Sensient Colors v. Allstate Ins.

• Decision Date: 29 January 2008
• Docket Number: A-99/100/101 September Term 2006.
• Citation: 939 A.2d 767,193 N.J. 373
• Parties: SENSIENT COLORS INC., Plaintiff-Respondent, v. ALLSTATE INSURANCE COMPANY, f/k/a Northbrook Insurance Company, American Motorists Insurance Company, Federal Insurance Company, Fidelity & Casualty Company of New York, Fireman's Fund Insurance Company, Hartford Accident & Indemnity Company, Highlands Insurance Company, Intergrity Insurance Company, Interstate Fire & Casualty Company, Lloyds of London and British Companies, New Jersey Property Liability Insurance Guaranty Association, Old Republic Insurance Company, Pine Top Insurance Company, Royal Insurance Company, Twin City Fire Insurance Company, Westport Insurance Corporation, f/k/a Puritan Insurance Company and XYZ Insurance Companies, Defendants, and Executive Risk Indemnity Inc., f/k/a American Excess Insurance Co., Liberty Mutual Insurance Company and Zurich American Insurance Company, Defendants-Appellants.
• Court: New Jersey Supreme Court

939 A.2d 767

193 N.J. 373

SENSIENT COLORS INC., Plaintiff-Respondent, v. ALLSTATE INSURANCE COMPANY, f/k/a Northbrook Insurance Company, American Motorists Insurance Company, Federal Insurance Company, Fidelity & Casualty Company of New York, Fireman's Fund Insurance Company, Hartford Accident & Indemnity Company, Highlands Insurance Company, Intergrity Insurance Company, Interstate Fire & Casualty Company, Lloyds of London and British Companies, New Jersey Property Liability Insurance Guaranty Association, Old Republic Insurance Company, Pine Top Insurance Company, Royal Insurance Company, Twin City Fire Insurance Company, Westport Insurance Corporation, f/k/a Puritan Insurance Company and XYZ Insurance Companies, Defendants, and Executive Risk Indemnity Inc., f/k/a American Excess Insurance Co., Liberty Mutual Insurance Company and Zurich American Insurance Company, Defendants-Appellants.

A-99/100/101 September Term 2006.

Supreme Court of New Jersey.

Argued October 9, 2007.

Decided January 29, 2008.

Robert W. Muilenburg, Morristown and Brian J. Whiteman, Newark, argued the cause for appellants (Wilson, Elser, Moskowitz, Edelman & Dicker, attorneys for Liberty Mutual Insurance Company and Coughlin Duffy, attorneys for Zurich American Insurance Company, Successor-in-Interest to Zurich Insurance Company (U.S.Branch); Mr. Muilenburg, Mr. Whiteman, Thomas F. Quinn and Karen H. Moriarty, of counsel and on the briefs).

Donald W. Kiel, Newark, argued the cause for respondent Sensient Colors Inc. (Kirkpatrick & Lockhart Nicholson Graham, attorneys; Mr. Kiel, David S. Kwon, Robert F. Pawlowski and Elizabeth M. Harris, on the brief).

Steven D. Cantarutti, Princeton, submitted a letter in lieu of brief on behalf of appellant Executive Risk Indemnity Inc., f/k/a American Excess Insurance Co. (Smith Stratton, attorneys).

Justice ALBIN delivered the opinion of the Court.

The proper functioning of our federal system requires that courts of sister states, when appropriate, extend comity to one another. In this appeal, with similar lawsuits in two different state court systems, we must determine the legal principles that govern when a New Jersey court should defer to another jurisdiction's courts.

This case involves similar environmental insurance coverage actions pending in two different jurisdictions, the first one filed by an insurance company in New York and a later one filed by its insured in New Jersey. The aim of both declaratory judgment actions is to determine whether the insurer is required to defend and indemnify its insured in matters relating to the contamination of property in Camden, New Jersey.

The insurer moved to dismiss the parallel New Jersey case in Superior Court on the ground that deference should be given to the first-filed action. The insured responded that the first-filed doctrine should not apply because the issues and parties in both actions are not identical, because the insurer acted in bad faith by forum shopping, and because New Jersey has the dominant interest — ensuring that funds are available for the clean-up of toxic-laden property. The New Jersey trial court dismissed the action, relying on the first-filed rule. The Appellate Division reversed, finding that the declaratory action in this state is not substantially similar to the one in New York and that "special equities" favor resolution of the coverage issue in this state's courts.

Despite our strong adherence to principles of comity, the special equities in this case heavily favor our state courts exercising jurisdiction. Because of New Jersey's dominant interests, this state is the natural forum for resolving insurance coverage issues concerning hazardous-waste-infested property located within its borders. We therefore affirm the judgment of the Appellate Division.

I.

A.

Plaintiff Sensient Colors Inc. (Sensient) is a New York corporation with headquarters in Missouri. From 1922 to 1988, Sensient, then known as H. Kohnstamm & Co., Inc. (Kohnstamm), operated a factory at 31st Street and Lemuel Street in Camden that manufactured colorants, organic pigments, and dispersions for food, drugs, and cosmetics.¹ In 1998, the then-abandoned factory site was located directly adjacent to a low-income housing development known as Pleasant Gardens, which was home to 1,000 of Camden's residents. Some of the neighborhood residents lived within 100 feet of the abandoned property.

In January 1998, the New Jersey Department of Environmental Protection (NJDEP) removed from the factory site forty-two drums of hazardous chemicals and drained a tank leaking sodium hydroxide. At the request of the NJDEP, in March 1998 the U.S. Environmental Protection Agency (EPA) intervened, finding on the site thousands of containers of hazardous substances, including flammable liquids, corrosive chemicals, and poisons. At the time, children played on the contaminated grounds of the abandoned and unsecured property, which also had become a haven for suspected drug users and vandals.

During the next several years, with the cooperation of state and local agencies, the EPA removed thousands of drums, bags, and containers of hazardous substances from the factory buildings and excavated over 71,000 tons of lead-contaminated soil and 8,000 tons of debris.² An EPA study revealed that the hazardous waste on the factory site leached into the soil and spread to the Pleasant Gardens apartment complex, contaminating the grounds with lead. Moreover, the flow of waste underneath the apartment buildings caused them to subside and crack.

In November 2003, Pleasant Gardens Realty Corporation filed a civil action in the Superior Court, Law Division seeking damages against Sensient and other named defendants for the contamination of its property. The NJDEP was later joined as a defendant and cross-claimed against Sensient, seeking recovery for costs it expended in cleaning up the Camden site. In June 2004, the EPA demanded that Sensient reimburse it in the amount of $10,867,466 plus interest for its remediation of the toxic-waste-ridden property. In its demand, the EPA also noted that additional work might be necessary to address residual contamination.³

Sensients predecessor, Kohnstamm, through its New York office, had purchased from various insurers commercial liability insurance policies covering properties it owned, including the Camden factory and other New Jersey sites. Zurich Insurance Company, predecessor to Zurich American Insurance Company (Zurich), a New York corporation, issued primary coverage insurance through a New York broker to Kohnstamm for a number of years in the 1970s and 1980s. During those years, other insurers issued excess and umbrella policies to Kohnstamm, and for one of those years, Liberty Mutual Insurance Company (Liberty) issued a primary policy.

Between May and July 2004, Sensient notified its insurers of the Pleasant Gardens damages suit and the EPA reimbursement demand. Shortly thereafter, Zurich advised Sensient that, under a reservation of rights, it would participate in the defense of the Pleasant Gardens lawsuit and the EPA recovery demand. Liberty, however, refused to provide a defense or coverage for the two claims. Some excess and umbrella carriers denied coverage others either did not respond to the coverage request or would not respond until Sensient had exhausted its underlying coverage.

Without in any way signaling to Sensient that it had changed its mind and decided to deny coverage, in March 2005, Zurich filed a declaratory judgment action in a New York trial court, naming Sensient as a defendant. Zurich sought a determination from the court that it had no obligation to defend or indemnify Sensient on the Pleasant Gardens and EPA claims.⁴

Less than two months later, Sensient filed its own declaratory judgment action in the Superior Court, Law Division, Camden County, seeking an order that would compel Zurich and other named insurers to defend and indemnify Sensient in the Pleasant Gardens and EPA matters. In its complaint, Sensient also named as a defendant the New Jersey Property-Liability Insurance Guaranty Association (NJPLIGA), which had stepped into the shoes of two insurers that had since become insolvent.⁵ In addition to declaratory relief, Sensient sought compensatory damages from those insurers who expressly denied coverage, and punitive damages from Zurich for breaching the duty of good faith and fair dealing owed to its insured.

B.

In response to motions filed by Zurich and other insurers in this state's Law Division, the trial court dismissed Sensient's New Jersey suit in favor of the first-filed complaint in New York. The court characterized the case as a contract dispute over insurance coverage involving an insured incorporated in New York, a policy issued in New York, and an action filed first in New York. The court emphasized that the EPA had completed remediation of the contaminated property, leaving one essential issue to be resolved — whether the insurers are responsible for covering the EPA's cleanup-reimbursement demand. Because Zurich filed first, the court reasoned that Sensient had the burden of establishing "that New Jersey has a greater interest in this litigation." Viewing the case to be only about a reimbursement claim, the court concluded that no New Jersey public policy trumped that of New York and therefore the first-filed action had precedence over the New Jersey action.

C.

The Appellate Division reversed and reinstated Sensient's complaint, finding that the trial court misapplied the first-filed doctrine when measured against the standards set forth in American Home Products Corp. v. Adriatic Insurance Co., 286 N.J.Super. 24, 668 A.2d 67 (App.Div.1995). Sensient Colors Inc. v. Allstate Ins. Co., 388 N.J.Super. 374, 383-84, 908 A.2d 826 (App.Div.2006).

With American Home Products as a backdrop, the panel held that the insurers failed to establish a substantial similarity between the...