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Champion Dying & Finishing Co., Inc. v. Centennial Insurance Company

355 N.J. Super. 262, 810 A.2d 68 (App. Div. 2002)

INSURANCE; ENVIRONMENTAL LIABILITY— Under the continuous trigger theory of environmental insurance coverage, an insured who could have but didn’t obtain affordable environmental insurance will bear a proportionate share of losses from environmental damage as if it had been an insurance company with a policy in force during the relevant times.

This was an insurance case that raised issues “relating to the trigger of coverage and the allocation of the duty to provide indemnification for progressive environmental damage that commenced during a period of time in which coverage was offered customarily on an occurrence basis and continued into a period in which coverage was offered, if at all, on a claims-made basis.” In 1994, the New Jersey Supreme Court “adopted a continuous- trigger theory of coverage under occurrence-based policies of comprehensive general liability (CGL) insurance for the risks of progressive, indivisible bodily injury and property damage arising from long-term exposure to asbestos and, presumptively, other toxic and environmental agents. ... Under that theory, each policy of insurance in effect from the date of first exposure to an injury-producing substance to the date of manifestation of a progressive injury caused by the substance was held to provide coverage for that injury.” When it adopted the “continuous trigger,” it specifically rejected “triggers of coverage based solely upon the date of first exposure to the harmful product ... or the date of manifestation of injury… .” At the beginning of 1973, the insurance industry adopted “what has come to be known as a clarifying ‘sudden and accidental’ or ‘standard’ pollution exclusion from coverage by CGL policies.” Unfortunately for the industry, the intended restrictive effect was substantially nullified by New Jersey Supreme Court decisions holding “that the insurance industry’s sudden and accidental pollution exclusion clause precluded coverage only for an insured’s intentional discharge of known pollutants.” In 1986, the industry responded by adopting an “absolute” pollution exclusion that did not contain the “sudden and accidental” language. In large measure, “the absolute pollution exclusion has been judicially enforced, thereby excluding all but a very narrow category of pollution risks from coverage under CGL policies of insurance since 1986.” Further, the industry developed other forms of non-standardized environmental impairment coverage, almost always written on a “claims-made” basis, not on the “occurrence basis construed by the earliest Supreme Court decision. This simplified the question as to which carrier would cover the risk because “only those carriers providing coverage when the risk manifests can be held liable.” Nonetheless, according to the Court, the situation is “infinitely more complicated when the risk is covered by a succession of policies written first on an occurrence and, in later years, on a claims-made basis or, as in the case before [the Court], when the insured’s environmental risks were covered by policies of CGL insurance until 1986, and were not covered by any form of insurance thereafter.”

Here, the company sought reimbursement for investigation and remediation of pollution liability arising from leaking fuel oil storage tanks that were found in November of 1997. The leakage was estimated to have begun in January of 1980. One insurance company had provided primary and excess CGL coverage for 1980, 1981, and 1982. From 1983 through 1986, primary and excess coverage was provided by a second company. All of those policies were written on an occurrence basis and contained the “sudden and accidental” pollution exclusion. As noted, such an exclusion is inapplicable “if the environmental damage giving rise to a claim was neither expected nor intended by the insured. After 1986, the second insurance company and others insured the company with policies containing an absolute pollution exclusion. The insured claimed that it was unaware of the absolute pollution exclusion and therefore did not seek alternate coverage for those years. In 1996, when it sought to obtain insurance for air pollution, it was informed that it could not obtain such insurance nor could it obtain insurance to cover pre-existing problems with underground storage tanks.

The lower court held that the insured neither expected nor intend the fuel oil contamination and thus coverage was not precluded under the earlier policies. It further held that the two carriers that insured from 1980 through 1986 were both liable to respond to the loss under the contiguous trigger doctrine. It also held that insurance was available that would have covered the risk at issue for later years, and that the insured could have afforded to pay for it, if it had chosen to do so. Thus, it interpreted the contiguous trigger to require an allocation to the insured “for coverage purposes of those years in which it did not obtain environmental insurance.”

The insured appealed from that decision, claiming that it should not have been allocated any part of the risk just because it did not buy later insurance coverage. It also claimed that the two insurance companies had failed to prove the availability and affordability of the environmental insurance covering leaks from twenty year old underground storage tanks. Lastly, it argued that the lower court ignored the fact that the hypothetical alternative pollution coverage was only available on a claims-made basis.

The Appellate Division rejected the insured’s first argument that the allocation scheme should not have been applied retroactively “so as to impose a portion of the risk upon insureds such as it that lacked coverage during a relevant period of time.” According to the Court, “[a] signal purpose of the [first Supreme Court] decision was to develop an allocation mechanism applicable to the multitude of insurance disputes then pending, as well as to future disputes.” On the other hand, it agreed with the insured’s second argument that the two insurance companies “failed to prove the availability and affordability of [environmental] coverage for the risk of leakage from more than twenty-year old underground storage tanks during the relevant time period,” and reversed on that ground. The lower court emphasized “the necessity of demonstrating that insurance could have been purchased to cover the precise risk that manifested, not simply that [environmental impairment liability] insurance covering undefined risks was available.” It stressed “the necessity of demonstrating that the insurance was available at the time of manifestation and that the conditions of coverage at that time were not such to preclude indemnification, for example, as a result of the date of inception of the contamination.”

The insured argued that “an industrial claimant should be required to participate in the allocation of an environmental loss only if it subjectively determined to ‘go bare.’” The Appellate Division rejected that argument and agreed with the lower court “that the insured’s subjective knowledge of the availability of [Environmental Impairment] insurance (i.e., whether the insured subjectively chose to go bare) [was] not relevant to the allocation issue. An inquiry into the intent and motivations of an insured in failing to obtain coverage constitutes an unnecessary and irrelevant diversion from the essential question of the existence or not of available and affordable coverage. If coverage is unavailable, no ‘decision’ by the insured can be meaningfully made; if coverage is found to exist, a focus on subjective intent could encourage lack of diligence in obtaining such insurance on the part of cash-strapped businesses.”

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