On appeal from the Superior Court of New Jersey, Law Division, Cumberland County.
Approved for Publication July 22, 1996.
Before Judges Shebell, Stern and Newman. The opinion of the court was delivered by Shebell, P.j.a.d. Stern, J.A.D. (concurring).
The opinion of the court was delivered by: Shebell
The opinion of the court was delivered by SHEBELL, P.J.A.D.
This appeal involves the issue of comprehensive general liability ("CGL") policies of insurance providing coverage for costs of remediation of environmental pollution to groundwater beneath an insured's site, and whether the "owned property" exclusions of the policies bar coverage. We hold that the costs of remediation of groundwater pollution is covered and may not be denied under the "owned property" exclusion of the CGL policy.
Defendant, Armstrong World Industries, Inc. (Armstrong), was a prior owner of a manufacturing site determined to have been contaminated/--- possibly through defendant's activities//--and subject to various environmental cleanup requirements. In addition to the soil on the site, its groundwater was also contaminated.
For a period of time defendant was insured through CGL policies issued by plaintiff, Reliance Insurance Company (Reliance), that incorporated exclusions for damage to property "owned, occupied by or used by" or "premises alienated by" the insured. Long after, when defendant notified plaintiff it was being sued by a site transferee for indemnification for the costs of environmental cleanup, plaintiff denied coverage and initiated this action for a declaration of policy coverage. The Law Division concluded that because there was no evidence that any groundwater pollution had harmed a third-party, the "owned property" and "alienated property" exclusions would bar coverage. The court also concluded that because defendant suffered no prejudice from plaintiff's delay in denying coverage, plaintiff was not estopped from asserting the exclusions as a bar to coverage. Plaintiff's cross-appeal relates to the court's ruling that any spills that occurred were "accidents" under the policies.
Plaintiff instituted this action on November 16, 1990 seeking a declaration that pending claims for property damage against Armstrong in a lawsuit Armstrong ultimately settled involving claims for environmental contamination created by its former manufacturing plant were not covered under policies plaintiff's predecessor had issued. Defendant counterclaimed, alleging breach of contract and requesting a declaration of coverage. On July 17, 1992, defendant was granted partial summary judgment, the court ruled that the policy language "caused by accident" did not contain a temporal limitation. Although the court denied without prejudice the cross-motions regarding the policy exclusions, it ruled that remediation expenses incurred to prevent the immediate threat of off-site contamination were not excluded from coverage. Reliance Ins. Co. v. Armstrong World Indus., Inc., 259 N.J. Super. 538, 564-68, 614 A.2d 642 (Law Div. 1992), opinion modified, 265 N.J. Super. 148 (Law Div. 1993).
Following the Supreme Court's decision in State, Dep't of Envtl. Protec. v. Signo Trading Int'l., Inc., 130 N.J. 51, 612 A.2d 932 (1992) involving "owned property" exclusions as they related to environmental contamination of a party's site, Reliance moved for reconsideration. In its decision reported as Reliance Ins. Co. v. Armstrong World Indus., Inc., (supra) , 265 N.J. Super. at 162-64, the court concluded that the policy exclusions barred coverage. These cross appeals followed. We have calendared back-to-back these appeals and seven others which we decide today. Adron, Inc. v. Home Ins. Co., ___ N.J. Super. ___ (App. Div. 1996); Kentopp v. Franklin Mut. Ins. Co., ___ N.J. Super. ___ (App. Div. 1996); Ohaus v. Continental Cas. Ins. Co., ___ N.J. Super. ___ (App. Div. 1996); Sagendorf v. Selective Ins. Co., ___ N.J. Super. ___ (App. Div. 1996); Smidth v. Travelers Ins. Co., ___ N.J. Super. ___ (App. Div. 1996); Strnad v. North River Ins. Co., ___ N.J. Super. ___ (App. Div. 1996); United Mobile Homes, Inc. v. Foremost Ins. Co., ___ N.J. Super. ___ (App. Div. 1996). We have permitted the Department of Environmental Protection (DEP), the New Jersey State League of Municipalities (League of Municipalities), Insurance Environmental Litigation Association (Insurance Environmental), and various private insured corporations (insureds) to participate in the appeals as amicus curiae. The full exposition of the issues through the arguments provided by all participating has been invaluable to this court.
Defendant's property, a glass manufacturing plant in Millville, had been in use since the 1800s, and was acquired by defendant in 1938. 259 N.J. Super. at 542. Over the years, before and after defendant acquired it, areas of the site were used as dumping grounds for waste from the manufacturing process, including hazardous and petroleum substances. In 1969, defendant sold the property to the Kerr Glass Manufacturing Corporation (Kerr) under a contract that required defendant to indemnify Kerr from damages related to defendant's prior operations. Id. at 542-43. In 1983 Kerr sold a portion of the site to American National Can Company (ANCC). Id. at 543. In 1985, ANCC transferred the property to Triangle Acquisition Corporation (Triangle). Ibid.
In anticipation of the transfer to Triangle, ANCC instituted an environmental investigation pursuant to the terms of the Environmental Cleanup Responsibility Act (ECRA), N.J.S.A. 13:1K-6 to -13. *fn1 Ibid. In June 1985, ANCC entered into an administrative consent order with DEP. ANCC alleged that two portions of the site indicated soil and groundwater pollution. A fourteen-acre area in the northeast corner of the site had been used for "widespread" dumping at least until the late 1960s, and sampling of the area's soil and the sediment in a tributary contiguous to the area indicated the presence of such contaminants as total petroleum hydrocarbons (TPHCs), arsenic, lead and mercury. Further, these contaminants were in the groundwater beneath that area. It was not known whether soil contaminants present in other areas of landfill had entered the groundwater.
Environ Corporation's (Environ) 1987 ECRA Sampling Plan set forth specific findings of pollutants in two particular areas. The report noted that:
The ground water sample [from one of the two shallow monitoring wells] was also analyzed for [contaminants]. Only arsenic was present at concentrations above ISEE guidelines.
The ground water sample from [the other shallow monitoring well] was analyzed [for contaminants]. PAHs and PPMs were not detected . . . . Petroleum hydrocarbons were present, but at concentrations below the ISEE recommended cleanup guidelines.
The ground water sample from [the one deep monitoring well] was analyzed for [contaminants]. Most of the TPHCs and PP compounds were not detected, and of those that were, all were present at concentrations below the ISEE recommended cleanup guidelines.
A relatively small and low-level arsenic plume is present in the western corner of AEC 1. At this time, it is premature to develop any remedial system for this arsenic contamination. ENVIRON proposes to develop an appropriate remedial system, if necessary, or establish alternate concentration levels as cleanup levels after evaluating the effects of this plume on off-site environments (e.g., the Maurice River). . . . Previous river sediment sampling indicated that contamination currently exists from upstream of the facility. It is likely that arsenic levels in the Maurice River could be high, given the various industrial activities that have occurred at upgradient locations in the past.
Arsenic, in general, has an extremely high distribution coefficient that contributes to a highly attenuated migration of arsenic in ground water. This means that the arsenic plume cannot be readily removed from the aquifer because the desorption or dissolution rate of arsenic constituents from the aquifer material to ground water is extremely slow
The report noted as to a second area that:
It is premature to develop a remedial system for the arsenic contamination in the area of the former drainage ditch. An appropriate remedial approach, if needed, or alternate concentration levels will be developed after further investigation of the interaction of ground water and surface water and evaluation of the effects of this arsenic plume on the Maurice River. Currently, the arsenic concentration in the downgradient well . . . is well below the action level for arsenic
As part of its overall Conclusions as to groundwater contamination, the report said:
Ground water sampling results identify two areas (AECs 5 and 8) where VOCs have been detected at elevated levels and two areas (AECs 1 and 46) where arsenic has been detected above the drinking water standard of 50 ppb. Although concentrations of these constituents have been detected above the informal ECRA action levels and/or state MCLs, alternate concentration levels will likely be used to make a final determination of the need for ground water cleanup. To establish alternate concentration levels, it will first be necessary to understand the interaction of ground water and the Maurice River.
In January 1989, DEP conditionally approved ANCC's sampling plan, one of the conditions of which was further groundwater sampling. In January 1990, DEP notified ANCC that its cleanup plan was unapproved because "the ground water investigation has not been completed and all sources of contamination have not ...