On appeal from the Superior Court of New Jersey, Law Division, Somerset County.
Approved for Publication April 15, 1996.
Before Judges Dreier and Villanueva. The opinion of court was delivered by VILLANUEVA, J.A.D.
The opinion of the court was delivered by: VILLANUEVA
The opinion of the court was delivered by VILLANUEVA, J.A.D.
Plaintiffs, George Sands and Jeffrey Sands, appeal pursuant to leave granted from a December 2, 1994 order denying plaintiffs' motion for partial summary judgment and granting partial summary judgment in favor of defendant insurance companies. Plaintiffs argue that defendants are obligated to defend them in a federal CERCLA action (Comprehensive Environmental Response, Compensation and Liability Act, 42 U.S.C.A. § 9601 et seq.) where they have been named as third-party defendants. We reverse and remand for further proceedings.
In February 1991, the United States filed an action against Princeton Gamma Tech, Inc. (PGT) alleging that PGT is liable under CERCLA for response costs and for costs incurred and may be incurred for two superfund sites that are being monitored by the Environmental Protection Agency as well as the New Jersey Department of Environmental Protection. The sites are the Rocky Hill Municipal Wellfield and the Montgomery Township Housing Development. Trichloroethylene (TCE) has been found on each of these sites. In 1983, the sites were placed on the Superfund national priorities list pursuant to CERCLA. On November 4, 1991, plaintiffs, among others, were named as third-party defendants in a third-party complaint filed in the United States District Court for the District of New Jersey in which PGT is seeking contribution with respect to remediation of the environmental contamination. Plaintiffs owned properties operated as a shopping center adjacent to the sites and leased properties over the years to various commercial tenants who allegedly used hazardous substances that contaminated the local water supply with TCE. The underlying federal action is still in the pretrial stages.
Shortly after plaintiffs were named as third-party defendants in the federal action, they placed the defendants on notice of the proceedings. Plaintiffs requested that defendants assume their defense, take responsibility for and share amongst the other insurance carriers the defense costs of the suit, and ultimately be responsible for any response costs and damages that may be incurred in the underlying federal action. In letters to plaintiffs, defendants denied coverage. However, one carrier, Home Insurance Company, agreed to undertake plaintiffs' defense, subject to a reservation of rights.
On September 15, 1992, plaintiffs filed a complaint in the Superior Court of New Jersey seeking a declaration that the primary and excess general liability insurance policies (policies) issued to plaintiffs by the defendant insurance companies provide coverage for plaintiffs' potential liability for payment or contribution to PGT, and that defendants have a duty to defend plaintiffs in the underlying CERCLA action. In the second amended complaint, plaintiffs sought damages for the alleged breach of defendants' contractual duties under their insurance policies with respect to defense costs and actual and potential contribution liabilities.
Plaintiffs moved to compel answers to interrogatories and production requests. Plaintiffs also moved for partial summary judgment seeking a determination that (1) an "occurrence" under the insurance policies written by defendants had taken place based upon the third-party complaint of PGT; (2) plaintiffs are entitled to reimbursement for response costs because such costs are damages under the policies as interpreted in Morton International, Inc. v. General Accident Insurance Co. of America, 134 N.J. 1, 629 A.2d 831 (1993), cert. denied, U.S. , 114 S. Ct. 2764, 129 L. Ed. 2d 878 (1994); and (3) that plaintiffs be allowed to amend their complaint to assert that defendants' conduct in refusing to defend plaintiffs is tortious and a willful breach of contract for which plaintiffs are entitled to compensatory and punitive damages. Plaintiffs argued additionally that defendants were obligated to assume their defense.
Defendants cross-moved for partial summary judgment on the ground that there is no present duty to defend plaintiffs as a policy holders under the policies when there were coverage issues that would not be resolved in the underlying action or when there was a potential for a conflict of interest between the insurer and policy holder.
The trial Judge denied plaintiffs' motions and granted defendants' cross-motion, finding "no underlying duty to defend." The Judge determined that plaintiffs were seeking a ruling as a matter of law that (1) an "occurrence" had taken place under the policies; (2) the contribution sought by the PGT constitutes damages; and (3) defendants breached their duty to defend plaintiffs in the underlying federal action. The Judge's granting of this partial summary judgment in effect made defendants responsible solely to reimburse plaintiffs for their defense costs since the Judge determined that there was no duty to defend until a complete factual record was established.
The Judge interpreted Morton International as requiring that an analysis of expectation and intent be made in the context of all available evidence, and found that plaintiffs must present a "well-developed detailed factual record which could compel a Trial Court to find as a matter of law, that an occurrence has taken place." Rejecting plaintiffs' argument that defendants must exercise due diligence to discover facts to show there is no coverage, the Judge determined that it was plaintiffs' burden to introduce the relevant evidence but he found that they "frankly presented little if any factual evidence which would convince this Court to find that an occurrence has taken place." The Judge determined that plaintiffs' motion for summary judgment on the occurrence issue was premature.
With respect to the issue whether response costs are considered damages under the policies, the Judge was unsure of what plaintiffs were requesting. He therefore determined that because it was not known what amounts plaintiffs were obligated to pay to whom, summary judgment on this issue was also premature and inappropriate.
The Judge then addressed defendants' joint cross-motion for partial summary judgment, concluding that defendants do not have a present duty to defend plaintiffs in the underlying action. Noting that the federal complaint alleged in part that plaintiffs knew or should have known that hazardous substances were being handled, stored or discharged onto their property, the Judge reasoned that there were issues central to the coverage question that would not necessarily be decided in ...