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Baughman v. United States Liability Insurance Co.

November 12, 2009


The opinion of the court was delivered by: Simandle, District Judge


The Court is asked to resolve a dispute regarding insurance coverage for several underlying state court actions arising out of alleged mercury contamination of a daycare center owned, until recently, by Plaintiffs Becky Baughman and Steven Baughman. Defendant United States Liability Insurance Company has declined to defend or indemnify Plaintiffs in the underlying actions despite their comprehensive general liability ("CGL") policy.

Presently before the Court are Plaintiffs' motion for partial summary judgment [Docket Item 10] and Defendant's cross-motion for summary judgment [Docket Item 13]. The central issues to be decided are whether the underlying state court actions seek "damages" for "bodily injury" within the meaning of the CGL and whether coverage for those actions falls within the absolute pollution exclusion of the CGL. For the reasons set forth below, the Court will grant summary judgment in favor of Plaintiffs on their claims for declaratory judgment and breach of contract, but grant summary judgment in favor of Defendant on Plaintiffs' claims of breach of implied duty of good faith and fair dealing, common law fraud, and violations of the New Jersey Consumer Fraud Act.


Becky and Stephen Baughman are a husband and wife who moved from Texas to Gloucester County, New Jersey in 2000. (Becky Baughman Certification ¶¶ 1, 3, 18.) On December 9, 2005, the Baughmans purchased an existing daycare center, Kiddie Kollege Daycare & Preschool, Inc. ("Kiddie Kollege") from Matthew Lawlor and Julie Lawlor. (Id. ¶ 4.) The Baughmans were acquainted with Kiddie Kollege because their children attended the daycare center. (Id. ¶ 5.) The Baughmans similarly purchased a commercial package insurance policy which included comprehensive general liability coverage. (Becky Baughman Certification ¶ 6, Exh. A.) Becky Baughman is the sole named insured on the CGL policy. (Becky Baughman Certification, Ex. A.) The inception date of that policy was December 9, 2005. (Becky Baughman Certification ¶ 6.)

From December, 2005 through July 28, 2006, the Baughmans owned and operated Kiddie Kollege, where Stephen Baughman was an employee. (Stephen Baughman Certification, Exh. A.) On July 28, 2006, the New Jersey Department of Environmental Protection ("NJDEP") informed Becky Baughman that the daycare center building was uninhabitable due to mercury contamination. (Becky Baughman Certification ¶ 10.) On that same day the Baughmans closed the daycare center. (Id. ¶ 9.) It is undisputed that the alleged mercury contamination is due to the business operations of Accutherm, Inc., a thermometer manufacturing company that operated in the building approximately twenty years before the Baughmans purchased Kiddie Kollege.

Beginning in October, 2006, five lawsuits were commenced on behalf of children who attended Kiddie Kollege and persons who worked for the daycare center naming the Baughmans, among others, as defendants. (Gorman Certification Exhs. A-E.) Those actions, all brought in Gloucester County Superior Court, are: Mignano v. Jim Sullivan, Inc., Docket No. GLO-L-1309-06; Conti v. Jim Sullivan, Inc., Docket No. L-1617-06; Kahana v. Accutherm, Inc., Docket No. L-1823-06; Foster v. Jim Sullivan, Inc., Docket No. L-280-07; and Allonardo v. Jim Sullivan, Inc., Docket No. L-406-08. (Id.) The Conti and Foster actions have since been voluntarily dismissed. (Gorman Certification ¶ 10.) The Baughmans properly notified Defendant of each of the underlying lawsuits and Defendant disclaimed coverage for each of those actions.*fn1 (Gorman Certification ¶¶ 28-31; Becky Baughman Certification ¶¶ 12-15.) Thus, the Baughmans have been forced to provide for their own defense. (Becky Baughman ¶ 16.)

A. Underlying Lawsuits

The underlying lawsuits at issue were brought against not only the Baughmans, but Accutherm, Jim Sullivan, Inc. (the property owner), the Lawlors, the NJDEP, Gloucester County, and Franklin Township. The facts alleged in all three underlying lawsuits are similar and they tell a similar story. According to those complaints, the building at 162 Station Avenue, Franklinville, New Jersey (the location of Kiddie Kollege) has been contaminated with mercury since occupied by Accutherm, Inc., a thermometer manufacturer, from June, 1984 until at least June, 1990. (Mignano Complaint ¶¶ 22, 33-34; Conti Complaint ¶ 6; Kahana Complaint ¶¶ 39-50.) Despite directives from the NJDEP, Accutherm did not clean up the site. (Mignano Complaint ¶¶ 54-56; Conti Complaint ¶ 6; Kahana Complaint ¶¶ 25-29.)

Over the years, various governmental and private parties performed testing and warned of mercury contamination in the building. As early as 1987, the New Jersey Department of Health noted the "mercury exposure problem" at the Accutherm building. (Kahana Complaint ¶ 55.) In 1994, National Midlantic Bank, the mortgage holder for the site, commissioned a report by Environmental Waste Management Associates, which warned Accutherm, "Any person entering the building should be equipped in level C personal protection equipment" due to toxic levels of mercury vapor. (Mignano Complaint ¶¶ 41-46; Kahana Complaint ¶¶ 80-82.) In 1995, the Gloucester County Department of Health instructed Accutherm:

The best method of control would remain to clean up the facility of any remaining mercury and after a thorough decontamination, recheck vapor levels. I would suggest that there be restriction of personnel entering the building to only those properly trained and equipped. (Mignano Complaint ¶ 58; Kahana Complaint ¶ 94.) The United States Environmental Protection Agency reported in 1995:

Based on air monitoring results, the potential for exposure to Hg vapor outside the building does not exist. Soil sampling date indicates that though Hg is present in two samples... the site does not present an immediate threat to health or the environment. (Kahana Complaint ¶ 98.) In June, 1996, the NJDEP added the site to its list of "Known Contaminated Sites in New Jersey," on which it remained until at least 2004. (Mignano Complaint ¶¶ 63-64, 74-75, 104.)

Despite these warnings, Franklin Township, Gloucester County, and the State of New Jersey permitted Jim Sullivan to purchase the unremediated property and convert it to a daycare center, despite alleged actual knowledge by all participants that the site was contaminated. (Mignano Complaint ¶¶ 33-103; Kahana Complaint ¶¶ 51-124.) As of June, 2006, Sullivan had not performed any indoor testing. (Kahana Complaint ¶ 154.) On July 28, 2009, NJDEP received "preliminary results of indoor mercury testing, revealing widespread mercury vapor exceeding acceptable environmental standards for human exposure, as well as elemental mercury on indoor surfaces also exceeding acceptable standards for human exposure." (Kahana Complaint ¶ 156.)

1. Allegations and Claims Regarding the Baughmans

The specific allegations regarding Plaintiffs, however, are sparse in each of the complaints. The Mignano Complaint alleges only:

The remaining defendants, Kiddie Kollege Daycare & Preschool, Inc., Stephen and Becky Baughman, and Julie and Matthew Lawlor, failed to make reasonable inquiry as to the nature of the site, which, inter alia, was listed as a contaminated site by NJ DEP in several lists and publications from 1997 until at least 2004. (Mignano Complaint ¶ 104.) It brings claims of strict liability, public nuisance, negligence, and battery against the Baughmans. (Id. ¶¶ 136-66.)

The Conti Complaint has only this to say about the Baughmans: "Upon information and belief, Defendant[s] Stephen and Becky Baughman are the owners and operators of Kiddie Kollege Day Care and Preschool." (Conti Complaint ¶ 8.) It brings claims of battery, strict liability, and negligence against all defendants. (Id. ¶¶ 17-35.)

The Kahana Complaint has two references to the Baughmans, one identifying them as "the current beneficial owners" of Kiddie Kollege at the time of its closure, (Kahana Complaint ¶ 36), and observing that on July 28, 2008, the NJDEP notified the Baughmans, along with Sullivan and Franklin Township, "that the building should not be inhabited until further notice," (id. ¶ 157). The Kahana class bring claims of strict liability, negligence, nuisance, battery, and public nuisance against the Baughmans. (Id. ¶¶ 191-215, 219-25.)

2. Harm and Relief Requested

The harm and alleged in the underlying complaints varies only a little. The Mignano Complaint, a proposed class action, begins by noting the "dangers of mercury exposure" including permanent damage to various organs, (Mignano Complaint ¶ 3), "increased risk of invisible genetic injury and/or an enhanced susceptibility to cancer," (id. ¶ 119). The named infant plaintiff, however, "has no current symptoms of any bodily injury." (Id. ¶ 114.) The Mignano plaintiffs seek court-administered medical surveillance "with defendants being ordered to pay the costs associated with such a program," a constructive trust of monies defendants (including the Baughmans) received under the New Jersey Spill Compensation Fund, along with other forms of declaratory and injunctive relief and "judgment in favor of each class member for the injuries suffered as a result of the conduct alleged herein." (Id. Prayer for Relief.)

The Conti Complaint alleges that Jacob Conti, age four, "was exposed to mercury" which "is known to be a dangerous substance and can cause severe harm to young children," so that the Conti plaintiffs "have and will continue to be injured, damaged and otherwise harmed" due to exposure to mercury. (Conti Complaint ¶¶ 12-14.) The Conti plaintiffs request "injunctive relief" in the form of court-supervised medical surveillance, declaratory relief, and compensatory damages. (Id. ¶¶ 15-35)

The Kahana Complaint, another class action, notes the "increased risk of severe health and developmental affects" due to exposure to mercury, with symptoms that "develop insidiously over a period of years." (Kahana Complaint, ¶¶ 6, 8-11.) The children of the named plaintiffs' "feet peeled and they both constantly seemed tired," while one child grew slowly, was thin, and had no appetite. (Id. ¶ 136.) The Kahana class seeks monetary damages, medical monitoring, and other equitable relief to address the public nuisance. (Id. ¶¶ 191-225.)

B. CGL Policy

The CGL policy states its coverage, in relevant part, as follows:

We will pay those sums that the insured becomes legally obligated to pay as damages because of "bodily injury" or "property damage" to which this insurance applies. We will have the right and duty to defend the insured again any "suit" seeking those damages... (Becky Baughman Certification, Exh. A, CGL Policy at 1.) "Bodily injury" is defined as (a) bodily injury, (b) sickness, (c) disease, or (d) mental anguish or emotional distress arising about of a, b, or c, "sustained by a person, ...

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