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Sensient Colors Inc. v. Allstate Insurance Co.

January 29, 2008

SENSIENT COLORS INC., PLAINTIFF-RESPONDENT,
v.
ALLSTATE INSURANCE COMPANY, F/K/A NORTHBROOK INSURANCE COMPANY, AMERICAN MOTORISTS INSURANCE COMPANY, FEDERAL INSURANCE COMPANY, FIDELITY & CASUALTY COMPANY OF NEW YORK, FIREMAN'S FUND INSURANCE COMPANY, HARTFORD ACCIDENT & INDEMNITY COMPANY, HIGHLANDS INSURANCE COMPANY, INTERGRITY INSURANCE COMPANY, INTERSTATE FIRE & CASUALTY COMPANY, LLOYDS OF LONDON AND BRITISH COMPANIES, NEW JERSEY PROPERTY LIABILITY INSURANCE GUARANTY ASSOCIATION, OLD REPUBLIC INSURANCE COMPANY, PINE TOP INSURANCE COMPANY, ROYAL INSURANCE COMPANY, TWIN CITY FIRE INSURANCE COMPANY, WESTPORT INSURANCE CORPORATION, F/K/A PURITAN INSURANCE COMPANY AND XYZ INSURANCE COMPANIES, DEFENDANTS, AND EXECUTIVE RISK INDEMNITY INC., F/K/A AMERICAN EXCESS INSURANCE CO., LIBERTY MUTUAL INSURANCE COMPANY AND ZURICH AMERICAN INSURANCE COMPANY, DEFENDANTS-APPELLANTS,



On certification to the Superior Court, Appellate Division, whose opinion is reported at 388 N.J. Super. 374 (2006).

SYLLABUS BY THE COURT

(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).

ALBIN, J., writing for a unanimous Court.

In this appeal, with similar lawsuits in two different state court systems, the Supreme Court must determine the legal principles that govern when a New Jersey court should defer to another jurisdiction's courts.

Sensient Colors Inc. (Sensient) is a New York company with headquarters in Missouri. From 1922 to 1988, Sensient, then known as H. Kohnstamm & Co. (Kohnstamm), operated a factory at 31st Street and Lemuel Street in Camden, New Jersey that manufactured colorants, organic pigments, and dispersions for food, drugs, and cosmetics. In 1998, the then-abandoned factory site was located directly adjacent to a low-income housing development known as Pleasant Gardens, which was home to 1,000 of Camden's residents. Some of those residents lived as close as 100 feet from the abandoned property.

In January 1998, the New Jersey Department of Environmental Protection (NJDEP) removed from the factory site forty-two drums of hazardous chemicals and drained a tank leaking sodium hydroxide. In March 1998, at the request of NJDEP, the U.S. Environmental Protection Agency (EPA) intervened, finding on the site thousands of containers of hazardous substances, including flammable liquids, corrosive chemicals, and poisons. At the time, children were playing on the contaminated grounds of the abandoned and unsecured property, which also had become a haven for suspected drug users and vandals.

During the next several years, the EPA removed thousands of drums, bags, and containers of hazardous substances from the factory buildings and excavated over 71,000 tons of lead-contaminated soil and 8,000 tons of debris. An EPA study revealed that hazardous waste had leached into the soil and spread to the Pleasant Gardens apartment complex, contaminating the grounds with lead. In addition, the flow of waste underneath the apartment buildings caused them to subside and crack.

In November 2003, Pleasant Gardens Realty Corporation filed a civil action in the Superior Court, Law Division, seeking damages against Sensient and other named defendants for the contamination of its property. The NJDEP was later joined as a defendant and cross-claimed against Sensient, seeking recovery for costs it expended in cleaning up the Camden site. In June 2004, EPA demanded that Sensient reimburse it in the amount of $10,867,466 plus interest for its remediation of the property. The EPA also noted that additional work might be required to address residual contamination at the site.

Sensient's predecessor, Kohnstamm, through its New York office, purchased from various insurers commercial liability insurance policies covering properties it owned, including the Camden factory and other New Jersey sites. Zurich Insurance Company, predecessor to Zurich American Insurance Company (Zurich), a New York corporation, issued primary coverage insurance through a New York broker to Kohnstamm for a number of years in the 1970s and 1980s. During those years, other insurers issued excess and umbrella policies to Kohnstamm, and for one of those years, Liberty Mutual Insurance Company (Liberty) issued a primary policy.

Between May and July 2004, Sensient notified its insurers of the Pleasant Gardens damages suit and the EPA reimbursement request. Shortly thereafter, Zurich advised Sensient that, under a reservation of rights, it would participate in the defense of the Pleasant Gardens lawsuit and the EPA recovery demand. Liberty refused to provide a defense or coverage for either claim. Some excess and umbrella carriers denied coverage; others either did not respond to the coverage request or would not respond until Sensient had exhausted all its underlying coverage.

In March 2005, Zurich filed a declaratory judgment action in a New York trial court, naming Sensient as a defendant and seeking a determination from the court that it had no obligation to defend or indemnify Sensient on the Pleasant Gardens and EPA claims. Sensient thereafter filed its own declaratory judgment action in the Superior Court, Law Division, Camden County, seeking an order compelling Zurich to defend and indemnify Sensient in the Pleasant Gardens and EPA matters. In its complaint, Sensient also named as a defendant the New Jersey Property-Liability Insurance Guaranty Association (NJPLIGA), which had stepped into the shoes of two insurers that had become insolvent. In addition to declaratory relief, Sensient sought compensatory damages from those insurers who expressly denied coverage, as well as punitive damages from Zurich for breaching the duty of good faith and fair dealing owed to its insured.

The trial court in Camden County dismissed Sensient's New Jersey suit in favor of the first-filed complaint in New York. The court characterized the case as a contract dispute over insurance coverage involving an insured incorporated in New York, a policy issued in New York, and an action filed first in New York. Viewing the case to be only about a reimbursement claim, the court concluded that no New Jersey public policy trumped that of New York and therefore the first-filed action had precedence over the New Jersey action.

The Appellate Division reversed and reinstated Sensient's claim, finding that the trial court misapplied the first-filed doctrine when measured against the standards set forth in the Appellate Division opinion in American Home Products Corp. v. Adriatic Insurance Co. The court found that the declaratory action filed in New Jersey is not substantially similar to the one filed in New York and that "special equities" favor resolution of the coverage issue in New Jersey courts.

The Supreme Court granted certification.

HELD: Despite New Jersey's strong adherence to principles of comity, the special equities in this case heavily favor New Jersey courts exercising jurisdiction. Because of its dominant interests, New Jersey is the natural forum for resolving insurance coverage issues concerning hazardous-waste-infested property located within its borders.

1. Under the first-filed rule, the court that first acquires jurisdiction has precedence in the absence of special equities. This doctrine, with deep roots in our federal system, has been recognized by many courts of other jurisdictions. In order to maintain harmonious relations with sister states, absent extenuated circumstances sufficient to qualify as special equities, comity and common sense counsel that a New Jersey court should not interfere with a similar, earlier-filed case in another jurisdiction that can afford adequate relief and provide complete justice. (Pp. 13-15)

2. The first-filed rule is not an inflexible doctrine. The existence of special equities may lead a court to disregard the traditional deference to the first-filed action and retain jurisdiction. Special equities are reasons of a compelling nature that favor the retention of jurisdiction by the court in the later-filed action. Special equities have been found when one party has engaged in jurisdiction shopping to deny the other party of its natural forum. In addition, courts have found special equities when significant state interests, such as remediation of polluted sites, are implicated and when deferring to a procedure in another jurisdiction would contravene public or judicial policy of the forum state. Further, courts have found special equities when it would cause "great hardship and inconvenience" to one party by proceeding in the first-filed action and no unfairness to the opposing party by proceeding in the second-filed action. (Pp. 15-18)

3. A stay or dismissal of the second-filed action should be denied if an "injustice would be perpetrated" on a party in the first-filed action and "no hardship, prejudice or inconvenience" would be inflicted on the other by proceeding in the second-filed case. Whether special equities exempt a court from deferring to a first-filed action depends on a fact-specific inquiry that weighs considerations of fairness and comity. The determination of whether to grant a comity stay or dismissal is generally within the discretion of the trial court. (Pp. 18-19)

4. American Home Products, on which the Appellate Division relied, established an analytical framework allocating the burdens of persuasion to be borne by parties arguing for or against the stay or dismissal. Under that analysis, as modified by the Supreme Court in this case, a party moving for a comity stay or dismissal must show that there is a first-filed action in another jurisdiction involving substantially the same parties, claims, and legal issues as the action in this state. Once that is established, the party opposing the stay or dismissal must demonstrate the presence of one or more special equities that overcome the presumption favoring the first-filed action. (Pp. 19-23)

5. The Court need not resolve the question of whether the New Jersey and New York actions have substantially similar parties and claims because the Court is persuaded that special equities strongly support New Jersey exercising jurisdiction here. After Zurich informed Sensient that it would participate in the defense of the two matters, Zurich without warning filed suit in New York, thereby denying Sensient the opportunity to select its own forum for resolving the coverage dispute. In addition, New Jersey's strong public policy interest in the remediation of environmental contamination within its borders is a paramount special equity that favors retention of jurisdiction. That interest includes ensuring that an insurance policyholder is not wrongly denied funds for the clean-up of a hazardous waste site. In addition, this case touches on the health and safety of New Jersey residents, many of whom were unknowingly exposed to toxic substances. This state retains an interest in ensuring that any remaining contamination is remediated and that clean-up of the site is fully funded. (Pp. 23-27)

6. New Jersey's interest is more compelling because of the divergent public policy approaches taken by both states. At the heart of this case is the pollution-exclusion clause in the insurance policies. Enforcement of the clause will likely depend on which state's substantive law applies. It is certain that New Jersey would apply the laws of this state which favor making insurance proceeds available for remediating environmental contamination and compensating the victims of the contamination. (Pp. 27-28)

7. The combined special equities clearly overcome the presumption favoring the first-filed action in New York and support the coverage action proceeding in its natural forum -- New Jersey. The trial court's failure to give weight to those special equities was an abuse of discretion that justified the Appellate Division's reinstatement of the New Jersey action. (Pp. 28-31)

Judgment of the Appellate Division, which reinstated Sensient's complaint, is AFFIRMED and the matter is REMANDED for proceedings consistent with this opinion..

The opinion of the court was delivered by: Justice Albin

Argued October 9, 2007

CHIEF JUSTICE RABNER and JUSTICES LONG, LaVECCHIA, and RIVERA-SOTO join in JUSTICE ALBIN'S opinion. JUSTICES WALLACE ...


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