Reliance Ins. Co. v. Armstrong World Industries

• Citation: 625 A.2d 601,265 N.J.Super. 148
• Court: Superior Court of New Jersey
• Decision Date: 12 April 1993
• Parties: RELIANCE INSURANCE COMPANY, Plaintiff, v. ARMSTRONG WORLD INDUSTRIES, Defendant.

Page 148

265 N.J.Super. 148

625 A.2d 601

RELIANCE INSURANCE COMPANY, Plaintiff, v. ARMSTRONG WORLD INDUSTRIES, Defendant.

Superior Court of New Jersey,

Law Division.

Decided April 12, 1993.

Eisenstat, Gabage & Berman, Vineland, for plaintiff (Charles W. Gabage, counsel).

Hangley, Connolly, Epstein, Chicco, Foxman & Ewing, Philadelphia, PA, for plaintiff (Steven R. Fischer, counsel; Regina A. Vogel and Deborah Weinstein, on the brief).

Cohen, Shapiro, Polisher, Shiekman and Cohen, Philadelphia, PA, for defendant (Judah I. Labovitz, counsel; Mark S. Herr, on the brief).

Covington & Burling, Washington, DC, for defendant (Robert N. Sayler, counsel; Philip D. Golrick, on the brief).

OPINION

KLEINER, J.S.C.

This opinion is necessitated by a series of motions which were filed and orally argued subsequent to the initial interlocutory decision of this court, dated July 7, 1992. 259 N.J.Super. 538, 614 A.2d 642 (Law Div.1992) . That decision, which fully reviewed the factual background of this litigation, and therefore need not be repeated, focused upon (1) the identification of insurance agreements between Reliance Insurance Company (hereafter Reliance), and Armstrong World Industries (hereafter Armstrong); (2) the interpretation of insurance policy terminology pertinent to the nature and extent of the insurance coverage afforded by the identified policies. ¹

On September 23, 1992 our Supreme Court rendered its opinion in State v. Signo Trading International, Inc., 130 N.J. 51, 612 A.2d 932 (1992). That decision specifically overruled portions of Broadwell Realty Services, Inc. v. Fidelity and Cas. Co., 218 N.J.Super. 516, 528 A.2d 76 (App.Div.1987). As this court had substantially relied on Broadwell, Id. in its interpretation of the applicability of the "owned-property exclusion" clause of the Reliance policies, Reliance filed a motion for a modification of this court's interlocutory ruling. ²

In the original opinion of this court, the "owned-property exclusion" within the Reliance comprehensive general liability insurance policies was construed.

The specific language of that particular exclusion provides:

This policy does not apply ... to injury to or destruction of (1) property owned, occupied by or used by or rented to the insured, or (2) except with respect to liability under sidetrack agreements and the use of elevators or escalators, property in the care, custody or control of the insured, or (3) any goods or products manufactured, sold, handled or distributed or premises alienated by the named insured or work completed by or for the named insured, out of which the accident arises. ³

Liability insurance affords coverage for losses or liabilities on account of property damage sustained by parties other than the insured itself. CPS Chemical Co. v. Continental Ins. Co., 222 N.J.Super. 175, 186, 536 A.2d 311 (App.Div.1988); McNeilab Inc. v. North River Ins. Co., 645 F.Supp. 525, 537-39 (D.N.J.1986), aff'd 831 F.2d 287 (3rd Cir.1987).

The distinction between the purpose of general liability insurance, and insurance policies providing the insured first party coverage for losses sustained on its own property, is clearly observable by an exclusionary provision within the liability policy commonly known as the "owned-property exclusion." As noted in Broadwell Realty v. Fidelity & Cas. Co., supra, 218 N.J.Super. at 518, 528 A.2d 76,

The obvious purpose of this language is to exclude from the insurer's indemnification obligation claims by the insured based upon damage or loss to its own property ... the [general liability] policy is not designed to afford first party coverage.

The inclusion within a policy of liability insurance of an exclusion for "premises alienated by the named insured" is designed to extend the exclusion to claims by subsequent owners of property previously owned by an insured.

In Hatco Corp. v. W.R. Grace & Co., 801 F.Supp. 1334 (D.N.J.1992), the court was called upon to resolve several motions between a predecessor and successor in title to an industrial site affected by substantial pollution and their respective insurers. Many of the issues originally addressed by this court in its initial opinion were also addressed in Hatco Corp., Id. Of significance, however, is a discussion by the court as to the effect of an "owned-property exclusion" clause. On that particular point, the court stated:

On August 21, 1978, Grace sold the Fords facility to Hatco's corporate predecessors. Grace contends that any damage that occurred after that date did not occur to property owned by Grace, but to property previously alienated by Grace. It therefore contends that the owned-property exclusion does not apply to such damage. Grace contends that the unambiguous language of the owned-property exclusion does not preclude damage for property formerly owned [by] Grace, and that if the insurers intended to exclude such property from coverage they could easily have done so with an "alienated premises" exclusion.

That argument was accepted by the District Court. Of course, in this case, the Reliance policy does make reference in subparagraph (3) of the exclusion clause to non-coverage for "alienated premises," and thus a result contra to the decision by the Hatco Corp., Id. court would be appropriate.

A similar analysis and conclusion as to the specific affect of the words "alienated premises" was reached in Rieder v. Cherokee Ins. Co., 635 F.Supp. 699, 702, (E.D.Pa.1986), aff'd 813 F.2d 398 (3rd Cir.), cert. denied, 484 U.S. 823, 108 S.Ct. 86, 98 L.Ed.2d 47 (1987); see also Taylor-Morley-Simon, Inc. v. Michigan Mut. Ins. Co., 645 F.Supp. 596 (E.D.Mo.1986), aff'd 822 F.2d 1093 (8th Cir.1987).

Property excluded from liability insurance coverage cannot become insured property as a result of its alienation, where an alienated premises exclusion is contained within the "owned-property exclusion" of an insurance policy. Hatco Corp. v. W.R. Grace & Co., supra.

In order to avoid the clear and unambiguous language contained in the exclusionary clause, Armstrong's position, both within its brief and at oral argument, was that the "owned-property exclusion" (subsection 1), will not bar the recovery of cleanup costs incurred at the insured site if those costs are incurred upon the insured site but are designed to prevent actual and threatened harm to third-party property. Armstrong also asserted that an identical analysis was applicable to the exclusionary language (subsection 3) referable to "premises alienated."

This court adopted the argument offered by Armstrong and relied upon Broadwell Realty v. Fidelity & Cas., supra, 218 N.J.Super. at 525-529, 528 A.2d 76 to the effect that, 218 N.J.Super. at 529, 528 A.2d 76

We hold that the costs of preventive measures taken by Broadwell on its own property in response to the DEP directive which were designed to abate the continued flow of contaminants on to adjacent lands are recoverable under the policy.

. . . . .

To the extent that all or a portion of the response expenses pertain solely to damage to the Broadwell site itself and not to prevent off-site contamination, the owned-property exclusion clearly applies, and such damage is not within the coverage. (Emphasis added).

Based upon the Broadwell analyses, this court specifically concluded, 259 N.J.Super. 538, 566, 614 A.2d 642:

[T]he expenses which are reimbursable [are] those expenses separately incurred or to be incurred as a direct result of governmental action designed to prevent future anticipated damage claims. [E]xpenses incurred solely on the Kerr Glass site itself which were not incurred to prevent off-site contamination are not reimbursable as they fall within the ambit of the unambiguous property exclusion provisions of the insurance. (Citations omitted).

Our Supreme Court in State v. Signo Trading International, Inc., 130 N.J. 51, 612 A.2d 932 (1992) construed a comprehensive liability insurance policy containing an "owned-property exclusion" provision similar to the clause in the case sub judice. The court specifically declared the insuring contractual language to be clear and unambiguous and it specifically overruled the interpretation and import enunciated in Broadwell Realty v. Fidelity & Cas. Co., supra. Accordingly, this court's prior ruling must be modified. The expenses incurred as cleanup measures by any transferee of property formerly owned by Armstrong, even if incurred as a direct result of governmental action designed to prevent future anticipated damage to adjacent property owners are not recoverable from Reliance by virtue of the exclusionary language in subsections (1) and/or (3) of the Reliance policies.

In response to the motion for modification, Armstrong has asserted that Reliance must be estopped from asserting any exclusion from coverage by virtue of the judicial mandate delineated in Griggs v. Bertram, 88 N.J. 347, 443 A.2d 163 (1982).

Estoppel of an insurance carrier's assertion of exclusionary language affecting coverage as provided within an insurance policy was first fully articulated in Merchants v. Indem. Corp. v. Eggleston, 37 N.J. 114, 179 A.2d 505 (1962) and was later expanded to encompass the facts delineated in Griggs v. Bertram, supra. The theoretical reasons of both precedents are fully analyzed in American Handling Equip. v. T.C. Moffatt & Co., 184 N.J.Super. 131, (App.Div.1982), at 139-141, 445 A.2d 428.

An insurance carrier will be estopped from invoking exclusions from coverage where by its affirmative action it has controlled the defense in a lawsuit (Eggleston ), or where it assumes the control of a claim asserted against its insured prior to the filing of a lawsuit (Griggs ). In each instance our Supreme Court found that the affirmative action of the insurer prejudiced the position of the insured. The existence of prejudice, whether actual or constructive, served as the predicate for invoking the doctrine of estoppel. Merchants Indem. Corp. v....