Title: Nav-Its, Inc. v. Selective Insurance Company of America

State: new-jersey

Issuer: New Jersey Supreme Court

Document:

(This syllabus is not part of the opinion of the Court. It has been prepared by the Office of the Clerk for the convenience of the reader. It has been neither reviewed nor approved by the Supreme Court. Please note that, in the interests of brevity, portions of any opinion may not have been summarized). Plaintiff Nav-Its, Inc. (Nav-Its) is a contractor specializing in tenant "fit-out" work, including the building of partitions and the application of finishes such as paint, sealants and coatings. In April 1998, Nav-Its obtained from defendant Selective Insurance Company of America (Selective) a comprehensive general liability (CGL) insurance policy to cover work on a shopping center in Pennsylvania. Nav-Its hired a painting subcontractor to perform painting, coating and floor sealing work. The subcontractor performed that work from July 27 to August 5, 1998. A physician with office space in the shopping center, Dr. Roy Scalia, suffered from nausea, vomiting, light headedness, loss of equilibrium and headaches allegedly as a result of exposure to fumes released during the work. In December 2000, Dr. Scalia filed a complaint against Nav-Its and others for personal injuries arising out of his exposure to fumes from July 27 through July 31, 1998 and from August 3 through August 5, 1998. Nav-Its forwarded the complaint to Selective, seeking defense and indemnification. Relying on the pollution exclusion provision in its policy, Selective refused to provide coverage to Nav-Its. In relevant part, the policy provided in the "Coverages" section that it "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." The pollution exclusion endorsement provided that Selective was not obligated to, among other things, defend a claim or suit alleging injury or damage arising out of a "pollution hazard," and would not pay damages, settlements, losses, costs or expenses awarded as a result of such a claim. The exclusion stated further that Selective was not obligated for losses, costs or expenses arising out of any obligation or order, including a governmental obligation or order, to test for, monitor, clean up, remove, or respond to the effects of "pollutants." The policy defined pollutants as including, among others, "any solid, liquid, gaseous, or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste." Waste included "materials to be recycled , reconditioned or reclaimed." The policy defined "pollution hazard" to mean "an actual exposure or threat of exposure to the corrosive, toxic or other harmful properties of any 'pollutants' arising out of the discharge, dispersal, seepage, migration, release or escape of such 'pollutants.'" Finally, the policy contained a limited exception to the pollution exclusion, stating in part that it did not apply to exposures within a structure resulting from a release of pollutants "within a single-forty-eight hour period." Dr. Scalia's case against Nav-Its was subsequently resolved through binding arbitration. Nav-Its then commenced a declaratory judgment action against Selective, contending that Selective was obligated to defend and indemnify it in connection with the underlying personal injury action. Selective moved for summary judgment and Nav-Its moved for partial summary judgment. The trial court denied Selective's motion and granted Nav-Its' motion, finding that Selective had an obligation to defend and indemnify Nav-its in accordance with its policy. The trial court denied Selective's subsequent motion for reconsideration, concluding that the pollution exclusion clause applied only to traditional environmental pollution claims. Meanwhile, the Appellate Division decided Leo Haus, Inc. v. Selective Insurance Co., 353 N.J. Super. 67 (App. Div. 2002), and found that a pollution exclusion clause similar to this one barred coverage for a claim caused by the release of carbon monoxide gas from a defective heater over a one-year period. Based on that decision, Selective moved again for reconsideration in this case. The trial court denied reconsideration, relying on S.N. Golden Estates, Inc. v. Continental Casualty Co., 293 N.J. Super. 395 (App. Div. 1996), which it read as limiting a similar provision to environmental claims. The trial court also found that the exception to the exclusion in Nav-Its' policy applied because Dr. Scalia suffered individual exposures every day he entered his office with each exposure beginning and ending in a less-than-forty-eight-hour period. The Appellate Division reversed, finding that pollution exclusion clauses are not necessarily limited to the clean up of traditional environmental damage. The panel found also that a jury must decide whether each period of time that Dr. Scalia was at work represented a separate exposure of less than forty-eight hours or one continuous exposure period. Finally, the panel left to the jury the question whether Nav-Its violated a thirty-day notice provision in the policy. HELD : Because the history of the pollution-exclusion clause in comprehensive general liability policies demonstrates that its purpose was to have a broad exclusion for traditional environmentally-related damages, the Court holds that the pollution-exclusion clause in this case does not bar coverage for personal injuries arising from exposure to toxic fumes emanating from a floor coating-sealant operation performed by the insured. 1. Generally, courts should give the words of an insurance policy their plain, ordinary meaning. If the language is clear, the policy should be interpreted as written. If the policy is ambiguous, it will be construed in favor of the insured. Courts recognize that an insurance policy, which is usually prepared by insurance company experts, is a contract of adhesion between parties who are not equally situated. As such, courts endeavor to interpret insurance contracts to accord with the objectively reasonable expectations of the insured. Moreover, exclusions in insurance policies are narrowly construed. Nevertheless, if an exclusion is specific, plain, clear, prominent and not contrary to public policy, it will be enforced as written. (Pp. 11 13). 2. After reviewing the evolution of environmental pollution provisions in CGL policies, testimony about the provisions presented to insurance regulators by the insurance industry, and this Court's prior rulings interpreting those provisions, the Court finds that the purpose of the pollution-exclusion clause in its various forms was to have a broad exclusion for traditional environmentally-related damages, such as remediating hazardous waste under the Comprehensive Environmental Response, Compensation & Liability Act (CERCLA). (Pp. 13 19). 3. Read liberally, the exclusion at issue here would exclude from coverage essentially all pollution hazards except for those falling within the "exception" for exposure within a structure resulting from a release of pollutants "within a single forty-eight hour period." The Court rejects that interpretation as overly broad, unfair, and contrary to the objectively reasonable expectations of the New Jersey and other state regulatory authorities that were presented with an opportunity to disapprove the clause. Just as the Court determined in Morton International, Inc. v. General Accident Insurance Co. of Am., 134 N.J. 1 (1993), enforcing this pollution-exclusion clause as written would contravene the State's public policy requiring regulatory approval of standard industry-wide policy forms to assure fairness in rates and in policy content, and would condone the industry's misrepresentation to regulators in New Jersey and other states concerning the effect of the clause. Furthermore, limiting the scope of the pollution exclusion to injury or property damage arising from activity commonly thought of as traditional environmental pollution is consistent with the choice of the policy terms, "discharge, dispersal, release or escape" in Selective's policy. These are environmental law terms of art, thereby reflecting the exclusion's historical objective avoidance of liability for environmental catastrophe related to intentional industrial pollution. Finally, the Court's decision is consistent with the decisions of the highest courts in California, Illinois, Massachusetts, Ohio, New York and Washington. (Pp. 19 21). 4. Because the Court concludes that the pollution exclusion clause as presently approved should be limited to traditional environmental pollution, it disapproves of any contrary view expressed in this State's case law, including any decisions of the Appellate Division that may be read as in conflict. (P. 24). 5. The Court declines to address the ramifications of the 48-hour exception. Simply put, if the pollution exclusion is not applicable, neither is the exception to the pollution exclusion. (P. 25). 6. As a final observation, the Court notes that the insurance industry has revised its policies in the past to provide for the exclusion of certain coverage. The Court will review each change on the record presented. Industry-wide determinations to restrict coverage of risks, particularly those that affect the public interest, must be fully and unambiguously disclosed to regulators and to the public. (P. 25). The judgment of the Appellate Division is REVERSED, and the matter is REMANDED to the trial court for further proceedings consistent with this opinion. CHIEF JUSTICE PORITZ and JUSTICES LONG, LaVECCHIA, ZAZZALI and ALBIN join in JUSTICE WALLACE's opinion. JUSTICE RIVERA-SOTO did not participate. Plaintiff-Appellant and Cross-Respondent, v. SELECTIVE INSURANCE COMPANY OF AMERICA, Defendant-Respondent and Cross-Appellant. Argued January 4, 2005 Decided April 7, 2005 On certification to the Superior Court, Appellate Division. Ellis I. Medoway argued the cause for appellant and cross-respondent (Archer & Greiner, attorneys; Mr. Medoway and Arthur H. Jones, Jr., on the briefs). Gary S. Kull argued the cause for respondent and cross-appellant (Carroll McNulty & Kull, attorneys). Wendy L. Mager submitted a brief on behalf of amicus curiae Complex Insurance Claims Litigation Association (Smith, Stratton, Wise, Heher & Brennan, attorneys). JUSTICE WALLACE delivered the opinion of the Court. This case concerns the applicability of a pollution exclusion provision in a commercial general liability insurance policy. The question presented is whether the exclusion for injuries caused by the discharge, dispersal, release or escape of pollutants bars coverage for personal injury allegedly caused by the exposure to toxic fumes that emanated from a floor coating/sealant operation performed by the insured. An exception to the pollution exclusion allows coverage where the injury takes place inside a building within a single 48-hour period and the exposure occurs within the same 48-hour period. We conclude that the pollution exclusion provision applies to traditional environmental pollution claims and is not a bar to coverage in this case. a. to investigate, settle or defend any claim or suit against any insured alleging actual or threatened injury or damage of any nature or kind of persons or property which: 1. arises out of the pollution hazard: or 2. would not have occurred but for the pollution hazard: or b. to pay any damages, judgments, settlements, losses, costs or expenses of any kind or nature that may be awarded or incurred by reason of any such claim or suit or any such actual or threatened injury or damage; or c. for any losses, costs or expenses arising out of any obligation, order, direction or request of or upon any insured or others, including but not limited to any governmental obligation, order, direction or request, to test for, monitor, clean up, remove, contain, treat, detoxify, neutralize, in any way respond to, or assess the effects of pollutants. The policy defined pollutants as any solid, liquid, gaseous, or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Under the policy, [w]aste includes materials to be recycled, reconditioned or reclaimed. It also defined Pollution Hazard to mean an actual exposure or threat of exposure to the corrosive, toxic or other harmful properties of any pollutants arising out of the discharge, dispersal, seepage, migration, release or escape of such pollutants. The policy also contained a limited exception to the pollution exclusion. That exception provided that the pollution exclusion does not apply to: B. Injury or damage arising from the actual discharge or release of any pollutants that takes place entirely inside a building or structure if: 1. the injury or damage is the result of an exposure which takes place entirely within a building or structure; and 2. the injury or damage results from an actual discharge or release beginning and ending within a single forty-eight (48) hour period; and 3. the exposure occurs within the same forty-eight (48) hour period referred to in 2. above; and 4. within thirty (30) days of the actual discharge or release: a. the company or its agent is notified of the injury or damage in writing; or b. in the case of bodily injury, the bodily injury is treated by a physician, or death results, and within ten (10) additional days, written notice of such injury or death is received by the company or its agents. Strict compliance with the time periods stated above is required for coverage to be provided. [Id. at 556-57.] We have applied the reasonable expectations doctrine to all forms of insurance contracts. President, supra, 180 N.J. at 563. Important to our analysis is the principle that exclusions in the insurance policy should be narrowly construed. Princeton Ins. Co. v. Chunmuang, 151 N.J. 80, 95 (1997). Nevertheless, if the exclusion is specific, plain, clear, prominent, and not contrary to public policy, it will be enforced as written. Ibid. (quoting Doto, supra, 140 N.J. at 559). [Id. at 11 (emphasis added).] The next round of litigation concerned the meaning of the words sudden and accidental. Id. at 44-69. We reasoned that the conflict over whether sudden means abrupt or unexpected was not really the issue; rather the crucial inquiry was whether the courts of this state should give effect to the literal meaning of an exclusionary clause that materially and dramatically reduces the coverage previously available for property damage caused by pollution, under circumstances in which the approval of the exclusionary clause by state regulatory authorities was induced by the insurance industry s representation that the clause merely clarified the scope of the prior coverage. [Id. at 72.] We concluded, applying the doctrine of reasonable expectations, that the common understanding of state regulators was that the overriding purpose [of the pollution clause] was to deny coverage to intentional polluters. Id. at 77. We imputed the reasonable expectations of the New Jersey insurance regulatory authority to insureds and interpreted the pollution exclusion to provide coverage identical with that provided under the prior occurrence-based policy[.] Id. at 78. In light of the insurance industry s failure to disclose the intended effect of this significant exclusionary clause, while at the same time profit[ing] from that nondisclosure by maintaining pre-existing rates for substantially-reduced coverage, we concluded that it was fair for the industry to be required to bear the burden of its omission by providing coverage at a level consistent with its representations to regulatory authorities. Id. at 79-80. Another speaker, Robert J. Sullivan, Vice President of Government Affairs for Crum & Forster in Morristown, New Jersey, testified that the exclusion would not preclude coverage for liability for a policyholder s products and completed operations. [Lorelie S. Masters, Absolutely Not Total: State Courts Recognize the Historical Limits of the Absolute and Total Pollution Exclusions, Envtl. Claims J. Vol. 15, No. 4, 453-54 (Autumn 2003) (emphasis in the original); see also Kimber Petrol. Corp. v. Travelers Indem. Co., 298 N.J. Super. 286, 298 (App. Div. 1997)(noting evidence presented by insurance industry to Department of Insurance supporting absolute pollution exclusion clause). Additionally, commentators have explained that the absolute pollution exclusion was developed to address the expansion of liability for remediating hazardous waste imposed under the Comprehensive Environmental Response, Compensation & Liability Act (CERCLA, 42 U.S.C. et. seq.) in 1980. Masters, supra, Envtl. Claims. J. at 457; Jeffrey W. Stempel, Reason and Pollution: Correctly Construing the Absolute Exclusion In Context and in Accord with Its Purpose and Party Expectations, 34 Tort & Ins. L.J. 1, 29-32 (1998) ( [T]he available evidence most strongly suggests that the absolute pollution exclusion was designed to serve the twin purposes of eliminating coverage for gradual environmental degradation and government-mandated cleanup such as Superfund response cost reimbursement. ). [Ibid.] The touchstone of our decision in Morton was that the insurance industry may not seek approval of a clause restricting coverage for the asserted reason of avoiding catastrophic environmental pollution claims and then use that same clause to exclude coverage for claims that a reasonable policyholder would believe were covered by the insurance policy. Moreover, our conclusion that the scope of the pollution exclusion should be limited to injury or property damage arising from activity commonly thought of as traditional environmental pollution is consistent with the choice of the policy terms, discharge, dispersal, release or escape in Selective s policy. As one court observed: The drafters utilization of environmental law terms of art ( discharge, dispersal, . . . release or escape of pollutants ) reflects the exclusion s historical objective-avoidance of liability for environmental catastrophe related to intentional industrial pollution. Motorists Mut. Ins. Co. v. RSJ, Inc., 926 S.W.2d 679, 681 (Ky. Ct. App. 1996). NAV-ITS, INC., Plaintiff-Appellant And Cross-Respondent, v. SELECTIVE INSURANCE COMPANY OF AMERICA, Defendant-Respondent And Cross-Appellant. DECIDED April 7, 2005 Chief Justice Poritz PRESIDING OPINION BY Justice Wallace CONCURRING/DISSENTING OPINIONS BY DISSENTING OPINION BY