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PITTSTON CO. v. ALLIANZ INS. CO.

May 26, 1992

PITTSTON COMPANY, et al., Plaintiffs,
v.
ALLIANZ INSURANCE COMPANY, et al., Defendants.



The opinion of the court was delivered by: ALFRED M. WOLIN

 WOLIN, District Judge

 Before the Court is a motion by plaintiff Pittston Company ("Pittston") and plaintiffs in intervention Ultramar America, Limited and Ultramar Petroleum, Inc. (collectively "Ultramar"), and cross-motions by various defendants, all which seek a declaration of which body of law governs the interpretation of a number of insurance contracts. The parties variously seek to have New Jersey, New York or federal maritime law applied to the contracts of insurance at issue in this action. For the reasons that follow, defendants' cross-motions will be denied, and plaintiffs' motion will be granted in part.

 BACKGROUND

 This is an insurance coverage dispute in which the parties are battling to avoid ultimate responsibility for costs expended to remediate New Jersey land and water that has been fouled by petroleum leaks and spills over a number of years. The subject of the action is a petroleum terminal and storage facility located in Jersey City, New Jersey, commonly referred to as "Tankport."

 The Tankport facility consists of two sites separated by a 6,000 foot pipe corridor. The smaller site is an area of approximately 2.5 acres that adjoins water and contains a barge dock from which petroleum products were pumped from barges through the pipelines to the other larger site. The other site covers an area of approximately 28 acres and contained numerous above-ground storage tanks, which were removed between 1990 and 1991. Petroleum stored in the tanks was either pumped into trucks for retail distribution, or pumped back to the docks and onto barges.

 Tankport had been operated since the 1890s. It was purchased by Pittston in 1954, and was owned by Pittston or its affiliates or subsidiaries (hereafter referred to collectively as "Pittston") *fn1" until May 1983. Tankport was used by Pittston to receive and store barge shipments of Number 2 and Number 6 fuel oil.

 On April 30, 1983, Ultramar acquired Tankport from Pittston when it purchased all outstanding shares of stock in Pittston Petroleum, Inc. In the Stock Purchase Agreement, Pittston agreed, with limitations, to indemnify Ultramar for liabilities it incurred as a result of petroleum released on the Tankport site prior to the sale.

 In November 1988, Ultramar filed a complaint in this District against Pittston and PPG Industries, Inc. that related to chromium contamination found on the Tankport site. Based on the indemnification provision in the sales agreement, Ultramar sent Pittston a proposed amended complaint in August 1989 that added a claim based on petroleum contamination. Pittston and Ultramar settled the suit on April 9, 1990. Under the settlement agreement, Pittston agreed to pay for 80% of all cleanup costs incurred to remediate the petroleum contamination at Tankport, and Ultramar agreed to pay the remaining 20%.

 Before they executed the settlement agreement, the parties gave their insurers an opportunity to comment on or approve the settlement. The insurers did not respond, or instructed Pittston to act as a reasonable insured. After the settlement agreement was executed, Pittston and Ultramar continued to seek coverage from their insurers, but no private resolution of the insurance claims was reached.

 A complaint was filed by Pittston against the defendants insurers in New Jersey Superior Court for indemnification for payments made by Pittston to Ultramar. The case was removed to federal court pursuant to 28 U.S.C. § 1441(d), *fn2" because one of the defendant insurers, Insurance Company of Ireland, PLC, by virtue of its being 100% owned by the Government of Ireland, is an "agency or instrumentality of a foreign state" under the Foreign Sovereign Immunities Act ("FSIA"), 28 U.S.C. § 1603(b)(2). *fn3" Ultramar then joined the action as intervenor plaintiffs.

 This action involves two types of insurance policies: Comprehensive General Liability ("CGL") and Comprehensive Marine Liability Program ("CMLP"). Travelers Insurance Company ("Travelers") issued the CGL policies in issue to Pittston, but did not participate in the CMLP policies. All of the other defendants' potential liabilities derive from the CMLP policies. *fn4"

 Pittston purchased a series of CGL insurance policies from Travelers that covered all of Pittston's United States and Canadian operations between 1963 and 1981. *fn5" Until the early 1970s, none of those policies contained a provision that excluded environmental contamination from its coverage. The policy limits ranged between $ 100,000 and $ 1 million until 1975, and remained at $ 1 million from 1975 until 1981. None of the CGL policies contained a choice-of-law provision.

 Beginning in 1978, Pittston also purchased a series of CMLP policies that covered Pittston's marine operations, the last of which terminated on June 30, 1984. These policies provided traditional marine insurance coverage to Pittston, including hull, barge, cargo, charterer's and wharfinger's liability coverage. Pittston asserts that these policies also provided onshore, non-marine, pollution coverage, referred to by Pittston as "stand alone" pollution coverage. These policies had limits that ranged between $ 5 million and $ 25 million. The Hartford Insurance Company ("Hartford") was the sole underwriter of the CMLP policies between January 1, 1978 and June 30, 1980. Other defendants subscribed to varying degrees to subsequent CMLP policies. The last of the policies named Ultramar as an additional insured. Ultramar purchased one CMLP policy at the time of the sale of Pittston Petroleum, which provided coverage between April 1983 and April 1984. The policy named Pittston as an additional insured. None of the CMLP policies contained a choice-of-law provision. *fn6"

 BDISCUSSION R

 Pittston and Ultramar have moved for a declaration that New Jersey law governs. The insurers oppose the motion on the ground that a declaration of applicable law is premature because discovery is still in an early stage in the litigation, and no specific conflict of law has yet been raised requiring that a choice be made. Alternatively, some insurers have cross-moved for a declaration that New York law governs the construction and interpretation of the policies. The Court will address the CGL and CMLP policies separately.

  As an initial matter, the parties are in disagreement as to what type of motions are before the Court. Plaintiffs contend that a motion for declaration of applicable law is a form of in limine motion. Defendants, however, insist that, as plaintiffs are seeking a decision on a question of law, the motions must be adjudicated under the standard for summary judgment. As is evidenced by appellate review de novo, a choice of law decision involves resolution of a question of law. See Allison v. ITE Imperial Corp., 928 F.2d 137, 138 (5th Cir. 1991); Quintero v. Klaveness Ship Lines, 914 F.2d 717, 721 (5th Cir. 1990); Mitchell v. State Farm Fire & Cas. Co., 902 F.2d 790, 792 (10th Cir. 1990). To the extent that application of the legal standard for determining choice of law is dependent on the facts of the case, in the absence of findings of fact, resolution of the choice of law issue can occur only if the material facts are undisputed. In this sense, a motion for declaration of applicable law is a motion for summary judgment. The Court will treat these motions as such.

 BA. Choice-of-law Rules Under the FSIA R

 A threshold issue raised by the parties is whether, because federal jurisdiction in this action arises solely from the FSIA, federal or state choice-of-law rules should govern in this action. There is a split of authority on the issue in the circuit courts of appeal. Compare Barkanic v. General Admin. of Civil Aviation of the Peoples Republic of China, 923 F.2d 957, 959-60 (2d Cir. 1991) (applying state choice-of-law rules) with Schoenberg v. Exportadora de Sal, S.A. de C.V., 930 F.2d 777, 782 (9th Cir. 1991) (applying federal common law choice-of-law rules).

 As to most of the parties in this litigation, the Court does not believe that an issue exists. The FSIA is addressed to actions involving foreign states and their agencies and instrumentalities. It does not purport to alter the substantive rights of non-"foreign state" defendants. Thus, there can be no doubt that state choice-of-law rules govern all claims by plaintiffs against all defendants except the Insurance Company of Ireland.

 As to the Insurance Company of Ireland, the Court agrees with the Second Circuit that state choice-of-law rules should be applied. The Barkanic court reasoned that application of state choice-of-law rules would best further the intentions of Congress in enacting the FSIA. That statute provides in part: "the foreign state shall be liable in the same manner and to the same extent as a private individual under like circumstances." 28 U.S.C. § 1606. Relying on this provision, the United States Supreme Court held in First Nat'l City Bank v. Banco para el Comercio Exterior de Cuba, 462 U.S. 611, 103 S. Ct. 2591, 77 L. Ed. 2d 46 (1983) that state law generally governs the rights and liabilities of the parties in FSIA actions. Id. at 622 n.11, 103 S. Ct. at 2598 n.11. Because the FSIA was enacted only to provide foreign states and their instrumentalities access to federal courts to ensure uniformity in the application of the doctrine of sovereign immunity, in those cases where the statute does not afford immunity, foreign states should be treated no differently than private defendants. This policy is best achieved by applying state choice-of-law rules to actions based on state law. Barkanic, 923 F.2d at 960.

 That is not to say, however, that federal choice-of-law rules should not be applied if they are applicable on a basis independent of the FSIA. The Marine Insurers contend that federal choice-of-law rules should be applied to some of the insurance policies because of their alleged "maritime" nature, which it is contended makes claims related to those policies subject to the admiralty jurisdiction of the federal courts. The Court agrees. To the extent any of the claims in this action would otherwise be governed by federal choice-of-law rules, application of such rules is not defeated or otherwise altered by the FSIA.

 BB. Choice-of-law as to Travelers' CGL Policies R

 The leading New Jersey case on choice-of-law in the context of contracts for insurance is State Farm Mut. Ins. Co. v. Simmons, 84 N.J. 28, 417 A.2d 488 (1980). Simmons involved the question whether Alabama or New Jersey law governed a particular issue of insurance coverage on an insurance policy issued by an Alabama insurer to an Alabama resident to cover an Alabama automobile that was involved in an accident in New Jersey which resulted in five deaths. The New Jersey Supreme Court stated in Simmons that S

 The proper approach in resolving conflict-of-law issues in liability insurance contract controversies is that which may be synthesized from the . . . evolution of the law in both the contract field as well as in the somewhat related tort field, particularly in the area of automobile accident litigation. This calls for recognition of the rule that the law of the place of the contract ordinarily governs the choice of law because this rule will generally comport with the reasonable expectations of the parties concerning the principal situs of the insured risk during the term of the policy and will furnish needed certainty and consistency in the selection of the applicable law.I

 Id. at 37 (emphasis added). Applied to the facts of that case, the court found that Alabama law applied.

 Although Simmons did not expressly adopt the "most significant relationship" test of the Restatement (Second) of Conflicts of Law (1971) (hereafter "Restatement "), it approvingly discussed the Restatement principles at length, noted that prior New Jersey Supreme Court precedent was "not inconsistent" with the Restatement approach, and applied the factors set forth by the Restatement. Id. at 34-39. Subsequent New Jersey Appellate Division decisions have made clear that the Restatement "most significant relationship" test is the law of New Jersey. Johnson Matthey Inc. v. Pennsylvania Mfrs.' Assoc. Ins. Co., 250 N.J. Super. 51, 593 A.2d 367 (App. Div. 1991); Bell v. Merchants and Businessmen's Mut. Ins. Co., 241 N.J. Super. 557, 562, 575 A.2d 878 (App. Div. 1990); Molyneaux v. Molyneaux, 230 N.J. Super. 169, 180, 553 A.2d 49 (App. Div. 1989); Colonial Penn Ins. Co. v. Gibson, 230 N.J. Super. 55, 58, 552 A.2d 644 (App. Div. 1989); Bernick v. Jack Frost, 210 N.J. Super. 397, 403, 510 A.2d 56 (App. Div.), certif. denied, 105 N.J. 511 (1986); see also Veazey v. Doremus, 103 N.J. 244, 247, 510 A.2d 1187 (1986) (characterizing Simmons as having adopted "the more flexible governmental-interest analysis in choice-of-law decisions").

 Section 188 of the Restatement sets forth the general rule to be applied in contract actions. That section provides in part: S

 (1) The rights and duties of the parties with respect to an issue in contract are determined by the local law of the state which, with respect to that issue, has the most significant relationship to the transaction and the parties under the principles stated in § 6.

 (2) In the absence of an effective choice of law by the parties . . . the contacts to be taken into account in applying the principles of § 6 to determine the law applicable to an issue include: S

 (a) the place of contracting,

 (b) the place of negotiation of the ...


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