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CPS Chemical Co. v. Continental Insurance Co.

Decided: January 15, 1988.

CPS CHEMICAL COMPANY, INC., A CORPORATION OF THE STATE OF NEW JERSEY AS SUCCESSOR TO CPS PROCESSING CORPORATION, A CORPORATION OF THE STATE OF NEW JERSEY, CPS CHEMICAL CORPORATION, A DIVISION OF CHEMICAL & POLLUTION SCIENCES, INC., A CORPORATION OF THE STATE OF NEW JERSEY, CPS RESEARCH CORP., A CORPORATION OF THE STATE OF NEW JERSEY, EDWARD TRUEGER & COMPANY AND CHEMICAL AND POLLUTION SCIENCES, INC., A CORPORATION OF THE STATE OF NEW JERSEY, PLAINTIFFS-APPELLANTS,
v.
THE CONTINENTAL INSURANCE COMPANY, A CORPORATION OF THE STATE OF NEW YORK, UNITED STATES FIDELITY AND GUARANTY COMPANY, A CORPORATION OF THE STATE OF MARYLAND, DEFENDANTS-RESPONDENTS, AND GEORGE S. WHITE & COMPANY, INC., A CORPORATION OF THE STATE OF NEW JERSEY, MICHAEL L. RODBURG, ESQ. AND LOWENSTEIN, SANDLER, BROCHIN, KOHL, FISHER, BOYLAN AND MEANOR, A PROFESSIONAL CORPORATION, DEFENDANTS



On appeal from Superior Court of New Jersey, Law Division, Middlesex County.

Petrella, Dreier and Baime. The opinion of the court was delivered by Baime, J.A.D.

Baime

[222 NJSuper Page 177] Pursuant to R. 2:2-4, we granted plaintiff CPS Chemical Company's (CPS)*fn1 motion for leave to appeal from a partial summary judgment entered by the Superior Court, Law Division, in favor of defendants United States Fidelity and Guaranty Company (USF & G) and The Continental Insurance Company (Continental). The trial judge held that USF & G and Continental were not required under the terms of their comprehensive general liability insurance policies to indemnify CPS for monetary amounts awarded to the New Jersey Department of Environmental Protection (DEP) and the City of Perth Amboy (City) in two consolidated lawsuits. In the underlying litigation, CPS had been found legally obligated under the Spill Compensation and Control Act (N.J.S.A. 58:10-23.11 et seq.) (Spill Act) and the Water Pollution Control Act (N.J.S.A. 58:10A-1 et seq.) (WPCA) to pay the cost of cleaning up environmental contamination caused by the discharge of toxic chemicals from its plant in Old Bridge Township, New Jersey. The amounts awarded to the DEP and the City were to be expended in accordance with the terms of the final order which set forth a detailed plan designed to restore a nearby tributary known as Prickett's Brook and ground water beneath the

adjacent Runyon well field, which is operated by the City as a source of potable water for surrounding communities. In granting summary judgment in favor of USF & G and Continental, the trial court determined that the relief granted in the underlying lawsuits was essentially equitable in nature and that the monetary amounts awarded to the DEP and the City did not constitute damages subject to the carriers' respective obligations of indemnification.

For the purpose of this appeal, the salient facts are not in dispute and are essentially a matter of public record. CPS is engaged in the processing, treatment and storage of alcohols, esters and other organic compounds. These operations, which are extensive, are conducted at CPS's plant in Old Bridge Township. On March 16, 1977, the City of Perth Amboy filed a civil action against CPS and five other defendants,*fn2 alleging that they were liable in tort for property damage caused by their discharge of organic compounds from their respective factories and plants. More specifically, the City claimed that CPS and others, through the negligent operation of their facilities, discharged harmful and toxic chemicals, which ultimately found their way into the Prickett's Brook watershed and the Runyon well field, thereby completely contaminating its water supply. On the basis of these allegations, the City sought monetary damages, interest and costs of suit.

On August 4, 1977, the DEP instituted a separate action against CPS and Madison Industries, Inc. (Madison), asserting claims under the Spill Act and the WPCA. In the complaint, it was alleged that the Prickett's Brook watershed and the Runyon well field had been contaminated with toxic chemicals used by CPS and Madison in their respective operations. Accordingly, the DEP asserted that CPS and Madison were strictly liable for the costs to be incurred in restoring the watershed and the

well field. As emphasized by both USF & G and Continental, the relief requested by the DEP was framed in terms of a mandatory injunction directing CPS and Madison "to institute a cleanup plan," "to implement all necessary measures to prevent the discharge of any further hazardous substances," and "to install and maintain monitoring wells . . . at the plant site." In addition, the DEP sought monetary damages, costs and penalties under the Spill Act, the Pollution and Obstruction of Waters Act (N.J.S.A. 23:5-29) and the Environmental Rights Act (N.J.S.A. 2A:35A-1 et seq.).

On October 28, 1977, an order was entered consolidating the two actions for the purposes of discovery and a trial on the merits. Following a protracted non-jury trial, the judge found that "organic chemical emissions from CPS were the competent producing cause of chemical pollution of the Runyon well field. . . ." The judge further determined that the discharge of chemicals from the plants operated by CPS and Madison had severely contaminated the City's water supply. However, the judge rejected the remedy proposed by the City, which was to abandon the watershed and collect damages for the permanent loss of its property and for the loss of the water itself. Instead, the judge found that the watershed and the well field could be restored over a period of time by the use of certain experimental remedial methods available under current technology, as proposed by the DEP.

The judgment ultimately entered in favor of the City and the DEP provided for the award of 5.2 million dollars, to be used for (1) the construction and operation of a "slurry cutoff wall" three to five feet thick comprised of an impermeable substance, surrounding the CPS and Madison plant sites at their boundaries to a depth of approximately 70 feet and anchored in the South Amboy fire clay layer underlying the aquifer, (2) the installation of four maintenance wells within the slurry cutoff wall, four decontamination pump wells beyond the slurry cutoff wall, and monitoring wells to determine contamination levels, (3) the diversion of Prickett's Brook to a new channel, thereby

bypassing the two industries and (4) the dredging, pumping and disposing of contaminated sediments found in Prickett's Pond. Under the judgment, $1,700,000 was awarded to the DEP for installation of the monitoring wells and decontamination wells, pumping one million gallons of water per day for four years, $583,000 was awarded to the DEP to be used for the rerouting of Prickett's Pond, $585,000 was awarded to the City against Madison for dredging heavy metal sediments from Prickett's Pond and $430,000 was awarded to the City against CPS, representing the estimated cost of removing organic chemicals from the Pond. In addition, $100,000 was awarded to the City for the loss of the beneficial use of the Prickett's Brook watershed for a four-year period.

The judgment was apportioned between CPS and Madison in accordance with specified formulas set forth in the court's order. Specifically, the cost of the slurry cutoff wall was to be borne by CPS and Madison in proportion to the area enclosed within their respective industrial sites. The cost of construction and operation of the wells and the diversion of Prickett's Brook was to be shared equally by the two companies. The cost of pumping water from Prickett's Pond was assessed against CPS. The dredging of the pond was to be paid for by Madison. Each company was held to be only severally liable for its share of the total costs for the corrective measures. CPS and Madison were held to be jointly and severally liable to the City for the $100,000, which, as we have noted, represented damages for the loss of the watershed during the four years projected duration of the cleanup operation.

In an unpublished per curiam opinion, we sustained the factual and legal determinations made by the trial judge, but modified the judgment in two particulars. First, while recognizing that, under common law tort principles, damages for harm are generally to be apportioned among defendants in accordance with the extent to which each has contributed to the resulting injury, we found that the contamination of the watershed and well field was indivisible and thus CPS and Madison

should be held jointly and severally liable for the costs of the curative measures designed to combat the condition they created. Consequently, we imposed joint and several liability for payment of all amounts awarded to the DEP for implementation of the measures specified in the judgment. Second, we determined that the 5.2 million dollar sum might ultimately prove to be grossly inadequate to implement the ordered remedies. We noted that under the Spill Act and the WPCA, the court is empowered to order that all costs to abate water pollution be paid by those adjudged liable for violating the law. We pointed out that an accurate assessment of the prospective cost of the cleanup program was not possible, considering the unknowns to be encountered in the course of employing the untried, innovative technology required in toxic waste removal plans. In light of these uncertainties, we held that CPS and Madison should be obligated to pay all costs actually incurred by the DEP in implementing the remedies ordered by the trial court, and not limited to the amounts expressly imposed in the order and judgment.

Following the rendition of our opinion and the denial of certification by the Supreme Court, CPS filed this action, seeking a declaration that USF & G and Continental were contractually obliged under the terms of their respective liability policies to pay all defense costs incurred in the underlying litigation, and to indemnify it for the pecuniary amounts awarded against it in the consolidated proceedings. Both carriers denied liability on the basis that the sum of money for which CPS was adjudged liable did not constitute pecuniary damages and thus did not fall within the policy coverage. Because resolution of the issues presented at the trial level, and now on appeal, hinges upon our interpretation of the policy language, we recite the relevant provisions verbatim. The preprinted, standardized insuring clauses contained in the policies required USF & G and Continental:

[to] pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay ...


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