On appeal from the Superior Court of New Jersey, Law Division, Morris 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.
The opinion of the court was delivered by: Shebell
The opinion of the court was delivered by SHEBELL, P.J.A.D.
Plaintiffs, Edward P. Sagendorf and Carmella Sagendorf, owned a gasoline service station known as Green Village Garage and were insured under three policies issued by defendant, Selective Insurance Company of America (Selective): a comprehensive general liability (CGL) policy; a "garage" policy; and an umbrella policy. In 1985 when plaintiffs were replacing their underground tanks, DEP became involved during the course of the excavation, and ultimately cited plaintiffs under the Spill Compensation and Control Act, N.J.S.A. 58:10-23.11 to -23.11z, after evidence of gasoline was discovered in the excavation and in the excavated soil. Tests performed on the groundwater beneath the site indicated that groundwater was affected by the contamination. Plaintiffs subsequently complied with some, but not all, of DEP's strictures as to monitoring and remediating the contamination. In 1987, about two years after the excavating, plaintiffs first notified Selective, who ultimately denied coverage. Coverage was denied because: the CGL policy excluded insurance for "garage operations"; the expenses of cleanup incurred by reason of the DEP directive were not "damages" under the other policies; and the "owned property" exclusion barred coverage for injury to plaintiffs' own site. Plaintiffs instituted this action in April 1990 seeking a declaration of coverage. Summary judgment for defendant was granted in December 1994 based on the holding that the policy exclusions barred coverage, and plaintiffs' notice to defendant was untimely from which defendant suffered prejudice.
In December 1976, plaintiffs purchased a service station and garage located at 526 Green Village Road in Harding Township. The service station, operated as Green Village Garage, included three underground fuel tanks and a waste oil tank. Also on the property were a house that plaintiffs leased to tenants, and a shed. The tenant house was heated from an above-ground tank. According to Ed Sagendorf, at the time plaintiffs bought the property he did not believe that he was purchasing water or anything else beneath the property except the tanks. Nevertheless, the deed plaintiffs were given indicated that the property being conveyed included "all and singular the trees, ways, waters, profits, privileges and advantages with the appurtenances to the same belonging or in any way appertaining."
At the time plaintiffs purchased the property, the Sagendorfs did not inspect or test the underground tanks. Mr. Sagendorf would routinely check for water inside them by "using detect paste on the stick" measuring the amount of fuel in the tanks. Between 1976 and 1985 his routine tests turned up minor problems with water, caused by a rainfall, but no problems with losing product from the tanks.
In 1984 the company supplying plaintiffs with gasoline performed a "leak test" on each of the three underground gasoline tanks. According to plaintiffs, the tanks passed, and the company continued providing fuel. During 1985, a tank began having a problem with water. Because of this, changing environmental laws, and the upcoming termination of their contract for gasoline supply, plaintiffs decided to replace the three tanks. They hired a contractor, H.A. Ferrot, and removal began in June. Ferrot advised that, upon excavation, if there was evidence of a spill or leak the State would have to be notified.
June 6, 1985, the day of the excavation, it rained and neither Sagendorf nor DEP was present during the digging. That night, when Sagendorf inspected the hole, he "saw white absorbenates . . . in the ditch, in the open hole, . . . [and] a sheen on the water [,] and the one corner looked kind of dark and gooey." He did not know who, if anyone, had examined the tanks as they were removed. He also did not know where the tanks were taken.
The next day, when Sagendorf arrived to open the station, a representative of DEP was waiting for him. Debra Moccia, one of two DEP officials responding to the site, reported that upon arriving on the scene she "had observed a gasoline odor and a sheen on the water which had accumulated in the excavated pit." She ordered that work at the site be halted. Late that day she allowed excavation to continue, observing that Ferrot's employees were using "absorbent pads" to collect the fluid in the pit. Ferrot had already removed the soil from the excavation to another site, but upon examining it, Moccia noted that a soil test measured "70 ppm organics," and directed that it be "classified for proper disposal." She also directed that it not be used as clean fill, and Ferrot transported the soil back to the site and piled it behind the station. Moccia then issued Ferrot a field notice of violation for not disposing of a solidwaste at a licensed facility. At Moccia's suggestion, Sagendorf pumped the remaining excavation fluid into one of his new tanks, and Moccia told him to install a monitoring well at the place where she had "observed product leaching into the pit."
On July 8, 1985, Moccia met with Sagendorf at the station. In the interim the new "tank field had been installed and was covered with a concrete pad." According to Moccia, Sagendorf had had Ferrot "leave the metal corrugated pipe in place as a site well although he knew this could not serve as a monitoring well per state specifications." There was "no visual product on the water" at the bottom of the site well but Moccia detected "a strong gasoline odor." She wanted a proper monitoring well installed and the excavated soil to be tested in order to confirm whether groundwater contamination had occurred or whether what they had seen in the pit had merely "leaked out of the old lines or from one of the excavated tanks that had not been emptied completely" upon excavation. Although Moccia's understanding of standard DEP policy in these cases was to require not one but four monitoring wells, she directed Sagendorf to install only one such well because she had witnessed the "rough" manner in which Ferrot's employees were handling the tanks and believed that such handling of tanks or lines containing residual product might explain the presence of the gasoline in the pit.
By January 1986 Sagendorf had not properly disposed of the excavation soil from behind the station or installed any additional monitoring wells. Soil samples showed that the dirt removed from the excavation "had contamination in it." Accordingly, on January 8, 1986, DEP issued a directive letter to plaintiffs, as noted above, asserting that during the summer of 1985 "an unknown amount of hazardous substance (petroleum hydrocarbons) was discharged on the site from an underground storage tank, on the [subject] property, onto the lands of the State." The letter further directed the Sagendorfs to submit, among other things, a soil contamination investigation plan and a groundwater contamination investigation plan, or they would risk triple penalties. Mr. Sagendorf told a DEP representative he would "have his lawyer look it over," however, defendant was not notified of the letter at that time.
On February 21, 1986, Sagendorfs not having responded to the directive letter, DEP issued an internal memo itemizing costs "for monies to be expended at Green Village Sunoco." Pursuant to another internal memo of February 25, 1986, DEP concluded that monies from the Spill Fund might have to be used, saying that the "unwillingness of the responsible party to initiate a groundwater investigation after 8.0 months indicates an abandonment of responsibility and thus shows a need for public funds to be dispensed to address groundwater investigation." DEP felt that four monitoring wells needed to be installed to "investigate and delineate groundwater contamination" in order to determine whether or not groundwater remediation would be necessary.
According to a DEP official who spoke with the Sagendorfs' attorney during this period, Sagendorf would "possibly pay for clean-up if he can get bids [and] check prices." In April 1986, DEP requested in writing that plaintiffs confirm what remediation they planned for the site. Plaintiffs' counsel responded that they intended "to undertake corrective action" but were still considering the "most cost-effective means."
In July 1986 plaintiffs' environmental consultant, HQM/Ragold, Inc. ("HQM"), issued a technical sampling work plan for the site. One of the objectives was to determine the extent of any "possible groundwater contamination." In October 1986, the first groundwater samples were taken. HQM's March 1987 report entitled "Groundwater Evaluation and Remediation Program for Green Village Garage," related that the samples had been collected from five on-site monitoring wells installed in July. According to the test results, the report concluded that "groundwater contaminants above drinking water standards exist on-site and corrective actions need to be taken to remediate the situation." The report also noted that possible causes for the contaminants of wells numbers one, two and five were the accidental lifting and rupture of the fuel line from the tanks at the time of excavation, as well as a potentially leaking storage tank indicated by the fact that one of the three tanks removed had been "taking on water" prior to removal. While a fourth well (well three) also showed elevated concentrations of contaminants, the report attributed these to runoff from "typical parking lot conditions" associated with "cars needing servicing . . . temporarily parked in this area." HQM recommended to "pump and treat the groundwater in order to restore it to its background condition." HQM also proposed installing two additional groundwater monitoring wells on site and, depending upon future test results, possibly a third off-site. In plaintiffs' counsel's April 1987 letter of transmittal by which they forwarded a copy of the report to DEP, they represented that they were "prepared to undertake promptly a remediation program," and requested approval of their plan.
On August 24, 1987, DEP responded that it believed four or five additional monitoring wells were necessary "to better understand the dissolved gasoline plume extending from the site," and that three such wells should be installed off-site. It requested other information and directed plaintiffs to perform additional sampling. The additional wells mentioned in the HQM groundwater plan were not installed because, according to the Sagendorfs, DEP "never pressed" the issue. Plaintiffs did no further remediation after 1987.
On August 31, 1987, or approximately a week following DEP's response to plaintiffs regarding their submission of the HQM groundwater report, plaintiffs first notified Selective of the DEP Spill Act directive. As of that date, plaintiffs had incurred expenses of about $12,000 "to study and remediate the conditions at the site," and notified defendant that the "drilling of the wells cost approximately $7,500". Plaintiffs claimed coverage under their policies for "investigative costs incurred ...