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GENERAL METALCRAFT, INC. v. LIBERTY MUT. INS. CO.

June 26, 1992

GENERAL METALCRAFT, INC., Plaintiff,
v.
LIBERTY MUTUAL INSURANCE COMPANY, Defendant.



The opinion of the court was delivered by: JOHN F. GERRY

 GERRY, Chief Judge

 This matter involves an insurance coverage dispute between plaintiff General Metalcraft, Inc. ("General Metalcraft") and defendant Liberty Mutual Insurance Company ("Liberty Mutual"). Plaintiff, a manufacturer of filing cabinets, which are distributed nationally, faces liability in connection with the disposal of its hazardous wastes at various landfills in New Jersey. Currently before the court is plaintiff's motion for a declaratory judgment that New Jersey law, as opposed to Pennsylvania law, should be applied to interpret the "sudden and accidental" language in the "pollution exclusion" clause found in liability insurance policies plaintiff purchased from defendant.

 The pollution exclusion clauses at issue provide that the policies do 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, 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 escane is sudden and accidental. (Emphasis supplied.)

 We gather that only under New Jersey law, as it currently stands, would defendant be compelled to provide insurance coverage to plaintiff. *fn1"

 Background

 Plaintiff is a Pennsylvania corporation with its manufacturing facility and principal place of business in Delaware. At times relevant to this litigation, plaintiff also maintained offices in Pennsylvania. Defendant is a Massachusetts mutual insurance company with its principal place of business in Massachusetts and offices in various states, including New Jersey and Pennsylvania.

 Beginning either in 1971 or 1972, *fn2" through August of 1980, plaintiff purchased a series of liability insurance policies through defendant's Pennsylvania office. Accordingly, defendant delivered policies to plaintiff's Pennsylvania office, and premiums were delivered by plaintiff to defendant's Pennsylvania offices. Defendant provided various services to plaintiff through its Pennsylvania office. Additionally, plaintiff filed claims at defendant's claim facility in Pennsylvania. These transactions form the basis of defendant's contention that Pennsylvania is the place of contracting.

 Between 1972 and 1976, when insured by defendant, plaintiff transported paint waste from its manufacturing facility in Delaware to a New Jersey waste removal company, Jonas Waste Removal, for disposal at sea. However, this company allegedly deposited the stuff in various New Jersey landfills which subsequently became the subject of state and federal clean-ups. The events leading to this coverage lawsuit began in 1988 and 1989 when plaintiff was named as a "potentially responsible party" with respect to a number of the clean-up actions.

 Discussion

 A. New Jersey's Choice of Law Rule

 In diversity matters we follow the choice of law rules of New Jersey. See Klaxon Co. v. Stentor Electric Manufacturing Co., 313 U.S. 487, 496, 85 L. Ed. 1477, 61 S. Ct. 1020 (1941); Shuder v. McDonald's Corp., 859 F.2d 266, 269 (3d Cir. 1988). With respect to liability insurance contract controversies, the New Jersey Supreme Court has adopted a form of the "most significant relationship" analysis of the Restatement (Second) of Conflict of Laws (1971) (the "Restatement"). See State Farm Mutual Auto Ins. Co. v. Estate of Simmons, 84 N.J. 28, 34-37, 417 A.2d 488, 491-93 (1980).

 In short, this analysis provides that:

 The law of the place of contract will govern the determination of the rights and liabilities of the parties under the insurance policy. This rule is to be applied unless the dominant and significant relationship of another state to the parties and the underlying issue dictates that this basic rule should yield.

 Id. at 37, 417 A.2d at 493.

 Additionally, the State Farm court held that the law of the place of contract, the so-called lex loci contractus,

 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 ...


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