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Hobart Brothers Co. v. National Union Fire Insurance Co.

March 25, 2008

HOBART BROTHERS COMPANY, AN OHIO CORPORATION, PLAINTIFF-APPELLANT,
v.
NATIONAL UNION FIRE INSURANCE COMPANY, A PENNSYLVANIA CORPORATION, DEFENDANT-RESPONDENT, AND CONTINENTAL INSURANCE COMPANY, A NEW HAMPSHIRE CORPORATION AS SUCCESSOR TO CERTAIN POLICIES ISSUED BY HARBOR INSURANCE COMPANY, A CALIFORNIA CORPORATION AND/OR GREENWICH INSURANCE COMPANY, A CALIFORNIA CORPORATION, DEFENDANT.



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

Per curiam.

NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION

Argued March 4, 2008

Before Judges Coburn, Fuentes and Chambers.

This is a declaratory judgment action for insurance coverage under comprehensive general liability ("CGL") insurance policies. Coverage is sought for the costs of an environmental clean-up of commercial property ordered by the Department of Environmental Protection ("DEP"). The insured is plaintiff Hobart Brothers Company ("Hobart"). The carrier is defendant National Union Fire Insurance Company ("National Union"). A Law Division judge entered summary judgment for National Union based solely on the entire controversy doctrine. The judge concluded that Hobart's deliberate failure to include National Union in earlier suits was inexcusable and accepted National Union's claim that it had suffered substantial prejudice as a result. Hobart appeals, contending that neither finding is supported by the record. We agree with Hobart and therefore reverse and remand for further proceedings.

I.

The property is located in an industrial park in Nutley. From at least 1933 until 1963, it was used as a lumberyard. In 1963, a building was constructed on the property, and until 1968 the building was used by a textile-cutting company. In 1968, Nova Industries, Inc. ("Nova") leased the property for a manufacturing process that involved the use of two pollutants: trichloroethene ("TCE") and trichloroethane ("TCA").

In 1984, Hobart acquired Nova, and merged it into a newly-formed, wholly-owned subsidiary. At the time, this transaction triggered obligations under New Jersey's Environmental Clean-up Responsibility Act ("ECRA"), N.J.S.A. 13:1K-6 to -13,*fn1 which included obtaining DEP approval before the transaction was finalized. Unfortunately, DEP's approval was not sought. When Hobart acquired Nova, and for about ten years prior to the acquisition, Nova's primary CGL carrier was Atlantic Mutual Insurance Company ("Atlantic Mutual"). During the acquisition, Nova was represented by the law firm of Gutkin, Miller, Shapiro & Selesner ("Gutkin").

In 1990, Hobart sold the assets of Nova to Technology Dynamics, Inc. This sale also triggered the ECRA. Hobart notified DEP, which determined that the site was contaminated by Nova's spills of TCE and TCA. Hobart agreed to a DEP plan for the clean-up.

In 1991, Hobart retained Harding Lawson Associates ("HLA"), an environmental consulting firm. At that time, HLA estimated that the cost of removing the TCE and TCA from the site would be about $700,000.

In 1992, Hobart sued Gutkin for malpractice, alleging that compliance with ECRA was the seller's responsibility and that Gutkin, as Nova's attorney, was responsible for Nova's failure to satisfy the ECRA requirements. Gutkin's malpractice carrier at the time was National Union. In 1993, Hobart and Nova sued Atlantic Mutual under the CGL policies it had issued to Nova. Both actions sought the same relief: compensation for the cleanup expenses. And in both actions, Hobart was represented by the same law firm, Anderson, Kill, Olick & Oshinsky ("Anderson"), which filed certifications under Rule 4:5-1 stating that there were no other parties that should be joined in the actions.

In July 1994, HLA increased its estimate of the clean-up costs to $1.4 million. In December 1994, HLA wrote to Hobart's in-house engineer further increasing the estimate to $2.7 million, but that letter was not received by Hobart before it settled with Gutkin and Atlantic Mutual in 1995. In the settlements, Hobart received $100,000 from Gutkin's carrier, National Union, and $973,454 from Atlantic Mutual.

Hobart gave Atlantic Mutual a customary general release, but in the Gutkin action, the release was unusual. Although National Union was not a party in the lawsuit, it insisted on being a party to that settlement agreement. At National Union's insistence, that agreement provided that it would receive a release from Hobart limited to claims that have been or could have been made in the future in this litigation upon National Union's professional liability insurance policy issued to . . . Gutkin . . . .

In return, National Union agreed to accept the following additional language demanded by Hobart's attorneys: "This release shall have no effect on any claim under any insurance policy issued by National Union to [Hobart]."

In October 1995, Hobart became aware for the first time of HLA's last estimate of $2.7 million. And in July 1997, Hobart began the action that we are now reviewing against National Union and Continental Insurance Company ("Continental"), which was a successor to Harbor Insurance Company, the company that had provided Hobart with umbrella liability policies.

Two years after Hobart filed this action, National Union and Continental moved for summary judgment, relying on the entire controversy doctrine. A Law Division judge agreed and dismissed the action. Hobart appealed, and another panel reversed and remanded for further proceedings. Hobart Bros. Co. v. Nat'l. Union Fire Ins. Co., 354 N.J. Super. 229 (App. Div.), certif. denied, 175 N.J. 170 (2002) ("Hobart I").

In Hobart I the court rejected the Law Division judge's determination that Hobart's failure to join National Union in the earlier lawsuits "was a sufficient basis, by itself, to preclude Hobart from maintaining the present action." Id. at 242. The court held that the action should not have been dismissed unless Hobart's deliberate failure to join National Union was inexcusable and had resulted in substantial prejudice to National Union. Ibid. On remand, the court directed the judge to consider at the least the following factors:

(1) Is National Union precluded, as it contends, from seeking recovery from Atlantic Mutual?

(2) If National Union is precluded, can it be compensated by an allocation calculation, as Hobart asserts?

(3) Was Hobart's failure to supply information about its liability carriers as part of the Gutkin discovery an attempt to thwart the assertion of a claim against National Union?

(4) Was Hobart's action in settling with Atlantic Mutual and Gutkin without conferring with HLA as to the status of its cost estimates ...


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