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Hobart Brothers Company v. National Union Fire Insurance Company

September 09, 2002


On appeal from the Superior Court of New Jersey, Law Division, Essex County, L-8356- 97.

Before Judges Wefing, Ciancia and Fuentes.

The opinion of the court was delivered by: Wefing, J.A.D.


Argued: April 30, 2002

Plaintiff Hobart Brothers Company (Hobart) has appealed from trial court orders granting summary judgment to National Union Fire Insurance Company (National Union) and The Continental Insurance Company (Continental). The trial court entered these orders after it determined that plaintiff was precluded from continuing with this suit under the entire controversy doctrine. In addition to seeking to have its suit reinstated, Hobart also seeks to have the matter heard by a different judge. After reviewing the record in light of the contentions advanced on appeal, we have concluded the motion was prematurely granted and reverse and remand for further proceedings. We see no basis, however, to order the matter to be heard by a different trial judge.

The present action is a declaratory judgment action that Hobart filed in 1997, in which it sought a ruling that it was entitled to coverage under a comprehensive general liability (CGL) insurance policy issued to Hobart by National Union for costs associated with the environmental clean-up of property located in Nutley. Hobart also joined as a defendant Harbor Insurance Company, the issuer of its umbrella liability policy, seeking coverage under that policy as well. Continental is the successor to Harbor.

The matter has a complex background, both in terms of its factual development and litigation history. It is necessary to set this history forth in some detail in order to analyze the parties' respective contentions.


The property in question is located in an industrial park in Nutley. For more than thirty years the site was operated as a lumberyard, but in 1963 a building was erected on the property from which a textile-cutting company conducted business. That use ended in 1968, and the building was then leased to a company known as Nova Industries Inc. (Nova), which was in the business of manufacturing uninterruptible power equipment. Such equipment serves to stabilize electrical currents to guard against pulsations, peaks or shutdowns. In the course of its operations, Nova used various degreasing agents, including trichloroethene (TCE) and trichloroethane (TCA). It ceased using TCE in 1984.

In 1984, Hobart acquired Nova. The transaction was structured as a reverse subsidiary merger in which Hobart established a new subsidiary, acquired Nova, and then merged Nova into that newly-formed subsidiary. After the transaction was completed, Hobart continued to operate Nova as a wholly- owned subsidiary. At the time of the Hobart-Nova transaction, New Jersey's Environmental Clean-up Responsibility Act (ECRA), N.J.S.A. 13:1K-6 to -13 was in effect, and the Hobart-Nova transaction triggered certain obligations under that statute, including obtaining the approval of the New Jersey Department of Environmental Protection (DEP) for the proposed transfer. Those obligations, however, were not complied with.

In 1990, Hobart sold the assets of Nova to yet another entity, Technology Dynamics Inc. This transaction also triggered ECRA, and this time Hobart, as the seller, notified DEP. Because the site was contaminated by spills of TCE and TCA that had occurred when Nova was operating its business, Hobart had to have DEP approval of the sale. In order to obtain that approval, Hobart entered into an administrative consent order detailing its plan to clean up the site.

In order to recoup the expenses it would incur as part of this clean-up, Hobart commenced two separate lawsuits. The first, in 1992, was a legal malpractice action against the law firm of Gutkin, Miller, Shapiro and Selesner, which had represented Nova at the time of the 1984 acquisition and merger. The theory of the suit was that compliance with ECRA was the responsibility of the seller, and that the Gutkin firm, as counsel to the seller, was responsible for the failure to attend to the ECRA requirements. Gutkin's malpractice carrier happened to be National Union, Hobart's general liability insurer. National Union provided coverage to the Gutkin firm in this ligation.

Hobart was the only named plaintiff in the suit against the Gutkin firm despite the fact that Hobart did not have an attorney-client relationship with the firm. Hobart, moreover, did not present a malpractice claim against the firm that had represented it in the transaction.

The second law suit was filed in 1993 against Atlantic Mutual Insurance Company (Atlantic Mutual), which had been Nova's primary general liability carrier for more than ten years. Atlantic Mutual had provided coverage both before and after Nova's merger with Hobart. Within its suit, Hobart alleged that Atlantic Mutual was obligated to provide coverage for the costs of the clean-up of the Nutley parcel. In contrast with the malpractice suit, Nova, who was the named insured on the policies, was included as a named plaintiff in the Atlantic Mutual action.

Hobart retained the same firm to handle both lawsuits. Each complaint that was filed included a certification under R. 4:5- 1. The certifications, however, merely recited a belief that there were no other parties that should be joined. The answer filed on behalf of the Gutkin firm, on the other hand, referred to Hobart's failure to join the general liability carrier for Hobart as a party to the suit.

Further, counsel defending the Gutkin firm in the malpractice litigation sought, as part of discovery, information about Hobart's own liability insurance coverage. Hobart did not provide the requested information, however, and instead only supplied information regarding Nova's liability insurance policies.

At some point during the Gutkin litigation, a substitution of attorney occurred and new counsel took over defense of the legal malpractice claim. Substituted counsel did not pursue the question of Hobart's liability insurance.

Although Hobart actively pursued the claims against the Gutkin firm and Atlantic Mutual, it did not present a claim to National Union under its own CGL policy. At the same time that Hobart was attempting to recoup its clean-up expenses from Atlantic Mutual and Gutkin, it was also involved in a number of toxic tort cases in which various plaintiffs were seeking damages from Hobart for exposure to welding fumes. Hobart was looking to National Union to provide coverage to it in those cases, and as a result, it made a conscious choice not to pursue National Union in connection with the Nutley matter. Hobart's general counsel testified in his deposition:

The concern always was that we had had -- "we," Hobart, had a fine working relationship with National Union as well as, for that matter, USF&G and Great American, parties who we litigated against for this toxic tort coverage, had maintained good relationships with them on the defense of cases, these welding cases that were ongoing and very voluminous and potentially very costly. And we candidly didn't want -- necessarily want to pursue National Union unless we really thought it was absolutely necessary because we didn't want to jeopardize the health of that ongoing relationship on the other cases. The other cases were very much larger in potential liability.

There were literally thousands and thousands of these lawsuits, welding fumes lawsuits pending and the aggregate potential liability from them was far, far, far in excess, much in excess of ...

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