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Morton International Inc. v. General Accident Insurance Co.

Decided: July 21, 1993.


On certification to the Superior Court, Appellate Division, whose opinion is reported at N.J. Super. (1991).

For affirmance -- Chief Justice Wilentz and Justices Handler, Pollock and O'Hern. Opposed -- None. The opinion of the Court was delivered by Stein, J.


[134 NJ Page 6] This case concerns insurance coverage for environmental pollution. The events affecting the coverage claims before us span a period of several decades, in the course of which societal indifference concerning environmental-pollution damage has been supplanted by a heightened awareness of the need for environmentally-sound waste-disposal practices and an increasingly aggressive governmental effort to remediate the consequences of past environmental damage. That evolution understandably has influenced the insurance industry's concern about its exposure for damages

caused by environmental pollution, and has resulted in an industry-wide determination to modify the scope of insurance coverage for such damages.

The claims for coverage involve Comprehensive General Liability (CGL) policies covering plaintiff and its predecessors during the period 1961 to 1976, issued by three primary carriers and a large number of excess carriers. Four principal variations of CGL policies are involved, and no dispute exists concerning the language of the critical provisions that affect the question of coverage. Because the policies are essentially standardized, industry-wide forms, our interpretation of their coverage provisions may affect significantly the allocation of damages for environmental pollution of New Jersey property among insurance carriers, industry, and government. The scope of the relief sought by plaintiff requires us to consider not only the kinds of pollution-causing events entitled to coverage under the various policies, but also whether remediation expenses and response costs imposed under the authority of federal and state environmental statutes constitute sums that the insured is legally obligated to pay "as damages" because of property damage covered by the policies. Because the economic consequences are significant, the issues before us already have generated a multiplicity of reported decisions by federal and state courts.


The procedural history and material facts are set forth in abundant detail in the Appellate Division's comprehensive and thoughtful opinion. Morton Int'l v. General Accident Ins. Co., 266 N.J. Super. 300, 629 A.2d 895 (1991). A useful perspective concerning that history and those facts is afforded by this Court's opinion in New Jersey Department of Environmental Protection v. Ventron Corp., 94 N.J. 473, 468 A.2d 150 (1983). Plaintiff, Morton International, Inc. (plaintiff or Morton), is the successor in interest to Ventron Corporation (Ventron), and the claims it now asserts derive from liability imposed on Ventron in that litigation.

The Department of Environmental Protection (DEP) had instituted suit against Ventron and other defendants, Velsicol Chemical Corporation (Velsicol), Wood Ridge Chemical Corporation (Wood Ridge), and F.W. Berk and Company (Berk), to compel the defendants to bear the costs involved in remediating pollution of Berry's Creek, an estuary of the Hackensack River, that had been caused by discharges from a mercury-processing plant operated for over forty years by the various defendants. Justice Pollock's opinion graphically described the end result of the defendants' prolonged discharge of mercury and other pollutants:

Beneath its surface, the tract is saturated by an estimated 268 tons of toxic waste, primarily mercury. For a stretch of several thousand feet, the concentration of mercury in Berry's Creek is the highest found in fresh water sediments in the world. The waters of the creek are contaminated by the compound methyl mercury, which continues to be released as the mercury interacts with other elements. Due to depleted oxygen levels, fish no longer inhabit Berry's Creek, but are present only when swept in by the tide and, thus, irreversibly toxified.

[ Id. at 481-82, 468 A.2d 150.]

This Court determined that the discharging of toxic mercury constituted an abnormally-dangerous activity, and imposed strict liability under common-law principles against all the defendants for remediation of the resulting nuisance and property damage. Id. at 493, 468 A.2d 150. We also held that all the defendants were jointly and severally liable under the Spill Compensation and Control Act of 1977 (Spill Act), N.J.S.A. 58:10-23.11 to -23.11z, as amended, L. 1977, c. 346, § 4, and that such liability would apply retroactively to discharges that had occurred prior to the Spill Act's effective date. N.J.S.A. 58:10-23.11f(b)(3) (as amended, L. 1979, c. 346, § 4; L. 1981, c. 25, § 1). Id. at 496-99, 468 A.2d 150. Finally, we affirmed the judgment entered on the cross-claim asserted by Robert and Rita Wolf, purchasers of the plant property from Ventron, premised on Ventron's fraudulent nondisclosure that the property had been contaminated by mercury pollution. Id. at 503-04, 468 A.2d 150.

When DEP instituted its action against Ventron, the insurers of the various owners and operators of the mercury-processing plant

disclaimed coverage, requiring Ventron to retain counsel to provide a defense. At the Conclusion of that litigation Morton, as Ventron's successor, commenced this declaratory-judgment action, seeking reimbursement for the costs incurred in defending the suit filed by DEP and the cross-claim filed by the Wolfs, as well as indemnity for the cleanup and remediation expenses resulting from the DEP proceeding. Defendants are the primary and excess insurers of Ventron and its predecessors during the period with respect to which Morton seeks reimbursement and indemnity.

Early in the litigation, the trial court granted partial summary judgment in favor of all defendants concerning their obligation to defend and indemnify Ventron with respect to the Wolfs' cross-claim. The parties filed cross-motions for summary judgment on the remaining issues: defendants asserted that the record presented no material disputed factual issue concerning whether Morton's predecessors had intended or expected to cause property damage, whereas Morton contended that the Chancery Division was bound by the trial court's determination in Ventron that no intent "to pollute the waters of the State" had been proved. Those motions resulted in a ruling by the Chancery Division that none of the defendants was obligated to indemnify Morton for the costs of remediation of environmental damage -- the amount of which remains undetermined -- that were imposed on Ventron in the DEP litigation. Only General Accident Insurance Company of America (General Accident) was held liable for a portion of Ventron's costs in defending the DEP suit. In a separate trial, Morton was awarded judgment against General Accident for approximately $100,000 for such defense costs, plus attorneys' fees for prosecuting the claim to recover those costs. On appeal, the Appellate Division affirmed the Chancery Division's judgment dismissing Morton's claims for indemnification, and reversed that portion of the judgment awarding damages and counsel fees against General Accident. We granted Morton's petition for certification and the joint cross-petition for certification of defendants Insurance Company of North America, American Home

Assurance Co., Liberty Mutual Insurance Co., Certain Underwriters at Lloyd's, London, and Certain London Markets Insurance Companies, 127 N.J. 563, 606 A.2d 374 (1992).

A. Insurance Coverage

For purposes of the summary-judgment motions, no issue was raised concerning which insurers provided primary and excess coverage during the pertinent periods. Similarly, the relevant provisions of the various policies also appear to be undisputed.

Primary Insurance Coverage

1. Defendant General Accident has stipulated that it and its affiliate provided primary general-liability coverage from October 1960 to October 1971. (Although copies of the policies actually issued to Morton's predecessors were not produced, the record contains sample forms of policies used by General Accident that the parties acknowledged, for purposes of summary judgment, corresponded to the actual policies.) Three different policy forms were in use by General Accident during this period.

(a) From October 1960 to October 10, 1964, General Accident's policy provided property-damage-liability coverage for "all sums which the Insured shall become legally obligated to pay * * * for damages because of injury to or destruction of property * * * caused by accident." The term "accident" was undefined. The policy afforded coverage "only to occurrences or accidents which happen during the policy period * * *."

(b) Effective October 10, 1964, the prior form of policy was amended by deleting the words "caused by accident" and substituting the words "resulting from an occurrence." The endorsement also added the following definition of occurrence:

The word "occurrence" as used in this endorsement means an unexpected event or happening which results in injury to or destruction of tangible property during the policy period, or a continuous or repeated exposure to conditions which result in injury to or destruction of tangible property during the policy period provided the insured did not intend or anticipate that injury to or destruction of property would result * * *.

(c) Effective October 1, 1966, and continuing through October 1971, General Accident's policy revised the definition of occurrence as follows:

"Occurrence" means an accident, including injurious exposure to conditions, which results, during the policy period, in bodily injury or property damage neither expected nor intended from the standpoint of the insured.

2. Although neither the record nor the opinions below indicates the source of Ventron's CGL coverage from October 10, 1971, to June 1972, primary CGL coverage was provided from June 14, 1972, through January 1, 1975, pursuant to three policies issued by Reserve Insurance Company (Reserve), which had been declared insolvent and liquidated prior to the institution of this litigation. Each of Reserve's policies provided coverage for "all sums which the Insured shall become legally obligated to pay as damages because of property damage * * * caused by an occurrence," and their definition of "occurrence" was substantially identical to the definition contained in General Accident's policies from October 1966 to 1971. Reserve's policies for the period June 14, 1973, to June 14, 1975, however, contained a so-called "pollution-exclusion clause" that was identical to exclusion "f" of the standard form CGL policy (standard pollution-exclusion clause), see, e.g., Insurance Services Office ("ISO") form GL 00 02, Ed. 01-73, that had been widely used by insurers from 1973 to 1985. That exclusion stated:

This insurance does 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 water course or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental.

3. Liberty Mutual Insurance Company (Liberty Mutual) provided primary CGL coverage to Ventron from January 1, 1975, through January 1, 1977. Its policies afforded coverage for "all sums which the insured shall become legally obligated to pay as damages because of * * * property damage * * * caused by an occurrence." The policies defined "occurrence" as "an accident, including continuous or repeated exposure to conditions, which

results in * * * property damage neither expected nor intended from the standpoint of the insured * * *." The Liberty Mutual policies also contained the standard pollution-exclusion clause.

Excess Insurance Coverage

Although the record is incomplete concerning the periods of coverage and the material terms of all the excess insurance coverage that Ventron and its affiliates purchased during the relevant period, we set forth a brief summary of that coverage and, where available, the material provisions affecting coverage.

1. (1972-1978)

Defendant Affiliated FM Insurance Company (Affiliated FM) provided first-layer excess-liability coverage from March 1, 1972, to January 1, 1978, pursuant to two policies. The initial policy defined "occurrence" to mean "either an accident happening during the policy period or a continuous or repeated exposure to conditions which unexpectedly and unintentionally causes injury to persons or tangible property during the policy period." The renewal policy defined "occurrence" as "an accident including continuous or repeated exposure to conditions, which results in personal injury or property damage neither expected nor intended from the standpoint of the insured." Affiliated FM's policies also contained the standard pollution-exclusion clause.

Defendant First State Insurance Company provided second-layer excess coverage from March 1, 1972, to March 1, 1975. Its policy contained the same definition of "occurrence" as was contained in the initial Affiliated FM policy and also included the standard pollution-exclusion clause.

From March 1, 1975, to March 1, 1978, defendant American Home Insurance Company provided second-layer excess coverage. Its policies followed the form of the policies issued by Affiliated FM, the first-layer excess carrier, and contained the standard pollution-exclusion clause.

2. (1966-1972)

Defendant Insurance Company of North America (INA) apparently provided first-layer excess coverage to Ventron and its affiliates from March 17, 1966, to March 1, 1972, pursuant to four policies. By stipulation, claims asserted under the second policy covering the period March 17, 1969 to March 9, 1970, have been dismissed. Under the initial policy, "occurrence" was defined to mean "either an accident happening during the policy period or a continuous or repeated exposure to conditions which unexpectedly and unintentionally causes injury to or destruction of property during the policy period." The third and fourth policies defined "occurrence" to mean "an injurious exposure to conditions which results, during the policy period, in personal injury, property damage or advertising injury neither expected nor intended from the standpoint of the insured." The initial INA policy, in effect from 1966 to 1969, contained a non-standard pollution-exclusion clause that provided:

Waste Disposal Exclusion. It is agreed that this policy shall not apply * * * to injury to or destruction of property resulting from the intentional or willful disposal of any waste products, fluids or materials.

The third and fourth policies contained a different non-standard pollution-exclusion clause:

This insurance does not apply: to bodily injury, personal injury or property damage arising out of pollution or contamination under that (1) caused by oil, or (2) caused by the discharge or escape of any other pollutants or contaminants, unless such discharge or escape results from a sudden happening during the policy period, neither expected nor intended from the standpoint of the insured.

Defendants Certain Underwriters at Lloyds, London and Certain London Markets Insurance Companies also provided excess coverage from November 1, 1966, to February 1, 1970, under two policies insuring against liability for property damage arising out of an "occurrence," defined to mean "an accident or a happening or event or a continuous or repeated exposure to conditions which unexpectedly and unintentionally results in * * * property damage * * * during the policy period." Those policies did not contain a pollution-exclusion clause.

3. (1960-1961)

Defendant Continental Casualty Company provided first-layer excess-liability coverage to Morton's predecessors from January 1960, to January 1961, for property-damage liability arising out of an "occurrence," defined to mean "an event, or continuous or repeated exposure to conditions, which unexpectedly or unintentionally caused injury, damage or destruction during the policy period." That policy contained no pollution-exclusion clause.

Defendants Certain Underwriters at Lloyds, London and Certain London Markets Insurance Companies also provided second- and third-level excess coverage under two policies covering the period from March 15, 1960, to March 15, 1961, but the record is unclear concerning which of two different pollution-exclusion clauses those policies adopted. One of the clauses excludes

liability imposed by law on the assured for * * * (3) property damage caused by seepage, pollution or contamination unless (a) such seepage, pollution or contamination is caused by accident and results in property damage during the period of the policy, or (b) subsequent to seepage, pollution or contamination an accident ensues which causes property damage during the period of the policy and then only for property damage proximately caused by such accident.

The other clause excludes liability imposed by law on the assured for "personal injuries or property damage resulting from any gradual cause such as subsidence, seepage, pollution or contamination." Our Disposition does not require us to determine which clause was in force.

B. Factual Background Pertinent to Resolution of Morton's Coverage Claims.

The Appellate Division concluded, based on its examination of the extensive record, that the trial court properly had determined as a matter of law that Morton's predecessors had intended to cause environmental damage. 266 N.J. Super. at 333, 629 A.2d at 913. Before us, Morton asserts that the Appellate Division improperly "inferred intentional consequences" on the basis of "the intentional character of the acts of disposal," and contends that summary judgment was inappropriate in view of the sharply-conflicting evidence concerning the subjective knowledge and intent of Morton's predecessors. Morton also relies on the Ventron

trial court's finding that the evidence in that case did not demonstrate an "intent to pollute":

Surely Berk and W.R.C.C. intended to and volitionally did manufacture mercury compounds and dump waste on the Velsicol property. However, the Court cannot find that the acts were done with the intent to pollute the waters of the State or with the knowledge that such an invasion was substantially certain to occur. No such knowledge or intent may be imputed to defendants under an intentional tort theory.

Based on the Ventron trial court's Conclusion, Morton argues that at the very least a triable issue of fact was presented with respect to the subjective intent of Morton's predecessors.

We offer those preliminary observations to afford a perspective for the Discussion to follow. Both the Chancery Division, as well as the Appellate Division, in concluding that Morton's predecessors inevitably had "intended to pollute Berry's Creek," 266 N.J. Super. at 333, 629 A.2d at 913, relied heavily on the Conclusions reached by this Court in Ventron, based on expert testimony at trial, that "the tract is saturated by an estimated 268 tons of toxic waste, primarily mercury," 94 N.J. at 481, 468 A.2d 150, and "[t]he contamination at Berry's Creek results from mercury processing operations carried on at the site for almost fifty years." Id. at 482, 468 A.2d 150. However, the record evidence relied on by the Chancery Division to demonstrate that Morton's predecessor had intended or expected environmental damage contains few references to mercury discharge, particularly during the 1950s and early 1960s. Rather, the record reflects that from the mid-1950s until institution of the Ventron suit, State officials consistently informed Morton's predecessors that they were discharging "unacceptable" emissions into Berry's Creek, accompanying those remonstrances with periodic reports analyzing the chemical content of the mercury plant's emissions. State officials insisted that remedial action be taken, but their warnings resulted only in a prolonged course of evasive action by the operating companies. The record reveals that not until 1970, however, did company officials expressly acknowledge that the "unacceptable" emissions had included discharges of mercury.

We first identify the relevant operating and parent companies. Berk operated the mercury-processing plant from 1929 to 1960, on a forty-acre tract west of Berry's Creek. In 1960, Wood Ridge, a wholly-owned subsidiary of Velsicol, purchased Berk's assets, including the property, and proceeded to operate the plant until 1974. In 1967, Wood Ridge distributed thirty-three of the forty acres to Velsicol but was permitted to dispose of waste on Velsicol's portion of the tract. Ventron acquired all of Wood Ridge's capital stock in 1968, continuing to operate the plant until 1974, when it sold the plant assets to a chemical company and the 7.1-acre tract on which the plant had been located to Rita and Robert Wolf.

For a detailed summary of those portions of the record demonstrating knowledge by Morton's predecessors that their emissions into Berry's Creek were deleterious and unacceptable, as well as their failure over almost two decades to take remedial measures, we cannot improve on the Appellate Division's recapitulation of the documentary evidence, from which we quote at length:

The record before Judge Huot demonstrated that as early as 1956 plaintiff's predecessor was informed that the effluent from the mercury processing plant contained an unacceptable level of pollutants. A report filed by two senior State Health Department public health engineers on April 9, 1956 detailed the results of their inspection of the property. These inspectors found that the plant consumed 60,000 gallons of water per day, about 90% of which was used for cooling purposes. Industrial wastes were produced from three buildings and consisted mostly of cooling water which had a high solid content, mainly insoluble dimethylcithiocarbonates which are organic and inorganic mercury compounds. The waste passed through a sedimentation tank from which the settled solids were recovered and reprocessed. The effluents from the settling tanks combined into a private sewer which discharged into an open ditch about 1200 feet from the plant, which in turn discharged the effluent into Berry's Creek at a point 2500 feet from the plant. Both public health engineers concluded that the combined effluent from the plant had an unacceptably high level of suspended solids and that the settling tank serving the effluent from one of the buildings was not large enough.

On December 2, 1958 one of the public health engineers, John Wilford, again visited the property "to ascertain the current status of their program for the treatment or disposal of their industrial wastes in order to eliminate pollution of Berry's Creek." He reported that the company had not been successful in persuading the Wood-Ridge Sewage Treatment Plant to accept plaintiff's wastes. Wilford made an inquiry about having a large settling tank constructed with an outfall to Berry's Creek. Nothing about the processing at the plant had changed.

Wilford explained to the company's vice-president that a settling tank would not, itself, reduce the pollution to acceptable limits and that if the company intended to continue discharging effluent into Berry's Creek it would have to submit plans and specifications to the Department of Health for approval. Wilford admonished the corporate official "that as this matter has been brought to [his] attention over two years ago, this department has a right to expect some appreciable progress toward the elimination of this problem." A four-point course of action was outlined to the company to which its vice-president agreed to comply. By March 17, 1959, however, it was clear to Wilford the company had made no progress "toward eliminating the polluting industrial waste therefrom from Berry's Creek." According to Wilford, the company was "cognizant" that its wastes contained mercury compounds which had to be removed.

In September 1959 and again in February 1960 Edward Griche, Inc. conducted an investigation into the nature of the waste emitted by the plant and the type of treatment which would clean the effluent. Both reports showed that the effluent from the processing plant contained many "deleterious characteristics" which included high suspended solids concentration. The report explored several treatment methods, some of which had proven to be highly successful and relatively cheap.

The State Department of Health again inspected the premises on February 4, 1960 taking samples of the industrial waste effluent for the purpose of determining "the current pollutional potential of the wastes." The written report which issued after that inspection showed that the "pollutional aspect" of the company's wastes first came to the attention of the State Department of Health in 1956. Although the report indicates that the company was "very cooperative" and "desirous of rectifying the present pollution," it had yet to decide what type of treatment facility to install and was unable to negotiate for waste disposal with the Borough of Wood-Ridge. Samples of the effluent were taken from three buildings on the premises with a report noting that "no treatment as such is afforded the industrial wastes." The Conclusion of this report, as in an earlier report, stated "the combined industrial wastes effluent from S.W. Berk & Company is unacceptable for discharge into Berry's Creek." The report warned that the decision as to the type of waste treatment to be effected had been under consideration for several years; the author threatened legal action to secure compliance with the pertinent statutes.

By March 22, 1960 the company knew that the municipal sewerage system would not be able to handle its wastes, even with pretreatment. A letter from the company to the Department of Health indicated, however, that the company was seeking "professional help on design of a treatment plant." By May 1960 it appeared that Velsicol would purchase Berk's property and assets. Velsicol was informed of the State Department of Health's inspection report of February 1960 and was told that Berk had been "planning to make certain installations to reduce the amount of pollution resulting from its operations . . . ." The sale was completed and the company's name changed to Wood-Ridge Chemical Corporation in July 1960. The State Department of Health again inspected the premises in August 1960 and issued a written report which noted that, despite the name change, "the official personnel remain the same as do also the chief production processes." At

the time of this inspection, however, the plant was closed with full production expected to resume by October. Consequently, no sampling of waste was possible and the report merely noted that all production units produced wastes which flowed through a series of settling basins and united in a common ditch leading to Berry's Creek just below the outfall of the Wood-Ridge Sewerage Treatment Plant. Settling was the only treatment of the waste provided and it was observed that some of the settling basins were in need of cleaning. Again, the company represented to department officials that it was "now planning to construct its own treatment devices."

The plant was again inspected on December 5, 1960. The department's analysis of the plant's effluents indicated "a deleterious waste due chiefly to its high turbidity, suspended solids and ether soluble content." The effluent sample taken during the December 1960 visit was removed from a 5-foot deep, 40-foot square lagoon which had recently been excavated behind the industrial property. That lagoon received all the industrial waste effluents from the plant buildings and acted as an additional settling tank with an average detention period of about two days. The lagoon effluent emptied into Berry's Creek through an underground storm drain pipe. The report concluded with the suggestion that the company proceed with its plans to install additional waste treatment equipment on the premises in order to provide a nonpolluting final effluent.

In February 1964 the State's supervising engineer for the stream pollution control program wrote to the corporation's vice-president observing that a year prior the company informed the State Department of Health that it had contracted with consulting engineers to design suitable industrial waste treatment facilities to treat the lagoon effluent. The State complained that it received no engineering studies or proposals with respect to treatment facilities. Cautioning that the lagoon was nothing more than a temporary or preliminary step leading to treatability studies on the plant's effluents, Wood-Ridge Chemical was directed to advise the State of its treatment program status and when completion of a satisfactory facility would occur. In response, the company forwarded a "report on industrial waste treatment facilities, Wood-Ridge Chemical Corporation," authored by Clinton Bogert Associates, Consulting Engineers. Representatives from the company met with State Board of Health officials on August 5, 1964. At that time they reached an agreement in which the company was immediately to authorize final planning of new plant sewers and facilities for the collection and treatment of industrial wastes and to submit them to the department for approval within the next several weeks. These treatment facilities would be similar in general design to those recommended by the Clinton Bogert report. The effluent quality standards listed in the Bogert report would be adhered to as minimum requirements before the effluent was discharged into Berry's Creek and the existing waste-holding lagoon would be abandoned after completion and operation of the waste treatment facilities. This agreement was memorialized in a letter from the bureau to the company dated August 6, 1964.

By letter dated November 2, 1964 Wood Ridge reported to the Department of Health about its progress on the waste treatment facility. Wood Ridge promised that construction of a tile sewer and collecting sump for separation of process wastes would be completed by the end of November, after which further laboratory

work would be done on the effluent and final plans for the treatment plant could be completed by March 31, 1965. The department responded by seeking greater haste on the company's part and indicating the hope that an adequate design and construction of a treatment project would be completed within the next few months so that "the source of pollution to Berry's Creek may be finally abated." By January 25, 1965 the Department of Health had apparently not received any information about the laboratory studies which were to accompany final installation of the sewers and collecting sump and sought additional information about the progress of the project. Apparently the sewer and collecting sump were completed on January 15, 1965. Wood Ridge planned to have the laboratory studies complete by March, with the planned treatment facilities "on stream by July 1965." In June 1965, however, the health department had received no reports on the laboratory studies or the design of the waste treatment facilities. Even by March 31, 1966 no treatment plant had been designed, let alone completed, at the site.

By late 1969 or early 1970 the federal Environmental Protection Agency became involved in the company's waste problems. John Ciancia, Chief of the Industrial Waste Section of the Federal Water Quality Administration, visited the site and determined that it was discharging process waste containing mercury. On October 23, 1970 the company approved a capital expenditure for improved effluent treatment -- a problem characterized by a company document as "currently at an emergency level." That document asserted that

We are discharging mercury at a rate which we cannot measure precisely, but which has been estimated by the F.W.Q.A. [Federal Water Quality Administration] at 4.2 lbs./day (55 GPM total discharge, averaged over 24 hours, 7 PPM mercury content). The preliminary standard which the F.W.Q.A. appears to be accepting from other mercury users is a maximum of 0.5 lbs./day, which we definitely exceed . . . . Ventron has already suffered adverse publicity because of alleged mercury discharges, and we will certainly receive more if we do not institute controls approved by the F.W.Q.A. While the current furor over mercury pollution undoubtedly contains much exaggeration and misinformation, it is unquestionably a toxic substance, and as such we are under a moral obligation, as well as an impending legal one, to effectively control the mercury effluent from our processes.

From subsequent correspondence between the federal agency and Ventron (by then, 1971, owner of the processing plant), we deduce that the parties were attempting to work out the details of a new treatment process to reduce the amount of mercury admittedly being deposited into Berry's Creek. Ventron never succeeded in preventing mercury contaminated effluent from reaching Berry's Creek. As noted, the processing plant tract was sold to the Wolfs in 1974 and their development of the property caused additional pollution problems which resulted in the suit filed by the DEP.

[266 N.J. Super. at 311-317, 629 A.2d at 901-904.]

Several aspects of the documentary record are noteworthy. The first State Department of Health report in 1956 noted that samples of wastes in Berk's settling tanks contained virgin mercury

as well as organic and inorganic mercury compounds, and that effluent from the settling tanks discharged into an open ditch and eventually into Berry's Creek. At that time, Department of Health engineers informed Berk officials that the effluent discharging from the plant into Berry's Creek was unacceptable because of the high suspended-solids content and a high biological-oxygen demand (B.O.D.). During a follow-up visit in 1958, a state engineer, responding to a Berk executive's account of efforts to expedite construction of a new settling tank, informed the executive that a settling tank would not itself reduce the B.O.D. to within acceptable limits, emphasizing that continued discharge of effluent into Berry's Creek could be allowed only if Berk implemented further treatment in accordance with plans approved by the State. Thus, Berk's executives were alerted to the risk that the high B.O.D. demand that characterized Berk's effluent threatened depletion of the oxygen content of Berry's Creek, which in turn would compromise the Creek's capacity to accommodate fish, plants, and other wildlife. Moreover, although the early Department of Health reports did not focus on the extent to which the solids in Berk's effluent included mercury, a March 1959 departmental memorandum reported a conversation with a Berk official indicating his awareness that whatever effluent treatment methodology was selected,

the removal of the mercurial compounds will be a necessity. These are mainly in suspension and a large proportion of them are already removed by sedimentation, but many particles are too fine to permit removal by this means. Work is to be undertaken to determine if they can be successfully removed by a flocculation process.

By early 1960, Berk and its successor, Wood Ridge, knew that the local sewerage authority would not process the company's effluent, and represented to the State that the company would construct its own treatment facility. As a temporary measure, the company was then discharging its untreated effluent into a lagoon that provided an additional two-days detention before the ultimate discharge into Berry's Creek. However, Wood Ridge took no action toward construction of a treatment facility until 1964, when it engaged a consulting engineering firm after state officials again

complained about the company's failure to have submitted plans for the proposed treatment facility. The consulting engineers' report recommended the general design of Wood Ridge's new treatment facilities, set forth minimum effluent-quality standards, and contemplated abandonment of the waste-holding lagoon. Although Department of Health officials agreed generally with the report's proposals, Wood Ridge failed to complete the necessary laboratory studies and never filed final plans for the waste-treatment facility with state officials.

As noted, by 1970 the enforcement responsibility had shifted to the Federal Environmental Protection Agency (EPA), and the regulatory focus was then directed at the company's discharge of mercury into Berry's Creek. Whatever the company's prior awareness of mercury discharges may have been, by October 1970, the company could not fail to acknowledge that mercury "is unquestionably a toxic substance, and as such we are under a moral obligation, as well as an impending legal one, to effectively control the mercury effluent from our processes." Subsequently, Wood Ridge did install waste-treatment facilities that diminished the volume of mercury-contaminated effluent. However, until the plant ceased operations in 1974, Wood Ridge was unable to reduce the daily volume of mercury discharged into Berry's Creek below the level considered to be tolerable by the EPA.


Issues of Insurance-Policy Interpretation

The Court is presented with a number of significant insurance-coverage issues. Cross-petitioners argue that we need not determine whether the property damage for which remediation was ordered in the Ventron litigation resulted from an "occurrence," because in their view environmental-remediation costs imposed at the instance of governmental-enforcement agencies do not constitute "damages" as that term is used in standard CGL policies. They also contend that those policies containing the standard pollution-exclusion clause afford no coverage to Morton and its

predecessors because the discharges of pollutants from the mercury-processing plant into Berry's Creek and the surrounding area were not "sudden and accidental." Morton argues that the record presents an issue of fact about whether the property damage requiring remediation was "intended or expected from the standpoint of the insured," asserting that the Chancery Division's grant of summary judgment on that issue was error. We also address the duty-to-defend questions raised by the Appellate Division's reversal of the judgment for Morton against General Accident for a portion of Morton's defense costs and counsel fees.

A. " As Damages "

In their joint cross-petition for certification, several of the insurance company defendants (supported by amicus Insurance Environmental Litigation Association) argue that aside from the question whether the discharges of pollutants by Morton's predecessors constitute covered "accidents" or "occurrences" under the various policies, the expenditures compelled by the judgment in the Ventron litigation do not constitute "damages" for which indemnification is payable under those policies. The Chancery Division, relying on Broadwell Realty Services, Inc. v. Fidelity & Casualty Co., 218 N.J. Super. 516, 525-30, 528 A.2d 76 (App.Div.1987), held that the term "damages" encompassed the remediation expenses mandated in Ventron. The Appellate Division did not address the issue. Although some variation appears in the language of the policies, the typical provision, characterized by the Liberty Mutual CGL policy, supra at 11, 629 A.2d at 836, states:

The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of * * * property damage to which this policy applies, caused by an occurrence * * *.

[Emphasis added.]

The insurers argue that the critical phrase "as damages" confines their duty of indemnity to judgments for traditional tort-liability money damages, and imposes no obligation to reimburse Morton for equitable remedies such as governmentally-mandated

response costs intended to remediate environmental harm. They note and rely on the observation by the trial court that

[t]he State sought and received an Order for the cleanup of the land now owned by plaintiff. Money damages were not awarded to anyone by Judge Lester.

They also contend that the Spill Act, the primary statutory enactment on which defendants' liability in the Ventron litigation was based, distinguishes between "cleanup and removal costs," defined in N.J.S.A. 58:10-23.11b(d), and "damages," citing N.J.S.A. 58:10-23.11g(a). The essence of the insurers' argument, however, is that the undefined phrase "as damages" unambiguously is understood in the context of insurance coverage to have a technical but settled meaning, and refers only to traditional third-party compensatory awards rather than equitable-type relief intended not to compensate claimants but to remediate environmental damage.

Morton, supported by amici State of New Jersey and New Jersey State League of Municipalities, argues that the policy term "as damages" encompasses the remediation costs imposed by the Ventron judgment. Morton preliminarily observes that the joint and several liability of the Ventron defendants was predicated both on the Spill Act and common-law nuisance principles, Ventron, supra, 94 N.J. at 493, 468 A.2d 150, asserting that at least the relief based on common-law principles is analogous to a traditional tort-law damages award. More generally, Morton argues that the undefined term "as damages" should not be construed technically but rather should be accorded its plain meaning in order to vindicate the objectively-reasonable expectations of insureds, who would assume that CGL policies would cover environmental-remediation costs as well as third-party liability claims.

In resolving those competing contentions, we are not required to write on a blank slate, numerous federal and state courts having preceded us in addressing the issue. Three Circuit Courts of Appeals, applying state law, have concluded that environmental-remediation costs are not covered damages under CGL policies. See Gresham v. Commercial Union Ins. Co., 951 F. 2d 872, 875

(8th Cir.1991) (Arkansas law); Parker Solvents Co. v. Royal Ins. Cos. of America, 950 F. 2d 571 (8th Cir.1991) (Arkansas law); A. Johnson & Co. v. Aetna Casualty & Sur. Co., 933 F. 2d 66, 69 (1st Cir.1991) (Maine law); Cincinnati Ins. Co. v. Milliken & Co., 857 F. 2d 979, 981 (4th Cir.1988) (South Carolina law); Continental Ins. Cos. v. Northeastern Pharmaceutical & Chem. Co., 842 F. 2d 977, 985 (8th Cir.) (en banc) (Missouri law), cert. denied, 488 U.S. 821, 109 S. Ct. 66, 102 L. Ed. 2d 43 (1988) (NEPACCO); Maryland Casualty Co. v. Armco, Inc., 822 F. 2d 1348, 1352 (4th Cir.1987) (Maryland law), cert. denied, 484 U.S. 1008, 108 S. Ct. 703, 98 L. Ed. 2d 654 (1988). A number of federal district courts have reached the same Conclusion. United States Fidelity & Guar. Co. v. Morrison Grain Co., 734 F. Supp. 437, 450 (D.Kan.1990) (Kansas law); Verlan, Ltd. v. John L. Armitage & Co., 695 F. Supp. 950, 953-55 (N.D.Ill.1988) (Illinois law); Hayes v. Maryland Casualty Co., 688 F. Supp. 1513, 1515 (N.D.Fla.1988) (Florida law); Travelers Ins. Co. v. Ross Elec., 685 F. Supp. 742, 744-45 (W.D.Wash.1988) (Washington law). The Supreme Judicial Court of Maine has reached the same result. See Patrons Oxford Mutual Ins. Co. v. Marois, 573 A.2d 16, 18-19 (1990). The rationale for the viewpoint that "damages" does not include equitable relief such as payment of environmental-response costs is expressed plainly by the Eighth Circuit in NEPACCO, supra:

Viewed outside the insurance context, the term "damages" is ambiguous: it is reasonably open to different constructions. Webster's Third New International Dictionary 571 (1971) defines "damages" as "the estimated reparation in money for detriment or injury sustained: compensation or satisfaction imposed by law for wrong or injury caused by a violation of a legal right." The dictionary definition does not distinguish between legal damages and equitable monetary relief. E.g., New Castle County v. Hartford Accident & Indemnity Co. [673 F. Supp. 1359], at 1366 [(D.Del.1987)]. Thus, from the viewpoint of the lay insured, the term "damages" could reasonably include all monetary claims, whether such claims are described as damages, expenses, costs, or losses.

In the insurance context, however, the term "damages" is not ambiguous, and the plain meaning of the term "damages" as used in the insurance context refers to legal damages and does not include equitable monetary relief. See Maryland Casualty Co. v. Armco, Inc., 822 F.2d [1348] at 1352 [(4th Cir.1987)]. The CGL policies require Continental to "pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of . . . property damage to which this insurance applies caused by an occurrence." (Emphasis

added.) "The obligation of the insurer to pay is limited to 'damages,' a word which has an accepted technical meaning in law." [ Aetna Casualty & Surety Co. v. ] Hanna, 224 F. 2d [499] at 503 [(5th Cir.1955)]. Although not defined in the CGL policies, "[t]he word 'damages' is not ambiguous in the insurance context. Black letter insurance law holds that claims for equitable relief are not claims for 'damages' under liability insurance contracts."

[842 F. 2d at 985-86 (quoting Maryland Casualty Co. v. Armco, Inc., 643 F. Supp. 430, at 432 (D.Md.1986)).]

The clear weight of authority, however, among both federal and state courts adopts the view that the undefined term "damages" in CGL policies should be accorded its plain, non-technical meaning, thereby encompassing response costs imposed to remediate environmental damage. Aetna Casualty & Sur. Co. v. Pintlar Corp., 948 F. 2d 1507, 1513 (9th Cir.1991) (applying Idaho law); Gerrish Corp. v. Universal Underwriters Ins. Co., 947 F. 2d 1023, 1030 (2d Cir.1991) (applying Vermont law), cert. denied, U.S. , 112 S. Ct. 2939, 119 L. Ed. 2d 564 (1992); Independent Petrochemical Corp. v. Aetna Casualty & Sur. Co., 944 F. 2d 940, 947 (D.C.Cir.1991) (applying Missouri law), cert. denied sub nom. Certain Underwriters at Lloyds, London v. Independent Petrochemical Corp., U.S. , 112 S. Ct. 1777, 118 L. Ed. 2d 435 (1992); New Castle County v. Hartford Accident & Indem. Co., 933 F. 2d 1162, 1184-91 (3d Cir.1991) (applying Delaware law), on remand, 778 F. Supp. 812 (D.Del.1991), rev'd on other grounds, 970 F. 2d 1267 (3d Cir.1992), cert. denied, U.S. , 113 S. Ct. 1846, 123 L. Ed. 2d 470 (1993); Avondale Indus., Inc. v. Travelers Indem. Co., 887 F. 2d 1200, 1207 (2d Cir.1989) (applying New York law), cert. denied, 496 U.S. 906, 110 S. Ct. 2588, 110 L. Ed. 2d 269 (1990); Township of Gloucester v. Maryland Casualty Co., 668 F. Supp. 394, 400 (D.N.J.1987) (applying New Jersey law); AIU Ins. Co. v. Superior Court, 51 Cal. 3d 807, 274 Cal.Rptr. 820, 834-45, 799 P. 2d 1253, 1267-78 (1990); Aerojet-General Corp. v. Superior Court, 211 Cal.App. 3d 216, 257 Cal.Rptr. 621, 628 (1989); A.Y. McDonald Indus. v. Insurance Co. of North America, 475 N.W. 2d 607, 615-22 (Iowa 1991); Hazen Paper Co. v. United States Fidelity & Guar. Co., 407 Mass. 689, 555 N.E. 2d 576, 582-84 (1990); United States Aviex Co. v. Travelers Ins. Co., 125 Mich.App. 579, 336

N.W. 2d 838, 842-43 (1983); Minnesota Mining & Mfg. Co. v. Travelers Indem. Co., 457 N.W. 2d 175, 179-84 (Minn.1990); C.D. Spangler Constr. Co. v. Industrial Crankshaft & Eng'g Co., 326 N.C. 133, 388 S.E. 2d 557, 565-69 (1990); Boeing Co. v. Aetna Casualty & Sur. Co., 113 Wash. 2d 869, 784 P. 2d 507, 510-15 (1990); Compass Ins. Co. v. Cravens, Dargan & Co., 748 P. 2d 724, 729-30 (Wyo.1988).

In adopting the view that "damages" includes environmental remediation costs, the Washington Supreme Court observed:

These cases have found that cleanup costs are essentially compensatory damages for injury to property, even though these costs may be characterized as seeking "equitable relief." Or put another way, "coverage does not hinge on the form of action taken or the nature of relief sought, but on an actual or threatened use of legal process to coerce payment or conduct by a policyholder." In United States Fidelity & Guar. Co., the court found that once property damage is found as a result of environmental contamination, cleanup costs should be recoverable as sums that the insured was liable to pay. According to an earlier case, United States Aviex Co. v. Travelers Ins. Co., 125 Mich.App. 579, 589-90, 336 N.W. 2d 838 (1983), the environmental cleanup costs are covered because they are equivalent to "damages" under state law:

If the state were to sue in court to recover in traditional "damages", including the state's costs incurred in cleaning up the contamination, for the injury to the ground water, defendant's obligation to defend against the lawsuit and to pay damages would be clear. It is merely fortuitous from the standpoint of either plaintiff or defendant that the state has chosen to have plaintiff remedy the contamination problem, rather than choosing to incur the costs of clean-up itself and then suing plaintiff to recover those costs. The damage to the natural resources is simply measured in the cost to restore the water to its original state.

[ Boeing, supra, 784 P. 2d at 511-12 (citations omitted).]

The Third Circuit, applying Delaware law, reached the same Conclusion:

The competing lines of cases relied upon by CNA and the County demonstrate that resolution of this issue turns on whether the word "damages" should be given its legal, technical meaning or its plain, ordinary meaning. Given the precepts of Delaware law and the absence of a definition limiting the meaning of "damages" in CNA's policies, we think that to state the question is virtually to answer it. In our view, the ordinary, usual meaning of "damages," which we are bound to apply under Delaware law unless the policy clearly directs us to another meaning, does not convey the limitations suggested by CNA. In short, we believe that the Delaware Supreme Court would find the Avondale-Boeing-Spangler line of cases to be the better reasoned. We thus conclude that the term "damages," in the

context of a standard CGL policy, should be interpreted broadly to encompass response costs and other equitable relief.

[ New Castle, supra, 933 F. 2d at 1188.]

Although this Court declined to address the issue in New Jersey Department of Environmental Protection v. Signo Trading International, Inc., 130 N.J. 51, 67, 612 A.2d 932 (1992), Justice O'Hern, Dissenting on other grounds, concluded that "environmental-response costs are covered damages under a CGL policy." Id. at 74, 612 A.2d 932. We find his analysis of the issue to be thoroughly persuasive:

"Damages" means money to most people. Money is what DEP wants from Springer. One United States District Court in New Jersey has perhaps stated it best: In assessing what an insured would reasonably expect from a CGL policy, it reasoned that "[t]he average person would not engage in a complex comparison of legal and equitable remedies in order to define * * * 'damages', but would conclude based on the plain meaning of words that the cleanup costs imposed on [the insured] * * * would constitute an obligation to pay damages." American Motorists Ins. Co. v. Levelor Lorentzen, Inc., No. 88-1994, 1988 WL 112142 at 3 (D.N.J. Oct. 14, 1988); see also Avondale Indus., Inc. v. Travelers Indemn. Co., 697 F. Supp. 1314, 1319 (S.D.N.Y.1988) ("The average businessman does not differentiate between 'damages' and 'restitution;' in either case, money comes from his pocket and goes to third parties. * * * The average businessman would consider himself covered for cleanup expenditures applicable to others' properties."), aff'd, 887 F. 2d 1200 (2d Cir.1989).

[ Id. at 75-76, 612 A.2d 932.]

We are fully in accord with the views expressed by Justice O'Hern in Signo Trading and adopted by the majority of federal and state courts that have addressed the issue. Accordingly, we hold that the environmental-response costs and remediation expenses imposed on Morton's predecessors in the Ventron litigation constitute sums that Morton will have to pay "as damages" because of property damage, within the meaning of the CGL policies at issue. Although the "owned-property" exclusion, which generally bars coverage for "property damage to property ...

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