The opinion of the court was delivered by: O'hern, J.
On appeal from Superior Court, Chancery Division, Middlesex County.
Paul R. Koepff, a member of the New York bar, argued the cause for appellants Commercial Union Insurance Company, Insurance Company of North America, Century Indemnity Company as successor to CCI Insurance Company, as successor to INA, Alan Lloyd, on his own behalf and as a representative for Certain Underwriters of Lloyd's, London and Certain London Market Companies, Central National Insurance Company of Omaha with respect to policies issued through Cravens, Dargan & Company, Pacific Coast, as their Managing General Agent, C.E. Heath Compensation & Liability Insurance Company, Highlands Insurance Company with respect to policies issued through Cravens, Dargan & Company, Pacific Coast, as their Managing General Agent (Graham, Curtin & Sheridan, attorneys for Insurance Company of North America, Century Indemnity Company as successor to CCI Insurance Company, as successor to INA, Highlands Insurance Company with respect to policies issued through Cravens, Dargan & Company, Pacific Coast, as their Managing General Agent, Central National Insurance Company of Omaha with respect to policies issued through Cravens, Dargan & Company, Pacific Coast, as their Managing General Agent, Christie, Pabarue, Mortensen and Young attorneys for Commercial Union Insurance Company and C.E. Heath Compensation & Liability Insurance Company and Margolis Edelstein attorneys for Alan Lloyd, on his own behalf and as a representative for Certain Underwriters of Lloyd's, London and Certain London Market Companies; Mr. Koepff, Joseph R. McDonough, James W. Christie, III, Arthur J. Liederman, a member of the New York bar, and Bruce E. Barrett on the brief).
Jerrald J. Hochman submitted a brief on behalf of appellants The Home Insurance Company and The City Insurance Company (Sheft, Golub & Kamlet, attorneys).
Andrew T. Berry argued the cause for respondent (Killian & Salisbury and McCarter & English, attorneys; Eugene Killian, Jr., Jerold Oshinsky, a member of the District of Columbia bar, Edward Tessler and Lynda A. Bennett, on the brief).
The opinion of the Court was delivered by
This is a multisite, multistate, environmental insurance coverage case. We granted leave to appeal in this action and in HM Holdings, Inc. v. Aetna Casualty & Surety Co., ___ N.J. ___ (1998), and Unisys Corp. v. Insurance Co. of North America, ___ N.J. ___ (1998), also decided today, to consider the choice of law governing the interpretation of the casualty-insurance contracts that provide indemnity against pollution-damage claims. Choice of law with respect to interpreting insurance contracts develops a life of its own when considered in the context of hazardous waste sites. Because of the public's heightened sensitivity to environmental pollution in the last quarter century and because of the significant costs associated with these coverage disputes, a "virtual avalanche of coverage litigation between carriers and their policyholders has ensued to determine who may be ultimately responsible for the payment of these costs." At the very core of these disputes, which have spawned hundreds of reported cases nationwide, is the interpretation to be accorded certain contractual language contained in comprehensive general liability (CGL) policies.
[In re Combustion, Inc., 960 F. Supp. 1056, 1062 (W.D. La. 1997) (citations omitted).]
The appeals require us to apply the principles of Gilbert Spruance Co. v. Pennsylvania Manufacturers' Ass'n Insurance Co., 134 N.J. 96 (1993). In Spruance, we held that choice-of-law determinations in interpreting casualty-insurance contracts should be made by looking first to section 193 of the Restatement (Second) of Conflict of Laws (1971) (Restatement). That section provides that the law of the principal location of the insured risk governs unless another state has a more significant relationship to the parties and the transaction under the principles stated in Restatement section 6. The principles are best understood in the context of the specific cases.
In this declaratory judgment action, Pfizer seeks coverage for environmental contamination liability claims that have arisen at some ninety separate sites in nineteen states and in Puerto Rico. Twenty- four of the sites are located in New Jersey. (We have not made any factual findings concerning Pfizer's allegations but merely set forth principles of law based on the facts asserted.) Pfizer sought this relief under comprehensive general liability (CGL) policies and environmental impairment liability policies issued by the various defendants. In earlier rulings, the trial court had determined that New Jersey law would govern the litigation pertaining to five New Jersey sites and one Rhode Island site. The trial court had also determined that New Jersey law would apply to certain other legal issues in the case. This appeal presents choice-of-law issues concerning six sites in other states--two in Pennsylvania and one each in Massachusetts, North Carolina, Connecticut and Indiana. None of the sites received any waste generated in New Jersey by Pfizer. The issues before us are (1) what law guides the interpretation of the pollution-exclusion clause in the CGL policies and (2) what law governs the validity of late-notice defenses. The insurance companies contended that with respect to the non-New Jersey sites either New York law, the place of Pfizer's headquarters, or the law of the sites--that is, the law of the state in which each site was located--should control. Pfizer argued that the law of a single jurisdiction, that of New Jersey, should apply to all the sites. The trial court agreed with Pfizer.
Applying the Spruance principles, the trial court found that when an operation is predictably multistate, as was Pfizer's, the significance of the principal location of the insured risk diminishes. In that instance, the court reasoned that in accordance with section 6 of the Restatement, the governing law should be the law of the state with the dominant significant relationship to the disputed issue. The court found that New Jersey has a commitment to "protecting its insureds through liberal insurance coverage." After contrasting the law of other states with New Jersey's law concerning interpretation of the pollution- exclusion clause and the late-notice defense, the court observed that Pfizer had been authorized to do business in New Jersey since 1900 and employed 2,200 New Jersey residents at six State locations, and that an additional 500 New Jersey residents work at Pfizer's New York headquarters. The company shipped some $375 million worth of products and services from New Jersey in 1993 and expended $31 million for research and development in that year. Four of the insurance companies were either incorporated or had their principal place of business in New Jersey. The court held that New Jersey law should apply, reasoning that "New Jersey has an interest in protecting its businesses through the application of its laws" and that "[f]ailure to apply New Jersey law to the pollution exclusion and the notice issues would frustrate significant New Jersey public policies."
We granted leave to appeal, 150 N.J. 20 (1997), to consider the arguments of the insurance companies.
At an earlier time, choice-of-law rules were relatively simple and easy to apply. Under the doctrines of lex loci contractus and lex loci delicti, the contract laws of the place where a contract was made would govern contract disputes, and the tort laws of the place where an accident happened would control in tort cases. Over time, those rules gave way to more complex analysis.
The several states now have differing choice-of-law rules. Among the rules used are the most-significant-relationship test, People v. Saiken, 275 N.E.2d 381 (Ill. 1971), cert. denied, 405 U.S. 1066, 92 S. Ct. 1499, 31 L. Ed. 2d 796 (1972); the governmental-interest test, Stonewall Surplus Lines Ins. Co. v. Johnson Controls, Inc., 17 Cal. Rptr. 2d 713 (Cal. Ct. App. 1993); the law of the forum, Joy Techs., Inc. v. Liberty Mut. Ins. Co., 421 S.E.2d 493 (W. Va. 1992); and the place of contracting, American Motorists Ins. Co. v. ARTRA Group, Inc., 659 A.2d 1295 (Md. 1995). New Jersey had long rejected "the mechanical and inflexible lex loci contractus rule in resolving conflict-of-law issues in liability-insurance contracts. Instead, our courts have adopted a more flexible approach that focuses on the state that has the most significant connections with the parties and the transaction." Spruance, supra, 134 N.J. at 102. New Jersey courts seek to apply the law of the state with the greatest interest in resolving the particular issue that is raised. Gantes v. Kason Corp., 145 N.J. 478, 484 (1996) (citing Veazey v. Doremus, 103 N.J. 244, 247-49 (1986); State Farm Mut. Auto. Ins. Co. v. Estate of Simmons, 84 N.J. 28, 36-37 (1980); and O'Keeffe v. Snyder, 83 N.J. 478, 490 (1980)).
Prior to this Court's decision in Spruance, the principal analytical choice in multisite environmental coverage cases had been between cases holding that one law governs the insurance contract regardless of the location of the insured risk--the "uniform-contract- interpretation approach"--and cases that emphasize the location of the insured risk and apply the law of that state unless another state has a more significant relationship with regard to the contested issue--"the site-specific approach." See Spruance, supra, 134 N.J. at 103-11; Symeon C. Symeonides, Choice of Law in the American Courts in 1995: A Year in Review, 44 Am. J. Comp. L. 181, 230 (Spring 1996).
In Westinghouse Electric Corp. v. Liberty Mutual Insurance Co., 233 N.J.Super. 463 (1989), the Appellate Division adopted the uniform- contract-interpretation approach. In Spruance, supra, the Court adopted a "site-specific" approach that emphasizes the location of the site of the risk. 134 N.J. at 112. At first, some believed that Morton International, Inc. v. General Accident Insurance Co. of America, 134 N.J. 1 (1993), cert. denied, 512 U.S. 1245, 114 S. Ct. 2764, 129 L. Ed. 2d 878 (1994), might require New Jersey courts to apply New Jersey's law on the pollution-exclusion clause irrespective of the location of specific sites. However, New Jersey courts have rejected efforts to base the choice of law determination upon New Jersey's perceived interest in broadly applying the regulatory estoppel holding set forth in Morton to environmental coverage disputes or upon a mechanical application of the law where the site is located. Instead of applying either of these automatic rules, the choice of law determination must reflect a careful site-specific determination, made upon a complete record, of the factors set forth in either section 193 (principal location of the insured risk) or section 6 (identification of state with dominant significant relationship) of the Restatement (Second) of Conflict of Laws.
[Michael Misch, et al., Recent Developments in Insurance Coverage Issues, 31 Tort & Ins. L.J. 335, 336 (Winter ...