A & S Fuel Oil Co., Inc. v. Royal Indem. Co., Inc.

• Decision Date: 31 January 1995
• Citation: 652 A.2d 1236,279 N.J.Super. 367
• Parties: A & S FUEL OIL COMPANY, INC., Plaintiff-Respondent and Cross-Appellant, v. ROYAL INDEMNITY COMPANY, INC., (a/k/a Royal Insurance), Defendant-Appellant and Cross-Respondent, and Emar Group, Inc., Walsh Group, Inc., Emil Solomine, an individual and Gary Vicaro, an individual, Defendants.
• Court: New Jersey Superior Court — Appellate Division

Page 367

279 N.J.Super. 367

652 A.2d 1236

A & S FUEL OIL COMPANY, INC., Plaintiff-Respondent and Cross-Appellant, v. ROYAL INDEMNITY COMPANY, INC., (a/k/a Royal Insurance) Defendant-Appellant and Cross-Respondent and Emar Group, Inc., Walsh Group, Inc., Emil Solomine, an individual and Gary Vicaro, an individual, Defendants.

Superior Court of New Jersey Appellate Division.

Argued Jan. 11, 1995.

Decided Jan. 31, 1995.

Stephen B. Fenster, Hackensack, for Royal Indem. Co., Inc. (Gallo Geffner Fenster, attorneys; Fenster and Valerie A. Vladyka, on the brief).

Donald P. Fedderly, Flanders, for A & S Fuel Oil Co., Inc.

Smith, Stratton, Wise, Heher & Brennan, Princeton, attorneys for Ins. Environmental Litigation Ass'n, amicus curiae.

Before Judges GAULKIN, BAIME and KESTIN.

The opinion of the court was delivered by

GAULKIN, P.J.A.D.

While transporting a load of heating oil along Route 44 in Netcong, a fuel truck owned and operated by plaintiff A & S Fuel Oil Company, Inc. (A & S) developed a leak that ultimately spilled some 600 gallons of oil into the Musconetcong River. A & S was required to contain and remediate the spill, which it did at a cost of approximately $75,000. A & S submitted a claim for indemnification to defendant Royal Indemnity Company, Inc., which insured A & S under a commercial automobile liability policy. Royal Indemnity disclaimed coverage and A & S filed this action. On cross-motions for summary judgment, a Law Division judge held that the policy covered the spill. He subsequently entered judgment against Royal Indemnity for $95,411.75, including prejudgment interest, and dismissed A & S's remaining claims. Royal Indemnity appeals from the judgment against it; A & S cross-appeals from the denial of its demand for counsel fees and from the dismissal of its claim for bad-faith denial of coverage.

The policy provided insurance for "property damage to which this insurance applies, caused by an accident and resulting from the ownership, maintenance or use of a covered auto." However, it excluded certain damage that Royal Insurance "will not cover," including:

9. Bodily injury or property damage caused by the dumping, discharge or escape of irritants, pollutants or contaminants. This exclusion does not apply if the discharge is sudden and accidental.

Royal Indemnity acknowledges that the loss resulted from a "sudden and accidental" discharge of a "pollutant." Under the quoted language, then, Royal Indemnity would be liable. But the policy incorporated a three-page endorsement, CA 00 25, bearing the following heading in large capital letters:

THIS ENDORSEMENT CHANGES THE POLICY. PLEASE READ IT CAREFULLY.

CHANGES IN BUSINESS AUTO AND TRUCKERS POLICIES-MOBILE EQUIPMENT, CONTRACTUAL LIABILITY AND POLLUTION.

Among the provisions of the endorsement is the following:

B. CHANGES IN LIABILITY INSURANCE WE WILL NOT COVER--EXCLUSIONS is changed as follows:

* * * * * *

5. The exclusion relating to the dumping, discharge or escape of irritants, pollutants or contaminants is changed to read:

This insurance does not apply to:

a. Bodily injury or property damage arising out of the actual, alleged or threatened discharge, dispersal, release or escape of pollutants:

(1) That are or that are contained in any property that is:

(a) Being transported or towed by, or handled for movement into, onto or from, the covered auto.

(b) Otherwise in the course of transit; or

(c) Being stored, disposed of, treated or processed in or upon the covered auto;

(2) Before the pollutants or any property in which the pollutants are contained are moved from the place where they are accepted by the insured for movement into or onto the covered auto; or

(3) After the pollutants or any property in which the pollutants are contained are moved from the covered auto to the place where they are finally delivered, disposed of or abandoned by the insured.

A & S acknowledges that the fuel spill constituted "property damage arising out of the actual ... discharge, dispersal, release or escape" of a "pollutant." A & S argues that it nevertheless had coverage because (1) the endorsement changes the "WE WILL NOT COVER--EXCLUSIONS" provision of the policy, (2) the policy coverage for "sudden and accidental" spills is not an "exclusion" but is an exception to an exclusion and (3) that exception accordingly survives as an exception to the exclusion described in the endorsement.

The motion judge adopted that reasoning. He acknowledged that the broad exclusionary language of the endorsement "is at some variance from that in the original [policy]." However, the endorsement "doesn't say anything about the sudden and accidental." Because of that perceived gap and "the philosophy of our courts that [an] ... insurance contract should be construed more strictly against the person who drafted it," the judge held that A & S was entitled to coverage.

We reject that analysis. The endorsement states that the exclusions provision of the policy "is changed as follows:" and that the exclusion specifically relating to the dumping, discharge or escape of pollutants "is changed to read: ...." The reasonable and, in our view, unavoidable interpretation is that the endorsement replaced, in its entirety, the policy's pollution exclusion including its "sudden and...