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Strnad v. North River Ins. Co.

July 22, 1996

CHARLES STRNAD, JR., AND MARY ANN BAECHLER, PLAINTIFFS-APPELLANTS
v.
THE NORTH RIVER INSURANCE COMPANY, A/K/A CRUM & FORSTER COMMERCIAL INSURANCE, DEFENDANT-RESPONDENT. ARLINGTON DROP FORGE CO., INC., AND STUB ENDS, INC., PLAINTIFFS-APPELLANTS, V. THE NORTH RIVER INSURANCE COMPANY, A/K/A CRUM & FORSTER COMMERCIAL INSURANCE, DEFENDANT-RESPONDENT



On appeal from the Superior Court of New Jersey, Law Division, Monmouth 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. Judge Stern concurs for the reasons expressed in his Concurring opinion in Reliance v. Armstrong, N.j. Super. (App. Div. 1996).

The opinion of the court was delivered by: Shebell

The opinion of the court was delivered by SHEBELL, P.J.A.D.

Plaintiffs Charles Strnad, Jr., and Mary Ann Baechler, brought an action against North River Insurance Company (also known as Crum & Forster Commercial Insurance) (defendant) seeking a declaration of insurance coverage for the costs of remediating environmental contamination at a property previously owned by them. At the same time, plaintiff, Arlington Drop Forge Co., Inc. (Arlington), the company previously owned by Strnad and Baechler, and plaintiff Stub Ends, Inc. (Stub Ends), the concern that purchased the Strnad and Baechler stock in Arlington, filed their action against defendant seeking the same relief as Strnad and Baechler (all plaintiffs are referred to herein as "plaintiffs"). The two actions were consolidated on April 8, 1993. On April 22, 1994, defendant filed a motion for summary judgment, and plaintiffs cross-moved for summary judgment. On September 16, 1994, the Law Division Judge issued its opinion granting defendant summary judgment. Plaintiffs appeal.

Arlington was a family-run button manufacturing business prior to World War II. During the war the business was converted to metal forging, and the Wall Township site, the subject of this appeal, was purchased by it in 1963. Strnad and Baechler, a brother and sister, ran the company and, by 1982, owned all of the shares. Over the years, oil was used as "part of the metal machinging [sic] process" with metal shaving or chip by-products retaining oil residue. For a few years following the 1963 purchase of the site, Arlington "temporarily" stored these metal chips in piles directly on the ground until it had collected sufficient amounts to sell as scrap. Thereafter it stored the chips in dumpsters provided by scrap dealers. The company also used oil to power its hydraulic presses, and had a 6000-gallon heating oil tank on the premises. It used no solvents or chemicals such as trichlorethylene in its processes. At the rear of the property there was a "low area", and the company filled in this depression with such materials as bricks, empty drums, scalings and broken macadam. There was a gasoline tank on the property, but Arlington never used it.

In December 1982 Strnad and Baechler contracted to sell their Arlington shares to Stub Ends. The sale was consummated in 1983, and Stub Ends continued operating the business. Approximately a year later, it entered into a contract with Monmouth County Distributors to sell the premises. The contract required that Stub Ends obtain a negative declaration letter from DEP. Stub Ends was permitted to transfer the property to Monmouth County Distributors prior to resolution of the cleanup issues, but only after posting a letter of credit.

DEP required Stub Ends to obtain an environmental audit before it would issue any approvals under the Environmental Cleanup and Responsibility Act (ECRA) (N.J.S.A. 13:1K-6 to -13) (now known as the Industrial Site Recovery Act (ISRA)). Stub Ends retained Dan Raviv Associates, Inc. (DRAI) for this purpose. DRAI first issued its report and cleanup plan in September 1985, and revised it in June 1986 and May 1987. Each noted various areas of environmental concern. Among the causes listed for the contamination were "disposal of leftover macadam," "spill of [fuel] oil," residual fuel and "metal working oil," and a "1000-gallon, underground, gasoline storage tank and associated soils." The contamination located around the gasoline tank led to the removal of the tank and to the testing of the groundwater beneath the site. Contaminated soils were to be excavated and replaced.

Results of the groundwater testing indicated that the wells adjacent to the gasoline tank had Significantly lower levels of VOCs (volatile organic compounds) than did the upgradient wells. "An upgradient source of solvent contamination was suspected." After further testing, DRAI concluded that "two sources of ground water contamination exist in the vicinity of the . . . site," one off-site, one "probably" on-site. The on-site groundwater-related contamination levels were less than 100 parts per billion (ppb). DRAI proposed cleanup of the groundwater, and continued testing.

In July 1990 DRAI submitted its final report and request to DEP for a full compliance determination. Based on the results of the additional testing, DRAI concluded that the groundwater VOCs possibly caused by activities at the site had acceptably decreased, and that

VOCs detected elsewhere on site are . . . from an upgradient, off-site source of contamination. The on-site concentrations attributable to Arlington do not warrant a ground water cleanup.

On December 31, 1991, DEP issued a full compliance letter permitting the monitoring wells at the site to be sealed.

According to plaintiffs, the cleanup costs eventually exceeded $330,000 to meet DEP requirements.

Between 1974 and 1984 defendant provided both primary and excess comprehensive liability insurance to Arlington. With respect to property damage liability, the policies agreed to indemnify the insured "for damages because of injury to or destruction of tangible property including consequential loss resulting therefrom, caused by an occurrence." Both the comprehensive general liability (CGL) policies and comprehensive catastrophe liability policies contained exclusions for damage to "property owned by" the insured. Some of the policies expressly excluded property damage to "property used by the insured" or "property in the care, custody or control ...


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