February 29, 2012
JILLIAN ACKLEY, CAROLYN AGRUSTI, LISA AHRENDT, CAMILLE ALMERINI, LINDA ANGERSON, YVETTE ATKINS, MARIANNE AUPPERLEE, GLORIA AZARIAN, TRACY BOEHM, AUSTIN AND ASHLEY CANTONE, MINORS, BY MICHAEL AND CHERYL CANTONE, MARISSA CASPER, BROOKE CAULFIED, MARIA CIUCCIO, CYNTHIA CLARK-MC NAMARA, DANIELLE CRIBIER, ANNE CUVIELLO, DOROTHY D'AMICO, MELISSA DAVIS, PAIGE DE FELICE, PATRICIA DI DONATO, KATHLEEN ASHWORTH DONNEL, MELISSA DAWSON, HERB DREYER, JEAN DUFFY, SUSAN DZIOB, DELORES ELIASSEN, ANN E. FEIGAN, JULIE FIALKOW, DORIS DIANA FLACCOMIO, ADELE FLANNELLY, KATHY FLANNELLY, DIANE FOGEL, NANCY FOX, ROSEMARY GALLO, JAMES GAROFALO, CATHY GAYNOR, JANET GAYNOR-MATONTI, MARIA GIAMPIETRO, LARRY GOODMAN, GINA HERRING, JOAN HUCHAN, JACKIE JANSEN, ELAINE JENKINS, JUDITH K. JOYCE, JOANNE KAPR, PATRICIA KHANIAN, JUSTINA KIERNAN, NICOLE KIERNAN, TARA KIERNAN, A MINOR, BY JOHN AND JOANNE KIERNAN, TRAVIS KIERNAN, KATHLEEN KREJSA, LUNINDA LAU, KEVIN C. LYDON, NICOLE MAGLIANDIT, STEVE MAIETTA, THERESA A. MELLO, SHARI MENDELSON, EILEEN MOORACHANIAN, KAREN A. MYERS, JAIME NACHT, BY STEVE NACHT, POA, DANIELLE NACHT, A MINOR, BY STEVE NACHT, HEATHER NALBANDIAN, KATHLYN MUNSON NEUBERT, SUSAN O'BRIEN, PATRICIA O'KEEFFE, GEORGE PAROWSKI, KAREN PETERSON, SUSAN PICARIELLO, JOSEPH QUILES, EVELYN ROCCO, ISAAC B. ROSENBERG, LAUREN RUSH, WAYNE SCHWARTZ, DEBORAH A. SCUILLA, JOHN T. SKORSKI, WILLIAM AND ELIZABETH SMERDON, LAUREN STRAUSS, HAYLEY TALLEY, A MINOR, BY MALLARY AND TRACY TALLEY, JOHN THOMSEN, JENNIFER TOMASKOVIC, JOANNA TRAHANAS, ERIN VAN BUREN, KENNETH D. VAN VALEN, DEBORAH WEINSTEIN, MI YU, DINA ZITO, JOSEPHINE ZNUTAS, PLAINTIFFS,
PARAMUS BOARD OF EDUCATION, BOROUGH OF PARAMUS, DEFENDANTS, AND PARAMUS BOARD OF EDUCATION, THIRD-PARTY PLAINTIFF-RESPONDENT,
ACE USA, ILLINOIS UNION INSURANCE COMPANY, THIRD-PARTY DEFENDANTS-APPELLANTS.
On appeal from the Superior Court of New Jersey, Law Division, Bergen County, L-4653-09.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Argued July 12, 2011 -
Before Judges R. B. Coleman and Sapp-Peterson.
Third-party defendants Ace USA and Illinois Union Insurance Company (collectively ILU) appeal from a December 10, 2010 order of the Law Division granting summary judgment in favor of defendant/third-party plaintiff Paramus Board of Education (the Board). That order, entered by the court after it had considered cross-motions by the parties, declared that ILU is obligated, under the terms of a 2006-2007 premises pollution liability insurance policy issued to the School Alliance Insurance Fund (SAIF) on behalf of the Board, to defend and indemnify the Board with respect to alleged bodily injury claims and remediation costs arising out of pesticide contamination discovered at West Brook Middle School in Paramus. We have considered the arguments of the parties in light of the undisputed facts and applicable law, and we affirm.
The undisputed facts reveal that ILU issued a series of consecutive pollution liability insurance policies to SAIF and the Board, including a policy for the period July 1, 2006 to July 1, 2007 (the Policy). The Insuring Agreement of the Policy provides that [t]he Insurer agrees to pay on behalf of the "Insured" for Coverage(s) Provided, as Identified in Item 3. of the Declaration for:
A. "Remediation costs" . . . arising out of "pollution conditions" on, at or under the "Covered Location(s)" . . . provided such "pollution conditions" are first discovered during the "Policy Period" and reported to the Insurer, in writing, during the "Policy Period[.]"
B. Monetary award, judgment, or settlement of compensatory damages . . . resulting from a "claim" for "bodily injury" or "property damage" arising out of "pollution conditions" on, at, under, or migrating from the "Covered Location(s)" listed in the Declarations, where such "claim" is first made against the "Insured" during the "Policy Period" and reported to the Insurer, in writing, during the "Policy Period[.]"
C. Monetary award, judgment, or settlement of compensatory damages . . . which the "insured" becomes legally obligated to pay, resulting from a "claim" for "bodily injury" or "property damage" arising out of "pollution conditions" resulting from "Covered Operations," where such "claim" is first made against the "Insured" during the "Policy Period" and reported to the Insurer, in writing, during the "Policy Period[.]"
D. "Legal defense expense" . . . arising from a "claim" under Insuring Agreements B. or C. above, to which this Policy applies. The Insurer shall have the right and the duty to defend the "insured" against any "claim" to which this Policy applies. The Insurer shall have no duty to defend the "Insured" against any "claim" to which this Policy does not apply.
The parties agree the Board qualifies as an additional "Named Insured" under Endorsement No. 3 of the Policy and that the coverage afforded under that Endorsement is limited by the following provision:
[T]he "insured" and the Insurer agree that this Policy shall not apply to any "claims," "remediation costs," or "legal defense expense" based upon or arising out of "pollution conditions" existing prior to the Retroactive Date(s) shown for the specific Named Insured(s) . . . .
The Policy specifies that the "Retroactive Date" for the Board is July 1, 2005, and it defines "pollution condition" as follows:
"Pollution condition" means the discovery, discharge, dispersal, release, escape, migration, or seepage of any solid, liquid, gaseous or thermal irritant including smoke, soot, vapors, fumes, acids, alkalis, chemicals, hazardous substances, hazardous materials, or waste materials, on, in, into, or upon land and structures thereupon, the atmosphere, surface water or groundwater.
While performing contracting activities at Westbrook Middle School during the 2006-2007 school year, a contractor excavated a quantity of soil which it stockpiled in the corner of the school property. In December 2006, the Board learned that the stockpiled soil contained concentrations of three pesticides - aldrin, dieldrin and chlordane - which have not been commercially available in the United States for decades and which had been banned from use since the 1980s. The Board gave ILU notice of the discovery of the pesticide contamination while the Policy was in effect; however, by letter dated June 20, 2007, ILU denied coverage based upon the July 1, 2005 Retroactive Date of the Policy.
Subsequently, on or about May 21, 2009, Jillian Ackley and numerous other named plaintiffs, described as faculty, students, employees and other invitees at the West Brook Middle School, filed a complaint in Superior Court naming the Board and the Borough of Paramus as defendants (the Ackley Complaint). The Ackley Complaint alleged that some time prior to May 23, 2007, when the contamination was reported to the public by the media, the Board uncovered the pesticide contamination in piles of dirt at the school but failed to disclose the existence of such contamination to plaintiffs until May 23, 2007. Plaintiffs allege further that as a result of their exposure to the pesticides by way of direct contact, air blown dust, inhalation, absorption and ingestion, they have suffered substantial injuries and/or increased risk of future injuries, for which they seek unspecified damages for present and future medical care, legal fees and costs. Notice of the Ackley Complaint was tendered to ILU and the denial of coverage was again communicated to the Board.*fn1
In response to the Ackley Complaint, the Board filed, among other things, a third-Party complaint for Declaratory Judgment against ILU, asserting that "the incidents and alleged damages outlined in the Ackley Complaint are covered claims under . . . the Premises Pollution Liability Insurance Policies purchased and maintained by the Board[,]" and that ILU "is responsible for remediation costs, defense of the claims, any judgments and legal fees incurred by the Board." ILU denied those allegations; and on November 5, 2009, the Board moved for summary judgment, seeking a declaration of ILU's duty to defend and indemnify. ILU cross-moved for summary judgment to dismiss the third-party complaint.
The parties agree that the pesticide contamination at West Brook Middle School was discovered and reported during the 2006- 2007 policy period. They also agree that the words contained in the definition of "pollution condition" are to be read in the disjunctive. The parties disagree, however, as to the correct interpretation of the terms of the Policy. The Board emphasizes that the discovery of the pesticide contamination occurred after the July 1, 2005 Retroactive Date, and it, therefore, contends the claims asserted in the Ackley Complaint are covered under the plain language of the Policy. By contrast, ILU contends there is no coverage if any single pollution condition occurred before the Retroactive Date of the policy. Elaborating on that point, counsel for the ILU argued: so long as [there was] a discharge [or dispersal or release or escape or migration or seepage] of pesticides [before the Retroactive Date], that is when the pollution condition exists, regardless of when it's later discovered. As long as that release happens or discharge happens prior to the July 1, 2005 [R]etroactive [D]ate, that's when the pollution condition first exists.
At the conclusion of the oral arguments on the cross- motions, Judge Rachelle L. Harz rendered her oral opinion from the bench. Judge Harz relied on the plain and ordinary meaning of the terminology used in the policy and reasoned that "the discovery of the chemicals fit within the . . . definition of the 'pollution condition' and occurred in December of 2006 after the [R]etroactive [D]ate and in the policy period."
Accordingly, she granted the motion of the Board to compel ILU to defend and indemnify and denied the cross-motion of ILU to dismiss that claim. This appeal ensued.*fn2
The principles governing the interpretation of insurance policy language are well established. "The polestar of contract construction is to discover the intention of the parties as revealed by the language used by them." Karl's Sales & Serv., Inc. v. Gimbel Bros., Inc., 249 N.J. Super. 487, 492 (App. Div.) (citations omitted), certif. denied, 127 N.J. 548 (1991). The starting point for contract construction is always the language of the contract. Commc'ns Workers of Am., Local 1087 v. Monmouth Cnty. Bd. of Soc. Servs., 96 N.J. 442, 452 (1984). The court has no right to "remake a better contract for the parties than they themselves have seen fit to enter into, or to alter it for the benefit of one party and to the detriment of the other." Karl's, supra, 249 N.J. Super. at 493 (citing James v. Fed. Ins. Co., 5 N.J. 21, 24 (1950)).
Recently, the Supreme Court summarized the governing principles as follows:
Generally, "[w]hen interpreting an insurance policy, courts should give the policy's words 'their plain, ordinary meaning.'" President v. Jenkins, 180 N.J. 550, 562 (2004) (citation omitted). If the policy language is clear, the policy should be interpreted as written. Ibid. If the policy is ambiguous, the policy will be construed in favor of the insured. Doto v. Russo, 140 N.J. 544, 556 (1995). Because of the complex terminology used in the policy and because the policy is in most cases prepared by the insurance company experts, we recognize that an insurance policy is a "contract of adhesion between parties who are not equally situated." Id. at 555 (quoting Meier v. New Jersey Life Ins. Co., 101 N.J. 597, 611 (1986)). As a result, "courts must assume a particularly vigilant role in ensuring their conformity to public policy and principles of fairness." Voorhees v. Preferred Mut. Ins. Co., 128 N.J. 165, 175 (1992). "Consistent with that principle, courts also  endeavor  to interpret insurance contracts to accord with the objectively reasonable expectations of the insured." Doto, supra, 140 N.J. at 556.
[Nav-Its, Inc. v. Selective Ins. Co. of Am., 183 N.J. 110, 118 (2005).] ILU argues the trial court erred in the single question of law before it, namely, whether coverage is available for the "discovery" of pesticide contamination where the contaminants existed on the premises prior to the Policy's July 1, 2005 Retroactive Date but were not discovered until after that Retroactive Date. According to ILU, the plain and unambiguous language of the Policy limits coverage to "pollution conditions" that come into existence after that date. It argues that if the discovery of contamination occurred after the happening of any of the other potential occurrences listed in the definition of "pollution condition," the date of discovery is irrelevant for purposes of coverage, even though discovery is included in the definition of "pollution condition" under the Policy.
Significantly, the Policy's coverage provision does not specify that any pollution condition would negate coverage under any other pollution condition. Rather, the pollution conditions are listed in the disjunctive, and may be read as alternatives. Indeed, ILU concedes that when properly read a "pollution condition exists upon the discovery or a discharge or a dispersal or a release or an escape or a migration or a seepage of an irritant." Unquestionably the contamination was discovered and reported after the Retroactive Date and within the policy period. To say that the date of discovery is irrelevant is to read that term out of the definition.
Although ILU acknowledges that the pesticide contamination was discovered after July 1, 2005, it asserts that "if any of the specified events [defined by the policy as "pollution conditions"] (i.e. discovery, discharge, dispersal, etc.) happens prior to the July 1 Retroactive Date, then coverage is unavailable for such 'pollution condition.'" However, "[c]overage clauses are interpreted liberally[.]" S.T. Hudson Eng'rs. Inc. v. Pa. Nat. Mut. Cas. Co., 388 N.J. Super. 592, 604 (2006), certif. denied, 189 N.J. 647 (2007). Contrary to such liberal interpretation, ILU maintains "the date on which the Board first discovered the pesticide contamination simply is not relevant in determining when the 'pollution condition' came into existence for purposes of triggering the Policy's insuring agreement."
By contrast, the Board and the trial court point out that "pollution condition" is a defined term under the coverage provision of the Policy, which expressly includes the discovery of the contamination. The Policy defines "pollution condition" as the discovery, discharge, dispersal, release, escape, migration, or seepage of any solid, liquid, gaseous or thermal irritant including smoke, soot, vapors, fumes, acids, alkalis, chemicals, hazardous substances, hazardous materials, or waste materials, on, in, into, or upon land and structures thereupon, the atmosphere, surface water or groundwater.
ILU's construction of the defined term ignores an explicit term of the definition. That construction also ignores the language of Section I, A. Insuring Agreement of the 2006-2007 Policy which states explicitly that the Insurer agrees to pay "'Remediation costs' . . . arising out of 'pollution conditions' on, at, or under the 'Covered Location' . . . provided such 'pollution conditions' are first discovered during the 'Policy Period' and reported to the Insurer, in writing, during the 'Policy Period[.]'" Here, the pollution condition was first discovered during the Policy period, and it was reported to ILU in writing during the Policy period.
The construction advocated by ILU is thus at odds with the controlling principles quoted above and in particular, it is contrary to the established view that coverage clauses are interpreted liberally. See S.T. Hudson Eng'rs. Inc., supra, 388 N.J. Super. at 604.
The language of the insurance policy is ambiguous, if as urged by ILU, coverage of contamination will exist only if the discharge, dispersal, release, as well as the discovery, of the contamination must take place after the Retroactive Date. In that regard, we take guidance from the following directions provided by the Court:
If the terms are not clear, but instead are ambiguous, we construe them against the insurer and in favor of the insured to give effect to the insured's reasonable expectations. Flomerfelt v. Cardiello, 202 N.J. 432, 441 (2010) (citing Doto[, supra, 140 at 556]; Voorhees, supra, 128 N.J. at 175.
"A genuine ambiguity arises only where the phrasing of the policy is so confusing that the average policyholder cannot make out the boundaries of coverage." Progressive Cas. Ins. Co. v. Hurley, 166 N.J. 260, 274 (2001) (internal quotations omitted). Ambiguous policies are those that are "overly complicated, unclear, or written as a trap for the unguarded consumer." See Zacarias v. Allstate Ins. Co., 168 N.J. 590, 604 (2001) (citing Kievit v. Loyal Protective Life Ins. Co., 34 N.J. 475, 475 (1961)). When construing an ambiguous clause in an insurance policy we consider whether clearer draftsmanship by the insurer would have put the matter beyond reasonable question. Hurley, supra, 166 N.J. at 274. Most important, the rule that contracts of insurance will be construed in favor of the insured and against the insurer will not be permitted to have the effect of making a plain agreement ambiguous and then construing it in favor of the insured. Petronzio v. Brayda, 138 N.J. Super. 70, 76 (App. Div. 1975).
[Passaic Valley Sewerage Comm'rs v. St. Paul Fire and Marine Ins. Co., 206 N.J. 596, 608 (2011).]
When one looks at the language included in the 2009-2010 policy, attached as an exhibit to the third-party complaint and referenced in footnote one above, it is apparent that clearer draftsmanship by the insurer would have put the matter beyond reasonable question. See Hurley, supra, 166 N.J. at 274. As the trial court rightly noted, ILU was the one in charge of writing the particular policy and, as written, an insured would not reasonably understand that even if it discovered the contamination after the Retroactive Date, there would be no coverage if any of the other potential pollution events occurred prior to that date. The Policy does not make explicit reference to historical contamination, and, unlike the 2009-2010 policy, the 2006-2007 policy includes discovery of the contamination as a part of its coverage definition of "pollution condition."
Under such circumstances, the language of the policy must be construed favorably to the insured to provide coverage for contamination discovered after the Retroactive Date and reported within the Policy Period. In that way, the word "discovery" in the definition of "pollution condition" will not be ignored. It has meaning.