April 27, 2010
THE PROFORMANCE INSURANCE CO. A/S/O DON KOLBE, PLAINTIFF-APPELLANT,
RIGGINS, INC., MICKY MAYBROOK, AND CAROL MAYBROOK, DEFENDANTS, AND UNITED STATES FIDELITY AND GUARANTY COMPANY*FN1 AND METROPOLITAN PROPERTY & CASUALTY INSURANCE, DEFENDANTS-RESPONDENTS.
On appeal from Superior Court of New Jersey, Law Division, Monmouth County, Docket No. L-643-07.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted April 14, 2010
Before Judges Fisher and Espinosa.
This appeal arises from a declaratory judgment action concerning the contractual obligations of three successive insurers for the remediation costs associated with a leaking 550 gallon residential underground storage tank. Plaintiff Proformance Insurance Company (Proformance) appeals from an order granting partial summary judgment to defendant Metropolitan Property Casualty Insurance (MetLife). We reverse.
A leak was discovered in the underground storage tank of property owned by the insured, Don S. Kolbe, in January 2006. As a result, home heating fuel leaked into the groundwater at levels that exceeded standards established by the Department of Environmental Protection. Proformance insured the Kolbe property from July 11, 2004 through July 11, 2006. Defendant MetLife insured the property from July 11, 2002 through July 11, 2004.*fn2 It was alleged and not disputed that the leak was ongoing for four to eight years before it was discovered.
Proformance acknowledged its obligation to provide coverage for the remediation of the property and engaged two consultants to evaluate options, Firstech Environmental, Inc. (Firstech) and EnviroTrac Environmental Services, Ltd. (EnviroTrac). It was estimated that the area contaminating the groundwater extended approximately twenty feet below the house, below portions of both the slab on-grade area of the house as well as the basement floor and that, to address the area under the house, it was necessary to excavate an area of approximately thirty-five feet by twenty feet, to a depth of thirteen feet.
Each of the two environmental services consulted presented two options for remediation. One option included the demolition of the house (the "demolition option"), which would allow unrestricted access to the area of impact for direct removal of impacted soil and groundwater. In the other option, the house would not be demolished but structural supports would be used to preserve the house from the effects of the remediation process (the "support option"). Proformance received estimates for the two remedial options from both Firstech and EnviroTrac. The demolition option was recommended by EnviroTrac as "the most prudent course of action." EnviroTrac's estimate for the demolition option was $249,525, consisting of $57,000 for the actual remediation, $15,000 for the demolition of the house and $173,000 paid to the insured to compensate for the loss of the residence. EnviroTrac's estimate for the support option was $304,625, which included higher costs for virtually all phases of the process than the costs for the same tasks in the demolition option. The costs compared as follows:
Disposal and Restoration$149,750$38,875
The vast disparity in the estimates for disposal and restoration is largely a function of the fact that, under the support option, this task includes $105,000 in costs for "1st Floor Restoration/Build-out" and "Property Restoration (Misc Items)" while the corresponding demolition estimate is only $2,000 for "Property Restoration (Misc items)" and does not include any cost for the restoration of the structure. The estimates provided by Firstech were also higher for the support option than for the demolition option. Proformance elected to retain EnviroTrac and chose the demolition option.
MetLife acknowledged an obligation to contribute to the cost of groundwater remediation. Such coverage is provided by Section II, Coverage F of the MetLife policy, which states in pertinent part:
We will pay all sums for . . . property damage to others for which the law holds you responsible because of an occurrence.
"Occurrence" is defined in the MetLife policy as "an accident, including continuous or repeated exposure to substantially the same general harmful conditions, resulting in bodily injury or property damage during the term of the policy."
MetLife agreed that the damage caused by the undetected release of contaminants from the leaking storage tank was subject to a continuous-trigger and allocation among the three successive insurers pursuant to Owens-Illinois, Inc. v. United Insurance Co., 138 N.J. 437 (1994) and Carter-Wallace, Inc. v. Admiral Insurance Co., 154 N.J. 312, 321 (1998).*fn5 However, MetLife argued that, pursuant to an exclusion to Coverage F, it has no obligation to contribute to compensating the insured for the house demolished in the remediation process. That exclusion states that the policy does not cover "property damage to property owned by you." As a result, MetLife contended that its obligation to contribute to remediation costs should be limited to treatment of the groundwater, including excavation and the cost of demolition of the house, but not the rebuilding of the structure and backfilling of the soil. MetLife characterized claims for those damages as first-party property claims triggered pursuant to a manifestation theory, Winding Hills Condo. Ass'n, Inc. v. North Am. Specialty Ins. Co., 332 N.J. Super. 85, 91 (App. Div. 2000), and, therefore, the exclusive responsibility of Proformance.
In granting partial summary judgment to MetLife, the trial court accepted MetLife's argument that the cost of reimbursing the insured for the demolished house was a first-party claim subject to the owned property exclusion. Relying upon Winding Hills, supra, the court ordered that MetLife's coverage obligation did not include the $173,000 paid to the insured for cost of the house demolished as part of the remediation process.*fn6
Thereafter, the court entered a stipulation dismissing the case as to all parties remaining, subject to Proformance's right to appeal the partial summary judgment.
After carefully reviewing the record, we conclude that the trial court erred in granting partial summary judgment to MetLife.
When reviewing a grant of summary judgment, we employ the same standards used by the trial court, which grants summary judgment if the record shows that "there is no genuine issue as to any material fact challenged and that the moving party is entitled to a judgment or order as a matter of law." R. 4:46-2(c); Coyne v. N.J. Dep't of Transp., 182 N.J. 481, 491 (2005); Burnett v. Gloucester County Bd. of Chosen Freeholders, 409 N.J. Super. 219, 228 (App. Div. 2009); Prudential Prop. & Cas. Ins. Co. v. Boylan, 307 N.J. Super. 162, 167 (App. Div.), certif. denied, 154 N.J. 608 (1998). We review issues of law de novo and accord no deference to the motion judge's conclusions on issues of law. Zabilowicz v. Kelsey, 200 N.J. 507, 512-13 (2009).
Under well-settled principles of insurance contract interpretation, "policy exclusions must be narrowly construed; [and] the burden is on the insurer to bring the case within the exclusion." Proformance Ins. Co. v. Jones, 185 N.J. 406, 415 (2005) (quoting Princeton Ins. Co. v. Chunmuang, 151 N.J. 80, 95 (1997)). Ordinarily, an exclusion is enforceable if it is "specific, plain, clear, prominent, and not contrary to public policy." Potenzone v. Annin Flag Co., 191 N.J. 147, 152 (2007). However, "[w]hen an insurance policy's language fairly supports two meanings, one that favors the insurer, and the other that favors the insured, the policy should be construed to sustain coverage." President v. Jenkins, 180 N.J. 550, 563 (2004). See also Villa v. Short, 195 N.J. 15, 16-17 (2008) (quoting Zacarias v. Allstate Ins. Co., supra, 168 N.J. 590, 595 (2001)); Charles Beseler Co. v. O'Gorman & Young, Inc., 188 N.J. 542, 548 (2006). Indeed, our Supreme Court has stated that, in some circumstances, it may be "appropriate to permit an insured's reasonable expectation to overcome the plain meaning of a policy." Pizzullo v. N.J. Mfrs. Ins. Co., 196 N.J. 251, 271 (2008).
In Adron, Inc. v. Home Insurance Co., 292 N.J. Super. 463, 473 (App. Div. 1996), we described the burdens of proof the parties carry in a case in which the insurer sought to exclude coverage for remediation costs based upon the owned property exclusion:
The burden was initially on plaintiff to bring the claim within the basic terms of the policy. Defendants had the burden of establishing that any matter fell within the exclusionary provisions of the policy, and the "owned property" exception was such an exclusion. For purposes of obtaining summary judgment, defendants' burden was to show that, factually, plaintiff had failed to meet its prima facie case, or that as a matter of law, defendants had demonstrated the applicability of an exclusion, thereby negating coverage. [Id. at 473 (citations omitted).]
It is undisputed that the claim for remediation of the groundwater fell within the basic terms of the MetLife policy. Therefore, to obtain summary judgment, MetLife was required to show that, as a matter of law, the "owned property" exclusion applied.
As a preliminary matter, we note that reliance upon Winding Hills is misplaced both legally and factually. The issue presented in Winding Hills was whether the continuous-trigger theory should be applied to a progressive injury that did not involve any damage to the property of third parties. The damage in Winding Hills was indisputably and exclusively a first-party claim as the damage was to the foundation of insured buildings as a result of inadequate water drainage. Although the damage had occurred, undetected, over a period of time, there was no allegation of damage to third parties, only to the insured structures. As a result, the manifestation-trigger theory was applied, limiting coverage responsibility to the carrier in place at the time that the damage was discovered. Winding Hills, supra, 332 N.J. Super. at 92-93.
In this case, it is well-settled and acknowledged by all parties that the environmental contamination of groundwater is a third-party claim, see Strnad v. North River Ins. Co., 292 N.J. Super. 476, 482 (App. Div. 1996) ("for purposes of a CGL policy, groundwater should not be considered property 'owned by' the insured"), and therefore subject to a continuous-trigger. In contrast, contaminated soil on the insured property is considered damage to property owned by the insured, a first-party claim that is solely the responsibility of the insurer in place at the time the damage is manifested. See UniversalRundle Corp. v. Commercial Union Ins. Co., 319 N.J. Super. at 240, (App. Div.), certif. denied, 161 N.J. 149 (1999); Strnad, supra, 292 N.J. Super. at 482-83.
It does not follow that reimbursement to the insured for the demolition of his house falls into the same exclusion as the replacement of contaminated soil on the insured's property. As the exclusion here clearly states, coverage is excluded for "damage to property owned by you." Therefore, an application of the "owned property" of the exclusion has two criteria: the ownership of the property damaged and the cause of the damage, as defined by the term "occurrence." There is no contention that the house itself was damaged by the contamination and therefore, the claim did not constitute compensation for damage to the owned property. Further, there was no contention that the destruction of the house was due to "an accident, including continuous or repeated exposure to substantially the same general harmful conditions." Destruction of the house was simply a function of the decision to employ the most cost-effective means of addressing covered claims, rather than the product of any "occurrence" as defined in the MetLife policy. Therefore, MetLife failed to show, as a matter of law, that the cost of reimbursing the insured for the demolition of his residence fell within the exclusion.
Interestingly, in its concessions, MetLife agrees that its policy provides coverage for the demolition of the house and that, under the support option, it would be responsible for contributing to over $100,000 in costs for restoration of the house as well as $45,000 for structural supports, costs that are not contained in the demolition option. Implicit in these concessions is a recognition that the insured's house would be rendered structurally unsound under either remediation option. We perceive no rational basis for extending coverage to the costs of restoration and structural supports made necessary by the remediation process and excluding coverage for the less expensive option of reimbursing the homeowner for the demolition of the residence as part of the remediation process.
We therefore conclude that, where, as here, the damage to the insured property is caused by the remediation process, as opposed to the initial contamination, the owned property exclusion does not apply.