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Cycle Chem, Inc. v. Lumbermens Mutual Casualty Company

2003 WL 23111986 (N.J. Super. App. Div. 2003)

INSURANCE; COVERAGE—A liability insurance policy written with respect to particular premises may cover off-site damage resulting from the business conducted from those premises if the policy does not provide to the contrary.

A company that manufactured and sold chemical solvents owned two special multi-peril insurance policies. The policies contained insuring clauses with respect to damages “arising out of the ownership, maintenance or use of the insured premises and all operations necessary or incidental to the business of the named insured conducted from or at the insured premises… .” Although neither the insured nor the insurance company could locate or produce the policies, they were able to stipulate as to the insuring clause and several other provisions. One stipulation was that the insurance policies contained a classification code for “Buildings or Premises – office.” Apparently, such a classification code defines a premium rate which is then multiplied by the size of the insured premises. The insurance company argued that the policies did not provide coverage from claims or liabilities not related to the office operations. This was important because the claim was based upon finding the insured’s solvents in remotely located Superfund sites. The allegation was that some solvents distributed by the company caused water and soil contamination.

The lower court held that the classification code meant that the policy was “limited to coverages arising out of an office operation.” Consequently, the lower court believed that the policies did not cover the off-site contamination. The insured appealed, arguing that the policies were ambiguous and should have been construed in its favor and to meet its reasonable expectations. It also argued that the classification code did not limit the coverage and most importantly that “the policy language itself [was] broad enough to cover off-site environmental risks.” The Appellate Division agreed with the final point, and disagreed with the lower court’s treatment of the “classification code.” Therefore, it found it unnecessary to discuss the first two points.

As to the classification limitation, the insurance company pointed to an endorsement that specifically limited coverage based upon the classification code. The insured responded that the form of policy expressly stated the contrary. The Court pointed out that the policies were lost and that the parties had not stipulated to any policy language dealing with the classification codes. Consequently, it felt that the lower court should never have relied on the code as a proper basis to construe the policy language. The Court then rejected the insurer’s argument that the low premiums actually charged meant that there was no coverage for this risk. The Court felt in this particular case, “the premiums charged [contained no] clue to the meaning of the insurance clause especially since the record [did] not establish exactly what coverages [the] lost policies provided and what, if any, exclusions existed.” Therefore, the Court grounded its “approach to interpretation in the language of the policy itself.” It pointed out that the policy paid for occurrences either “arising out of the ownership, maintenance or use of the insured premises” or for “all operations necessary or incidental” to the insured’s business “conducted at or from the insured premises.” This required the Court to determine if there was a nexus between the off-premises contamination and the insured premises. It found several cases to support such an interpretation. Consequently, it held that the language “arising out of the ownership, maintenance or use of the insured premises and all operations necessary or incidental to the business of the named insured conducted or from the insured premises” was “sufficiently clear and unambiguous to have precluded the entry of summary judgment in [the insurance company’s] favor” because the business of selling the contaminating solvents was conducted from the solvent company’s offices.


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