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Chemical Leaman Tank Lines, Inc. v. Aetna Cas. & Sur. Co.

ELR Citation: 24 ELR 20410
Nos. No. 89-1543 (SSB), 817 F. Supp. 1136/(D.N.J., 03/12/1993) summary judgment motions granted in part & denied in part

The court holds that a tank truck company is not entitled to summary judgment on claims against its insurers for indemnification of costs resulting from a government action against it under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) with respect to soil and groundwater contamination at a site where it cleaned its trucks and treated contaminated rinsewater. The court first holds that the insured bears the burden of proving that the damages it caused were not "expected or intended," and thus not excluded from the definition of "occurrence" in several of its comprehensive general liability policies. The court holds that the insured's burden of proof requires it to show that it neither subjectively intended to cause nor was substantially certain it was causing soil and groundwater damage. In New Jersey, the general rule requires an evaluation of the insured's subjective intent to injure. The exception to this rule for particularly reprehensible acts does not apply, because the record contains abundant evidence that the insured designed and built the facility to prevent environmental harm. The court holds that the term "accident in the pre-1961 policies includes the long-term soil and groundwater contamination process at issue, because the common understanding of the term does not necessarily exclude long-term happenings, and ambiguous terms used by an insurer should be construed in favor of the insured. The court holds that damage to groundwater and soil triggered the insurance policy for the period April 1, 1960, through April 1, 1961, because the insurer does not challenge the conclusion of the insured's expert hydrologist that contaminated rinsewater started migrating through the soil to underlying groundwater almost immediately after the three settling ponds began operation in 1960. The court, however, grants summary judgment to the insurer with respect to coverage under its policy for the period April 1, 1959, through April 1, 1960, because the insured presented no evidence of damage that could have triggered that policy.

The court next denies the insured's motion for summary judgment that the insured neither expected nor intended to cause soil and groundwater damage, because the insurers provided abundant evidence tending to establish the insured's knowledge of the deleterious effect of its rinsewater treatment system on the soil and groundwater. The court also denies the insurers' motion for summary judgment on this issue, because genuine issues of material fact exist concerning the insured's knowledge with respect to the seepage of contaminants into the groundwater and whether it intended the rinsewater treatment system to result in contamination of the soil.

The court next denies the insured's motion for summary judgment on its claim that a "continuous occurrence" triggered all insurance policies in effect from the time it began operation of the rinsewater treatment system through the time it became aware of the nature and extent of groundwater contamination and its legal obligation to pay damages resulting from that contamination. Although New Jersey recognizes the "continuous trigger" theory, genuine issues exist whether some kind of property damage occurred during each policy period for which the insured seeks coverage and whether the property damage was part of a continuous and indivisible process of injury.

The court next turns to the parties' dispute over whether the soil and groundwater contamination falls within the post-April 1, 1971, policies' "sudden and accidental" exception to the pollution exclusion provision. The court holds that the term "sudden" does not include a temporal aspect in its meaning, because the term is ambiguous, and under the doctrine of contra proferentum the court should adopt the meaning that results in insurance coverage. The court finds the size and sophistication of the insured irrelevant in interpreting the language of the insurance policy, because the policy was drafted solely by the insurer. The court holds, however, that the plain language of the pollution exclusion clause precludes coverage when the insured has caused the discharge of contaminants or pollutants, unless the discharge, rather than the resulting damage, was neither expected nor intended from the standpoint of the insured. The court grants summary judgment to the insurers as to coverage of soil damage under all policies containing a pollution exclusion clause, because the record is replete with evidence that the insured intended to discharge contaminants into the soil. These discharges do not fall within the "sudden and accidental" exception to the pollution exclusion. The court denies summary judgment with respect to whether the insured intended to discharge contaminants into the groundwater. The court also reaffirms its prior holding that the owned-property exclusion does not apply to remedial measures taken by the insured that are designed to correct injury or to prevent further injury to the ground and surface waters in the vicinity of its facility.

The court next grants summary judgment that the insured's breach of the insurance policies' clauses requiring notice of an occurrence as soon as practicable does not bar recovery, because the record fails to establish that the insurers suffered a likelihood of appreciable prejudice to their ability to contest coverage or that the insured would have been likely to succeed in the underlying CERCLA claim if the insurers had taken over the defense of the claim on timely notice. The court also grants summary judgment to the insured on the issue of whether it complied with the policies' cooperation clauses. One insurer stipulated that the insured cooperated with its investigation, and the other insurer suffered no likelihood of appreciable prejudice.

Applying New Jersey precedent, the court holds that one insurer is not liable for costs the insured incurred defending against CERCLA's suit before it gave notice to the insurer. The insured breached the policy's notice clause and failed to forward information concerning placement of the insured's facility on CERCLA's national priorities list, which was relevant to triggering the insurer's coverage and duty to defend. Finally, the court denies the insured's motion for summary judgment on the insurer's present duty to defend, because a critical discrepancy exists in the insurance coverage and underlying CERCLA claims with respect to the issue of the insured's intent.

Counsel for Plaintiff
Kevin B. Clark
Willkie, Farr & Gallagher
Three Lafayette Ctr.
1155 21st St. NW, 6th Fl., Washington DC 20036
(202) 328-8000

Counsel for Defendants
Peter E. Mueller, Brian J. Coyle
Harwood & Lloyd
130 Main St., Hackensack NJ 07601
(201) 487-1080