On certification to the Superior Court, Appellate Division, whose opinion is reported at 235 N.J. Super. 321 (1989).
Clifford, Garibaldi, Stein, King, O'Hern, Wilentz, Handler
The opinion of the court was delivered by
The Appellate Division held that the "owned property" exclusion in the defendant property-owner's liability insurance policy relieved the third-party-defendant insurance carrier of any obligation to indemnify or defend its insured for its potential liability to the Department of Environmental Protection (DEP) for the cost of cleanup of toxic substances resulting from a fire on the insured's property. State, Dep't of Envtl. Protection v. Signo Trading Int'l, Inc., 235 N.J. Super. 321 (1989) (Signo Trading). We granted certification, 118 N.J. 227 (1989), to review that determination, and now affirm.
In April 1983 defendant third-party plaintiff, Morton Springer & Co., owned a warehouse at 140 Thomas Street, Newark. Springer leased space to various tenants, including defendant Signo Trading International, Inc. On April 11th a fire occurred at the warehouse. After the Newark Fire Department had extinguished the fire, Springer hired a contractor to contain wastewater that had accumulated in trenches along the building perimeter. The contractor secured the wastewater in twenty-seven drums, after which DEP ordered Signo to clean up the debris from the floor on which the fire had occurred. By May 3rd the fire-damaged material had been removed from the property pursuant to a hazardous-waste manifest.
Because the fire had revealed the presence of hazardous materials, DEP's representative surveyed the premises to determine the contents of the warehouse. He discovered, in addition to chemicals and hazardous waste, leaking drums and other containers piled in a precarious manner, a non-operational sprinkler system, exposed wiring, a lack of fire extinguishers, and inadequate building security. DEP therefore directed that the premises be cleaned up and the offending materials removed. However, the pace of compliance was so slow that DEP resorted to the filing of a complaint in the Chancery Division in July 1983 to obtain judicial enforcement of the cleanup.
Because the owner and tenants failed to comply with a court order to decontaminate the property under PEP supervision, the trial court, in July 1984, ordered DEP to take exclusive possession and control of the warehouse and to clean up the property with the use of public funds. Acting pursuant to the authority of the Spill Compensation and Control Act, N.J.S.A. 58:10-23.11 to -23.11z (Spill Act), DEP conducted the cleanup, at a cost of about $3.6 million.
During the cleanup process Springer filed a third-party complaint against Federal Insurance Co. seeking defense and indemnification in respect of DEP's claims. Federal had issued to Springer a primary comprehensive general liability (CGL) policy and an umbrella policy, both of which were in effect on the date of the fire. The CGL policy, which provided coverage for liability of up to $500,000 per occurrence, contained the following pertinent provision:
The 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. (Emphases added.)
The policy defined "property damage" as
1. physical injury to or destruction of tangible property which occurs during the policy period, including the loss of use thereof at any time resulting therefrom, or
2. loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence during the policy period.
An "occurrence" is defined in the policy as
an event, including continuous or repeated exposure to conditions, which results in * * * property damage * * *.
Excluded from the policy were 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, significantly for this appeal, for property damage to "property owned * * * by the insured."
The umbrella policy contained similar provisions and exclusions.
In June 1985 Springer moved for summary judgment on the carrier's duty to defend, and Federal cross-moved for summary judgment. The trial court denied Springer's motion and granted Federal's, concluding in part as follows:
An occurrence in the policy is defined in such a way that basically it comes down to damage inflicted upon the person or properties of people other than the insured. That's essentially what it comes down to.
In our present case we simply do not have any damage inflicted upon a third party or the property of third parties.
Although the risk of damage to life and property of third parties was present and was a major concern in ordering this cleanup, there was no occurrence of any such damage to property or injury or death inflicted upon third parties. There simply was not an insured event occurring within the meaning of the policy.
Although there is much to be said for reading insurance policies liberally to give coverage to people who need it and might have some reasonable expectation that coverage exists, there is in the long run not much to be said for simply turning policies inside out and standing them on their heads and making them do jobs that they were not designed to do.
This kind of insurance policy was not designed to pay for preventing environmental damage work in the absence of any actual injury inflicted upon third parties or their property, and to simply take this policy and rework it or recast it because right now we could use this $500,000 would not just be unfair and inappropriate so far as this insurer is concerned, but it really amounts to half-baked social engineering that I think we shouldn't engage in. These policies really aren't designed to cover this kind of a situation, and they should not on a casual ad hoc basis be violently torn asunder in order to serve some make-way social policy. Just doesn't make sense.
Thereafter, in March 1988, Springer moved to vacate the trial court's order granting summary judgment to Federal and for summary judgment on Springer's third-party complaint, relying on two Appellate Division decisions handed down after the trial court's earlier ruling: Broadwell Realty Services, Inc. v. Fidelity & Casualty Co., 218 N.J. Super. 516 (1987), and CPS Chemical Co. v. Continental Insurance Co., 222 N.J. Super. 175 (1988). Federal resisted the motion on the basis that the cited cases were readily distinguishable in that they both involved continuing and ongoing damage to property of third persons. The trial court readily grasped the factual distinction:
It has never been proved before me, and indeed I don't think it's been alleged, in any way supported by significant evidence, that, in fact, there was migration of the chemical pollutants off the Morton Springer property onto any adjacent properties or actually into any of the waters of the state.
However, the court nevertheless read Broadwell to mandate coverage for avoidance costs, stating:
My view was and is that that is not what these policies are designed to do. But my view also is that the Appellate Division has ruled in this reported case [(Broadwell)] that this policy does cover that kind of loss.
I am obliged as a trial Judge to follow the legal rulings of the Appellate Division even though I do not agree with them. And it seems to me that if this defendant insurance company and others wish relief, they'll have to get it either from the Appellate Division or from the Supreme Court.
From the consequent entry of judgment in favor of Springer the carrier appealed to the Appellate Division. That court reversed and entered judgment for Federal.
In this, our first excursion into the thicket of environmental-pollution coverage, we are struck by the lack of uniformity in decisions regarding the applicability of the owned-property exclusion to the costs of cleanup. See Kenneth Abraham, Environmental Liability and the Limits of Insurance, 88 Colum. L. Rev. 942, 966-70 (1988). Understandably, the treatment that our Appellate Division has given the complicated question of insurance law in this area may be viewed as somewhat uneven. See, in addition to the Appellate Division decision in this case, the following: Broadwell, supra, 218 N.J. Super. 516; CPS Chemical, supra, 222 N.J. Super. 175; Summit Associates Inc. v. Liberty Mutual Fire Insurance Co., 229 N.J. Super. 56 (1988); and Diamond Shamrock Chemicals Co. v. Aetna Casualty & Surety Co., 231 N.J. Super. 1 (1989).
Broadwell, supra, involved the leakage of a hazardous substance onto adjacent property from underground storage tanks on Broadwell's land. DEP directed Broadwell to clean up the area and prevent future harm. The issue in the case was whether Broadwell's liability policy, which is almost identical to the policies in this case, covered such cleanup costs. The court held that "the costs of preventive measures taken by Broadwell on its own property in response to the DEP directive which were designed to abate the continued flow of contaminants on to adjacent lands are recoverable under the policy." 218 N.J. Super. at 525. Having found "damages," the court then considered whether the "owned property" exclusion precluded recovery due to the fact that the cleanup costs had been occasioned by work on the insured's own land. The court rejected that exclusion, stating:
We are satisfied that Fidelity would have been obliged to indemnify Broadwell for the costs of the interceptor trenches and the observation/recovery pumping wells had they been installed on adjacent properties in order to prevent further loss to third parties It would be folly to argue, under such circumstances, that the insured would be required to delay taking preventive measures. thereby permitting the accumulation of mountainous claims at the expense of the insurance carrier. Stated another way, the policy does not require the parties to calmly await further catastrophe. Abatement measures designed to prevent the continued destruction of adjacent property are plainly compensable under the policy.
CPS Chemical, supras, involved a similar factual situation. CPS was found legally obligated under the Spill Act and the Water Pollution Control Act tp pay the cost of cleaning up contamination from its plant. The toxins released from the plant had completely contaminated a nearby watershed. As in Broadwell, the Appellate Division held that
monetary amounts awarded to the DEP for the purpose of implementing measures designed to abate the continued migration of hazardous wastes into the Prickett's Brook and the Runyon well field in order to restore the acreage and the water to their natural condition prior to the unlawful discharge ...