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UMC/Stamford, Inc. v. Allianz Underwriters Ins. Co.

Decided: March 16, 1994.





This opinion summarizes a number of pretrial rulings made in this environmental insurance coverage case. Plaintiffs, UMC/Stamford, Inc., UniDynamics Corporation, et al. (UMC) seek judgment against various insurance companies declaring that they must provide coverage under certain multiple policies of insurance, including certain excess policies for claims against plaintiff which arise out of environmental pollution at particular sites located in several states around the country. This decision relates to two of those sites: Roseland, New Jersey, and Salinas, California.

The facts are not largely disputed. In 1978 UMC acquired Resistoflex Corporation, a specialty-pipe manufacturer which operated a facility in Roseland from 1956 until 1987. The pipes manufactured at the facility were used primarily in the aerospace and petrochemical industries.

As part of its operations, Resistoflex used a solvent known as trichlorethylene ("TCE") to clean and degrease parts and prepare them for painting. Resistoflex believes that through a variety of sources, including accidental spills, drum leaks and unauthorized disposal practices by employees, TCE was introduced into a landfill on the property which had served as the septic system for the facility. In May 1984, the New Jersey Department of Environmental Protection and Energy ("DEPE") discovered the presence of TCE in the soil and groundwater at the facility. Thereafter, in July 1988 the DEPE issued a directive determining, in part, that "[Resistoflex] is responsible for the discharge of hazardous substances into the aquifer from which Essex Fells Water Department obtains its water supply."

With regard to the California site, plaintiff operated an ordnance and electromechanical device manufacturing facility at Salinas from 1957 to 1973. As was the practice in Roseland, TCE solvents were used to clean and degrease parts. The spent solvents which were used to control weed growth evaporated into the soil and seeped into the groundwater. In 1989, local officials ordered plaintiff to remediate the contaminated groundwater.


Among the defendants' many contentions, London Market and Allstate Insurance contend that, as to the Resistoflex facility, there is no evidence that the contaminated soil at this site has caused any off-site property damage. Moreover, since damage at this site is presently confined to plaintiff's own property, the "owned-property" exclusion contained in defendants' policies with plaintiff bars coverage. Defendants maintain that the only evidence of off-site pollution relates to the Essex Fells claim for which remediation expenses have already been allocated.

Most Comprehensive General Liability ("CGL") policies, such as those involved in this case, exclude coverage for damage to property owned, occupied or rented by the insured. These policies, however, will generally afford coverage for environmental cleanup related to damage to third-party property. State v. Signo Trading Intern., Inc., 130 N.J. 51, 612 A.2d 932 (1992). Certainly coverage for remediation expenses is appropriate where on-site pollution causes off-site contamination. See Gerrish Corp. v. Universal Underwriters Ins. Co., 947 F.2d 1023 (2d. Cir. 1991), cert. denied, 60 U.S.L.W. 3827, 112 S. Ct. 2939, 119 L. Ed. 2d 564, (1992); Intel Corp. v. Hartford Acc. & Indem. Co. 952 F.2d. 1551 (9th Cir. 1991). For example, where contaminated groundwater has migrated to another's property, plaintiff may be entitled to recover costs associated with removing the source of the contamination. CPS Chemical v. Continental Ins., 222 N.J. Super. 175, 536 A.2d 311 (App. Div. 1988); Broadwell Realty Inc. v. Fidelity & Cas. Co., 218 N.J. Super. 516, 528, 528 A.2d 76 (App. Div. 1987).

The problem in the present case is that plaintiff is seeking coverage for cleanup costs restricted to soil and groundwater contamination absent evidence of damage to off-site property. Plaintiff contends that it may be subject to substantial future expenses unless the pollutants on its property are removed. Defendants, in turn, rely on State v. Signo Trading Intern Inc. supra, in which the supreme court determined that where a party cannot show actual damage to a third party interest, coverage is ordinarily excluded. Future damages are not covered. 130 N.J. at 64. However, plaintiff contends that groundwater contamination is not damage to property owned by the insured but rather damage to the property of another. Thus, groundwater is not subject to the "owned-property" exclusion.

Prior to the Supreme Court's decision in Signo Trading, a number of New Jersey cases determined that coverage was not excluded for groundwater contamination, nor when the contamination was limited to the insured's property, so long as off-site property was imperiled. Broadwell Realty Inc. v. Fidelity & Cas. Co., 218 N.J. Super. 516, 526, 528 A.2d 76 (App. Div. 1987); Woodsum v. Pemberton Tp., 172 N.J. Super. 489, 503, 412 A.2d 1064 (Law Div. 1980), aff'd, 177 N.J. Super. 639, 427 A.2d 615 (App. Div. 1981).

In Broadwell, hazardous substances leaked from a number of underground storage tanks on a realty company's premises and subsequently spread to adjacent property. The appellate court held that "the costs of preventive measures taken by Broadwell on its own property in response to [a] DEP directive which were designed to abate the continued flow of contaminants onto adjacent lands are recoverable under the policy." 218 N.J. Super. at 525. However, those expenses related solely to the Broadwell site itself rather than to prevent off-site contamination, which was deemed to be subject to the owned-property exclusion and not covered. Id. at 528. In Broadwell, the court noted that "harm to the state, by reason of the discharge of pollutants into its streams, and to others was continuing and ongoing. Further, peril was both imminent and immediate." Id. at 527-28. Moreover, the parties were not required "to calmly await further catastrophe" before taking action Id. at 526.

Other cases have held that response costs, even if limited to the polluted site itself, were covered under general liability policies where such expenses are related to third-party damage claims. Township of Gloucester v. Maryland Cas. Co., 668 F. Supp. 394 (D.N.J. 1987); CPS Chemical v. Continental Ins., 222 N.J. Super. 175, 185, 536 A.2d 311 (App. Div. 1988); Reliance Ins Co. v. Armstrong World Indus., Inc., 259 N.J. Super. 538, 614 A.2d 642 (Law Div. 1992).

The narrow question presented in this case is whether the owned-property exclusion applies where there is evidence of groundwater contamination but no evidence of off--site damage. Defendants contend that groundwater belongs to the property owner, and thus the contaminated soil and groundwater at Resistoflex is subject to the owned-property exclusion.

A number of courts which have addressed this issue have determined that groundwater is not subject to the owned-property exclusion contained in most CGL policies. Intel Corp. v. Hartford Acc. & Indem. Co., supra; Gerrish Corp. v. Universal Underwriters Ins. Co., supra; LaSalle Nat. Trust N.A. v. Schaffner, 818 F. Supp. 1161 (N.D. Ill. 1993); Patz v. St. Paul Fire and Marine Ins. Co., 817 F. Supp. 781, 783 (E.D. Wis. 1993); Maryland Cas. Co. v. Wausau Chemical Corp., 809 F. Supp. 680, 693 (W.D. Wis. 1992); Claussen v. Aetna Casualty & Sur. Co., 754 F. Supp. 1576, 1579 (S.D. Ga. 1990); United States Aviex Co. v. Travelers Ins. Co., 125 Mich. App. 579, 336 N.W.2d 838 (Mich. Ct. App. 1983)

In New Jersey, one trial court, with the validation of an appellate court, has determined that there is no proprietary interest in groundwater, only a right of beneficial use. Woodsum v. Pemberton Tp., 172 N.J. Super. 489, 503, 412 A.2d 1064 (Law Div. 1980), aff'd, 177 N.J. Super. 639, 427 A.2d 615 (App. Div. 1981); see also Meeker v. City of East Orange, 77 N.J.L. 623, 638-39, 74 A. 379 (E & A 1909). This view has been adopted by numerous jurisdictions across the country. See Cherry v. Steiner, 543 F. Supp. 1270 (D. Ariz. 1982); Gallerina v. United States, 41 F. Supp. 293, 294 (D. Mass. 1941); AIU Ins. Co. v. FMC Corp., 51 Cal. 3d 807, 799 P.2d 1253, 274 Cal. Rptr. 820 (Cal. 1990); Town of Chino Valley v. City of Prescott, 131 Ariz. 78, 638 P.2d 1324, 1328 Ariz. (1981), reh'g denied, 457 U.S. 1101, 102 S. Ct. 2897, 73 L. Ed. 2d 1310 (1982); State v. New York Central Mutual Fire Ins. Co., 147 A.D.2d 77, 542 N.Y.S.2d 402 (App. Div. 1989).

Contrary to the Woodsum holding, another trial court has ruled that the owned-property exclusion under review bars coverage for contamination of the groundwater. Reliance v. Armstrong World Ind., 265 N.J. Super. 148, 625 A.2d 601 (Law Div. 1993). In Reliance, the court apparently determined that since there is no legislative authority creating a trustee status between the state and its citizenry, "property interest in groundwater is clearly an interest held by the owner of the recorded title to the surface land . . . ." Id. at 162.

Our Legislature, however, has determined that certain toxic substances "are a significant and unnecessary source of water pollution and groundwater contamination," and that pollution of the state's groundwater continues to endanger public health, ecological values and other public and private uses of water. See N.J.S.A. 58:10A-15; N.J.S.A. 58:10A-2. Accordingly, and contrary to the holding in Reliance, N.J.S.A. 58.10-23.-11a, N.J.S.A. 58:10-23.11b(m) and (u), and N.J.S.A. 58:1A-2-58:1A-17 do indeed impose trustee status on the state with respect to a public resource such as groundwater. See also CPS Chemical v. Continental Ins., 222 N.J. Super. 175, 185, 536 A.2d 311 (App. Div. 1988).

Furthermore, it is the public "policy of this State to eliminate the introduction of these toxic chemicals into the groundwater of this State." N.J.S.A. 58:10-15. This includes trichlorethylene (TCE), the very toxic chemical involved in this case. N.J.S.A. 58:10A-16(e). A number of other provisions make clear that the state, as trustee, has undertaken to protect its groundwater resources from ...

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