On appeal from the Superior Court, Appellate Division, whose opinion is reported at 346 N.J. Super. 167 (2001).
(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized).
In this appeal, the Court is asked whether the non-cumulation clause in Liberty Mutual Insurance Company's (Liberty) Comprehensive General Liability (CGL) policies can be enforced consonant with the "continuous trigger" and "pro rata allocation" principles adopted in Owens-Illinois, Inc. v. United Ins. Co., 138 N.J. 437 (1994) (Owens-Illinois ) and reaffirmed in Carter-Wallace, Inc. v. Admiral Ins. Co., 154 N.J. 312 (1998) (Carter- Wallace).
Spaulding Composites Company, Inc. (Spaulding) purchased $678 million in CGL insurance between 1967 and 1984. Nine of those policies were issued by Liberty between 1976 and 1984, and eight of them had $1 million limits. During that time, Spaulding also purchased varying amounts of excess liability from Liberty, ranging from $23 million to $100 million. Each of Liberty's nine CGL policies contained the identical non-cumulation clause, which provided, in pertinent part:
(C) For the purpose of determining the limit of the company's liability, all personal injury and property damage arising out of continuous or repeated exposure to substantially the same general conditions shall be construed as arising out of one occurrence.
In 1994, Caldwell Trucking PRP Group (PRP) and the Environmental Protection Agency (EPA) filed suit against Spaulding in the United States District Court, alleging that Spaulding was responsible for cleanup costs at the Caldwell Trucking Superfund site. In 1996, the district court granted PRP partial summary judgment on the issue of Spaulding's liability for clean-up costs. Following a failed attempt at mediation involving Spaulding, Liberty, the EPA, and PRP, judgments of liability were entered against Spaulding in favor of PRP and the EPA totaling over $13 million.
In 1995, Spaulding commenced a state court action seeking a declaratory judgment regarding insurance coverage in respect of its share of the defense and remediation costs at the Caldwell Trucking Superfund site. Spaulding moved for summary judgment against its insurers, including Liberty, PRP joined in the motion, which the trial court granted. The trial court determined that the non-cumulation clause was inapplicable because it was incongruent with the Owens-Illinois trigger theory warranting the treatment of sequential environmental damage as a separate occurrence "within each of the years of a CGL policy." (quoting Owens-Illinois , supra, at 478). The Appellate Division reversed the summary judgment in favor of Spaulding and PRP, declaring the non-cumulation clause both clear and effective, and further holding that Owens-Illinois and Carter-Wallace merely provided an interpretative rationale in cases involving unclear insurance contract language.
In 2002, Spaulding assigned all of its rights to coverage from Liberty and its excess insurers to PRP.
The Supreme Court granted PRP's motion for leave to appeal.
HELD: Liberty's non-cumulation clause is unenforceable under Owens-Illinois . The judgment of the Appellate Division is REVERSED and the trial court's grant of summary judgment on the non-cumulation clause in favor of PRP is reinstated.
1. The Court found the language of the occurrence clause in Owens-Illinois unambiguous, but nevertheless recognized that resort to policy language and traditional rules of insurance contract interpretation would be inadequate to the task of answering when an occurrence takes place in an environmental exposure case. Giving due consideration to a number of theories, including the exposure and manifestation theories, the Court adopted the continuous trigger theory, 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." (Owens-Illinois , supra, at 478-479) The Court further recognized the conjunction between the continuous trigger and how allocation ultimately would take place. The Court rejected a number of approaches to allocation, including joint-and-several allocation, and adopted what is called a pro-ration by years and limits method of allocation. The pro-rata allocation method was selected consistent with policy considerations identified by the Court: (1) maximizing resources to cope with environmental injury or damage; (2) giving the greatest incentives to insureds to acquire insurance; and (3) notions of simple justice. (Owens-Illinois , supra, at 472-473) (Pp. 8-15)
2. In Carter-Wallace, supra, the Court was faced with the issue of how to allocate responsibility between primary and excess insurers in the context of environmental damage over many years with a continuous trigger of liability. After reaffirming the continuous trigger principle, the Court rejected the excess insurers' horizontal exhaustion theory that stated that all primary and first layer excess policies in effect throughout the excess trigger period had to be exhausted prior to any second layer excess liability attaching. The Court also rejected the insured's proposal that the entire loss should be collapsed into a single year so that the excess layer would be reached. The Court instead adopted a vertical loss allocation by year approach. The model consists of a horizontal axis made up of the number of years during which damages occurred and a vertical axis containing the pro-rata damages assigned to a specific year. Under that scheme, after pro-ration of damages horizontally, the policies implicated in each particular year are exhausted vertically. (Pp. 15-19)
3. Owens-Illinois was a "watershed" in the cripplingly complex area of long-tail environmental exposure insurance coverage. It eliminated reliance on particular contract language (other than limits and exclusions) and on traditional rules of interpretation, and set forth a uniform standard for resolving allocation issues in long-tail environmental cases. (Pp. 19-24)
4. At the heart of a non-cumulation clause is the notion of a "single occurrence" with multiple year effects. Non- cumulation clauses, therefore, seek to avoid the "cumulation" of insurance policy limits when only one insured act or "occurrence" is involved. Owens-Illinois clearly rejected the idea that in an environmental exposure case, successive policies are triggered by a "single" occurrence. So viewed, the "single occurrence" language does not implicate "cumulation" of policy limits for damage arising out of a single occurrence and is therefore inapplicable by its own terms. But even if the non-cumulation clause was not facially inapplicable, we would not enforce it because it would thwart the Owens-Illinois pro-rate allocation modality. (Pp. 24-30)
The judgment of the Appellate Division is REVERSED and the trial court's grant of summary judgment on the non-cumulation clause in favor of PRP is reinstated.
CHIEF JUSTICE PORITZ and JUSTICES COLEMAN, VERNIERO, LAVECCHIA, ZAZZALI and ALBIN join in Justice LONG's opinion.
The opinion of the court was delivered by: Long, J.
Argued September 24, 2002
In this appeal, we revisit the "continuous trigger" and "pro rata allocation" doctrines we adopted to address complex environmental insurance coverage issues in Owens-Illinois, Inc. v. United Ins. Co., 138 N.J. 437 (1994). More particularly, we have been asked how those principles affect the validity of a "non-cumulation" clause in a comprehensive general liability policy that is invoked by an insurer to restrict its exposure on nine years of coverage to a single policy limit. We hold that the rules enunciated in Owens-Illinois and reaffirmed in Carter- Wallace, Inc. v. Admiral Ins. Co., 154 N.J. 312 (1998) preclude enforcing such a limitation.
The facts of the case are detailed in the decision of the Appellate Division and are incorporated herein as if more fully set forth. 346 N.J. Super. 167 (2001). We recite only those necessary to our disposition.
Spaulding Composites Company, Inc. (Spaulding) purchased $678 million in comprehensive general liability (CGL) insurance between 1967 and 1984. Nine of those policies were issued by Liberty Mutual Insurance Company (Liberty) during the period from 1976 to 1984. The 1976 policy had a $500,000 limit and the other eight each had a $1 million limit. During those nine years in which Liberty was Spaulding's primary insurer, Spaulding also purchased excess liability in amounts varying from $23 million to $100 million.
Each of Liberty's nine CGL policies contained the identical non-cumulation clause that provided:
PERSONAL INJURY LIABILITY AND PROPERTY DAMAGE LIABILITY (A)
The limit of liability stated in the schedule as applicable to 'each occurrence' is the total limit of the company's liability for all damages because of personal injury or property damage as a result of any one occurrence.
. . . . (C) For the purpose of determining the limit of the company's liability, all personal injury and property damage arising out of continuous or repeated exposure to substantially the same general conditions shall be construed as arising out of one occurrence.
(D) If the same occurrence gives rise to personal injury or property damage which occurs partly before and partly within the policy period, the 'each occurrence' limit and the applicable aggregate limit of this policy shall be reduced by the amount of each payment made by the company with respect to such occurrence ...