.2d 618 (1996), the Court discussed at length the historical development and present status of the law governing forum-selection clauses. Id. at 186-92, 680 A.2d 618. The Court adopted the modern view that such clauses will be given effect unless unfair, unreasonable, or contrary to public policy. Id. at 192, 680 A.2d 618. However, it then went on to hold, as have a number of states (Id. at 191, 680 A.2d 618) that forum-selection clauses would not be recognized when contained in agreements subject to local franchise acts. With respect to the New Jersey Franchise Practices Act, N.J.S.A. 56:10-1 to -15. The Court said:

We hold that such clauses are presumptively invalid because they fundamentally conflict with the basic legislative objectives of protecting franchisees from the superior bargaining power of franchisors and providing swift and effective judicial relief against franchisors that violate the Act.

[Id. at 193, 680 A.2d 618.]

The Court emphasized, in particular, the unfairness in permitting franchisees to be forced by the generally stronger franchisors to bear the burdens of litigating in distant forums, a circumstance which the Court believed would result in the abandonment of meritorious claims by the generally more marginally financed franchisees. Id. at 194, 196, 680 A.2d 618. Finally, the Court said:

Nor does our holding in any respect undermine the interests served by enforcing contracts freely negotiated by responsible parties with comparable bargaining power. We simply acknowledge that the vast majority of franchise contracts do not fit within that category.

[Id. at 197, 680 A.2d 618.]

The principles of Kubis govern here. Indeed, given the nature and purposes of insurance, the argument for the presumptive rejection of forum-selection clauses is even stronger in relation to insurance policies than it is for franchise agreements, as is evident from the following cases.

In Saffore v. Atlantic Casualty Ins. Co., 21 N.J. 300, 310, 121 A.2d 543 (1956), the Court said:

The insurance business is affected with a public interest and, as such, it is subject to reasonable regulation and control in the exercise of the police power to serve the public need.

In Howell v. Rosecliff Realty Co., Inc., 52 N.J. 313, 245 A.2d 318 (1968), the Court had this to say with respect to insurance:

The insurance industry is highly regulated to the end that insurance will be fairly written and by companies that are financially sound.

[Id. at 316, 245 A.2d 318.]

Insurance is so essential a part of the area of a State's primary responsibility that the State's power should not depend upon where the parties choose to contract for the insurance or to pay for the loss. The State's interest and its responsibilities to its citizens should be enough to support regulation ... of policies relating to risks within its jurisdiction. Moreover, the foreign carrier, no less than the admitted company, is aided by the measures the State takes to limit the incidence of the losses covered by insurance.

[Id. at 324, 245 A.2d 318.]

[I]f there were activity within a State either in the making or in the performance of the contract, the State could exercise its governmental powers to further its undoubted interests in insurable risks within its borders.

[Id. at 325, 245 A.2d 318.]

Liability policies are matters of obvious State concern, not only with respect to the security of the insured but also with respect to the compensation of the injured claimants. To that end liability insurance is closely regulated, and as to some risks compulsory insurance is common.

[Id. at 326, 245 A.2d 318.]

In Johnson Matthey, Inc. v. Pennsylvania Mfrs.' Ass'n Ins. Co., 250 N.J.Super. 51, 593 A.2d 367 (App.Div.1991), the court faced a choice-of-law issue involving insurance contracts executed in Pennsylvania but relating to property and pollution risks in New Jersey. The court noted that the law of New Jersey provided greater protection for the insured and for those damaged by the insured's activity than that of Pennsylvania:

The primary insurance coverage issue is whether leakage of pollutants onto the land is a "sudden and accidental" occurrence. This is a concept appearing in the policies; Pennsylvania and New Jersey courts have reached different interpretations of the phrase. Both states say that coverage is afforded to sudden and accidental discharges of pollutants. Pennsylvania rules, however, that a pollution discharge occurring gradually over time is not sudden and accidental. Lower Paxton Tp. v. United States Fidelity and Guar. Co., 383 Pa.Super. 558, 557 A.2d 393 (1989). New Jersey holds to the contrary that sudden and accidental discharges include a gradual release of pollutants. Broadwell Realty Serv., Inc. v. Fidelity & Cas. Co., 218 N.J.Super. 516, 528 A.2d 76 (App.Div.1987).

[Id. at 54, 593 A.2d 367.]

Based upon State Farm Mut. Auto. Ins. Co. v. Simmons' Estate, 84 N.J. 28, 417 A.2d 488 (1980) the court concluded that in the absence of a choice-of-law provision in the insurance contract, the governing principle on choice-of-law was Restatement (Second) of Conflict of Laws, § 193. Id. at 54-55, 417 A.2d 488. Section 193 provides:

The validity of a contract of fire, surety or casualty insurance and the rights created thereby are determined by the local law of the state which the parties understood was to be the principal location of the insured risk during the term of the policy, unless with respect to the particular issue, some other state has a more significant relationship under the principles stated in Sec. 6 to the transaction and parties, in which event the local law of the other state will be applied.

The Court then explained why New Jersey law would apply:

The existence or absence of insurance proceeds can very well determine whether or not a waste site is remediated or a toxic tort victim is compensated. Not every polluter or other person responsible for an environmental wrong is financially sound, or is anxious to make personal assets available to satisfy adjudicated liabilities. New Jersey's paramount interest in the remediation of toxic waste sites, and in the fair compensation of victims of pollution, extends to assuring that casualty insurance companies fairly recognize the legal liabilities of their insureds. In Continental Ins. Cos. v. Northeastern Pharmaceutical & Chem. Co., 842 F.2d 977, 985 (8th Cir.), cert. denied, 488 U.S. 821, 109 S.Ct. 66, 102 L. Ed.2d 43 (1988), the Court of Appeals characterized the availability of comprehensive liability insurance coverage for the costs of cleaning up hazardous waste sites as a question of substantial importance to the public. See also Leksi, Inc. v. Federal Ins. Co., 736 F.Supp. 1331 (D.N.J.1990); Sandvik, Inc. v. Continental Ins. Co., 724 F.Supp. 303 (D.N.J.1989).

New Jersey' urgent concern is for the health and safety of its citizens. It is demonstrated by the...