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Carter-Wallace, Inc. v. Admiral Ins. Co.

July 08, 1998

CARTER-WALLACE, INC., A CORPORATION OF THE STATE OF DELAWARE, PLAINTIFF-RESPONDENT,
v.
ADMIRAL INSURANCE COMPANY, A CORPORATION OF THE STATE OF DELAWARE, ALLSTATE INSURANCE COMPANY (AS SUCCESSOR TO NORTHBROOK EXCESS AND SURPLUS INSURANCE COMPANY, FORMERLY NORTHBROOK INSURANCE COMPANY AND NORTHBROOK INDEMNITY COMPANY), A CORPORATION OF THE STATE OF ILLINOIS, AMERICAN HOME ASSURANCE COMPANY, A CORPORATION OF THE STATE OF NEW YORK, AMERICAN RE-INSURANCE COMPANY, A CORPORATION OF THE STATE OF DELAWARE, ASSOCIATED INTERNATIONAL INSURANCE, A CORPORATION OF THE STATE OF CALIFORNIA, CALIFORNIA UNION INSURANCE COMPANY, A CORPORATION OF THE STATE OF CALIFORNIA, COLUMBIA CASUALTY COMPANY, A CORPORATION OF THE STATE OF ILLINOIS, EMPLOYERS INSURANCE OF WAUSAU, A CORPORATION OF THE STATE OF WISCONSIN, FIRST STATE INSURANCE COMPANY, A CORPORATION OF THE STATE OF DELAWARE, HOME INSURANCE COMPANY, A CORPORATION OF THE STATE OF NEW HAMPSHIRE, INTERNATIONAL SURPLUS LINES INSURANCE COMPANY, A CORPORATION OF THE STATE OF ILLINOIS, UNDERWRITERS AT LLOYD'S LONDON, NOS. 1 TO 200, BEING FICTITIOUS NAMES, LONDON MARKET INSURANCE COMPANIES, NOS. 1 TO 200, BEING FICTITIOUS NAMES, THE MUTUAL FIRE, MARINE & INLAND INSURANCE, A CORPORATION OF THE STATE OF PENNSYLVANIA, NEW JERSEY PROPERTY-LIABILITY INSURANCE GUARANTY ASSOCIATION, NEW JERSEY SURPLUS LINES INSURANCE GUARANTY FUND, THE AETNA CASUALTY AND SURETY COMPANY, A CORPORATION OF THE STATE OF CONNECTICUT, THE CONTINENTAL INSURANCE COMPANY, A CORPORATION OF THE STATE OF NEW HAMPSHIRE, THE NORTH RIVER INSURANCE COMPANY, A CORPORATION OF THE STATE OF NEW JERSEY, UNITED STATES FIRE INSURANCE COMPANY, A CORPORATION OF THE STATE OF NEW YORK AND ZURICH INSURANCE COMPANY, A FOREIGN CORPORATION, DEFENDANTS, AND COMMERCIAL UNION INSURANCE COMPANY, (AS SUCCESSOR TO EMPLOYERS COMMERCIAL UNION INSURANCE COMPANY), A CORPORATION OF THE STATE OF MASSACHUSETTS, DEFENDANT-APPELLANT.



The opinion of the court was delivered by: Stein, J.

Argued April 27, 1998

On certification to the Superior Court, Appellate Division.

This appeal involves the availability and allocation of insurance coverage for costs incurred at an environmental cleanup site in Monmouth County. Specifically, it requires us to determine how the responsibility of an excess insurer is measured in the context of environmental damage with a continuous trigger of liability over many years. Also presented are the issues whether an insurer bears the burden of proving that environmental contamination was "expected" or "intended" by a policyholder, and whether a trial court must instruct a jury concerning the "exceptional circumstances" outlined in Morton International, Inc. v. General Accident Insurance. Co. of America, 134 N.J. 1, 86-87 (1993), cert. denied, 512 U.S. 1245, 114 S. Ct. 2764, 129 L. Ed. 2d 878 (1994), before allowing the jury to consider whether a policyholder "expected" or "intended" such contamination.

I.

Plaintiff Carter-Wallace, Inc. (Carter-Wallace) is a manufacturer of pharmaceutical and consumer products. In 1966, Carter-Wallace hired a licensed waste hauler to remove and dispose of waste generated at the company's Cranbury, New Jersey plant. The waste was transported to the Lone Pine Landfill (Lone Pine) in Monmouth County until 1979, when Lone Pine was closed by the New Jersey Department of Environmental Protection. In 1982, the United States Environmental Protection Agency (EPA) served notice on Carter-Wallace and numerous other parties who had disposed of waste at Lone Pine that they were potentially responsible parties as generators of waste that contaminated the site. Carter-Wallace and many of the other parties then entered into a consent decree with EPA, agreeing to a cleanup of Lone Pine. Subsequently, a number of the parties who generated the waste, including Carter-Wallace, reached agreements among themselves allocating the costs of the cleanup, and the project was completed within the time frame established by EPA.

Carter-Wallace brought this declaratory judgment action in 1989, seeking defense reimbursement and indemnity from over twenty insurers for costs it expended for the cleanup of Lone Pine. The parties did not contest that the estimated amount of those costs was $9.2 million. Carter-Wallace eventually settled with all but one of its insurers, Commercial Union Insurance Company (Commercial Union), which had issued a second-layer excess policy to Carter-Wallace that was in effect from April 30, 1969, to April 30, 1972. That comprehensive general liability (CGL) policy provided $1 million in coverage, which was part of a shared $10 million umbrella coverage in excess of both a primary layer of coverage and a first-level excess layer of coverage. Under Commercial Union's policy, the "proportion of risk insured" is $1,000,000.00 part of $10,000,000.00 each occurrence and in the aggregate excess of $5,000,000.00 each occurrence and in the aggregate which in turn is in excess of primary insurance.

Thus, Commercial Union's annual $1 million in coverage was in excess of a total of $5.1 million in underlying primary and first-layer excess coverage. In addition, condition J of the policy provides in pertinent part that "[l]iability under this policy with respect to any occurrence shall not attach unless and until the insured, or the insured's underlying insurer, shall have paid the amount of the underlying limits on account of such occurrence."

The suit against Commercial Union was tried in two phases. Phase I was a jury trial held over several days in April and May, 1994. The court instructed the jury that to avoid liability Commercial Union bore the burden of proving that Carter-Wallace "expected" or "intended" the damage at Lone Pine. Additionally, the court refused to instruct the jury concerning the "exceptional circumstances" criteria outlined in Morton, supra, 134 N.J. at 86-87. Phase I of the trial culminated in a favorable result for Carter-Wallace. Specifically, the jury found that property damage at Lone Pine occurred during Commercial Union's policy period; that the contamination at Lone Pine was part of a continuous and indivisible process; and that Carter-Wallace neither expected nor intended the environmental damage at Lone Pine. Pursuant to the jury's findings, the court entered an order declaring that the Commercial Union policy provided coverage to Carter-Wallace for costs incurred at Lone Pine.

Phase II of the litigation was a bench trial on the damages issue. Both parties stipulated that the relevant period for assessing the damages issue was the seventeen years from 1966 through 1982. After determining that Carter-Wallace's settlement to clean up Lone Pine was reasonable, the court found that no part of Carter-Wallace's damages was allocable to Commercial Union, reasoning that Carter-Wallace had not yet exhausted all of the primary and first-layer excess coverage in effect during the seventeen-year "trigger period." Interpreting Owens-Illinois, Inc. v. United Insurance Co., 138 N.J. 437 (1994), the court determined that the coverage provided by all triggered primary and first-layer excess policies must be exhausted before allocating any share to Commercial Union's second-layer excess policy. Because Carter-Wallace did not fulfill that requirement of "horizontal exhaustion," the court concluded that Carter-Wallace was not entitled to payment under the Commercial Union policy. The court also determined that although Carter-Wallace was not a "successful claimant" in Phase II of the trial, see Rule 4:42-9(a)(6), equitable principles entitled it to fees and costs incurred through December 22, 1994, the date on which this Court decided Owens-Illinois.

Both parties appealed to the Appellate Division. In an unreported opinion, the Appellate Division held that the trial court erred in finding that Owens-Illinois required exhaustion of the primary and first-layer excess policies in effect during the seventeen-year trigger period before Commercial Union's policy could be pierced. The appellate panel concluded that horizontal exhaustion of all primary and first-layer excess policies was not only not required, but was prohibited under its reading of Owens-Illinois. The Appellate Division did not offer an alternative allocation scheme, leaving to the trial court the responsibility of hearing more evidence on the issue on remand. On the remaining issues, the Appellate Division affirmed the trial court's determination that Commercial Union had the burden of proving that the contamination was "expected" or "intended" by Carter-Wallace. It also determined that the trial court properly declined to instruct the jury on the "exceptional circumstances" criteria set forth in Morton, supra, 134 N.J. at 86-87, when resolving the "expected" or "intended" issue.

We granted certification to consider those issues. 152 N.J. 9 (1997).

II.

A.

In Owens-Illinois, supra, we first considered whether long-term exposure to an asbestos product "triggered" liability under CGL policies in effect during the entire period of exposure. We adopted the "continuous trigger" theory of liability, holding that when progressive indivisible injury or damage results from exposure to injurious conditions for which civil liability may be imposed, courts may reasonably treat the progressive injury or damage as an occurrence within each of the years of a CGL policy. That is the continuous-trigger theory for activating the insurer's obligation to respond under the policies.

[138 N.J. at 478-79.]

Although our endorsement of the continuous trigger theory occurred in the context of asbestos-related personal injury and property damage claims, neither party to this appeal disputes that holding's applicability to progressive environmental property damage. See id. at 455 (noting that "[p]roperty-damage cases are analogous to the contraction of disease from exposure to toxic substances like asbestos"); Astro Pak Corp. v. Fireman's Fund Ins. Co., 284 N.J. Super. 491, 499 (App. Div.)(interpreting Owens-Illinois and holding that continuous trigger theory extends to claims for long-term environmental contamination), certif. denied, 143 N.J. 323 (1995).

Realizing that the adoption of the continuous trigger theory necessarily meant that multiple insurance policies would bear the responsibility of providing coverage, the question in Owens-Illinois then centered on the proper methodology to be used in allocating the appropriate share of that responsibility among each of the triggered policies. We rejected joint-and-several allocation, 138 N.J. at 468, a theory under which the problem of indivisible injury is resolved simply by collapsing the continuous injury into one year. Joint-and-several allocation effectively allows a policyholder to simply select one triggered year and exhaust the coverage provided during that period in satisfaction of its claim, id. at 459-62, requiring the insurers to sue each other for contribution. We determined that such an approach rested on an assumption not in accordance with the development of the law:

"that at every point in the progression the provable damages due to injury in any one of the years from exposure to manifestation will be substantially the same . . . ." Id. at 468. We also considered the effect on the allocation issue of "other insurance" clauses, which are provisions typically designed to preclude a double recovery when multiple, concurrent policies provide coverage for a loss. We determined that such clauses were not generally applicable in the continuous-trigger context where successive rather than concurrent policies were at issue. Id. at 470. In sum, we found the contract language and the traditional rules of interpretation to be unhelpful in settling on the proper method of allocating responsibility. Id. at 468-71.

Rather, our resolution of the issue was guided by our concern for the efficient use of resources to address the problem of environmental disease and by the demands of simple Justice. Id. at 472-73. We also observed that "[b]ecause insurance companies can spread costs throughout an industry and thus achieve cost efficiency, the law should, at a minimum, not provide disincentives to parties to acquire insurance when available to cover the risks." Ibid. We determined that "any allocation should be in proportion to the degree of the risks transferred or retained during the years of exposure," and concluded that the "better formula" was to "allocate[] the losses among the carriers on the basis of the extent of the risk assumed, ...


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