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Benjamin v. State Farm Insurance Co.

United States District Court, D. New Jersey

August 17, 2017


          Jonathan Wheeler, Esq. Attorney for Plaintiffs

          Craig D. Gottilla, Esq., and David F. Swerdlow, Esq. Attorneys for Defendant State Farm Insurance Company

          John Donovan Shea, Esq., and William Wendell Cheney, III, Esq. LITCHFIELD CAVO LLP Attorneys for Defendant Clarendon National Insurance



         Table of Contents

         I. INTRODUCTION ........................ 2


         A. Procedural Background ................. 4

         B. Factual Background .................. 6

         1. The Underground Storage Tank and Remediation . . .6

         2. Clarendon Policy, Claim, and Denial ....... 10

         3. State Farm Policy, Claim, and Denial ...... 16

         4. Defendants' Expert Report ............ 22

         III. STANDARD OF REVIEW ................... 25

         IV. ANALYSIS ......................... 26

         A. Clarendon ...................... 28

         1. Section I: "Land" not covered under Coverage A . 29

         2. Section II: “Occurrence” during the policy period . .......................... 32

         3. Section II: Pollution Exclusion ......... 37

         4. Section II: Owned Property Exclusion ...... 46

         5. Pro-Rata, Time on the Risk Allocation ...... 53

         6. Bad Faith Claim ................. 55

         B. State Farm ...................... 56

         1. Section I: “Land” not covered .......... 57

         2. Section II: “Occurrence” during the policy period . .......................... 60

         3. Section II: Pollution Exclusion ......... 64

         4. Bad Faith Claim and Punitive Damages ...... 67

         V. CONCLUSION ........................ 68


         This is an action by husband and wife Plaintiffs Nimrod and Marnie Benjamin against two insurance companies, Defendant State Farm Insurance Company (“State Farm”) and Defendant Clarendon National Insurance (“Clarendon”), as the holders of policies of insurance issued by the Defendants for premises located at 72 Wynnewood Drive, Voorhees, New Jersey 08043. Plaintiffs allege that the Defendants breached their contractual obligations to pay benefits to Plaintiffs for a physical loss to the insured premises, concerning leakage of heating oil from a previously unknown underground storage tank, under their respective policies of insurance. [Docket Item 1-2 at 5-6.] Unbeknownst to Plaintiffs when they purchased this residential property and obtained these insurance policies, the underground leakage had occurred many years prior.

         Pending before the Court are State Farm's Motion for Summary Judgment [Docket Item 27] and Clarendon's Motion for Summary Judgment [Docket Item 28].

         For the reasons set forth below, the Court will grant in part and deny in part State Farm's Motion for Summary Judgment and will grant in part and deny in part Clarendon's Motion for Summary Judgment.


         A. Procedural Background

         On or about April 29, 2015, Plaintiffs filed a complaint in the Superior Court of New Jersey, Law Division, Camden County against three parties: State Farm, Clarendon, and the U.S. Department of Housing and Urban Development (“HUD”). [Docket Item 1-2 at 2.] Plaintiffs alleged that both State Farm and Clarendon had issued policies of insurance covering Plaintiffs' premises located at 72 Wynnewood Drive, Voorhees, New Jersey (“the Property”) and wrongfully failed to pay benefits under those policies after “a release of heating oil from a previously unknown underground heating oil tank.” [Id. at 5-6.] Plaintiffs alleged that HUD “was the record owner of [those] premises . . . prior to ownership by Plaintiffs” and knew or should have known about the tank and breached its duty to disclose the presence of the tank to Plaintiffs. [Id. at 5-7.]

         HUD removed the case to federal court on June 17, 2015, pursuant to 28 U.S.C. §§ 1442(a)(1) on the grounds that it had “federal defenses to raise against the action against it, including but not limited to sovereign immunity from suit in state courts, sovereign immunity from suits of this type, absence of privity of contract with Plaintiffs under federal law, [and] failure to state a claim upon which relief may be granted under federal law.” [Docket Item 1 at 4.] No party filed a motion to remand at that time.

         HUD filed its answer on July 8, 2015. [Docket Item 5.] State Farm, in its answer, filed a cross-claim for contribution “from all other parties, presently named or later impleaded, in the event that State Farm is determined to be liable to plaintiffs.” [Docket Item 11 at 6.] HUD filed its answer to the cross-claim on July 28, 2015. [Docket Item 14.]

         On November 25, 2015, HUD filed a Motion to Dismiss for lack of jurisdiction. [Docket Item 19.] In lieu of filing a response in opposition, Plaintiffs' counsel filed a letter indicating that “Plaintiffs [did] not oppose entry of an Order granting dismissal of the claims against federal Defendant HUD[.]” [Docket Item 21.] The Court subsequently granted the Motion to Dismiss [Docket Item 22]; ordered dismissal of the cross-claim against HUD [Docket Item 26]; and terminated HUD as a party on February 26, 2016.

         In due course, State Farm filed a Motion for Summary Judgment. [Docket Item 27.] Clarendon filed its Motion for Summary Judgment on the same day. [Docket Item 28.] Plaintiffs filed their respective Responses in Opposition [Docket Items 29, 30]. State Farm filed its Reply [Docket Item 35], as did Clarendon [Docket Item 36.]

         B. Factual Background

         1. The Underground Storage Tank and Remediation

         Plaintiff Nimrod Benjamin purchased the Property, a foreclosed townhouse, on January 2, 2004. [Docket Item 27-4 ¶ 1.] He and Marnie Benjamin married in 2008. [Docket Item 28-2 ¶ 4.] The Property was constructed in 1976-77; “[a]t the time it was constructed, it was reportedly equipped with an underground heating oil tank ([underground storage tank or] UST) system” (hereinafter “UST”). [Id. ¶¶ 2-3.] Plaintiffs were unaware, at least until 2012 and possibly until May 2014, that the underground heating oil tank existed on the Property. [Docket Item 27-4 ¶¶ 2, 4; 28-2 ¶ 7.][2] At all times during Plaintiffs' ownership of the Property, it was heated by oil drawn from an above-ground oil tank, which had been previously installed in the garage in 2002. [Docket Items 27-4 ¶ 3; 28-2 ¶¶ 9-10.] Although a Voorhees township official notified Mr. Benjamin by letter on January 3, 2012 that the Property contained a UST “that did not appear to be in use, ” the Benjamins did not believe that the instructions regarding the UST in that letter were applicable to them since they did not know a UST was on the property and were aware only of the above-ground tank. [Docket Item 28-2 ¶¶ 12-14.]

         In late May of 2014, Plaintiffs hired Superior Tank and Energy Company of Bristol, Pennsylvania, to remove the UST and dispose of it. [Docket Item 27-4 ¶ 5.] When it was removed, 200 gallons of oil were reportedly pumped out of the UST and transported to be recycled. [Docket Item 28-2 ¶ 18.] At that time, a municipal inspector who was present suspected a fuel oil discharge, the New Jersey Department of Environmental Protection (“NJDEP”) was notified, and Plaintiffs were directed to remediate the Property by notice dated May 30, 2014. [Docket Item 27-4 ¶ 6.]

         Plaintiffs subsequently hired Moore's Tank Services, Inc. (“Moore's”) to investigate potential soil and groundwater contamination in the area where the UST had been; on July 21, 2014, Moore's collected soil samples and subsequently found fuel-oil impacted soil in the side yard and under the garage. [Docket Item 28-2 ¶¶ 21-22.] Moore's also determined that groundwater had been contaminated by fuel oil. [Id. ¶ 23.] Moore's issued a report to the Benjamins on August 27, 2014, wherein it stated:

(1) Soil contamination extended from the location of the UST along the side of the house, about 12 feet into the yard toward the midpoint of the house, ended “near at the rear of the house, ” and extended under the house;
(2) Contamination did not migrate toward the street or the garage in the vicinity of the former tank;
(3) Contaminated soil appeared to increase away from the location of the UST toward the rear of the property and was encountered closer to the surface further from that location (Mr. Moore believed this suggested “the possibility of a second source of contamination or an older spill that has migrated”;
(4) Elevated benzene levels indicated apparent degradation of the heating oil and “suggest[ed] an older spill”;
(5) The Benjamins should immediately begin remediation; and
(6) “Age dating at least one sample, but three are recommended, will indicate the age of the plume.”

[Docket Items 28-2 ¶¶ 24-26; 27-4 ¶ 8, citing Docket Item 27-2 at 67-69.]

         Plaintiffs had Precision Testing Labs, Inc., test the soil as recommended by Moore's. Precision issued a report on September 4, 2014, stating that the “C&L age of the petroleum on [the relevant sample] is estimated to be greater than 20 years old.” [Docket Items 28-2 ¶ 28; 27-4 ¶ 9, citing Docket Item 27-2 at 71 (emphasis in original).] Precision's report continued: “The model [we used to determine this] can estimate the age of #2 heating oil (or diesel fuel) up to 20 years old within a range of plus or minus two years.” [Docket Item 27-2 at 72.]

         Plaintiffs hired Moore's to remediate the soil and groundwater that reflected the existence of the heating oil and to prepare a Remedial Action Report. [Docket Items 28-2 ¶ 30; 28-5 at 4-23.] In the course of the remediation process, Moore's excavated and replaced 221.2 tons of impacted soil (reflecting an area of 35' x 20' x 10.5' deep or a volume of approximately 272 cubic yards [Docket Item 27-2 at 114]) and another contractor, Monarch Environmental Services, pumped out 278 gallons of groundwater from the excavation site. [Docket Item 28-5 at 10-12.] The area excavated was entirely within Plaintiffs' property; there was no evidence uncovered by Moore's that heating oil had spread to either soil or groundwater beyond the property line. [Docket Item 28-5 at 19.]

         The NJDEP issued a No Further Action Letter on May 15, 2015, and Plaintiffs sold the townhouse on July 6, 2015. [Docket Item 28-2 ¶¶ 39-40.]

         2. Clarendon Policy, Claim, and Denial

         Clarendon issued a homeowner's insurance policy (“Clarendon Policy”) to Plaintiff Nimrod Benjamin with a policy period of January 2, 2005 to January 2, 2006 for the Property. [Docket Item 28-5 at 48.] The Clarendon Policy was divided into Section I, “Property Coverages, ” and Section II, “Liability Coverages.” [Docket Item 28-5 at 51, 60.] Before both sections the policy included a “Definitions” section. [Id. at 50.]

         Section I included five subsections, A through D and “Additional Coverages”; Coverage A covered the “Dwelling, ” Coverage B, “Other Structures, ” Coverage C, “Personal Property, ” Coverage D, “Loss of Use, ” and the fifth subsection, “Additional Coverages.” [Id. at 51-55.] Section I also contained further subsections as follows: “Perils Insured Against” [id. at 55], “Exclusions” [id. at 57], and “Conditions” [id. at 58-60].

         Section II included two subsections, E and F; Coverage E covered “Personal Liability, ” and Coverage F, “Medical Payments to Others.” [Id. at 60.] Section II also contained further subsections as follows: “Exclusions” [id. at 61-63], “Additional Coverages” [id. at 63], and “Conditions” [id. at 64].

         The Clarendon Policy also contained a further subsection, entitled “Sections I and II--Conditions.” [Id. at 64.]

         After Section I, Section II, and “Sections I and II--Conditions, ” the Clarendon Policy contained a number of endorsements which changed the policy. [Id. at 66-81.] They were as follows:

(a) “Replacement or Repair Cost Protection Endorsement” [id. at 66];
(b) “Personal Property Replacement Cost” [id. at 67];
(c) “Amendatory Endorsement - New Jersey” [id. at 68-69];
(d) “Special Provisions - New Jersey” [id. at 70-76];
(e) “Limited Fungi, Wet or Dry Rot, or Bacteria Coverage” [id. at 77-79]; and
(f) “Workers' Compensation - Residence Employees, New Jersey” [id. at 80-81].

         The provisions in the Clarendon Policy relevant to this action are outlined as follows, in the order in which they appear within the Policy:

. . .
5. “Occurrence” means an accident, including continuous or repeated exposure to substantially the same general harmful conditions, which results, during the policy period, in:
a. “Bodily injury”; or b. “Property damage.” 6. “Property damage” means physical injury to, destruction of, or loss of use of tangible property.
. . .
Section I - Property Coverages
Coverage A - Dwelling We cover:
1. The dwelling on the “residence premises” shown in the Declarations, including structures attached to the dwelling; and
2. Materials and supplies located on or next to the “residence premises” used to construct, alter or repair the dwelling or other structures on the “residence premises.”
This coverage does not apply to land, including land on which the dwelling is located.
. . .
Section I - Perils Insured Against
Coverage A - Dwelling and Coverage B - Other Structures
We insure against risk of direct loss to property described in Coverages A and B only if that loss is a physical loss to property. We do not insure, however, for loss:
. . .
2. Caused by:
. . .
e. Any of the following:
(1) Wear and tear, marring, deterioration;
(2) Inherent vice, latent defect, mechanical breakdown;
(3) Smog, rust or other corrosion, mold, wet or dry rot;
. . .
(5) Discharge, dispersal, seepage, migration, release or escape of pollutants unless the discharge, dispersal, seepage, migration, release or escape is itself caused by a Peril Insured Against under Coverage C of this policy. Pollutants means any solid, liquid, gaseous or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed;
. . .
3. Excluded under Section I - Exclusions. Under Items 1. And 2., any ensuing loss to property described in Coverages A and B not excluded or excepted in this policy is covered.
. . .
Section I - Exclusions
1. We do not insure for loss caused directly or indirectly by any of the following. Such loss is excluded regardless of any other cause or event contributing concurrently or in any sequence to the loss.
a. Ordinance or Law, meaning enforcement of any ordinance or law regulating the construction, repair, or demolition of a building or other structure, unless specifically provided under this policy.
. . .
Section I - Conditions
. . .
7. Other Insurance. If a loss covered by this policy is also covered by other insurance, we will pay only the proportion of the loss that the limit of liability that applies under this policy bears to the total amount of insurance covering the loss.
8. Suit Against Us. No action can be brought unless the policy provisions have been complied with and the action is started within one year after the date of loss.
. . .
Section II - Liability Coverages
Coverage E - Personal Liability If a claim is made or a suit is brought against an “insured” for damages because of “bodily injury” or “property damages” caused by an “occurrence” to which this coverage applies, we will:
1. Pay up to our limit of liability for the damages for which the “insured” is legally liable. Damages include prejudgment interest awarded against the “insured”; and
2. Provide a defense at our expense by counsel of our choice, even if the suit is groundless, false or fraudulent. We may investigate and settle any claim or suit that we decide is appropriate. Our duty to settle or defend ends when the amount we pay for damages resulting from the “occurrence” equals our limit of liability.
. . .
Section II - Exclusions
1. Coverage E - Personal Liability and Coverage F -Medical Payments to Others do not apply to “bodily injury” or “property damage”:
. . .
c. Arising out of the rental or holding for rental of any part of any premises by an “insured.” This exclusion does not apply to the rental or holding for ...

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