Robeson Industries Corp. v. Hartford Accident & Indemnity Company

178 F.3d 160 (3rd Cir. 1999)
  • Opinion Date: May 13, 1999

ENVIRONMENTAL LIABILITY; INSURANCE—An insurance policy covering only a single out-of-state site invokes the law of that state as to both “late notice” and the “pollution exclusion.”

An insured but bankrupt party contended that its insurance carriers had a duty to defend and indemnify it against claims arising from the discharge of certain contaminants at its New York manufacturing facility, including a claim brought by the New York State Division of Environmental Conservation. The policies were negotiated in New York and were issued to the insured at its New York headquarters. All of the policies pertained generally to the insured’s New York property. None contained a choice-of-law provision. The policies contained two provisions relevant to the controversy. The first obligated the insured to give prompt notice to its insurers of any occurrence or third-party claim covered by the policies. The law of the states of New York and New Jersey differ in their interpretation of a “late notice provision.” Under New York law, an insured’s breach of a timely notice provision relieves the insurer of its duty to defend or indemnify, even absent a showing of prejudice to the insurance company. In contrast, under New Jersey law an insurer must first establish prejudice before untimely notice relieves the insurer of its duties under the policy. The second policy provision in controversy generally excludes coverage for environmental contamination, except for contamination that was “sudden and accidental” (the “pollution exclusion” exception). The District Court noted that New Jersey interprets the “sudden and accidental” language to cover gradual discharges whereas New York interprets this language as covering only abrupt discharges.

The insured did not notify the insurers of their potential liability until two and one-half years after the claim was made against it and several years after the contamination began. Moreover, its property’s contamination was gradual, ostensibly occurring over several years. The insured contended in Bankruptcy Court that New Jersey law applied to the interpretation of the policies, mainly because it had moved its headquarters to New Jersey. In an attempt to show its close ties to New Jersey, it further argued that it had been using warehousing facilities in New Jersey for approximately twenty years, paid New Jersey taxes thereon, and had continually maintained management personal and sales representatives in New Jersey. The Court looked to the New Jersey Supreme Court’s recent rulings in several cases dealing with New Jersey’s choice-of-rules for interpretation of casualty insurance contracts. Those cases made clear that New Jersey follows sec. 193 of the Restatement (Second) of Conflict of Laws. Under that section, a court first looks to the place that “the parties understood ... to be the principal location of the insured risk” and that would govern unless some other state has a more significant relationship under the principles stated in the sec. 6 of the Restatement. Thus, New Jersey generally interprets casualty insurance policies in accordance with the law of the state in which the insured risk is principally located, unless some other state has a more significant relationship to the transaction. Further, the New Jersey Supreme Court has held that when the policy covers risks located primarily in a single state, the choice-of-law issue can be straightforward. For example, according to the New Jersey Supreme Court, there is no choice-of-law issue where the policy holder is located in one state, the environmental liability arises out of the same state, and the policies are issued by an out-of-state insurer for that one site. The insured’s principal argument was that HM Holdings, a case decided concurrently with Pfizer, mandated that New Jersey law apply, at least with respect to the interpretation of the “late notice provision”. The Court disagreed. To it, HM Holdings involved coverage under a commercial general liability policy for nine waste sites located in seven different states. The New Jersey Court concluded that the law of the waste sites would apply to the interpretation of the “pollution exclusion” exception, and that either the law of New Jersey or the law of the waste sites applied to the “late notice provision,” with New Jersey Law taking precedence if the law of the waste sites was similar to New York’s, the state in which the parties were headquartered. In contrast, the insured in this matter did not have activities which were “predictably multi-state,” and therefore the general site-specific rule of sec. 193 would apply. The policies involved only the insured’s New York property, and only New York was implicated by the contamination. The Court considered these facts alone to be dispositive under sec. 193 because the parties, at the time of contracting, clearly understood New York to be the principal location of the insured risk. Therefore, there was no “choice-of-law issue” and no need for a complex balancing of factors under Restatement sec. 6.