Permacel v. American Ins. Co.

• Decision Date: 03 April 1997
• Citation: 691 A.2d 383,299 N.J.Super. 400
• Parties: PERMACEL, a New Jersey Corporation, Plaintiff-Appellant, v. AMERICAN INSURANCE COMPANY and Insurance Company of North America 1 , Defendants-Respondents, and Fireman's Fund Ins. Co., Defendant.
• Court: New Jersey Superior Court — Appellate Division

Page 400

299 N.J.Super. 400

691 A.2d 383

PERMACEL, a New Jersey Corporation, Plaintiff-Appellant, v. AMERICAN INSURANCE COMPANY and Insurance Company of North America ¹, Defendants-Respondents and Fireman's Fund Ins. Co., Defendant.

Superior Court of New Jersey Appellate Division.

Argued Jan. 21, 1997.

Decided April 3, 1997.

Diane A. Bettino, for Plaintiff-Appellant (Picco Herbert Kennedy, P.C., attorneys; Steven J. Picco, Trenton, of counsel and on the brief, with Ms. Bettino).

Julius F. Harms, New Brunswick, for Defendant-Respondent American Insurance Company (Caron, McCormick, Gordon & Constants, attorneys; Mr. Harms, on the brief).

Paul R. Koepff, of the New York Bar, New York City, admitted pro hac vice, for Defendant-Respondent Insurance Company of North America (Graham, Curtin & Sheridan, attorneys, Morristown; Joseph R. McDonough, Morristown, Mr. Koepff, New York City and Joseph E. Boury, Phildelphia, PA, on the brief).

Before Judges HAVEY, KESTIN and EICHEN.

The opinion of the court was delivered by

HAVEY, P.J.A.D.

Permacel, Inc. (Permacel), a New Jersey corporation, appeals from summary judgment orders in favor of defendant-carriers, which provide that the laws of New York, Connecticut and Maryland apply in interpreting a "pollution exclusion" clause contained in defendants' comprehensive general liability (CGL) policies. Permacel generated hazardous waste in its New Jersey plant and shipped it to five sites in New York, Connecticut and Maryland during the terms of the CGL policies. On appeal, Permacel argues that New Jersey law should apply in determining defendants' duty to defend and indemnify Permacel for claims against it under the Comprehensive Environmental Response Compensation and Liability Act of 1980 (CERCLA), 42 U.S.C.A. § 9601 to § 9675, relating to the clean up of the sites in question. New Jersey law should apply, plaintiff reasons, because New Jersey has the dominant significant relationship to the transaction and the parties according to the principles set forth in Restatement (Second) of Conflicts of Law § 6 (1971) (Restatement ).

We disagree. The CGL policies were issued in California to Permacel's parent company, Avery International Corporation (Avery), having its principal offices in Pasadena, California. Plaintiff was a "named insured" by virtue of its subsidiary status. We therefore conclude that New York, Connecticut and Maryland, the states of disposal, have the dominant significant relationship with the parties and transaction, and therefore their laws should apply to this insurance coverage controversy. Accordingly, we affirm.

Permacel is engaged in the business of manufacturing and marketing pressure-sensitive tapes. Its principal place of business is in New Brunswick, New Jersey. From approximately 1982 to 1988, Permacel was a subsidiary of Avery, a Delaware corporation, with its principal place of business in Pasadena, California. Defendants American Insurance Company (American) and INA issued CGL policies to Avery which contained endorsements covering subsidiaries such as Permacel. The policies were in effect during the 1982-88 time period in question.

All negotiations with regard to the terms and conditions of the defendants' policies were conducted between Avery's brokers and personnel in California. The policies were underwritten, issued and delivered to Avery's brokers in Los Angeles. All premiums were remitted by Avery from its corporate headquarters in Pasadena, through its Los Angeles brokers.

In 1994, Permacel filed an action against defendants seeking a defense and indemnification for alleged CERCLA violations arising out of the five contaminated sites in New York, Connecticut and Maryland. Permacel's CERCLA liability arose because of its shipment of certain flammable and toxic liquids and solid waste from its North Brunswick production center to the out-of-state sites. The record established that Permacel knew its wastes were being transported to these sites, as evidenced by shipping manifests.

Defendants denied coverage, claiming that Permacel's conduct fell within the pollution exclusion clause of their respective policies. The pollution exclusion clause states that coverage does not apply:

(f) 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).]

In granting defendants summary judgment as to the choice-of-law issue, the motion judge concluded that any "pollution exclusion" clause contained in the policies would be construed according to the laws of New York, Connecticut and Maryland, and not New Jersey because the waste sites were in those states. Thereafter, the judge granted defendants' motion for summary judgment dismissing Permacel's complaint. In dismissing, the judge interpreted the pollution exclusion clause applying New York, Connecticut and Maryland substantive law, and concluded that Permacel's activity fell within the scope of the exclusion.

I

We are called upon to determine which state's substantive law is to be applied to the dispute concerning interpretation of the pollution exclusion clause in defendants' policies. The New Jersey Supreme Court in Morton Int'l Inc. v. General Accident Ins. Co. of Am., 134 N.J. 1, 629 A.2d 831 (1993), cert. denied, 512 U.S. 1245, 114 S.Ct. 2764, 129 L.Ed.2d 878 (1994), while recognizing that the word "sudden" ordinarily connotes a temporal element, nevertheless construed the "sudden and accidental" phrase broadly to permit coverage even when the discharge of pollution is gradual and does not occur abruptly. The Court reached that conclusion by applying "regulatory estoppel" by virtue of the fact that the insurance industry had represented to New Jersey's regulatory agencies that the pollution exclusion clause was merely intended to clarify the scope of coverage for pollution damages and would not significantly limit the coverage already available. Id. at 31-43, 629 A.2d 831.

In contrast, New York, Connecticut and Maryland have not extended the definition of "sudden" beyond the temporal element it ordinarily connotes. See EDO Corp. v. Newark Ins. Co., 878 F.Supp. 366, 373-74 (D.Conn.1995) (applying New York and Connecticut law) and see collected cases; New York v. AMRO Realty Corp., 936 F.2d 1420, 1428 (2d Cir.1991) (applying New York law); American Ins. Co. v. Fairchild Indus., Inc., 852 F.Supp. 1173, 1180-81 (E.D.N.Y.1994) (applying New York law), aff'd, 56 F.3d 435 (2d Cir.1995); Linemaster Switch Corp. v. Aetna Life and Cas. Corp., No. CV91-0396432S, 1995 WL 462270, at * 30-33 (Conn.Super.Ct. July 25, 1995); ² American Motorists Ins. Co. v. ARTRA Group, Inc., 338 Md. 560, 659 A.2d 1295, 1308 (1995); Northville Indus. Corp. v. National Fire Ins. Co., 218 A.D.2d 19, 636 N.Y.S.2d 359, 364-66 (1995), leave to appeal granted, 88 N.Y.2d 810, 649 N.Y.S.2d 377, 672 N.E.2d 603 (1996). These out-of-state courts have declared such uniform pollution exclusion clause § unambiguous, rejecting efforts by insureds to include gradual discharges or those merely unintended or unexpected within their purview. See e.g., American Motorists Ins. Co., supra, 659 A.2d at 1308-11.

Traditionally, the law of the place where the insurance contract was entered into determined the rights of the parties. Buzzone v. Hartford Accident & Indem. Co., 23 N.J. 447, 452, 129 A.2d 561 (1957). Our Supreme Court, in State Farm Mut. Auto. Ins. Co. v. Estate of Simmons, 84 N.J. 28, 36-37, 417 A.2d 488 (1980), rejected this mechanical lex loci contractus rule in liability insurance contracts, and adopted a more flexible approach focusing on the state that has the most significant connections with the parties and the transaction. Thus, the law of the place of contract should apply "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. In making that determination, courts should rely on the principles set forth in Restatement §§ 6 and 188. Id. at 34-35, 417 A.2d 488.

Restatement § 188 provides that in contract actions, the law of the state with the most significant relationship to the parties and the transaction, based on the principles stated in Restatement § 6, governs. Under § 188, the court considers such "contacts" as domicile, residence, nationality, place of incorporation and place of business of the parties, as well as the places of contracting, negotiating, and performance. Under § 6, the general considerations are: (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. See Restatement supra, § 6; State Farm Mut. Auto. Ins. Co., supra, 84 N.J. at 34, 417 A.2d 488.

Also relevant is Restatement § 193, which applies § 188's "relevant contacts" to casualty insurance contracts. According to § 193, the court should apply the 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 § 6 to the transaction and the parties...." Restatement, supra, § 193. See Gilbert Spruance Co. v. Pennsylvania Mfrs....