The opinion of the court was delivered by: O'hern, J.
On appeal from the Superior Court, Law Division, Middlesex County.
This appeal is a companion case to Pfizer, Inc. v. Employers Insurance of Wausau, ___ N.J. ___ (1998), also decided today. The case is a multistate, multisite environmental coverage case. The principles for decision that we apply are set forth in Pfizer, supra. The central question is similar: what law governs (1) whether the sudden and accidental pollution- exclusion clause contained in certain of the insurance policies will bar coverage of the claims and (2) whether the late-notice defense is available to the insurance company.
As in Pfizer, supra, we merely recite the facts as asserted. The controversy concerns two separate coverage cases brought by U.S. Industries, Inc. (USI) and Kidde Industries, Inc. (Kidde), both of which became subsidiaries of HM Holdings after the coverage period at issue. The policies were issued separately to USI and Kidde. The action seeks coverage for nine sites that were either owned by or received waste from USI and twenty-six sites that were either owned by or received waste from Kidde. The choice-of-law decision rendered by the trial court related to the interpretation of the insurance policies issued to USI as applied to the USI sites.
When the pollution occurred, USI had its headquarters and its principal place of business in New York City. It bought most of the insurance policies through a New York broker. The waste sites are located outside of New Jersey and are said to have no connection with New Jersey. The waste was generated at a time when USI had no connection with New Jersey. USI's decision-making during most of that period when pollution was occurring took place at USI's New York headquarters or at the waste sites.The procedural background to the case is similar to that of Pfizer. The order arises from proceedings to establish the choice of law to be applied to nine USI sites, which are located in Ohio, Texas (two sites), Pennsylvania, Michigan, Illinois (two sites), Colorado, and Arizona. American Motorists Insurance Company and other insurance companies who joined American Motorists' motion argued that the law of the state where each waste site was located should govern resolution of the issues involving that site. USI cross-moved, contending that New Jersey law should apply. The Travelers companies (Travelers Indemnity and Travelers Insurance Company) and Aetna Casualty & Surety Company opposed USI's cross-motion on the ground that it contravened our holding in Gilbert Spruance Co. v. Pennsylvania Manufacturers' Ass'n Insurance Co., 134 N.J. 96 (1993). The Cigna companies (referring to Century Indemnity Company and Central National Insurance Company of Omaha) *fn1 argued that if the court were to apply the law of one state to all of the USI states, the law should be that of New York and not New Jersey. The remaining defendants opposing the cross-motion, American Motorists, American Home Assurance Company, Granite State Insurance Company, AIU Insurance Company, The Insurance Company of the State of Pennsylvania, National Union Fire Insurance Company of Pittsburgh, and Lexington Insurance Company, argued that the law of the waste site should apply.
After carefully analyzing the laws of the waste sites and finding them "in conflict with the law of New Jersey," the trial court applied New Jersey law to all sites because USI is now a New Jersey resident. Applying Spruance, supra, the court reasoned that when operations are multistate, the location of the risk diminishes and the governing law is that of the state with the dominant significant relationship, according to Restatement (Second) of Conflict of Laws section 6 (1971) (Restatement). The court noted:
The states in which the sites are located have a policy interest in securing financial resources to compensate victims of pollution and to remediate its toxic-waste sites. The identification of these states' environmental interests makes clear that the application of New Jersey law would promote the state's environmental concerns by permitting coverage that might otherwise be defeated by the application of the laws of the states where the sites are located.
Recognizing that failure to apply New Jersey law to the pollution clause and notice issues would frustrate New Jersey's public policies, the court held:
The defendants' failure to include a choice of law clause in any of the policies is evidence that they had no reasonable expectation that any particular state's law would apply to litigation under these policies. As New Jersey residents, plaintiffs are entitled to invoke this state[']s policies of liberal insurance coverage.
The insurance companies counter that USI's connection with New Jersey did not arise until 1986 when USI's headquarters were moved to New Jersey. The move occurred after HM Holdings, which had its headquarters in New Jersey, acquired USI. That was two years after the last of the American Motorist policies had been issued and ten years after the Cigna companies issued their last policy to USI. In addition, the merger took place after any of USI's conduct that might have caused the pollution damage for which coverage is sought occurred. The insurance companies contended that to treat the case as one involving a New Jersey resident was incorrect.
We granted leave to appeal to consider the issues. 150 N.J. 20 (1997).
A. What laws should govern interpretation of the pollution-exclusion clause?
The analysis is that set forth in Pfizer concerning factor one, the competing interests of the states. Pfizer, supra, ___ N.J. at ___ (slip op. at 14-15). We must consider the laws of three states, New Jersey, New York or that of the waste site. The interests identified by both the Appellate Division and Supreme Court in Spruance, to secure financial resources, to remediate New Jersey toxic waste sites, and to compensate the victims of pollution in New Jersey, are not implicated. See Spruance, supra, 134 N.J. at 100-01 (citing Gilbert Spruance Co. v. Pennsylvania Mfrs.' Ass'n Ins. Co., 254 N.J. Super. 43, 47-48 (App. Div. 1992)). The nine sites are outside of New Jersey. Despite this fact, the trial court reasoned that application of New Jersey law would foster the policy interests of other states "in securing financial resources to compensate victims of pollution and to remediate [their] toxic waste sites." However, the Restatement section 6 ("section 6") analysis focuses on whether the "wholly domestic" concerns of a competing state (such ...