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FEDERAL INS. CO. v. PUREX INDUS.

June 27, 1997

FEDERAL INSURANCE COMPANY, by and through ASSOCIATED AVIATION UNDERWRITERS, Plaintiff,
v.
PUREX INDUSTRIES, INC., Defendant. PUREX INDUSTRIES, INC., Counter-Claimant, v. FEDERAL INSURANCE COMPANY by and through ASSOCIATED AVIATION UNDERWRITERS, HOUSTON FIRE & CASUALTY INSURANCE, by and through GEICO GENERAL INSURANCE CO., and LIBERTY MUTUAL INSURANCE CO., Counter-defendants.



The opinion of the court was delivered by: SIMANDLE

 SIMANDLE, District Judge:

 CONTENTS

 I. Background and Procedural History

 II. Discussion

 A. Summary Judgment Standard

 B. Motion by Counter-Defendants for Summary Judgment on Statute of Limitations Grounds

 
1. Choice of Law
 
2. Application of New Jersey Statute of Limitations

 C. Cross-Motions for Summary Judgment on the Issue of Late Notice

 
1. Timeliness of Notice
 
2. Prejudice to Insurers from Late Notice

 D. Cross-Motions for Summary Judgment on the Issue of Whether Purex's Remediation and Compliance Costs Are Damages

 E. Purex's Motion for Summary Judgment on the Applicability of the Owned Property Exclusion

 F. Cross-Motions for Summary Judgment on the Issue of the "Voluntary Payments" Exclusion

 G. GEICO and Houston General's Motion for Summary Judgment Regarding Mitigation of Damages and Purex's Cross-Motion for Summary Judgment on the Reasonableness of Its Cleanup Plan

 H. Liberty Mutual's Motion for Summary Judgment on the Grounds of a "No Assignment" Clause in Its Policy

 I. AAU's Motions for Summary Judgment Regarding Specific Policy Coverage and Non-Cumulation of Policy Limits

 
1. Policy Number SP1-1195-LA
 
2. Policy No. AP1-825/Binder No. B1-122859
 
3. Non-Cumulation of AAU Policies

 J. Insurers' Motion for Summary Judgment as to Defense Costs

 III. Conclusion

 I. Background and Procedural History

 This insurance coverage case was instituted by Federal Insurance Company (also known as Associated Aviation Underwriters, or "AAU") to seek a declaration of its responsibilities, if any, under certain policies of insurance issued to an entity known as Airwork Corporation, a now-defunct corporation whose assets were ultimately purchased by a wholly-owned subsidiary of defendant and counter-plaintiff Purex. Airwork operated an aircraft engine repair facility in Millville, New Jersey, from the mid-1940s until mid-1968.

 Purex acquired Airwork Corporation in 1968 and Airwork operated the Millville facility under Purex's ownership from 1968 through 1985, when Purex sold the stock of Airwork to UNC Resources, triggering obligations under Environmental Cleanup Responsibility Act ("ECRA"), NJSA 13:1K-6 et seq. ECRA required that owners and operators of industrial establishments remediate their facilities as a precondition to the closure, sale or transfer of their business operations.

 By late 1985, it became clear that the NJDEP would not give clearance in time for a December 31, 1985 sale date. Purex entered into an Administrative Consent Order ("ACO") with the NJDEP on December 12, 1985. The ACO allowed sale to go forward and set forth a timetable for compliance with ECRA. Under the terms of the ACO, the NJDEP reserved the right to pursue Purex under other environmental statutes.

 Groundwater sampling at the Millville site first took place in late 1987. A report dated December 11, 1987 confirmed the presence of groundwater and soil contamination. After negotiations with the NJDEP and its environmental consultants, Purex submitted a cleanup plan to the NJDEP in late 1992, the core element of which is a pump and treat system. On June 2, 1993, the NJDEP issued a "Draft Cleanup Plan Approval." Purex began construction of the pump and treat remediation system in 1993 and began fully operating the system in March 1994.

 To date, Purex claims to have incurred more than $ 12,000,000 in order to comply with its ECRA liabilities.

 AAU instituted the instant declaratory judgment action in the Central District of California on July 15, 1992. Purex filed a motion to transfer the case to the District of New Jersey under 28 U.S.C. § 1404(a), which motion was granted by Honorable Terry J. Hatter, U.S.D.J., in January, 1993. After the transfer, in March, 1993, Purex filed a counterclaim against GEICO (denominated Houston Fire Insurance Company in the pleading) and Liberty Mutual. The present case, docketed in this court at Civil Action No. 93-393 (JBS), has gone forward through the case management process.

 Prior to the institution of these proceedings, other related suits were filed. Purex instituted an action in the California Superior Court in March, 1983 seeking coverage from several of its insurers for pollution claims at distinct sites. That action was styled Purex Industries, Inc. v. Leslie Walpole Proctor, et al., No. C446935 ("Purex I "). None of the insurers in the present case were parties to that action, and the case, as originally filed, did not state a claim for coverage for the ECRA claim arising out of the pollution of the Millville site.

 After filing a second suit in the California Superior Court captioned Purex Industries, Inc. v. American International Underwriters Ins. Co., et al., No. C653256 ("Purex II ") on July 6, 1987, which involved the Millville site but which was dismissed prior to service of process upon the insurers, Purex filed an action in the Superior Court of New Jersey styled Purex Industries, Inc. v. American International Underwriters Ins. Co., No. L-084740-87 ("Purex III "), on July 16, 1987. The purpose of that suit was to determine coverage for damages incurred from pollution at the Millville site. Houston Fire (GEICO) was named as a defendant in the original complaint in Purex III, as was AAU; Liberty Mutual was added as a defendant by way of an amendment to the complaint on August 3, 1987.

 Purex III was ultimately the subject of an injunction in the California court in Purex I. An insurer not a party to the instant case, Harbor Insurance Company, filed a motion to enjoin Purex from proceeding with the Purex III litigation in New Jersey because it viewed the suit as multiplicitous. Judge Markey of the California Superior Court granted the motion in Purex I in 1987. Judge Markey's Order was affirmed on appeal on March 21, 1989. Consequently, Purex voluntarily dismissed Purex III in New Jersey without prejudice to Houston Fire (GEICO), AAU and Liberty Mutual. On September 18, 1989, Purex filed a third amended complaint in Purex I in California in order to put, inter alia, the Millville site at issue. Additionally, Purex's third amended complaint named additional insurers. Purex did not, however, name Liberty Mutual, AAU, or GEICO as defendants. The litigation proceeded in phases, with trial on a New York pollution site going to the jury in March, 1993. On June 2, 1993, eleven months after the instant litigation was instituted, the Millville phase of the Purex I trial began. It settled after the first day of trial. Id., P 85.

 Presently before the court are a voluminous set of summary judgment motions on behalf of Purex, AAU, GEICO, Houston General and Liberty Mutual.

 II. Discussion

 A. Summary Judgment Standard

 The standard for granting summary judgment is a stringent one. A court may grant summary judgment only when the materials of record "show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(c). In deciding whether there is a disputed issue of material fact the court must view the evidence in favor of the non-moving party by extending any reasonable favorable inference to that party. See Aman v. Cort Furniture Rental Corp., 85 F.3d 1074, 1080-81 (3d Cir. 1996); Kowalski v. L & F Products, 82 F.3d 1283, 1288 (3d Cir. 1996); Meyer v. Riegel Products Corp., 720 F.2d 303, 307 n.2 (3d Cir. 1983), cert. denied, 465 U.S. 1091, 79 L. Ed. 2d 910, 104 S. Ct. 2144 (1984). The threshold inquiry is whether there are "any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986).

 B. Motion by Counter-Defendants for Summary Judgment on Statute of Limitations Grounds

 GEICO and Houston General move for summary judgment on Purex's counterclaim on the basis of the statute of limitations. Liberty Mutual has filed a separate motion on the same ground, and AAU has filed a notice of joinder to the motions of GEICO, Houston General and Liberty Mutual. Although the moving parties (referred to collectively as "the insurers") make slightly different arguments, the Court will treat the motions as one motion which presents the question of whether the counterclaim asserted by Purex against the insurers should be dismissed because the statute of limitations has run.

 1. Choice of Law

 As a threshold issue, the parties raise the question of whether this court should apply the statute of limitations of California or New Jersey.

 Because this lawsuit was transferred to the District of New Jersey from U.S. District Court for the Central District of California pursuant to 28 U.S.C. § 1404(a), this court, as the transferee court, must apply the choice of law rules which govern in California district court. See Ferens v. John Deere Co., 494 U.S. 516, 108 L. Ed. 2d 443, 110 S. Ct. 1274 (1990) (holding that transferee court must apply choice of law rules of transferor court, regardless of who initiated transfer). The question for the court then is whether a California choice of law analysis would support the application of New Jersey's statute of limitations to a counterclaim filed after the case had been transferred to the District of New Jersey.

 California applies the modern governmental interest analysis to choice of law issues. Ledesma v. Jack Stewart Produce, Inc., 816 F.2d 482, 484 (9th Cir. 1987). Under that approach, the court first determines whether the laws of the two jurisdictions differ. Id. Here, that question is answered in the affirmative; the applicable New Jersey statute of limitations is six years, N.J. Stat. Ann. § 2A:14-1, while the applicable California statute of limitations is four years, Calif. Code of Civ. Pro. § 337.

 Second, the California courts determine whether both states have an interest in applying their respective law. "If only one state has an interest, there is no 'true conflict' of laws and the court should apply the law of the interested jurisdiction." Ledesma, 816 F.2d at 484. In applying statutes of limitations to causes of action, both New Jersey courts and California courts have articulated an interest stimulating litigants to pursue a cause of action within a reasonable time so that the opposing party may have an opportunity to defend, thus preventing the litigation of stale claims.

 The insurers argue that a false conflict exists because New Jersey does not have any discernable interest in applying its longer statute of limitations since it would not advance its policy of preventing stale litigation. Purex, on the other hand, argues that California has no interest in applying its statute of limitations to Purex's counterclaims which were filed after this case was transferred to New Jersey, but that New Jersey has a clear and strong interest in applying its statute of limitations, along with its substantive law, because the site of the environmental cleanup at issue is located in New Jersey.

 The court disagrees with the insurers' position that New Jersey has no interest in applying its own six year statute of limitations instead of California's shorter statute of limitations. New Jersey has determined that a six year time period is sufficient to prevent the litigation of stale claims and thus the application of the New Jersey statute of limitations would advance New Jersey's policy, despite the fact that it is longer that the California alternative. Further, a party that files a counterclaim in a case after it has been transferred to New Jersey may reasonably rely on the statute of limitations which governs actions in New Jersey. California has no similar interest in this case, or its litigants, especially in light of the fact that the counterclaim was not filed in California.

 The court concludes, therefore, that the application of California choice of laws rules supports the application of New Jersey's statute of limitations to the present case. As a final note on the choice of law issue, the court is not persuaded to reach a different conclusion based on its earlier decision that a California court would not apply New Jersey's entire controversy doctrine to the instant action. That decision relied in part on the inequity of applying New Jersey's unique doctrine of preclusion to unwary litigants who initiated litigation in California. Here, however, there is no reason to prevent a party to a case that has been transferred to New Jersey from relying on New Jersey's statute of limitations as it applies to a counterclaim raised after the transfer.

 2. Application of New Jersey Statute of Limitations

 In applying the six year statute of limitation to Purex's counterclaim, the court must next determine when that cause of action accrued. In its counterclaim, Purex seeks a declaration that the insurers have a duty to defend and indemnify Purex for all losses, liabilities and expenses arising from its cleanup of the Millville site including any claims or lawsuits relating to the same; and that the insurers owe a duty to reimburse Purex for expenses and costs associated with the Millville site and this lawsuit concerning coverage. The counterclaim was filed against AAU in August 1992; against Liberty Mutual in March 1993; GEICO in September 1993; and Houston General in April 1995.

 Both Purex and the insurers rely on two cases for the proposition that under New Jersey law, a claim by an insured against its insurer accrues when the underlying judgment becomes final and the insurer's liability is finally determined. Kielb v. Couch, 149 N.J. Super. 522, 374 A.2d 79 (Law Div. 1977); Impex Agricultural Commodities v. Leonard Parness Trucking Corp., 582 F. Supp. 260 (D.N.J. 1984).

 From this proposition, the insurers argue that Purex's cause of action against the insurers accrued in December 1985 when it executed the ACO *fn1" , thereby fixing its liability for the cleanup of the Millville site. They assert that by signing the ACO, Purex established its liability for the cleanup and thus any duties and obligations of the insurers arose at that time.

 In contrast, Purex argues that under this same proposition of law, its cause of action against the insurers has not yet accrued because its liabilities in connection with the cleanup are not yet fully resolved and the NJDEP's administrative proceeding against Purex, In the Matter of Airwork Corp. and Purex Indus., Inc., ECRA Case NO. 85529, is not yet concluded. Purex also relies on an unpublished decision from this court which held that "an insured's cause of action against its insurer should not accrue until that action is completed, that is, when an insured finally settles the claim, not while the insured is still threatened with suit." Polerized Schiabo NEU Co. v. Hartford Accident and Indem. Co., 1996 U.S. Dist. LEXIS 21485, No. 94-CV-4857 (SMO) (D.N.J. May 22, 1996) (holding that limitations period did not begin to run when party voluntarily agreed to clean up property).

 By analogy Purex argues that although it entered the ACO in December 1985, it remained and continues to remain subject to threats of litigation from the NJDEP and neighboring landowners under ECRA, the Spill Act, and other environmental statutes. The ACO specifically provides that its execution "shall not preclude" NJDEP from requiring compliance with other environmental statutes. Purex thus concludes that its cause of action will not accrue until the ECRA action against it is closed.

 In the alternative, Purex argues that its cause of action accrued in June 1993, when the NJDEP gave approval to a proposed cleanup plan. Purex contends that the approval of its plan is closest analogy to a final judgment of liability in this case.

 The court finds that Purex's claim is not untimely under New Jersey's six year statute of limitations. The insurers' claim that the liability of Purex was finally determined by the signing of the ACO is unpersuasive. The ACO merely required testing of environmental conditions and remediation of contamination that might be discovered. In other words, liability was not finally determined at this point because any liability was contingent upon the discovery of contamination. Reports of contamination at the Millville site were not confirmed until December 1987. *fn2"

 The claims against Purex by the NJDEP under ECRA remain unresolved. Although Purex has submitted a cleanup plan and begun remediation under the plan, it insists that the NJDEP may still modify the plan or bring suit under a number of environmental statutes. Summary judgment will thus be denied on the grounds of the statute of limitations as the insurers have not proved as a matter of law that the counterclaims asserted by Purex were untimely.

 Although not necessary to this decision, the court also notes that Purex's counterclaims would be timely under an alternative theory not mentioned by the parties -- that the declaratory claim accrues when the insured's claim for coverage is denied on the merits, in alleged breach of the contract of insurance. Sybron Chemical v. Security Ins. Co, No. PA-L 1307-94 (N.J. Super. L. Div., Dec. 9, 1996), citing Southland Corp. v. Ashland Oil, Inc., 696 F. Supp. 994 (D.N.J. 1988). Such a construction makes sense if the insurer is concerned about an indefinite length of future risk in a remediation process that may consume years before the full extent is known. In the present case, this construction is of no avail to the insurers, which did not deny coverage on the merits of Purex's claims until after this suit was filed in 1992.

 In any event, the court holds that Purex's counterclaims for declaratory relief are not time barred.

 C. Cross-Motions for Summary Judgment on the Issue of Late Notice

 Counter-defendants GEICO and Houston General have moved for summary judgment seeking dismissal of Purex's counterclaim on the grounds that Purex failed to give timely notice of its claim pursuant to the notice provisions of the insurance contract. AAU filed a notice of joinder to the motion of GEICO and Houston General. Purex has also moved for partial summary judgment on the "late notice" ...


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