therefore, deems this fact as established. See Fed R. Civ. P. 56(d).
Knowledge That the Contaminants Were Seeping
Into the Soil and Groundwater
Analysis of this factual issue must distinguish between soil and groundwater. There can be no dispute that Chemical Leaman knew that the contaminants were seeping into the soil. Chemical Leaman left the ponds and lagoons unlined precisely because one of the goals of the rinsewater treatment system was to utilize the soil in the cleansing process. Accordingly, the court deems this to be an established fact. See Fed. R. Civ. P. 56(d).
In contrast, the court finds that the state of Chemical Leaman's knowledge with respect to the seepage of contaminants into the groundwater remains in dispute. Evidence in the record indicates that Chemical Leaman was at various times informed that contaminants from the rinsewater treatment system could reach or were reaching the groundwater. However, Chemical Leaman is entitled to challenge the relevance, materiality, credibility, and weight that should be given to this material. For example, plaintiff argues, and a jury may reasonably find, that Chemical Leaman understood groundwater contamination at facilities other than the Bridgeport terminal to be site specific. Cf. New Castle County v. Hartford Accident and Indem. Co., 933 F.2d 1162, 1191-92 (3d Cir. 1991). Accordingly, Chemical Leaman's knowledge of the seepage of contaminants into the groundwater remains a genuine issue of fact that must be resolved at trial.
Knowledge That the Contaminants Were Causing
The court finds that a genuine dispute exists on whether Chemical Leaman intended that the rinsewater treatment system at its Bridgeport facility result in the contamination of the soil. It is true that Chemical Leaman's rinsewater treatment system resulted in known contaminants settling in the soil at the bottom of the ponds and lagoons. It is also true that this fact, when combined with the fact established above that Chemical Leaman knew of the deleterious effect on the environment of the contaminants in the rinsewater, would normally lead to the conclusion that Chemical Leaman knew that permanent damage to the soil would result. However, there is evidence that Chemical Leaman may have believed it rid the soil of these contaminants when it periodically dredged the bottom of the ponds and lagoons. Moreover, there is testimony that the designers and operators of the unlined rinsewater treatment system believed that the processes of filtration, biodegradation, and adsorption would remove and breakdown the contaminants, much like a domestic septic system was thought to operate. See Elston Dep. at 137-38; Ford Dep. at 386-87. A jury may reasonably infer from this evidence that Chemical Leaman neither expected nor intended to contaminate the soil, even though it placed known pollutants into the soil.
The court also finds that Chemical Leaman's knowledge that the seeping contaminants would cause permanent damage to the groundwater is necessarily a disputed issue given that it remains an open factual issue for resolution at trial.
Based on the foregoing analyses, the court denies the defendants' motions for summary judgment on the expected/intended issue.
III. Continuous Trigger Theory
The parties are in agreement that between 1960 and 1975, Chemical Leaman daily placed between 10,000 and 20,000 gallons of contaminated rinsewater into the unlined ponds and lagoons at the Bridgeport site. See Aetna's Br. at 16; Pl.'s Reply Br. at 59; LMI Br. at 4. It therefore appears undisputed that an event resulting in property damage occurred during these years to trigger the policies then in effect. Chemical Leaman, however, is also suing for coverage under defendants' policies in effect between 1975 and 1985, after the company stopped using the unlined ponds and lagoons treatment system. In order to obtain coverage under these policies, Chemical Leaman argues that New Jersey applies a "continuous trigger" theory to determine the time when property damage occurred within the meaning of defendants' insurance policies. According to Chemical Leaman, the continuous trigger theory provides that all of defendants' policies are triggered from 1960 (when Chemical Leaman first began operating the Bridgeport rinsewater treatment system) through 1985 (when Chemical Leaman claims it became fully aware of both the nature and extent of the groundwater contamination and its legal obligation to pay damages resulting from that contamination). The continuous trigger theory would allow Chemical Leaman to recover the full amount under any policy falling within the trigger period. See Keene Corp. v. Insurance Co. of N. Am., 215 U.S. App. D.C. 156, 667 F.2d 1034, 1041 (D.C. Cir. 1981), cert. denied, 455 U.S. 1007, 71 L. Ed. 2d 875, 102 S. Ct. 1644, 102 S. Ct. 1645 (1982). Defendants contest the proposition that New Jersey courts would apply the continuous trigger doctrine to the present case.
This court finds that New Jersey law permits the application of the continuous trigger theory, subject to certain predicate factual findings. Accord Hatco Corp. v. W.R. Grace & Co., 801 F. Supp. 1334, 1344-46 (D.N.J. 1992). Indeed, the New Jersey Appellate Division has already adopted the continuous trigger approach. In Gottlieb v. Newark Ins. Co., 238 N.J. Super. 531, 570 A.2d 443 (App. Div. 1990), the court addressed the question of when liability would be triggered for the migration of pesticide from the area in a house where it was originally applied. The trial court granted summary judgment, ruling that the policy unambiguously defined "occurrence" to include only those damages that occurred upon initial exposure and discovery of contamination in the house in 1982. Id. at 532-33. The Appellate Division reversed and held that the carrier's 1983, 1984, and 1985 policies also provided coverage for the subsequent migration of the pesticide. Finding that the term "occurrence" was ambiguous when applied to the phenomenon of continuing damage, the court in Gottlieb adopted a continuous trigger analysis in order to interpret and define the term. Id. at 535-36. "Where an injury process is not a definite discrete event, the date of occurrence should be the continuous period from exposure to manifestation of damage." Id. at 535.
Under the continuous trigger theory, all insurance policies activated by an ongoing occurrence "are jointly and severally liable to policy limits for all damages resulting from that occurrence, including damage that occurred before and after the policy period." Hatco Corp., 801 F. Supp. at 1346. The court in Hatco articulated the reasoning for adopting joint and several liability. "First, the language of the policies themselves do not limit coverage to injury that occurs during the policy period. Thus, as a matter of contract interpretation, overlapping coverage, in effect, had been bargained for." Id. (citation omitted). Second, the court analyzed language similar to that found in Aetna's and LMI's policies and determined that "because the Insurers agreed to 'pay all sums which the insured shall become legally obligated to pay as damages', they in effect step into the shoes of the insured." Id. In the present case, Chemical Leaman's "shoes" entail strict liability under CERCLA for the full cost of the cleanup of soil and groundwater damages caused by the Bridgeport facility, regardless of when it disposed of the hazardous substances. This court finds the analysis in Hatco persuasive and holds that all policies triggered by a continuous occurrence will be jointly and severally liable. See also Lac D'Amiante Du Quebec v. Am. Home Assurance, 613 F. Supp. 1549, 1561-63 (D.N.J. 1985).
New Jersey law requires the insured to make two factual showings before imposing joint and several liability under the continuous trigger theory.
First, the insured must establish that some kind of property damage occurred during each policy period for which the insured seeks coverage. Gottlieb, 238 N.J. Super. at 536; Hatco Corp., 801 F. Supp. at 1354. Thus, in the present case, Chemical Leaman must prove that soil and groundwater damage took place during the period of each policy for which it seeks coverage. Second, the insured must establish that the property damage was part of a continuous and indivisible process of injury. Hartford Accident & Indem. Co. v. Aetna Life & Casualty Ins. Co., 98 N.J. 18, 29, 483 A.2d 402 (1984); Hatco Corp., 801 F. Supp. at 1345. Here Chemical Leaman needs to show that the injuries caused by its use of the Bridgeport rinsewater treatment system were of a continuous, indivisible nature. The court finds that, despite evidence submitted by Chemical Leaman, see Pl.'s Reply Br. at 56, 59, neither of these issues is undisputed on the basis of the present record. Plaintiff's motion for summary judgment on the continuous trigger theory must be denied.
In sum, if Chemical Leaman establishes these factual predicates it may recover from defendants the full amount of coverage permitted under each insurance policy in effect from 1960 until the manifestation of the soil and groundwater damage. The court underscores the two phrases in the previous sentence in order to emphasize additional issues that are potentially in dispute. First, defendants may defeat plaintiff's recovery under a policy activated by a continuous trigger if defendants establish that an applicable policy exclusion bars coverage. Hatco Corp., 801 F. Supp. at 1344.
If an exclusion applies, coverage is precluded notwithstanding the continuous trigger. A second issue concerns the timing of the manifestation of the soil and groundwater damage. Chemical Leaman maintains that it only became aware in 1985 of the full scope of the property damage caused by the soil and groundwater contamination and its ensuing liabilities for cleanup costs. Defendants argue for an earlier date. The undeveloped state of the record requires the court to find that this issue remains a disputed fact question. It is for the jury to decide the date of manifestation.
IV. Pollution Exclusion Clause
A. The Broadwell Line of Cases
Defendants' policies in effect after April 1, 1971 contain pollution exclusion clauses. The parties dispute whether the events causing the soil and groundwater damage fall within the "sudden and accidental" exception to the pollution exclusion provision.
This heavily litigated issue turns in the first instance on the meaning of the word "sudden." Defendants argue that Chemical Leaman's placing of pollutants in the ponds and lagoons was not sudden because, temporally, it took place over many years rather than all at once. Plaintiff rejects this proposed definition and asks the court to rely on a line of New Jersey appellate precedent which, beginning with the case of Broadwell Realty Serv., Inc. v. Fidelity & Casualty Co., has defined the word "sudden" without a temporal element, construing the "sudden and accidental" exception to apply to "an 'unexpected,' 'unforeseen' or 'fortuitous' event." 218 N.J. Super. 516, 536-37, 528 A.2d 76 (1987); see also Summit Assoc., Inc. v. Liberty Mut. Fire Ins. Co., 229 N.J. Super. 56, 62, 550 A.2d 1235 (App. Div. 1988). Thus, under Chemical Leaman's proposed reading, the "sudden and accidental" exception does not contain a temporal element, and it is therefore irrelevant that the discharge and spread of toxic material took place over the course of more than two decades.
The court's task is to interpret the meaning of the pollution exclusion clause under New Jersey law. Although there exists a line of Appellate Division cases, the state Supreme Court has not yet directly ruled on the issue.
"Where an intermediate appellate state court rests its considered judgment upon the rule of law which it announces, that is a datum for ascertaining state law which is not to be disregarded by a federal court unless it is convinced by other persuasive data that the highest court of the state would decide otherwise." West v. A.T.& T., 311 U.S. 223, 237, 85 L. Ed. 139, 61 S. Ct. 179 (1940). Thus, "the decisions of lower appellate courts may be persuasive, should be accorded proper regard and are presumptive evidence of state law." Commercial Union Ins. v. Bituminous Casualty Corp., 851 F.2d 98, 100 (3d Cir. 1988).
Defendants propose two alternative arguments as to why this court should rule that Broadwell and its progeny are wrongly decided. First, they contend that the term "sudden" is clear and unambiguous in its meaning, and includes a temporal element. Second, defendants maintain that, even assuming that the term "sudden" is ambiguous, extrinsic evidence proves that the drafters of the pollution exclusion clause intended for the term to include a temporal dimension. The court addresses each of these arguments in turn.
B. The Ambiguous Meaning of the "Sudden and Accidental" Exception
In Broadwell, the Appellate Division, after noting the "extraordinary number of lawsuits" generated by the pollution exclusion, found that the "sudden and accidental" clause was ambiguous because the meaning of the term "sudden" may or may not included a temporal element. 218 N.J. Super. 516, 536, 528 A.2d 76 (App. Div. 1987). Recent caselaw has affirmed this result. CPC Int'l v. Northbrook Excess & Surplus Ins., 962 F.2d 77 (1st Cir. 1992) (applying New Jersey law); Hatco Corp. v. W.R. Grace & Co., 801 F. Supp. 1334, 1349-50 (D.N.J. 1992); see also New Castle County v. Hartford Acc. and Indem. Co., 933 F.2d 1162, 1198-99 (3d Cir. 1991) (finding "sudden and accidental" phrase ambiguous under Delaware law). The court follows the reasoning and analyses in these cases, and predicts that the New Jersey Supreme Court will do the same.
C. Contra Proferentum vs. "Sophisticated Insured"
Defendants' second argument acknowledges that the word "sudden" is ambiguous under New Jersey case law, but relies on extrinsic evidence to prove that the term contains a temporal aspect. The principle implicitly at work in this argument is the standard contract rule that extrinsic evidence is admissible to explain an ambiguous contract.
The court must reject defendants' invitation to evaluate the proffered evidence of drafters' intent. Even assuming that the evidence of the drafter's intent conclusively shows the desired meaning of the word "sudden," the doctrine of contra proferentum -- or "against the one who proffers" -- precludes this court from considering this evidence. In insurance law, the doctrine of contra proferentum provides that where a term in an insurance policy is ambiguous, giving rise to two equally plausible interpretations, the term will be given the meaning that results in coverage. Mazzilli v. Accident & Casualty Ins. Co. of Winterthur, 35 N.J. 1, 7-8, 170 A.2d 800 (1961). The reason for this rule of interpretation is that New Jersey law considers standard form insurance policies to be contracts of adhesion. Sparks v. St Paul Ins. Co., 100 N.J. 325, 335, 495 A.2d 406 (1985). The insurance carriers generally draft the language of these policies on their own, without input from or negotiation with the insured. See New Castle County v. Hartford Accident and Indem. Co., 933 F.2d 1162, 1181, 1182 n.43 (3d Cir. 1991). These circumstances require that "when the meaning of a phrase is ambiguous, the ambiguity is resolved in favor of the insured . . . and in line with an insured's objectively-reasonable expectations." Voorhees v. Preferred Mut. Ins. Co., 128 N.J. 165, 175, 607 A.2d 1255 (1992) (citation omitted).
Defendants argue that the strict rule of contra proferentum should not be followed in the present case, because Chemical Leaman is a "sophisticated" buyer and user of insurance. This court, however, is convinced that the size or sophistication of the insured is irrelevant under New Jersey law to the application of the rule of contra proferentum when the policy in dispute has been drafted solely by the carrier.
Hatco Corp. v. W.R. Grace & Co., 801 F. Supp. 1334, 1349 (D.N.J. 1992); CPS Chem. Co. v. Continental Ins. Co., 222 N.J. Super. 175, 189-90, 536 A.2d 311 (App. Div. 1988); see also Diamond Shamrock Chem. v. Aetna Casualty & Sur. Co., 258 N.J. Super. 167, 209, 609 A.2d 440 (App. Div. 1992) (suggesting, in dicta, that "only where it is clear that an insurance policy was 'actually negotiated or jointly drafted,' and where the policy holder had bargaining power and sophistication, is the rule of strict construction of policy terms against the insurer not invoked."). In the present case, Chemical Leaman played no role in negotiating or drafting the terms of the insurance policies.
The court, therefore, applies the rule of contra proferentum and holds that the term "sudden" in the pollution exclusion clause does not include a temporal aspect in its meaning. A long-term environmental pollution occurrence, such as the one involved here, falls within the exception to the pollution exclusion clause, so long as it was neither expected nor intended by the insured.
D. The Parties' Cross-Motions for Summary Judgment
Based on the above reading of the law, Chemical Leaman asks for a ruling that the pollution exclusion does not apply to the present case. The basis of Chemical Leaman's argument is that the pollution exclusion clause, because of the sudden and accidental exception, does no more than restate the scope of coverage under the basic occurrence-based terms of the policy.
In other words, the pollution exclusion clause, according to plaintiff, precludes coverage only if Chemical Leaman expected or intended to cause soil and groundwater damage. Pl.'s Br. at 35.
The problem with plaintiff's proposed reading is that the language of the pollution exclusion focuses not on damage but on "the discharge, dispersal, release or escape" of contaminants or pollutants. It is true that the court in Broadwell observed that the pollution exclusion clause was "simply a restatement of the definition of 'occurrence' -- that is, that the policy will cover claims where the injury was 'neither expected nor intended.'" 218 N.J. Super. 516, 534, 528 A.2d 76 (App. Div. 1987). Subsequent case law, however, has correctly characterized this observation as dicta and thus nonbinding. See Hatco Corp., 801 F. Supp. at 1352. This court finds the language of the pollution exclusion clauses in defendants' policies to be clear and unambiguous in this regard.
The pollution exclusion precludes coverage when the insured has caused the discharge of contaminants or pollutants, unless the discharge was neither expected nor intended from the standpoint of the insured.
See Liberty Mut. Ins. Co. v. Triangle Indus., Inc., 957 F.2d 1153, 1156-58 (4th Cir. 1992) (applying New Jersey law), cert. denied, 113 S. Ct. 78 (1992); Hatco Corp. v. W.R. Grace & Co., 801 F. Supp. 1334, 1351 (D.N.J. 1992). The insurer bears the burden of proving this exclusion. New Castle County v. Hartford Accident & Indem. Co., 933 F.2d 1162, 1181-82 (3d Cir. 1991) (applying Delaware law). In light of the above legal analysis, plaintiff is wrong in arguing that the sudden and accidental exception to the pollution exclusion clause is coextensive with the policy's basic coverage under the occurrence clause. Rather, "the pollution exclusion clause shifted the critical focus from damage to discharge, but did not, at the same time, introduce a temporal element into that inquiry through the use of the word 'sudden'" Id. at 1201. Accordingly, the court must deny plaintiff's motion for summary judgment.
The court, however, does grant partial summary judgment to defendants as to soil damage on all policies containing a pollution exclusion. As discussed previously, the record is replete with evidence that Chemical Leaman intended to discharge contaminants into the soil at the Bridgeport site. E.g. Elston Dep. at 137; Middleton Dep. at 125. Indeed, plaintiff admits that Chemical Leaman contemplated such discharges as part of the design of its rinsewater treatment system with unlined ponds and lagoons. Pl.'s Reply Br. at 18-19. These discharges of contaminants into the soil do not fall within the "sudden and accidental" exception to the pollution exclusion, and Chemical Leaman is therefore barred from recovering from the carriers under the relevant policies for any sums used to remediate soil damage. Whether Chemical Leaman intended to discharge contaminants into the groundwater remains a genuine issue of dispute. Summary judgment on this issue must, therefore, be denied.
V. Owned-Property Exclusion
In its March 31, 1992 opinion, this court held "that the owned-property exclusion does not apply to remedial measures taken by Chemical Leaman that are designed to correct injury or to prevent further injury to the ground and surface waters in the vicinity of its Bridgeport facility." Chemical Leaman Tank Lines, Inc. v. Aetna, 788 F. Supp. 846, 853 (D.N.J. 1992). LMI asks for reconsideration of this holding in light of the New Jersey Supreme Court's opinion in State v. Signo Trading Int'l, 130 N.J. 51, 612 A.2d 932 (1992). LMI's principal contention is that Signo Trading requires an apportionment for onsite versus offsite soil contamination. LMI Reply Br. at 24.
The court, after careful consideration of the Signo Trading opinion, finds that its prior holding stands as good law. It is implicit in the court's decision that the carriers will not be obligated to indemnify Chemical Leaman for cleanup costs that are intended to remediate damage at the Bridgeport site. The resolution of this issue must await trial.
VI. Late Notice
Defendants' insurance policies required, as a condition precedent to coverage, that the insured provide "as soon as practicable" written notice in the event of an occurrence or accident. Both Aetna and LMI disclaim coverage on the basis of these provisions, asserting that Chemical Leaman failed to give timely notice.
Indeed, plaintiff concedes that Chemical Leaman is in breach of the notice clauses. Tr. of Oral Argument at 28-29. However, this admission does not end the inquiry. New Jersey law is clear that an insurer may deny coverage on the basis of a notice clause only after proving not only that the insured breached but also that the insurer suffered a likelihood of appreciable prejudice as a result. Cooper v. Government Employees Ins. Co., 51 N.J. 86, 94, 237 A.2d 870 (1968).
Thus, the court addresses whether Chemical Leaman's late notice caused defendants to suffer a likelihood of appreciable prejudice. Timely notification pursuant to a notice clause allows an insurer to investigate the merits of both the insured's claim against the carrier and the underlying claim against the insured that allegedly triggers coverage. In light of these goals, the court in Morales v. National Grange Mut. Ins. Co., 176 N.J. Super. 347, 423 A.2d 325 (Law Div. 1980), focused on two factors in determining whether a likelihood of appreciable prejudice exists.
The first is "whether substantial rights have been irretrievably lost by virtue of the failure of the insured to notify the carrier in a timely fashion." Id. at 355. Some of the substantial rights implicated by late notice include "the availability of witnesses, the ability to discover information regarding the location of the accident, any physical changes in the scene during the delay, the existence of official reports concerning the occurrence, the preparation and preservation of demonstrative and illustrative evidence such as vehicles or photographs, and the ability of experts to reconstruct the scene." Id. In making its case, the insurer "must establish more than the mere fact that it cannot employ its normal procedures in investigating and evaluating the claim." Id. Rather, it must show that substantial rights have been irretrievably lost.
The second factor is "the likelihood of success of the insurer in defending against the" underlying claim. This inquiry implicates the notice clause's function of allowing the carrier to assume the defense of the underlying claim, if it so desires. As the court in Morales noted:
In some cases the liability of the insured and the resulting damages are so clear that it would be unfair to preclude the plaintiff from recovering against the carrier. For that reason the carrier should be required to show the likelihood that it would have had a meritorious defense had it been informed of the accident in a timely fashion.
Id. at 355-56.
A. Substantial Rights Irretrievably Lost
Defendants present two principal arguments on the irretrievable loss of substantial rights. First, they contend that the death of witnesses and witnesses' loss of memory resulting from the passage of time have seriously prejudiced their ability to dispute their coverage obligations under the policies. Second, defendants maintain that the 1977 draining and filling of the ponds and lagoons at the Bridgeport site also deprived defendants of evidence that would have enhanced their ability to dispute coverage.
Plaintiff seeks indemnification for its cleanup liabilities and defense costs incurred pursuant to the EPA's CERCLA claim. It is, therefore, beyond dispute that notice should have been given to defendants, at the earliest, by 1984, when the EPA placed the Bridgeport site on the Superfund national priorities list. The court finds that the evidence in the record fails to establish that defendants suffered a likelihood of appreciable prejudice in their ability to contest coverage. Defendants have not shown that any material witnesses have died since 1984. Nor have they proven that the fading or failure of witnesses' memory has irretrievably harmed their ability to advance their case against Chemical Leaman. In addition, the material attached to the current summary judgment motions, culled from the files of Chemical Leaman, the insurers, government agencies, and various other entities, shows that a wealth of relevant documentary evidence remains intact. Finally, defendants could not have obtained evidence from the original ponds and lagoons at the Bridgeport site in 1984, with or without timely notice, because the site was drained and backfilled by 1977. In sum, defendants are currently able to mount a strong, well-documented case against coverage, the crux of which is that Chemical Leaman expected or intended from 1960 to 1975 to cause soil and groundwater contamination. The insurers have not submitted proof that they would have been in any better position to make this case beginning in 1984 upon timely notice rather than in 1988 or 1989.
B. Likelihood of Success in Defending the Underlying Claim
The second Morales factor concerns the defendants' likelihood of success in the underlying claim against Chemical Leaman if they had taken over defense of the claim upon timely notice. Chemical Leaman, as owner and operator of the Bridgeport facility, is strictly liable under CERCLA for damages for injury to, destruction of, or loss of natural resources, as well as for the reasonable costs of assessing such damage to natural resources, and all costs of removal, remediation, or other necessary response costs. Chemical Leaman's liability for these damages is retroactive, joint, and several, and imposed regardless of fault. Joint Final Pretrial Order P IV.36. Defendants do not contend that a meritorious challenge exists to the findings, made in the 1985 consent order, that four residences located approximately 100 feet north of the Bridgeport site show contamination in their drinking water wells, and that the drinking water wells of at least three more persons are threatened by the direction and proximity of the contamination. Nor do defendants assert that there is a meritorious defense to the EPA's allegation that the presence of hazardous substances at the Bridgeport facility and their migration to surrounding soils and groundwater constitute a release within the meaning of section 101(2) of CERCLA, 42 U.S.C. § 9601(22). Accordingly, the court finds that defendants have not shown a likelihood of success in defending Chemical Leaman against claims under CERCLA.
Defendants also ask this court to find that timely notice would have resulted in a likelihood that the insurance carriers would have reached a more favorable settlement. However, defendants fail to demonstrate what better arrangement the insurance carriers would have been able to obtain if they had assumed Chemical Leaman's defense upon timely notice. Cf. Witco Corp. v. Travelers Indem. Co., Civ. No. 86-2907, 1987 U.S. Dist. LEXIS 14295 ** 44-45 (D.N.J. May 1, 1987).
Finally, defendants present evidence tending to show that Chemical Leaman's implementation of the cleanup of the Bridgeport site pursuant to its liability under CERCLA has led to higher cleanup costs than would have resulted had the insurance carriers been involved in the case following timely notice. In particular, defendants claim that the work of Environmental Resources Management, Inc., the firm hired by Chemical Leaman to assist in the CERCLA cleanup, was substandard, resulting in increased costs. The court finds that this evidence, while irrelevant to the notice inquiry of whether defendants suffered a likelihood appreciable prejudice, may nevertheless go to the jury for its determination of the amount of the cleanup costs pursuant to CERCLA for which defendants are liable. Defendants' policies obligate the carriers to indemnify Chemical Leaman only for "all sums which the insured shall become legally obligated to pay as damages . . . caused by an occurrence." Increased cleanup costs incurred by plaintiff as a result of Chemical Leaman's or its agent's substandard work are not "caused by an occurrence." Rather, they are caused by the insured's allegedly poor handling of its cleanup obligations. These costs are more akin to business losses than to tort liability. And, as the Appellate Division has emphasized, liability policies provide coverage for the insured's "tort liability for [property] damages to others and not for economic or business losses suffered by the insured." Broadwell Realty Serv. Inc. v. Fidelity & Casualty Co., 218 N.J. Super. 516, 526, 528 A.2d 76 (App. Div. 1979); cf. Weedo v. Stone-E-Brick, Inc., 81 N.J. 233, 240, 405 A.2d 788 (1979). Accordingly, increased cleanup costs found by the jury to be caused by plaintiff's substandard work may not be recovered under defendants' policies.
In conclusion, the court recognizes that the law should not endure lightly an insured's failure to make timely notification under a policy. Indeed, a four to five year delay strains the limits of judicial tolerance. But see Peskin v. Liberty Mut. Ins. Co., 219 N.J. Super. 479, 530 A.2d 822 (App. Div. 1987) (remanding case for further findings on a novel appreciable prejudice theory where insured waited 11 years to give notice of claim). However, New Jersey courts have consistently required carriers to establish that they suffered a likelihood of appreciable prejudice before requiring the insured to forfeit its coverage despite the premiums it already paid. Defendants have not submitted sufficient evidence to create a genuine dispute on whether they have satisfied their burden. Accordingly, the court grants plaintiff's summary judgment motion on the late notice issue.
VII. Failure to Cooperate
New Jersey law provides that an insurance carrier may disclaim coverage pursuant to a cooperation clause only if it proves (1) that the insured breached the cooperation clause and (2) that the carrier suffered a likelihood of appreciable prejudice as a result of this breach. Solvents Recovery Serv. v. Midland Ins. Co., 218 N.J. Super. 49, 54, 526 A.2d 1112 (App. Div. 1987). First, the court must grant Chemical Leaman's motion for summary judgment on the cooperation clause as against Aetna. Aetna has stipulated that:
By at least May 23, 1988, and until April 12, 1989, when Chemical Leaman instituted this lawsuit, Aetna investigated Chemical Leaman's claim. Pursuant to this investigation, Aetna has interviewed four Chemical Leaman personnel and has reviewed Chemical Leaman's files and records. Chemical Leaman cooperated with this investigation and provided information which Aetna requested until Chemical Leaman determined that legal action was necessary.
Joint Final Pretrial Order P IV.43. Aetna is bound by this stipulation. Accordingly, the court finds that Chemical Leaman did not breach the cooperation clause in its policies with Aetna.
Chemical Leaman's motion for summary judgment on the cooperation clause in the LMI policies must also succeed. Chemical Leaman notified LMI of its claim on March 30, 1989. Chemical Leaman filed the present suit against LMI on April 12, 1989. Even assuming that plaintiff failed whatsoever to cooperate with LMI between these two dates, the court must find that LMI suffered no likelihood of appreciable prejudice. LMI has submitted no evidence of witnesses dying or witnesses' memories fading during this period. Nor has LMI shown that Chemical Leaman altered the Bridgeport site in any way that hampered LMI's ability to investigate the underlying CERCLA claim against Chemical Leaman or Chemical Leaman's claim against LMI. Based on these findings, the court grants Chemical Leaman's motion for summary judgment as against LMI on the cooperation clause issue.
VIII. Aetna's Duty to Defend
Plaintiff seeks recovery from Aetna for certain costs incurred in connection with the defense of the underlying CERCLA suit. In particular, these costs include: (1) studies and tests made in connection with the preparation of the RI/FS; (2) engineering and other expert fees; (3) attorneys fees associated with the EPA's administrative process; and (4) administrative and oversight costs reimbursable to the EPA. Pl.'s Br. at 55. Plaintiff also asks for a declaration that Aetna is presently obligated under its policies to provide Chemical Leaman with a defense. Since being notified on April 18, 1988, Aetna has refused to defend Chemical Leaman.
A. Pre-Notice Defense Costs
A threshold issue involves whether Aetna can be held responsible for the insured's defense costs incurred before April 18, 1988. The court holds that it cannot. In SL Industries v. American Motorists Insurance Co., the New Jersey Supreme Court ruled "that the duty to defend is triggered by facts known to the insurer." 128 N.J. 188, 199, 607 A.2d 1266 (1992) (emphasis in original). According to the court:
the insured being sued is responsible for promptly conveying to its insurance company the information that it believes will trigger coverage. If it conveys that information properly and promptly, it will be reimbursed for previously expended defense costs. However, if the insured does not properly forward the information to the insurance company, the insured cannot demand reimbursement from the insurer for defense costs the insurer had no opportunity to control. . . . When the insured's delay in providing relevant information prevents the insurer from assuming control of the defense, the insurance company is liable only for that portion of the defense costs arising after it was informed of the facts triggering the duty to defend.