On appeal from Superior Court, Law Division, Essex County.
Pressler, Gaulkin and Baime. The opinion of the court was delivered by Baime, J.A.D.
[218 NJSuper Page 518] This appeal presents difficult questions concerning the construction of language contained in a comprehensive general liability insurance policy. Under the policy, the insurer's obligation
is limited to indemnification of the insured for damage to the property of third persons. Coverage does not include damage to the insured's own property. The policy contains additional language which excludes from coverage losses caused by pollution except where the discharge, dispersal, release or escape of the contaminant is sudden and accidental. At issue is whether the cost of preventive measures taken by the insured on its own property in response to the directive of an administrative agency, which are designed to abate the continued release of pollutants on to adjacent lands, falls within the policy coverage. Auxiliary questions concern whether the gradual but unforeseen and unexpected discharge of contaminants from fissures in underground storage tanks on the insured's property and the migration of such pollutants on to the lands of third persons fall within the purview of the pollution exclusion.
The salient facts are not in dispute. On August 24, 1983, plaintiff Broadwell Realty Services, Inc. (Broadwell) received a "directive letter" from the Department of Environmental Protection (DEP) advising it that an "undetermined amount of a hazardous substance" had escaped from several underground storage tanks on its premises and had migrated on to adjacent lands. Although the property was owned by Broadwell, it had been leased to Globe Petroleum, Inc. (Globe), which operated a Citgo Service Station franchise on the premises.
The record reflects that the DEP had received several complaints concerning the presence of gasoline in two New Jersey Bell cable vaults located immediately adjacent to Broadwell's property. Based upon those reports, the DEP had retained private hydrologists whose investigation revealed that gasoline was leaking from Broadwell's property into the cable vaults and was "also discharging into a nearby stream." In their report to the DEP, the hydrologists recommended a "detailed recovery program" which, among other things, included the installation of "observation/recovery wells" across the frontage of the Citgo station to "cut off" the advance of the pollutants to
adjacent lands. Pursuant to the Spill Compensation and Control Act (N.J.S.A. 58:10-23.11 et seq.), the DEP directed Broadwell to take immediate "cleanup action" to stem continued migration of the hazardous substance and to remove and dispose of contaminated soil. Broadwell was further advised that failure to comply with the DEP's directive would result in treble damages and the placement of a first priority claim and lien upon all of its real and personal property.
After the gasoline leakage was confirmed by an on-site inspection, Broadwell retained an engineering company specializing in pollution control to perform the emergency recovery and cleanup operations mandated by the DEP directive. An "interceptor trench" was excavated on Broadwell's property near its boundary with the adjacent land. The trench was "backfilled" with crushed stone and a "recovery/pumping well" was installed. The trench was designed to prevent the gasoline from migrating towards the New Jersey Bell cable vaults and to facilitate the collection and removal of the hazardous substance. The cleanup and removal expenses incurred by Broadwell totalled $41,965. Apparently an additional $8,000 was expended by the New Jersey Spill Compensation Fund and this amount was also charged to Broadwell.
At the time that the gasoline leakage was discovered, Globe was insured under a comprehensive general liability policy issued by defendant Fidelity & Casualty Company of New York (Fidelity). Broadwell was named as an additional insured under the policy. The focus of the present dispute is whether expenses incurred by Broadwell in its effort to comply with the DEP's cleanup directive fell within the policy coverage. Because resolution of the issues presented by this appeal hinges upon our interpretation of language contained in the policy, we recite the relevant provisions
The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of
to which this insurance applies, caused by an occurrence, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient, but the company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the company's liability has been exhausted by payment of judgments or settlements.
The policy defines "property damage" as:
(1) physical injury to or destruction of tangible property which occurs during the policy period, including the loss of use thereof at any time resulting therefrom, or
(2) loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence during the policy period.
"Occurrence" is defined as:
an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured.
As we have noted, coverage under the policy does not include damage to the insured's own property. In that regard, the policy provides:
This insurance does not apply . . . to property damages to (1) property owned or occupied by or rented to the insured, (2) property used by the insured, or (3) property in the care, custody or control of the insured or as to which the insured is for any purpose exercising physical control. . . .
The pollution exclusion to which we referred previously reads as follows:
This insurance does not apply . . . to bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any water course or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental.
Relying upon these provisions, Fidelity disclaimed liability for the expenses incurred by Broadwell in abating the continued migration of gasoline on to the adjacent properties. The principal thrust of Fidelity's position was, and continues to be, that Broadwell's cleanup efforts in response to the DEP's ...