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State v. Signo Trading International Inc.

Decided: August 2, 1989.

STATE OF NEW JERSEY, DEPARTMENT OF ENVIRONMENTAL PROTECTION, AND THE CITY OF NEWARK, PLAINTIFFS-RESPONDENTS,
v.
SIGNO TRADING INTERNATIONAL, INC.; SCI EQUIPMENT AND TECHNOLOGY, INC.; STORAGE INNOVATIONS, INC.; VISTA INTERNATIONAL; ATLANTIC COAST ENVIRONMENTAL, INC.; RESOURCE TECHNOLOGY SERVICES, INC.; JACK COLBERT; CHARLES COLBERT, AND ROBERT MCKENNA, DEFENDANTS. MORTON SPRINGER & CO., INC., DEFENDANT AND THIRD-PARTY PLAINTIFF-RESPONDENT, V. FEDERAL INSURANCE COMPANY, THIRD-PARTY DEFENDANT-APPELLANT, AND SCOVILL, INC.; EASTERN WASTE INDUSTRIES, INC.; EASTERN DISPOSAL, INC., AND JOHN M. SPEAK, JR., THIRD-PARTY DEFENDANTS



On appeal from the Superior Court of New Jersey, Chancery Division, Essex County.

Michels, Long and Keefe. The opinion of the court was delivered by Michels, P.J.A.D.

Michels

Third-party defendant Federal Insurance Company (Federal) appeals from a summary judgment of the Chancery Division entered in favor of defendant and third-party plaintiff Morton Springer & Co., Inc. (Springer), that ordered Federal to provide coverage for and a defense to claims asserted against Springer in an underlying action instituted by plaintiffs State of New Jersey, Department of Environmental Protection (DEP), and City of Newark (Newark).

I.

Factual Background and Procedural History

On April 11, 1983, in the course of extinguishing a fire at a warehouse at 140-170 Thomas Street in Newark, New Jersey, a number of firefighters incurred respiratory injuries as a result of inhaling toxic fumes. Newark Fire Department officials discovered that various hazardous substances were being illegally stored in the warehouse in an apparently unsafe manner. The DEP was called to the scene and immediately directed Springer, the owner of the warehouse, as well as various tenants to contain the waste water from the fire and to remove any fire-damaged material.

The on-scene coordinator for the DEP, Bruce Comfort (Comfort), estimated that the structure housed approximately 17,000 containers, including boxes, cylinders, bags, pails and 55-gallon

drums. Comfort stated in an affidavit that the containers, which were filled with hazardous materials such as "flammables, oxidizers, corrosives, poisons and explosives," had not been kept separate from one another, leading to the possibility that "chemicals could interact with each other resulting in a chemical reaction." Comfort also noted that he had observed

drums stored in a precarious manner . . ., a nonoperational water based sprinkler system, water reactive chemicals stored near open windows, inadequate lighting conditions to permit safe handling of materials, exposed wiring which could spark a chemical reaction [,] a total lack of fire extinguishers in the event of an emergency [and] [p]oor building security. . . ."

Springer, which has described itself as an "absentee landlord" that knew nothing of the storage of hazardous chemicals in the warehouse, was represented on-site for the purpose of rent collection by Ernest Klinghoffer (Klinghoffer), the owner of a company that rented four of the six buildings located at 140-170 Thomas Street. According to Comfort, Klinghoffer "had full access to all areas of 140 Thomas Street."

On or about July 18, 1983, the DEP and Newark filed a civil action against Springer, various tenants in the warehouse and other parties, seeking injunctive relief, damages, recovery of cleanup costs and penalties under various statutes and common law theories of liability. The amended complaint charged, among other things, that Springer "knew or should have known . . . of the hazardous, dangerous and illegal conditions which existed at 140 Thomas Street," because of the presence at the site of its agent, Klinghoffer. The complaint further charged that the conditions at 140-170 Thomas Street "have impaired, polluted and contaminated the environment [,threatening] the health and safety of persons living and/or working in proximity" to the warehouse. The complaint also asserted that defendants had allowed hazardous substances to discharge from containers onto the floor of the warehouse, from where they might "flow or runoff" into the waters of the State. The complaint referred to Comfort's affidavit, which, in addition to generally recounting the condition of the warehouse as it existed after the fire, alleged that there existed "a clear danger of

fire and explosion" as a result of the improper storage of the chemicals. Comfort's affidavit further stated that "[s]hould a fire occur there would be extensive ground and groundwater contamination from toxic chemicals and known carcinogens. The nature of the chemicals could also pose the risk of respiratory illness for persons living in close proximity to the warehouse and to persons engaged in firefighting."

On September 2, 1983, the Chancery Division ordered the DEP to direct the cleanup of the "perilous and dangerous conditions" that existed at the warehouse. The court's order required the defendants in the DEP's action to perform various tasks to facilitate the cleanup of the site and impressed a lien on all New Jersey real estate owned by Springer and several other defendants in the DEP's action. A second order, which was issued by the Chancery Division on January 19, 1984, required that two tenants at the warehouse, defendants Signo Trading International, Inc. (Signo), and SCI Equipment and Technology, Inc. (SCI), "remove all remaining materials from the warehouse no later than March 31, 1984," and mandated that Springer repair the elevator at the warehouse. Neither the September 1983 nor the January 1984 order was complied with. On June 7, 1984, the Chancery Division ordered the DEP to assume "exclusive possession and control" of the warehouse "for the purpose of performing a publicly funded cleanup of the facility," and assessed sanctions for noncompliance with the earlier orders totalling $2500 against Springer and $36,000 against Signo and SCI.

The cleanup eventually was completed at a cost to the Spill Compensation Fund ("Spill Fund") of approximately $3.6 million. The Spill Fund on March 13, 1986, filed a notice of first priority lien against the property at 140-170 Thomas Street in the amount of the total cleanup costs. The property at 140-170 Thomas Street was returned to Springer's control by an order dated May 8, 1987, after the trial court determined that "the Department's decontamination program at the warehouse has abated the immediate health threat presented by the hazardous

chemicals stored at the site and that any remaining contamination problems should be addressed under the ECRA Program. . . ."

While the cleanup progressed, Springer filed a third-party complaint seeking a declaration that Federal was obligated under the terms of its liability insurance policies to provide coverage for and a defense to claims asserted against Springer in the DEP's action. Federal had issued to Springer a Comprehensive Liability Insurance Policy and an Umbrella Liability Policy, both of which were effective on the date of the fire. The Comprehensive Liability Policy provided coverage for liability of up to $500,000 per occurrence, and stated generally that

[t]he company will pay on behalf of the insured all sums which the insured shall become obligated to pay as damages by reason of liability to which this insurance applies, imposed by law or assumed by the insured under any written contract, for bodily injury, property damage or personal injury 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, property damage or personal injury, 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. 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 Comprehensive Liability Policy, however, excluded coverage for "bodily injury or property damage arising out of an event, the result of which was expected or intended from the standpoint of the insured," and for property damage to "property owned . . . by the insured. . . ." The policy also excluded coverage for

bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acid, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any watercourse or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental.

The Umbrella Liability Policy provided coverage for liability of up to $5 million per occurrence, and stated generally that

[i]n consideration of the payment of the required premium, the Company hereby agrees, subject to all of the terms of this policy, to pay on behalf of the

insured all sums, as more fully defined by the term ultimate net loss, for which the insured shall become ...


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