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Champion Dyeing & Finishing Co., Inc. v. Centennial Insurance Company

November 19, 2002


On appeal from Superior Court of New Jersey, Law Division, Passaic County, Docket No. L-7474-98.

Before Judges Havey, Wells and Payne.

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


Argued September 9, 2002

This insurance case raises issues relating to the trigger of coverage and the allocation of the duty to provide indemnification for progressive environmental damage that commenced during a period of time in which coverage was offered customarily on an occurrence basis and continued into a period in which coverage was offered, if at all, on a claims-made basis. Their resolution requires some background. I. In its decision in Owens-Illinois, Inc. v. United Ins. Co., 138 N.J. 437 (1994), the Supreme Court adopted a continuous-trigger theory of coverage under occurrence-based policies of comprehensive general liability (CGL) insurance for the risks of progressive, indivisible bodily injury and property damage arising from long-term exposure to asbestos and, presumptively, other toxic and environmental agents. *fn1 Under that theory, each policy of insurance in effect from the date of first exposure to an injury-producing substance to the date of manifestation of a progressive injury caused by the substance was held provide coverage for that injury. See also, e.g., Carter-Wallace, Inc. v. Admiral Ins. Co., 154 N.J. 312 (1998) (specifically applying a continuous trigger to coverage of damages caused by environmental contamination).

In adopting a continuous trigger, the Court specifically rejected, among others, triggers of coverage based solely upon the date of first exposure to the harmful product (see, e.g., Insurance Co. of N. Am. v. Forty-Eight Insulations, Inc., 633 F.2d 1212 (6th Cir. 1980), clarified in part, 657 F.2d 814 (6th Cir.), cert. denied, 454 U.S. 1109, 102 S.Ct. 686, 70 L.Ed.2d 650 (1981)) or the date of manifestation of injury (see, e.g., Eagle-Picher Indus. v. Liberty Mutual Ins. Co., 682 F.2d 12 (1st Cir. 1982), cert. denied, 460 U.S. 1028, 103 S.Ct. 1279, 75 L.Ed.2d 500 (1983)), since those theories did not take into account the presumptively progressive and indivisible nature of the injury at issue, but were adopted solely as a means of maximizing coverage. See Owens-Illinois, supra, 138 N.J. at 449-459.

Additionally, the Court established a mechanism for allocating coverage for toxic tort liability between triggered insurance policies and corporate tortfeasors when coverage was afforded on an occurrence basis. It held that, in instances in which multiple policies of insurance were triggered as the result of the operation of a continuous-trigger theory, coverage should be allocated pro rata on the basis of the carrier's time on the risk and the degree of risk assumed: "i.e., proration on the basis of policy limits, multiplied by years of coverage." Id. at 475. The Owens-Illinois Court held further that, if coverage for the risk were available in a particular period, and if it had not been obtained by the corporate tortfeasor, the tortfeasor would share in the pro- rata allocation for the period and to the extent that it had, itself, assumed the risk of loss. Id. at 479. The allocation principles established by the Court in Owens-Illinois were adopted in the context of liability for environmental damage in Carter-Wallace, supra, 154 N.J. at 320-28 (discussing exhaustion of coverage) and Quincy Mut. Fire Ins. Co. v. Bellmawr, 172 N.J. 409, 435-37 (2002) (discussing coverage of limited duration).


The Owens-Illinois decision established a framework for allocation of liability in the context of occurrence-based CGL policies. However, the nature of insurance coverage has not remained static, particularly with respect to coverage of damages caused by environmental contamination.

In 1969, a major blowout at an offshore oil drilling rig near Santa Barbara led to the first Earth Day in April of that year. Thereafter, in 1970, Congress enacted the Clean Air Act, and in 1972, it enacted the Clean Water Act. Substantial environmental legislation imposing clean-up responsibilities on those causing pollution followed thereafter. See generally 1 Environmental Dispute Handbook: Liability and Claims (D. Carpenter, et al. eds. 1991) at 7-33.

The insurance industry responded to this increase in environmental awareness and potential liability. Commencing in 1973, it adopted what has come to be known as a clarifying "sudden and accidental" or "standard" pollution exclusion from coverage by CGL policies. However, any restrictive effect intended by adoption of that exclusion was substantially nullified by the courts in decisions such as that reached by the Supreme Court in Morton Int'l v. General Acc. Ins. Co., 134 N.J. 1 (1993), cert. denied, 512 U.S. 1245, 114 S.Ct. 2764, 129 L.Ed.2d 878 (1994), which held that the insurance industry's sudden and accidental pollution exclusion clause precluded coverage only for an insured's intentional discharge of known pollutants. Id. 134 N.J. at 30-86.

The insurance industry responded to adverse judicial precedent in 1986 by adopting an "absolute" pollution exclusion that did not contain the "sudden and accidental" language construed by the courts interpreting the 1973 coverage form. In large measure, the absolute pollution exclusion has been judicially enforced, thereby excluding all but a very narrow category of pollution risks from coverage under CGL policies of insurance since 1986. See, e.g., Kimber Petroleum Corp. v. Travelers Indem. Co., 298 N.J. Super. 286, 299 (App. Div.), certif. denied, 150 N.J. 26 (1997). See generally, Kenneth S. Abraham, Environmental Insurance Law at 145-163 (1991); Hartford Fire Ins. Co. v. California, 509 U.S. 764, 771-76, 113 S.Ct. 2891, 2896-98, 125 L.Ed.2d 612, 622-26 (1993) (recounting a version of the history of the development of coverage forms in the context of a challenge based on alleged violations of the antitrust laws).

Commencing in the mid-1970s, new products were developed to meet the demand for insurance for environmental risks, including Environmental Impairment Liability (EIL) insurance, Environmental Protection Liability insurance and Pollution Liability insurance. Although the provisions of those policies, unlike policies of CGL insurance, were not standardized, the coverage was virtually always written on a "claims-made" basis, not on the "occurrence" basis construed by the Owens-Illinois Court in trigger of coverage and allocation contexts. See Abraham, supra, at 197. This distinction is significant, because claims-made insurance, by its language, is triggered by the manifestation of injury, which must take place during the policy period. As a consequence, the continuous trigger recognized in Owens- Illinois as applicable to occurrence-based policies and a theory of allocation based upon a continuous trigger are rendered less directly relevant in this circumstance.

In general, the issue of which carrier will respond to a risk under claims-made coverage is simplified by the fact that only those carriers providing coverage when the risk manifests can be held liable. The existence of prior claims-made coverage is thus relevant for purposes of continuity, but not for purposes of indemnification. *fn2

However, the issue becomes infinitely more complicated when a risk is covered by a succession of policies written first on an occurrence and, in later years, on a claims-made basis or, as in the case before us, when the insured's environmental risks were covered by policies of CGL insurance until 1986, and were ...

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