On appeal from the Superior Court, Appellate Division.
(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).
Long, J., writing for a majority of the Court.
The Court determines whether, in a long-tail environmental exposure case, an insured must satisfy the full deductible for each triggered policy before it is entitled to indemnity from the insurer, or whether the deductibles should be allocated in some fashion.
In 2000, Benjamin Moore & Company filed a declaratory judgment action seeking defense and indemnity from Lumbermens Mutual Casualty Company in connection with two class action law suits alleging bodily injury and property damage from exposure to lead paint. The declaratory judgment action was based on Lumbermens's issuance of five Comprehensive General Liability (CGL) insurance policies to Benjamin Moore covering an eleven year period. The policies each had limits of $1 million per occurrence. Some of the policies had a $250,000 deductible while others were $500,000. In other words, for each occurrence, Benjamin Moore had agreed to pay either the first $500,000 or $250,000, and Lumbermens had agreed to pay the remaining amount of the loss up to $1,000,000. The deductibles were located in the"Deductible Liability Endorsement" (DLE), which modified and amended certain aspects of the policies. In essence, the DLEs provided that the insurer was obligated to pay only the amount of the insurance limit left after subtracting the deductible and that the deductible applied on a per occurrence basis. An underwriting consultant employed by Lumbermens expressed the view that due to the deductibles, the premiums that Benjamin Moore paid were lower than they would have been had it sought guaranteed cost or firstdollar primary coverage for the same limits in the same policy period.
The parties filed cross-motions for summary judgment. Benjamin Moore sought an order permitting it to choose the Lumbermens's policy under which it would be defended and ordering that it only be required to pay one deductible. Alternatively, Benjamin Moore requested that the trial court order that deductibles in multiple, consecutive insurance policies be allocated on the same basis as insurance coverage is allocated under Owens-Illinois, Inc. v. United Insurance Co., 138 N.J. 437 (1994)(adopting the continuous-trigger theory of environmental contamination), and Carter-Wallace, Inc. v. Admiral Ins. Co., 154 N.J. 312 (1998)(applying the Owens-Illinois
methodology to evaluate the relative responsibility of primary and excess insurers and holding that each layer of excess insurance must be exhausted in each policy year before the next layer is reached). Lumbermens sought a declaration that Benjamin Moore must satisfy each per occurrence deductible in each triggered policy without proration before it is entitled to coverage. Recognizing that neither Owens-Illinois nor Carter-Wallace had
addressed the precise question before it, but taking guidance from those opinions, the trial court granted partial summary judgment in favor of Lumbermens. The court held that the full per-occurrence deductible in each triggered policy must be satisfied before the insured is entitled to indemnity.
The Appellate Division affirmed the trial court's decision. The panel relied on the unambiguous policy terms and on the fact that Benjamin Moore had risked high deductibles to reduce its premiums.
HELD: Benjamin Moore was required to satisfy the deductibles in the triggered Comprehensive General Liability insurance policies under the allocation scheme of Owens-Illinois v. United Insurance Co., 138 N.J. 437 (1994).
1. Because progressive environmental injury claims do not involve easily identifiable and quantifiable losses, courts had to determine the point at which a long-tail environmental injury becomes an occurrence under a CGL policy. In Owens-Illinois, the court adopted the continuous-trigger theory, the conceptual underpinning of which is that injury occurs during each phase of environmental contamination. In other words, progressive environmental injury is an occurrence in each policy year thus triggering all relevant primary and excess policies in effect during the period. In later opinions, the Court determined how to evaluate what damage occurred during each of the triggered policy periods in order to calculate the extent of each policy's exposure. The Court ultimately adopted in Carter-Wallace what is called a pro-ration by years and limits method of loss allocation. Most recently, in Spaulding Composites Co., Inc. v. Aetna Casualty & Surety Co., 176 N.J. 25 (2003), the Court found invalid a non-cumulation clause in a policy that operated to limit an insurer's liability under the multiple sequential CGL policies where losses relating to a"single occurrence" triggered successive policies. The clause was facially inapplicable because Owens-Illinois clearly rejected the idea that in an environmental exposure case successive policies are triggered by a single occurrence. It is clear, however, that Owens-Illinois does not displace the basic provisions of the insurance contract so long as those provisions are not inconsistent with the methodology adopted in that case. (Pp. 13 -- 20).
2. In determining how the deductibles in the policies triggered under Owens-Illinois are to be treated, the Court first examines the policy language. The words of an insurance policy should be given their plain meaning. Here, the policy language is clear and it does not contravene Owens-Illinois. The DLE states that Lumbermens' obligation to pay damages applies only to that amount of the insurance limits that remains after subtraction of the deductible; and that when the total amount of all damages and claim expense paid for all claims or suits as a result of any one occurrence or offense does not exceed the deductible amount, Lumbermens is not obligated to pay any part of the claim expense. Nothing in the policy supports the contention that the deductibles should be pro-rated when the insurance limits are not reached. This Court explained in Owens-Illinois and Spaulding that the scheme it developed was never intended to displace basic insurance policy provisions except to the extent that those provisions are inconsistent with it. (Pp. 20 -- 24).
3. Benjamin Moore's argument flows from a refusal to accept that progressive environmental injuries are multiple occurrences. That view was rejected in Owens-Illinois. The multiple-occurrence template is what triggers multiple policies, thus maximizing resources available for toxic tort cases. It is what encourages the purchase of insurance. It is what voids"other insurance" clauses, makes"non-cumulation" clauses inapplicable, and requires a calculation of the loss that occurred during each policy period. It is the Court's effort to regularize the essentially irregular progressive environmental damage case and make it amenable to disposition in accordance with the undertakings in the insurance contract. In other words, the insurers are not sharing a single loss under the Owens-Illinois rationale.
Rather, they are being held responsible for the losses that actually occurred on their watch, as calculated in accordance with a formula the Court developed as a proxy for a scientific assessment of the amount of injury happening at each phase on the continuum. Once the loss during a triggered policy period is determined, Owens-Illinois has served its purpose and the limits of each policy are available and the basic insurance policy provisions apply so long as they are not inconsistent with that opinion. (Pp. 24 to 28).
4. The Court sees no warrant for pro-rating or otherwise tampering with deductibles once the Owens-Illinois formula is effectuated. Deductibles constitute a bargained-for aspect of the insurance contract that affects the premiums the insured pays. In some less significant continuous exposure cases, the deductible may equal or exceed the loss, thus requiring the insured to bear the entire cost. That would also be the case if an easily identifiable and quantifiable loss occurs within a policy year. Insureds purchase policies with deductibles that are directly related to their premiums, risking the possibility that the loss will be low and that the deductible will equal or exceed it. Sometimes, when losses are in parity with deductibles, the insurer receives the benefit of the bargain. But it is equally true that when a significant environmental loss occurs, Owens-Illinois gives the insured the limits of coverage of a series of policies which would not otherwise be the case. This conclusion is in line with the result reached by a majority of courts and commentators that have addressed the issue. (Pp. 29 to 32).
The judgment of the Appellate Division is AFFIRMED.
JUSTICE ALBIN, dissenting, joined by JUSTICE ZAZZALI, contends that requiring each deductible to be exhausted in multiple insurance policies over a course of years before an insurance company is compelled to pay even a dollar is not in keeping with the reasonable expectations of the parties and is not mandated by the Court's jurisprudence. The dissent would adopt an approach in which the allocation between the policyholder's deductibles and the insurance coverage would be based on a joint and several and pro rata methodology.
CHIEF JUSTICE PORITZ and JUSTICES VERNIERO, LaVECCHIA, and WALLACE join in JUSTICE LONG's opinion. JUSTICE ALBIN filed a separate dissenting opinion in which JUSTICE ZAZZALI joins.
The opinion of the court was delivered by: Justice Long
Because of the scientific uncertainties inherent in pinpointing the onset and course of progressive environmental injury, traditional liability insurance contract language did not resolve the question of when an "occurrence" takes place in that context. In Owens-Illinois, Inc. v. United Insurance Co., 138 N.J. 437 (1994), we adopted the continuous-trigger theory, which posits that such injury occurs during each phase of environmental contamination from exposure to manifestation. Id. at 451. We held such injury to be an "occurrence" triggering each applicable insurance policy. We likewise devised a method to quantify the amount of injury to which each policy would be required to respond, thereafter allowing long-tail environmental damage to fall within the ordinary insurance paradigm (coverage for losses within the policy period in accordance with the terms and conditions of the applicable insurance contract). In Carter-Wallace, Inc. v. Admiral Insurance Co., 154 N.J. 312 (1998), we applied the Owens-Illinois methodology to evaluate the relative responsibility of primary and excess insurers, holding that although damages are determined without reference to excess layers, each layer of excess insurance must be exhausted in each policy year before the next layer is reached.
This case presents the novel issue of whether, in a long tail environmental exposure case, an insured must satisfy the full deductible for each triggered policy before it is entitled to indemnity from the insurer, or whether the deductibles should be allocated in some fashion. The trial court and the Appellate Division both held that the full per-occurrence deductible in each triggered policy must be satisfied before the insured is entitled to indemnity. Because that conclusion fully accords with what we envisioned in Owens-Illinois, we now affirm.
In 2000, Benjamin Moore & Company filed a declaratory judgment action seeking defense and indemnity from Lumbermens Mutual Casualty Company in connection with two class action law suits alleging bodily injury and property damage as a result of exposure to lead paint distributed by Benjamin Moore. The suit was based on Lumbermens's issuance of five Comprehensive General Liability (CGL) insurance policies to Benjamin Moore covering the eleven year period between September 30, 1990, and September 30, 2001. The policies can be described as follows:
Policy NumberPolicy PeriodLimitsDeductible
3YL 950 740-009/30/90-9/30/91$1 million per occurrence$500,000
3YL 950 894-009/30/91-9/30/92$1 million per occurrence$500,000
3YL 950 894-019/30/92-9/30/93$1 million per occurrence$250,000*fn1
5YL 950 894-029/30/93-9/30/94$1 million per occurrence$250,000
9/30/94-9/30/95$1 million per occurrence$250,000
9/30/95-9/30/96$1 million per occurrence$250,000
9/30/96-9/30/97$1 million per occurrence$250,000
9/30/97-9/30/98$1 million per occurrence$250,000
5YL 950-894-039/30/98-9/30/99$1 million per occurrence$250,000
9/30/99-9/30/00$1 million per occurrence$250,000
9/30/00-9/30/01$1 million per occurrence$250,000
It is undisputed that for each "occurrence" covered under the several policies, Benjamin Moore had agreed to pay either the first $500,000 or the first $250,000 of the loss, and Lumbermens had agreed to pay the remaining $500,000 or $750,000 of the loss, depending on the applicable deductible. An underwriting consultant employed by Lumbermens expressed the view that due to the deductibles, the premiums that Benjamin Moore paid were lower than they would have been had it sought "guaranteed cost or first-dollar primary coverage for the same limits in the same policy period[.]"
The deductibles are contained in what is denominated as the "Deductible Liability Endorsement" (DLE). The DLE modifies and amends certain aspects of the policies. Although the language contained in the DLE varies slightly from policy to policy, the parties do not claim that any minor language variation is material to the issue presented for our review.
The following language comes from a representative DLE. The section entitled "Deductible Amount" states:
A. Our obligation to pay damages on behalf of the insured applies only to that amount of the limits of insurance that remains after deducting the Deductible Amount stated in the schedule of this endorsement.
B. The Deductible Amount applies to all damages and claim expense for all coverage of this policy combined as the result of any one "occurrence" for bodily injury and property damage combined, and per person or organization for any other covered injury or damage.
C. In addition to amounts we pay as damages, amounts you pay or reimburse us for damages paid within the deductible will use up the applicable limits of ...