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CHEMICAL LEAMAN TANK LINES, INC. v. AETNA CAS. & S

March 10, 1993

CHEMICAL LEAMAN TANK LINES, INC., Plaintiff,
v.
AETNA CASUALTY AND SURETY CO., ROBIN ANTHONY GILDART JACKSON, an Underwriter at Lloyds, London, et al., Defendants.



The opinion of the court was delivered by: STANLEY S. BROTMAN

 TABLE OF CONTENTS

 I. Introduction

 
A. Background and Procedure
 
B. The Insurance Policies
 
1. Aetna's Comprehensive General Liability Policies
 
2. LMI's Excess and Umbrella Policies
 
C. Standard for Summary Judgment

 II. The Expected/Intended Clause

 
A. Legal Issues
 
1. Burden of Proof
 
2. Objective or Subjective Intent
 
B. Aetna's Motion for Summary Judgment on Its Pre-1961 "Accident"-Based Policies
 
C. The Parties' Cross-Motions for Summary Judgment on the Expected/Intended Issue
 
1. Chemical Leaman's Evidence
 
2. Defendants' Evidence
 
3. Conclusions

 III. Continuous Trigger Theory

 IV. Pollution Exclusion Clause

 
A. The Broadwell Line of Cases
 
B. The Ambiguous Meaning of the "Sudden and Accidental" Exception
 
C. Contra Proferentum vs. "Sophisticated Insured"
 
D. The Parties' Cross-Motions for Summary Judgment

 V. Owned-Property Exclusion

 VI. Late Notice

 
A. Substantial Rights Irretrievably Lost
 
B. Likelihood of Success in Defending the Underlying Claim

 VII. Failure to Cooperate

 VIII. Aetna's Duty to Defend

 
A. Pre-Notice Defense Costs
 
B. Post-Notice Defense Costs

 IX. Conclusion

 BROTMAN, District Judge.

 I. Introduction

 A. Background and Procedure

 In this diversity action, Chemical Leaman seeks a declaratory judgment that defendant Aetna must provide coverage under certain comprehensive general liability ("CGL") policies and that LMI must provide coverage under certain umbrella and excess liability insurance policies for environmental costs connected to the environmental cleanup of Chemical Leaman's Bridgeport, New Jersey, facility.

 Chemical Leaman is a tank truck company specializing in the transportation of various chemicals and other liquids. Chemical Leaman used the Bridgeport site from at least 1960 to 1985 to clean trucks. From 1960 to 1969, Chemical Leaman placed contaminated rinsewater at its Bridgeport facility into a wastewater treatment system consisting of unlined ponds and lagoons. In 1969, the New Jersey Department of Health responded to community complaints about bad odors and ordered Chemical Leaman to construct a wastewater treatment and/or disposal plant. Chemical Leaman continued to use the pond and lagoons system until 1975, when it installed a water treatment system. By 1977, Chemical Leaman had drained the ponds and lagoons of liquid, dredged the accumulated sludge out of the lagoons, and filled all the ponds and lagoons with brickbat, sand, and concrete.

 In 1981, the New Jersey Department of Environmental Protection ("DEP") ordered Chemical Leaman to investigate the extent and degree of groundwater contamination at and around the Bridgeport site. The investigation revealed that the ponds and lagoons were the primary source of groundwater contamination. In 1984, the federal Environmental Protection Agency ("EPA") placed the site on the Superfund national priorities list pursuant to section 105 of the Comprehensive Environmental Response, Compensation and Liabilities Act ("CERCLA"). 42 U.S.C. ยง 9605. The EPA alleged that Chemical Leaman is strictly liable for damages and cleanup costs resulting from the onsite contamination. In July 1985, Chemical Leaman entered into a consent order with the EPA. Chemical Leaman admitted liability under CERCLA and agreed to undertake a Remedial Investigation and Feasibility Study ("RI/FS") of the groundwater. Chemical Leaman incurred expenses in performing the RI/FS and is further obligated to pay for all costs of removal or remedial action incurred by the United States or the state of New Jersey, as well as for damages for injury to, destruction of, or loss of natural resources.

 On or about April 18, 1988, Chemical Leaman gave notice to Aetna of claims under its applicable CGL policies. On or about March 30, 1989, Chemical Leaman notified LMI. The defendants have refused to defend or indemnify Chemical Leaman for costs already incurred or to be incurred in the future in connection with the cleanup of the Bridgeport site. Chemical Leaman filed the present suit on April 12, 1989. The court understands plaintiff's claims to be limited to coverage for its liabilities resulting from the EPA's suit under CERCLA.

 On March 31, 1992, the court granted partial summary judgment in favor of Chemical Leaman on the following issues:

 
1. New Jersey law governs the construction and interpretation of all the insurance policies involved in the litigation;
 
2. The cleanup costs which Chemical Leaman is obligated to pay pursuant to CERCLA with respect to ground and surface water contamination in the vicinity of, but not at, the Bridgeport site constitute property damages under the insurance policies;
 
3. The "owned property exclusion" does not apply to Chemical Leaman's remedial measures that are designed to correct injury or to prevent further injury to the ground and surface waters in the vicinity of the Bridgeport site.

 The court also refused to grant summary judgment in favor of defendants on the issue of coverage for contamination occurring after the date Chemical Leaman received notice from the New Jersey DEP of the extent of the groundwater contamination. Chemical Leaman Tank Lines, Inc. v. Aetna Casualty & Sur. Co., 788 F. Supp. 846 (D.N.J. 1992).

 Presently before the court are the various motions of the parties for summary judgment. On November 23, 1992, the court held oral argument on these motions and reserved its decision. Trial is scheduled to commence on March 15, 1993.

 B. The Insurance Policies

 1. Aetna's Comprehensive General Liability Policies

 Chemical Leaman purchased comprehensive general liability insurance ("CGL") from Aetna covering successive years, from April 1, 1959 through April 1, 1985. Pl.'s 12G Statement P 4. *fn1" These comprehensive liability policies were standard form insurance agreements utilized by Aetna and some other insurance companies throughout the period 1960-1985. Chemical Leaman played no role in drafting or negotiating the terms of these policies. Joint Final Pretrial Order P IV.5.

 April 1, 1959 - April 1, 1961 Aetna Policies

 From April 1, 1959 through April 1, 1961, Aetna insured Chemical Leaman under its 1955 standard policy form. Pursuant to the terms of the policies in effect during this period, Aetna agreed to pay on behalf of Chemical Leaman:

 
all sums which the Insured shall become legally obligated to pay as damages because of injury to or destruction of property, including the loss of use thereof, caused by accident.

 The policy did not define the term "accident." Pl.'s 12G Statement P 5. The policies obligated Aetna to

 
defend any suit against the Insured alleging such injury, sickness, disease or destruction and seeking damages on account thereof, even if such suit is groundless, false, or fraudulent.

 Pl.'s 12G Statement P 6.

 April 1, 1961 - April 1, 1967 Aetna Policies

 From April 1, 1961 through April 1, 1967, Aetna continued to insure Chemical Leaman under its 1955 standard policy form. However, these policies substituted the word "occurrence" for the word "accident." An "occurrence" was defined as:

 
an event which causes injury during the policy period or a continuous or repeated exposure to conditions which results in injury to persons or tangible property during the policy period, if such injury is neither expected nor intended by the insured.

 Pl.'s 12G Statement P 7.

 April 1, 1967 - April 1, 1973 Aetna Policies

 From April 1, 1967 through April 1, 1973, Aetna insured Chemical Leaman under its 1966 standard policy form. Pursuant to the terms of these policies, Aetna agreed to pay on behalf of Chemical Leaman:

 
all sums which the insured shall become legally obligated to pay as damages because of bodily injury or property damage to which this insurance applies, caused by an occurrence.

 The policies defined an "occurrence" as:

 
an accident, including injurious exposure to conditions, which results, during the policy period, in bodily injury or property damage neither expected nor ...

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