On certification to the Superior Court, Appellate Division, whose opinion is reported at 254 N.J. Super. 43 (1992).
For affirmance and remandment -- Chief Justice Wilentz, and Justices Clifford, Handler, Pollock, O'Hern, Garibaldi and Stein. For reversal -- None. The opinion of the Court was delivered by Clifford, J.
[134 NJ Page 97] We granted certification, 130 N.J. 14, 611 A.2d 652 (1992), to address the sole question presented in the petition of defendant Pennsylvania Manufacturers' Insurance Company (PMA), namely, "whether a comprehensive general liability policy containing a pollution exclusion, issued by an out-of-state carrier and covering an out-of-state defendant's operations, should be construed pursuant to New Jersey law." In this case the waste alleged to be the
source of the pollution was generated in Pennsylvania and deposited in New Jersey. The trial court balanced the factors set forth in Restatement (Second) of Conflicts of Laws (Restatement) section 6 (1971) (hereinafter section 6), and determined that Pennsylvania law should govern. The Appellate Division reversed, 254 N.J. Super. 43, 603 A.2d 61 (1992), concluding that when waste predictably comes to rest in New Jersey, this state has the dominant significant relationship with the parties, the transaction, and the outcome of the controversy, and thus New Jersey law should govern. Id. at 51, 603 A.2d 61.
We agree with the Appellate Division's Conclusion that when the parties to the insurance contract can reasonably foresee that a New Jersey waste site will receive the insured's waste products, New Jersey law should dictate the proper interpretation of the insuring agreement because this state had the dominant significant relationship. (By "waste site" we mean the place at which the waste comes to rest, irrespective of whether that location is a designated landfill.) We therefore affirm.
Plaintiff, The Gilbert Spruance Company (Spruance), is a Pennsylvania corporation that manufactures paint in Philadelphia. In the course of its operations during the 1970s and 1980s, Spruance consigned its waste to independent waste haulers, who transported the waste to dumps in New Jersey. Four of those dump sites -- Helen Kramer Landfill, Scientific Chemical Processing site, Gloucester Environmental Management Services Landfill, and Swope Oil and Chemical site -- are the basis of multiple toxic-tort claims for personal injury and property damage against Spruance and are now the subject of public remediation-enforcement actions by the New Jersey Department of Environmental Protection (NJDEP) (now the Department of Environmental Protection and Energy).
From 1971 through 1988, Spruance purchased primary and excess Comprehensive General Liability (CGL) policies from
PMA, a Pennsylvania corporation. The policies listed several locations of plant operations in various states, including Pennsylvania, Virginia, and North Carolina. PMA is licensed to sell property, liability, and workers' compensation insurance in numerous states, including Pennsylvania and New Jersey. The contracts at issue were negotiated and countersigned in Pennsylvania, and the premiums were paid there.
Each of the policies required PMA to provide a defense to Spruance for "suits" alleging liability for property damage or bodily injury that was insured under the policies in respect of occurrences or suits throughout the United States. From 1973 to 1988, the CGL policies issued by PMA to Spruance contained a standard pollution-exclusion clause, which provided that the insurance did not apply
(f) 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 or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any watercourse or body of water; but this exclusion does not apply if such discharge, release or escape is sudden and accidental * * *.
When Spruance submitted notice of the claims arising from the four New Jersey waste sites, PMA disclaimed coverage based on the pollution-exclusion clause.
Between 1988 and 1989 Spruance filed complaints against PMA and Insurance Company of North America (INA) seeking a declaration of coverage. (The case against INA was dismissed after the parties settled their differences). In March 1989, Spruance filed a motion for summary judgment to establish PMA's duty to defend. Denying that motion, the trial court conducted a section 6 analysis and declared that the law of Pennsylvania rather than that of New Jersey applied to the interpretation of the pollution-exclusion clause. The court held that under Pennsylvania law, the pollution-exclusion clause supported PMA's disclaimer because the "discharge, dispersal release or escape" of the waste materials was not considered to be "sudden and accidental." See Lower Paxton Township v. United States Fidelity & Guar. Co., 383 Pa.Super. 558,
557 A.2d 393, 399, appeal denied, 523 Pa. 649, 567 A.2d 653 (1989). Under then-existing New Jersey law, however, "sudden and accidental" discharge could include the gradual release of pollutants. See Broadwell Realty Servs., Inc. v. Fidelity & Casualty Co., 218 N.J. Super. 516, 535-36, 528 A.2d 76 (App.Div.1987). The trial court therefore granted PMA's motion for summary judgment.
On appeal to the Appellate Division, plaintiff contended that the trial court had erroneously decided the choice-of-law issue. Relying primarily on the reasoning in Leksi, Inc. v. Federal Insurance Inc., 736 F. Supp. 1331 (D.N.J.1990), and Johnson Matthey, Inc. v. Pennsylvania Manufacturers' Association Insurance Co., 250 N.J. Super. 51, 593 A.2d 367 (App.Div.1991), both of which were decided after the trial court had ruled in this case, the Appellate Division reversed and held that New Jersey law would apply to the interpretation of the "sudden and accidental" wording in the pollution-exclusion clause. 254 N.J. Super. at 51, 603 A.2d 61.
The court recognized that the law of the principal location of the insured risk as understood by the parties, which Restatement section 193 makes controlling unless some other state has a more significant relationship to the parties and the transaction, does not govern when the insured operation or activity is predictably multistate. 254 N.J. Super. at 50, 603 A.2d 61. In that situation, section 6 factors should be used to identify the state with the most significant relationship. Ibid.
In its section 6 analysis the Appellate Division apparently placed significant, if not controlling, emphasis on New Jersey's interest in securing financial resources both to remediate New Jersey toxic-waste sites and to compensate victims of New Jersey pollution. Id. at 47-48, 603 A.2d 61; see J. Josephson, Inc. v. Crum & Forster Ins. Co., 265 N.J. Super. 230, 235-36, 626 A.2d 81, (Law Div.), leave to appeal denied (App.Div., July 1, 1993). The court also found that the justified -- i.e., objectively reasonable -- expectations of the parties were protected because the parties could foresee that waste generated from a Philadelphia paint
factory would come to rest in New Jersey and that generator responsibility would be measured by New Jersey law. 254 N.J. Super. at 49, 603 A.2d 61; see also Leksi, supra, 736 F. Supp. at 1336 (finding foreseeable that waste generated in Pennsylvania would be deposited across Delaware River in New Jersey); cf. General Metalcraft Inc. v. Liberty Mut. Ins. Co., 796 F. Supp. 794, 802 (D.N.J.1992) (stating, "With respect to foreseeability and the expectations of the parties, we agree about the foreseeability of hazardous waste products generated in an abutting state landing in New Jersey."). The court concluded that when out-of-state-generated waste predictably comes to rest in New Jersey and imposes legal liabilities here on the insured, New Jersey has the dominant and significant relationship with the parties, the transaction, and the outcome of the controversy. 254 N.J. Super. at 51, 603 A.2d 61.
In adopting the site-specific-uniformity approach, the court rejected the uniform-contract-interpretation approach that another panel of the Appellate Division had advocated in Westinghouse Electric Corp. v. Liberty Mutual Insurance Co., 233 N.J. Super. 463, 559 A.2d 435 (1989). The court pointed out that in Johnson Matthey, it had characterized nationwide uniformity of policy interpretation as "an illusory goal, not truly achievable or necessarily preferable." 254 N.J. Super. at 49, 603 A.2d 61. The court concluded that "[s]ite-specific uniformity, on the other hand, is achievable, and represents a choice of the law of the jurisdiction that is most concerned with the outcome." Id. at 49-50, 603 A.2d 61. Moreover, the court noted, the failure to include a choice-of-law provision in the contracts "tends to show that uniform interpretation was not a conscious goal of the contracting parties." Id. at 50, 603 A.2d 61.
The court remanded so that the Law Division could determine the effect of the choice-of-law decision on the substantive-coverage issue. That New Jersey's law on the meaning of the pollution-exclusion clause, and particularly the "sudden and accidental" language therein, remains at variance with the current law in
Pennsylvania (the question having not been decided by that Commonwealth's highest court) is clear from our decision today in Morton International Inc. v. General Accident Insurance Co., 134 N.J. 1, 629 A.2d 831. Were the law the same in both jurisdictions, we would not, of course, be confronted with a choice-of-law problem.
Traditionally, the law of the place where the contract, including an insurance contract, was entered into determined the rights of the parties under the contract. Buzzone v. Hartford Accident & Indem. Co., 23 N.J. 447, 452, 129 A.2d 561 (1957). In State Farm Mutual Automobile Insurance Co. v. Estate of Simmons, 84 N.J. 28, 36-37, 417 A.2d 488 (1980), we rejected the mechanical and inflexible lex loci contractus rule in resolving conflict-of-law issues in liability-insurance contracts. Instead, our courts have adopted a more flexible approach that focuses on the state that has the most significant connections with the parties and the transaction. Bell v. Merchants & Businessmen's Mut. Ins. Co., 241 N.J. Super. 557, 561-62, 575 A.2d 878 (App.Div.), certif. denied, 122 N.J. 395, 585 A.2d 395 (1990); McCabe v. Great Pac. Century Corp., 222 N.J. Super. 397, 399, 537 A.2d 303 (App.Div.1988). We held that because the law of the place of contract "generally comport[s] with the reasonable expectations of the parties concerning the principal situs of the insured risk," 84 N.J. at 37, 417 A.2d 488, that forum's law should 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." Ibid. In making that determination, courts should rely on the factors and contacts set forth in Restatement sections 6 and 188. Id. at 34-35, 417 A.2d 488.
According to Restatement section 188, the general rule in contract actions is that the law of the state with the most significant relationship to the parties and the transaction under the principles stated in Restatement section 6 governs. State
Farm, supra, 84 N.J. at 34, 417 A.2d 488. Section 188 lists several relevant "contacts," according to their relative importance, to be considered in the section 6 analysis, such as the domicile, residence, nationality, place of incorporation and place of business of the parties, and the places of contracting and performance. Under ...