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Permacel v. American Ins. Co.

April 3, 1997

PERMACEL, A NEW JERSEY CORPORATION, PLAINTIFF-APPELLANT,
v.
AMERICAN INSURANCE COMPANY AND INSURANCE COMPANY OF NORTH AMERICA *FN1, DEFENDANTS-RESPONDENTS, AND FIREMAN'S FUND INS. CO., DEFENDANT.



On appeal from the Superior Court of New Jersey, Law Division, Middlesex County.

Approved for Publication April 3, 1997.

Before Judges Havey, Kestin and Eichen. The opinion of the court was delivered by Havey, P.j.a.d.

The opinion of the court was delivered by: Havey

The opinion of the court was delivered by

HAVEY, P.J.A.D.

Permacel, Inc. (Permacel), a New Jersey corporation, appeals from summary judgment orders in favor of defendant-carriers, which provide that the laws of New York, Connecticut and Maryland apply in interpreting a "pollution exclusion" clause contained in defendants' comprehensive general liability (CGL) policies. Permacel generated hazardous waste in its New Jersey plant and shipped it to five sites in New York, Connecticut and Maryland during the terms of the CGL policies. On appeal, Permacel argues that New Jersey law should apply in determining defendants' duty to defend and indemnify Permacel for claims against it under the Comprehensive Environmental Response Compensation and Liability Act of 1980 (CERCLA), 42 U.S.C.A. § 9601 to § 9675, relating to the clean up of the sites in question. New Jersey law should apply, plaintiff reasons, because New Jersey has the dominant significant relationship to the transaction and the parties according to the principles set forth in Restatement (Second) of Conflicts of Law § 6 (1971) (Restatement).

We disagree. The CGL policies were issued in California to Permacel's parent company, Avery International Corporation (Avery), having its principal offices in Pasadena, California. Plaintiff was a "named insured" by virtue of its subsidiary status. We therefore conclude that New York, Connecticut and Maryland, the states of disposal, have the dominant significant relationship with the parties and transaction, and therefore their laws should apply to this insurance coverage controversy. Accordingly, we affirm.

Permacel is engaged in the business of manufacturing and marketing pressure-sensitive tapes. Its principal place of business is in New Brunswick, New Jersey. From approximately 1982 to 1988, Permacel was a subsidiary of Avery, a Delaware corporation, with its principal place of business in Pasadena, California. Defendants American Insurance Company (American) and INA issued CGL policies to Avery which contained endorsements covering subsidiaries such as Permacel. The policies were in effect during the 1982-88 time period in question.

All negotiations with regard to the terms and conditions of the defendants' policies were conducted between Avery's brokers and personnel in California. The policies were underwritten, issued and delivered to Avery's brokers in Los Angeles. All premiums were remitted by Avery from its corporate headquarters in Pasadena, through its Los Angeles brokers.

In 1994, Permacel filed an action against defendants seeking a defense and indemnification for alleged CERCLA violations arising out of the five contaminated sites in New York, Connecticut and Maryland. Permacel's CERCLA liability arose because of its shipment of certain flammable and toxic liquids and solid waste from its North Brunswick production center to the out-of-state sites. The record established that Permacel knew its wastes were being transported to these sites, as evidenced by shipping manifests.

Defendants denied coverage, claiming that Permacel's conduct fell within the pollution exclusion clause of their respective policies. The pollution exclusion clause states that coverage does not apply:

(f) to bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any water course or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental.

[(Emphasis added).]

In granting defendants summary judgment as to the choice-of-law issue, the motion Judge concluded that any "pollution exclusion" clause contained in the policies would be construed according to the laws of New York, Connecticut and Maryland, and not New Jersey because the waste sites were in those states. Thereafter, the Judge granted defendants' motion for summary judgment dismissing Permacel's complaint. In dismissing, the Judge interpreted the pollution exclusion clause applying New York, Connecticut and Maryland substantive law, and concluded that Permacel's activity fell within the scope of the exclusion.

I

We are called upon to determine which state's substantive law is to be applied to the dispute concerning interpretation of the pollution exclusion clause in defendants' policies. The New Jersey Supreme Court in Morton Int'l Inc. v. General Accident Ins. Co. of Am., 134 N.J. 1, 629 A.2d 831 (1993), cert. denied, 512 U.S. 1245, 114 S. Ct. 2764, 129 L. Ed. 2d 878 (1994), while recognizing that the word "sudden" ordinarily connotes a temporal element, nevertheless construed the "sudden and accidental" phrase broadly to permit coverage even when the discharge of pollution is gradual and does not occur abruptly. The Court reached that Conclusion by applying "regulatory estoppel" by virtue of the fact that the insurance industry had represented to New Jersey's regulatory ...


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