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Pharmacia & Upjohn Company v. American Insurance Company

316 N.J. Super. 161, 719 A.2d 1265 (App. Div. 1998)

ENVIRONMENTAL LIABILITY; INSURANCE—A New Jersey business with major facilities in New Jersey that negotiated its insurance coverage in New Jersey is entitled to look to the law of New Jersey in interpreting the meaning of policy terms.

This was a choice of law case concerning insurance coverage for environmental contamination at a Pennsylvania site. A New Jersey corporation with its principal place of business in New Jersey owned twelve manufacturing sites in New Jersey, five in Maryland, and several in other states. Its insurance policies from 1984 through 1989 were negotiated in New Jersey with a New Jersey insurance agency. The policies were delivered to the corporation in New Jersey, and the premiums were billed by, and paid to, the insurance company in New Jersey. The policies themselves were silent as to the specific locations of the risks. In 1996, the corporation merged into a Delaware corporation.

When a claim was made with respect to waste shipped from one of the Maryland sites to a Pennsylvania dump site, the insurers disclaimed on Pennsylvania’s narrow interpretation of the “sudden and accidental” language of the then standard pollution-exclusion of general casualty and liability coverage. The claimant sought to have New Jersey law apply because it has a more liberal interpretation of the pollution-exclusion clause.

The Appellate Division determined that New Jersey law should apply. In doing so, it noted that Pfizer, 154 N.J. 187, had rejected a bright-line rule mandating application of the law of the place where the contamination has occurred. Instead, it employed a case-by-case analysis of the factors informing choice of law decisions. One factor was determining “the state which the parties understood was to be the principal location of the insured risk during the term of the policy, unless with respect to the particular issue, some other state has a more significant relationship.” The Court went on to say that “[i]rrespective of what the parties’ understanding here may have been in respect of the principal location of the risk in view of [the insured’s] out-of-state operations, we think it plain that in any event New Jersey’s interest, ... , is of paramount significance.” It further held “that no interest implicated by the more restrictive laws of the state in which the contamination occurred would be offended by application of New Jersey’s more liberal law, New Jersey’s interest in the protection of its resident insureds doing their primary business here and negotiating its insurance here must predominate.” The insured’s major manufacturing activities were conducted in New Jersey and the policies did not differentiate coverage based on the site of the waste generation. The waste was also predictably dumped out-of-state. As a New Jersey corporation that negotiated its insurance coverage in New Jersey, the insured was entitled to look to the law of New Jersey, intended and designed to protect New Jersey policyholders. The 1996 acquisition of the insured long after all of the operative events was irrelevant to the Court’s interpretation of the pre-acquisition insurance policies.


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