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Metex Corp. v. Federal Insurance Co.

April 26, 1996

METEX CORPORATION, PLAINTIFF-APPELLANT,
v.
FEDERAL INSURANCE CO., WESTPORT INSURANCE CO. (FORMERLY PURITAN INSURANCE COMPANY), HUDSON INSURANCE CO., CONTINENTAL CASUALTY COMPANY, ERIC RE-INSURANCE, DEFENDANTS-RESPONDENTS, AND NORTH STAR RE-INSURANCE CORPORATION, INSURANCE COMPANY OF NORTH AMERICA, CIGNA PROPERTY & CASUALTY CO., NEW JERSEY MANUFACTURERS INSURANCE CO., THE CAMDEN FIRE INSURANCE ASSOC., GENERAL ACCIDENT INS. CO. OF AMERICA, NORTH RIVER INSURANCE CO., ATLANTA INTERNATIONAL INSURANCE CO., AFFILIATED FM INSURANCE CO., DEFENDANTS.



Decided - March 22, 1996; Motions for reconsideration filed April 1, 1996; Granted April 22, 1996. On appeal from Superior Court of New Jersey, Chancery Division, Middlesex County. This Opinion Substituted by the Court for Withdrawn Opinion of March 22, 1996, Previously

Approved for Publication April 26, 1996.

Before Judges Michels, Villanueva and Kimmelman. The opinion of the court was delivered by VILLANUEVA, J.A.D. (retired and temporarily assigned on recall)

The opinion of the court was delivered by: VILLANUEVA

The opinion of the court was delivered by VILLANUEVA, J.A.D. (retired and temporarily assigned on recall)

The only question presented in this interlocutory appeal is whether comprehensive general liability policies afford insurance coverage for the costs of cleaning up environmental contamination absent a legal demand or directive from the New Jersey Department of Environmental Protection (DEP) for the cleanup or a claim by a third party.

I.

In 1968 plaintiff Metex Corporation began using trichloroethylene (TCE), an industrial cleaning and degreasing solvent, in the course of its wire mesh manufacturing operations at its facility on New Durham Road in Edison, New Jersey (New Durham). Plaintiff stored the TCE in two above-ground storage tanks on the New Durham site. In 1975, plaintiff installed a system manufactured by VIC Manufacturing Company (VIC unit) to allow it to recover and reuse spent TCE.

In the early 1980s, plaintiff became concerned that the manner in which it stored TCE and other hazardous substances at the New Durham site be in compliance with state and federal environmental regulations. As early as 1983, plaintiff had engaged an environmental consulting firm to develop a spill prevention plan for New Durham. Unhappy with what plaintiff perceived as that firm's lack of responsiveness, plaintiff hired another firm, Fanning Phillips & Molnar (FPM), to perform a data review and environmental audit report for the site. In June, 1985, FPM advised plaintiff that the discharge from the VIC unit contained high levels of TCE. In January 1986 FPM determined that there had been a discharge of TCE to the waters of the State. Accordingly, in February 1986 plaintiff reported to the DEP that plaintiff had "detected a measure of in [the] condensate water" which it emptied into a sanitary sewer connected to the Middlesex County Utilities Authority. On February 21, 1986, a DEP representative made the first of two inspections of the New Durham site.

In September 1987 after plaintiff concluded that there was, in fact, groundwater contamination beneath the New Durham site, plaintiff again contacted the DEP. Plaintiff confirmed to the DEP that the 1986 inspection had revealed "no ongoing discharge and the company's process system had been modified to prevent a future discharge to the storm sewer"; advised the DEP that investigations conducted subsequent to its 1986 visit revealed TCE in the groundwater and "minor soil contamination"; and informed the DEP that it was considering "what additional investigatory steps are necessary and, thereafter, what remedial measures need to be taken to fully address this condition."

In 1988 plaintiff hired an environmental engineering firm, Woodward-Clyde Consultants (Woodward-Clyde), to delineate the environmental property damage at New Durham and to develop a remediation plan. *fn1 In July 1990 plaintiff contacted the DEP again and advised it that detailed investigation of the site revealed that the concentration of TCE in the deep aquifer underlying the New Durham site exceeded the DEP action levels. On March 15, 1991, plaintiff submitted Woodward-Clyde's Groundwater Investigation Report and Remedial Investigation Reports to the DEP.

During this period of time, there was no correspondence from the DEP to plaintiff. It was not until July 20, 1995, that the DEP first initiated any correspondence with plaintiff, offering it the opportunity to enter into a memorandum of agreement with the DEP regarding the contemplated cleanup.

To date, plaintiff has not undertaken a cleanup of the New Durham site. No third party has ever threatened or filed a lawsuit against plaintiff regarding contamination of the site, nor is plaintiff under any order or agency directive to remediate the contamination. However, the DEP considers this case to be open and has not signed off on either the remedial investigation or the proposed remedial action.

II.

On June 6, 1990, plaintiff brought this declaratory judgment and breach of contract action after the defendant insurance companies refused to pay costs incurred by plaintiff to investigate and remediate environmental property damage both at its New Durham site and its facility located at Talmadge Road (Talmadge) in Edison. Plaintiff alleges that these costs are covered by the third-party comprehensive general liability (CGL) policies which it purchased from various insurance companies between January 1, 1971, and January 1, 1985.

On January 9, 1995, defendant insurance companies moved for summary judgment, arguing that plaintiff was not entitled to insurance coverage on its New Durham and Talmadge claims based solely on two grounds: (1) coverage was not triggered because the DEP had not initiated enforcement proceedings; and (2) there were no proofs of off-site contamination and the owned property exclusion precluded coverage for the cost of remediating contamination on the insured's property.

The trial court, therefore, stated that the defendants really make two arguments: (1) "there is no proof that any damage occurred beyond the boundaries of Metex owned property and, therefore, the owned property exclusion applies"; and (2) "even if damage went beyond the boundaries of Metex property and did damage to property owned by third parties, there is no indication that anybody is taking any action to establish a legal obligation on the part of Metex to do anything or to pay any damages."

The trial court held that since neither the DEP nor any other claimant was asserting a claim for bodily injury or property damage, plaintiff had no present claim for third-party liability insurance coverage against the defendant insurance companies, *fn2 and plaintiff's declaratory judgment action was not ripe for adjudication. As a consequence, the trial court, without addressing the terms of the insurance policies or any other issue, dismissed the New Durham claim without prejudice. The trial court expressly provided that it was not limiting or otherwise adjudicating plaintiff's substantive rights; if, in the future, a third party were to assert a claim against plaintiff regarding the New Durham site, plaintiff would be free to initiate a coverage action with respect to that claim. Because the trial court found that there existed some evidence of contamination beyond the boundaries of the site, it denied that part of the motion which relied on the owned property exclusion. *fn3

We granted plaintiff's motion for leave to appeal. Plaintiff filed its appellate brief together with a motion to supplement the record with a letter dated July 20, 1995, from the DEP regarding the New Durham site. The letter, an agency form letter which asked plaintiff to consider participating in a "Voluntary Cleanup Program," provided, in part, as follows:

The Department of Environmental Protection (Department) has been informed of a suspected release of hazardous substances on the above referenced property. . . . We are available to assist you in ensuring that the necessary cleanup activities are properly conducted. To obtain our assistance, we are offering you the opportunity to conduct cleanup activities at your property with the Department's oversight under the Voluntary Cleanup Program by entering into a Memorandum of Agreement with the Department.

The Memorandum of Agreement is a contract established between the Department and you or any party who wishes to investigate and/or clean up all or part of a contaminated site. The Memorandum of Agreement will allow you or any party to come forward and to conduct a cleanup voluntarily.

Although defendants opposed plaintiff's motion to supplement the record, this court temporarily remanded the matter to the trial court to consider the significance, if any, of the DEP's July 20 letter. On October 16, 1995, the trial court concluded that the July 20 letter did not affect its earlier opinion. Accordingly, the trial court denied the application for reconsideration and advised this court as follows:

The basis for my ruling that plaintiff's Complaint as to the New Durham Road site should be dismissed without prejudice was the thought that the claim was not ripe for adjudication in that no one, not the D.E.P. or any third party, asserted any claims against [plaintiff]. Since the dismissal was without prejudice, [plaintiff's] claim could be reinstituted when and if someone alleged some form of responsibility on its part. As I understand the July 20 letter, that situation is unchanged.

After we issued an initial opinion on March 22, 1996, solely regarding whether plaintiff was "legally obligated to pay" for cleanup and remediation of the New Durham site, all insurance companies moved for reconsideration. *fn4 We granted the motion and then recalled our initial opinion.

III.

Whether Defendant Insurance Companies Agreed to Pay to Plaintiff the Costs of Remediating the Discharges of Hazardous Substances at the New Durham Site Without a Formal Directive or Third-Party Claim to Trigger Insurance Coverage.

The trial court's decision limited the insurance coverage provided by standard form third-party CGL insurance to costs incurred after an agency directive is ...


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