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Summit Associates Inc. v. Liberty Mutual Fire Insurance Co.

Decided: July 29, 1988.


On appeal from the Superior Court, Law Division, Middlesex County.

Furman, Long and Scalera. The opinion of the court was delivered by Long, J.A.D.


This appeal involves the interpretation of language contained in a comprehensive liability insurance policy issued by defendant Liberty Mutual Fire Insurance Company (Liberty) insuring the property of plaintiff Summit Associates, Inc. (Summit). The case began when Summit filed a complaint against Liberty seeking reimbursement for the sums it was required to pay to clean up and remove certain hazardous substances discovered on its property. Liberty answered denying coverage based on several policy exclusions. After a bench trial, the trial judge ruled in Summit's favor and entered judgment for Summit in the amount of $438,599.76, plus prejudgment interest and counsel fees. Liberty appeals.

The following facts were established at trial: Summit, a real estate developer, purchased property in the Raritan Center from Edison Township in 1978. Twenty years earlier, Edison had used the property as a sewage treatment facility. When it purchased the property, Summit was not informed that any portion of the sewage treatment facility remained buried at the site, nor was it advised of any sludge or hazardous substance buried there. According to Edison, it had no knowledge of hazardous or toxic substance buried at the site either. The property, which was part of the Raritan Arsenal, had been acquired by Edison from the United States Government in 1965. Maps of the arsenal depicted areas designated as "contaminated," as a result of being used to burn munitions. Summit had previously developed land surrounding the site, as well as part of this tract, without encountering underground sewage structures. It planned to develop this tract as a parking lot for an adjacent office building/hotel complex. Before Summit's workmen began excavation for the parking lot, the land was covered by trees, brush, sand and one concrete structure, about three to four feet high and about 20 to 40 feet in length. It was surrounded by a lagoon, or spillway, for water runoff from the sewage treatment plant. Summit's plan was to level out the dirt, knock down the concrete structure, push it in and bury

it. In the course of accomplishing this, in mid-July 1983, underground pipes leading from what turned out to be a large underground sludge pit to the lagoons were disturbed and began leaking odoriferous liquid.

John O. Grun, Edison Township Assistant Health Officer, was called to the site on July 15, 1983 by the Middlesex County Health Department's air pollution program. (Eventually the County Health Department, the State Department of Environmental Protection (DEP) and the Federal Environmental Protection Agency (EPA) delegated to Grun the responsibility of cleaning-up Summit's site.) Grun said the odor had a heavy, nauseating, chemical smell. He ordered Summit to stop the job and test the material. About a week later, in response to complaints of a horrible odor, he returned. He observed a storage tank from which the same odor emanated. It was about 25 feet across and filled with sludge. Grun told Summit to remove the sludge as soon as possible because it constituted a "public health nuisance." Grun stated that he defined that term based "on my own nose, if you will." A representative of Environmental Services, Inc. (ENSI), the company which ultimately removed the waste, testified that Edison ordered expeditious cleanup because of the toxic materials as well as the smell.

Analysis by Environmental Testing and Certification, Inc. (ETC) revealed that the liquid and sludge contained several substances defined as hazardous by the EPA. ETC's representative, Dr. Lin, said he drove by the site daily, trying not to breathe because "when it first hits you, you say, 'I shouldn't take in any of this,' and you try to stop breathing and drive by." Summit was ordered to remove this toxic material pursuant to the Spill Compensation and Control Act. N.J.S.A. 58:10-23.11 et seq.

On July 25, 1983, the area where the concrete structure had been pushed in and covered over with dirt began to cave in. Workers found a tank about 10 feet wide and 10 feet deep,

cleaned it out and filled it with stone. This small tank was actually a part of the big sludge pit ultimately discovered. On August 1, 1983, a second sink hole appeared in the same spot. Workers discovered that under a concrete floor, 10 feet below surface, sludge was contained in an area to a depth of approximately 24 feet. Some of the workmen became sick at this point. The smell was almost unbearable. Workers mixed the jello-like sludge with dirt in a ratio of one to three and spread it out to dry. (Health regulations require that the liquid and solid waste be removed separately). ENSI eventually removed about 2000 tons of sludge and 50,000 gallons of liquid waste. The cost was $438,599.76.

The Liberty policy under which Summit was insured provides that:


1. Bodily Injury ...

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