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Franklin Mutual Insurance Co. v. Metropolitan Property & Casualty Insurance Co.

April 17, 2009


On appeal from the Superior Court of New Jersey, Law Division, Essex County, L-896-08.

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



Argued February 24, 2009

Before Judges Winkelstein, Fuentes and Chambers.

In this declaratory judgment action, we are asked to determine how the "continuous trigger" theory adopted by the New Jersey Supreme Court in Owens-Illinois, Inc. v. United Insurance Co., 138 N.J. 437 (1994), is applied in allocating insurance coverage in long-term environmental contamination cases when the contaminated property changes ownership while the contamination takes place. Under the Owens-Illinois model, insurance coverage for these types of cases is assessed among an insured's insurance carriers pro rata, based on the degree of risk each carrier assumed. Id. at 478-79. If a property owner is uninsured for a period of the time while the contamination occurs, the property owner is personally responsible for a pro rata share of the cleanup costs, having assumed the risk of being uninsured. Id. at 479. Each year the contamination occurs is treated as a separate occurrence. Id. at 478-79.

The Owens-Illinois line of cases address the method of allocating insurance coverage when an individual property owner is insured by more than one carrier during the period of contamination. The cases do not address the issue here, which is how to apply the pro rata allocation formula when the property had more than one owner during the period of contamination.

The contamination occurred to a residential property from the leak of underground storage tanks containing home heating oil. During the period of contamination, the property had two owners. The leak began when the property was owned by John Clark; the parties have not determined whether he had insurance coverage for the contamination, and they have agreed not to pursue him for a share of the cleanup costs.

The leak continued after Peter and Carol Tsairis (collectively, Tsairis) purchased the property from Clark. Tsairis was either initially uninsured, or the insurance carrier when Tsairis purchased the property has not been identified. Tsairis subsequently obtained insurance coverage from Metropolitan Property & Casualty Insurance Company, and then from Franklin Mutual Insurance Company. When the leak was discovered, Franklin Mutual insured the property and paid the cleanup costs. Franklin Mutual then sought a pro rata reimbursement from Metropolitan. Franklin Mutual and Metropolitan have agreed not to seek contribution from Tsairis for the time Tsairis may have been uninsured.

The parties could not agree on the method of allocation for coverage. Metropolitan argues that all of the liability insurance from all policies covering the property during the entire period of contamination, regardless of who owned the property, should be considered in calculating Metropolitan's share of coverage. Franklin Mutual asserts that Metropolitan's liability is based on a pro rata allocation of the cleanup costs between insurers for the same named insured - that the coverage allocation would be between Metropolitan and Franklin Mutual, without regard to the period of time that Clark owned the property.

The trial judge agreed with Franklin Mutual. He concluded that the Owens-Illinois formula is applied separately to each individual insured. We agree, and conclude that the pro rata allocation principles established in Owens-Illinois apply to the carriers for each individual insured, not, as is argued by Metropolitan, collectively to all of the triggered policies for all of the insureds who owned the property during the period of contamination. Simply put, the allocation is only among insurers that provide coverage to the same named insured, to indemnify that insured for its share of the cleanup costs. Consequently, Metropolitan's allocated share for cleanup costs is determined without regard to any liability insurance coverage that Clark may have had during the period of contamination. Accordingly, we affirm.

The facts are substantially undisputed. Tsairis purchased property located on Hillside Avenue in Nutley (the property) from Clark on December 7, 1995. On August 25, 2005, two underground storage tanks for home heating oil at the property were discovered to be "leaking product into the surrounding soil." Studies showed that the fuel from soil found at the sites was approximately eighteen to nineteen years old.

Metropolitan insured the property from December 14, 1999, to December 14, 2002. Franklin Mutual insured the property from December 14, 2002, until August 25, 2005, the date that the contamination was discovered. Franklin Mutual incurred costs of $44,567.70 to remediate the property due to the damage caused by the contamination. Metropolitan does not dispute that amount. It argues that its allocated share of the total cost is 15.63 percent, or $6965.61.

To develop its percentage of allocation, Metropolitan included in its calculations the number of years that the contamination had occurred while the property was owned by Clark, and assumed that an unknown carrier insured the property during that time. Metropolitan's argument is that all applicable insurance, from all policies that could have been triggered during the period of contamination, be used to calculate Metropolitan's share of coverage. It relies on the policy behind the Owens-Illinois decision in formulating ...

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