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Liberty Mut. Ins. Co. v. Triangle Indus., Inc.

ELR Citation: 22 ELR 20827
Nos. No. 91-1685, 957 F.2d 1153/35 ERC 1369/(4th Cir., 03/02/1992)

The court, applying New Jersey law, holds that comprehensive general liability (CGL) insurance policies containing original and modified pollution exclusion provisions do not provide an insured manufacturer of cable and wire with coverage for the unintended environmental damage caused by the insured's past regular landfill disposal of waste sludge. Between 1977 and 1980, the insured had its sludge trucked by an independent contractor from its West Virginia plant to an Ohio landfill, where the sludge was poured onto the ground. Subsequently, the Ohio Environmental Protection Agency determined that hazardous materials were leaking from the landfill and the U.S. Environmental Protection Agency notified the insured that it was considered a potentially responsible party under the Comprehensive Environmental Response, Compensation, and Liability Act for contamination at the landfill. After the insured sought coverage and defense from all of its insurers, one insurer brought a diversity action seeking declaratory relief that it owed insured no duty to defend.

The court first notes that it must interpret the insurance contracts under New Jersey law because the highest court of West Virginia, the state in which the insured operates its cable and wire plant, has determined that the law of New Jersey governs the construction of each of the insured's insurance contracts. The court holds that although the highest court in New Jersey has not addressed the contract interpretation issues before this court, the fact that several New Jersey lower courts have interpreted the "sudden and accidental" language in the pollution exclusion clause as applying to the pollution damage, rather than to the discharge of contaminants, is not dispositive of how New Jersey's high court would rule. The court holds that the New Jersey Supreme Court would rule that the exclusion is inapplicable if the discharge, and not the damage, is sudden and accidental. The court next holds that although the insured may not have known of the harm that would be caused by dumping its waste products at the Ohio landfill, the insured's awareness that its waste products were dumped on the ground at the landfill precludes this activity from being an accidental discharge of contaminants. Because the sludge was a normal byproduct of the insured's manufacturing process, the insured hired trucks to haul the waste to the Ohio landfill, and the insured corresponded persons at the landfill to discuss the liquidity of the semi-solid sludge being dumped at the landfill, the court concludes that losses sustained by this operation are not covered by the insured's CGL insurance policies.

The court next holds that the pollution damages incurred by the insured are not covered by the policies containing the modified pollution exclusions. The modified language excludes coverage for all releases of pollutants unless the releases are within the "product hazard" or the "completed operations hazard" covered by the policies. The property damage in this case resulting from the disposal of a manufacturing waste product involved neither a service operation nor a product of the insured. The court also holds that a "claims-made" pollution liability insurance policy held by the insured, which contained a clause excluding the pollution arising from certain physical sites, does not provide coverage for damages caused by the insured. The Ohio landfill was not approved for the storage or disposal of the insured's waste by Ohio or the federal government. Finally, the court holds that the insured is not entitled to coverage-by-estoppel because the insurers did not defend the insured until its liability was conclusively established at trial. While there may exist a point before a verdict against the insured at which the New Jersey courts will consider that an insurer's withdrawal from defense causes such harm that it should be estopped from doing so, that point did not arise in this case. The insurers all withdrew from defending the insured prior to a determination of liability, and the only prejudice to the insured from the withdrawal was the loss of assistance.

Counsel for Appellants
Stephen M. Orlofsky, Carlo Scaramella
Blank, Rome, Comisky & McCauley
210 Lake Dr. E., Ste. 200, Cherry Hill NJ 08002
(609) 779-3600

Counsel for Appellees
Lee Hadas Glickenhaus
Mintz, Levin, Cohn, Ferris, Glovsky & Popeo
1 Financial Ctr., Boston MA 02111
(617) 542-6000

Niemeyer, J. (before Ervin and Shedd, JJ.):