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Franklin Mutual Insurance Company v. Metropolitan Property & Casualty Insurance Company

406 N.J. Super. 586, 968 A.2d 1191 (App. Div. 2009)

ENVIRONMENTAL LIABILITY; INSURANCE — Where more than one insurance company is responsible to its insured with respect to environmental coverage, the risk is only to be allocated among those insurance companies who had provided insurance to that named insured, and not among all of the insurance policies of all of the insured whoever owned the property during the period of contamination.

A residential property was contaminated as the result of a leaking underground heating oil tank. The contamination may have occurred over time while the property was owned by different owners. The current owners had two insurance policies, covering different time periods of their ownership. It was unclear if the current owners were uninsured for a period of time, or if the prior owner had environmental insurance. When the leak was discovered, the second insurer paid for the cost of the cleanup and sought a pro rata reimbursement of those costs from the first insurer. The two insurance companies could not agree as to the allocation of the cleanup costs. The first insurer argued that all of the liability insurance from all policies covering the property should be considered when allocating responsibility, regardless of who owned the property. The second insurer argued that liability is to be allocated between the two insurers based on a pro rata allocation of the cleanup costs between the insurers for the same insured (the current owners) without regard to the period of time the property was owned by the prior owner. In this case, since the first insurer provided coverage for about thirty percent of the time the property was contaminated, the second insurer argued that it should be responsible for that proportionate share of the cleanup costs.

The lower court agreed with the second insurer. It concluded that under the “continuous trigger” theory adopted by the New Jersey Supreme Court in Owens-Illinois v. United Insurance Co., 138 N.J. 437 (1994), the responsibility was to be allocated pro rata between the two insurers without regard to any insurance coverage the prior owner may have had. Under Owens-Illinois, when dealing with multiple insurance companies with respect to long-term contamination cases involving changes in property ownership, insurance coverage is allocated based on the degree of risk each insurance company assumed. The lower court interpreted the Owens-Illinois case as requiring the allocation of risk between insurance companies that provide insurance for the same name insured.

On appeal, the Appellate Division affirmed, agreeing with the lower court that the risk is only to be allocated among insurance companies who had provided insurance to a named insured, and not among all of the insurance policies of all of the insured that owned the property during the period of contamination. The Court noted that insurance carriers are only responsible for defending and indemnifying their named insured, and that the Owens-Illinois cases established the method of allocating insurance coverage among the different carriers for their pro rata shares. The Court found that even if other parties, such as the prior owner, might be partially responsible for the clean up costs, that would not affect the insurance companies’ responsibility toward their named insured.


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