1995 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

10-12-1995

Chemical Leaman v Aetna

Precedential or Non-Precedential:

Docket 93-5777

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Recommended Citation

"Chemical Leaman v Aetna" (1995). 1995 Decisions. Paper 264.

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1 

 

UNITED STATES COURT OF APPEALS 

FOR THE THIRD CIRCUIT 

 

No. 93-5777 and 93-5794 

 

CHEMICAL LEAMAN TANK LINES, INC. 

v. 

THE AETNA CASUALTY AND SURETY COMPANY; 

and CERTAIN UNDERWRITERS AT LLOYDS, LONDON, 

subscribing to Insurance Policies Numbers Numbers 

WAR 6771, WAR 6772/A, C62P 10-117, L62P 10-117, 

64P 3-121, L64P 3-121A, L64P 3-121B, C64P 3-121B, 

C65P 5-119, C65P 5-119A, L65P 5-119A, L66P 5-119A, 

C67P 4-158, L67P 4-158, C68P 2-116, L68P 2-116, 

C68P 2-116A, C68P 2-116B, L68P 2-116A, L68P 2-116B, 

C71-03-03-13, L71-03-03-13, C71-03-03-13A, 

C71-03-03-13B, L71-03-03-13A, L71-03-03-13B, 

C74-03-18-02, 77-01-19-23, 77-01-19-23A, C77-01-19-23B, 

79-04-19-10, C80-02-19-09, C80-02-19-09B, L80-02-09A, 

L80-02-19-09A, L80-02-19-09B, C83-02-19-09, 

L83-02-19-09A, L83-02-19-09B, L83-02-19-09C 

 

 ROBIN ANTHONY GILDART JACKSON, an Underwriter at Lloyds, 

London, individually and in his capacity as representative 

Underwriter at Lloyds, London for certain subscribing 

Underwriters at Lloyds, London who subscribed to certain 

liability insurance policies issued to plaintiff Chemical 

Leaman Tank Lines, Inc.; ACCIDENT AND CASUALTY COMPANY OF 

WINTERTHUR; ALBA GENERAL INSURANCE COMPANY LTD.; ALLIANZ 

CORNHILL INTERNATIONAL INSURANCE PLC, FORMERLY KNOWN AS 

ALLIANZ INTERNATIONAL INSURANCE COMPANY LTD.; ANGLO-FRENCH 

INSURANCE COMPANY LTD.; ARGONAUT NORTHWEST INSURANCE COMPANY; 

ASSICURAZIONI GENERALI SPA; BALOISE FIRE INSURANCE COMPANY; 

BELLEFONTE INSURANCE COMPANY LTD.; BRITISH NATIONAL LIFE 

INSURANCE SOCIETY LTD.; CNA INTERNATIONAL REINSURANCE CO. 

LTD., FORMERLY KNOWN AS CNA REINSURANCE OF LONDON LTD.; 

DELTA LLOYD NON-LIFE INSURANCE COMPANY; DOMINION INSURANCE 

COMPANY LTD.; DRAKE INSURANCE COMPANY LTD.; EDINBURGH 

INSURANCE COMPANY; EXCESS INSURANCE COMPANY LTD.; FIDELIDADE 

INSURANCE COMPANY; FOLKSAM INTERNATIONAL INSURANCE COMPANY 

(U.K.) LTD.; HELVETIA ACCIDENT SWISS INSURANCE COMPANY; 

INDEMNITY MARINE ASSURANCE COMPANY, LTD.; LEXINGTON INSURANCE 
2 

COMPANY LTD.; LONDON & OVERSEAS INSURANCE COMPANY, LTD.; 

LONDON & EDINBURGH INSURANCE COMPANY, LTD.; LONDON & SCOTTISH 

ASSURANCE CORPORATION, LTD.; GAN MINSTER INSURANCE COMPANY, 

FORMERLY KNOWN AS MINSTER INSURANCE COMPANY LTD.; NATIONAL 

CASUALTY COMPANY; NATIONAL CASUALTY INSURANCE OF AMERICA, 

LTD.; NEW LONDON REINSURANCE COMPANY, LTD.; NORTH ATLANTIC 

INSURANCE COMPANY LTD., FORMERLY KNOWN AS BRITISH NATIONAL 

INSURANCE CO. LTD.; ORION INSURANCE COMPANY LTD.; PINE TOP 

INSURANCE COMPANY LTD.; RIVER THAMES INSURANCE COMPANY LTD.; 

SCOTTISH LION INSURANCE COMPANY; SOVEREIGN MARINE AND 

GENERAL INSURANCE COMPANY, LTD.; SPHERE INSURANCE COMPANY 

LTD.; ST. KATHERINE INSURANCE COMPANY LTD.; STRONGHOLD 

INSURANCE COMPANY LTS.; SWISS UNION GENERAL INSURANCE COMPANY 

LTD.; TAISHO MARINE & FIRE INSURANCE COMPANY (EUROPE) LTD., 

FORMERLY KNOWN AS TAISHO MARINE & FIRE INSURANCE COMPANY 

(U.K.) LTD.; TOKIO MARINE & FIRE INSURANCE COMPANY (U.K.) 

LTD.; TUREGUM INSURANCE COMPANY LTD.; UNIONAMERICA INSURANCE 

COMPANY; UNITED STANDARD INSURANCE COMPANY LTD.; WINTERTHUR 

SWISS INSURANCE COMPANY; WORLD AUXILIARY INSURANCE CORPORATION 

LTD.; YASUDA INSURANCE COMPANY (U.K.) LTD. 

(hereinafter collectively referred to as "Jackson & Companies"), 

 Appellants in No. 93-5777 

 Aetna Casualty and Surety Company ("Aetna"), 

 

 Appellant in No. 93-5794 

 

ON APPEAL FROM THE UNITED STATES 

DISTRICT COURT FOR THE DISTRICT OF NEW JERSEY 

(D.C. Civ. No. 89-1543) 

 

Argued: September 26, 1994 

Before: SCIRICA, NYGAARD and McKEE, Circuit Judges. 

(Filed October 12, 1995) 

 

 BRIAN J. COYLE, ESQ. (Argued) 

 PETER E. MUELLER, ESQ. 

 HARWOOD LLOYD, ESQ. 

 130 Main Street 

 Hackensack, NJ 07601 

 EDWARD M. DUNHAM, JR., ESQ. 

 DANIEL W. CANTU-HERTZLER, ESQ. 
3 

 Miller Dunham Doering & Munson 

 1515 Market Street, 13th Floor 

 Philadelphia, PA 19102-1913 

 WILLIAM H. JEFFRESS, JR., ESQ. 

 Miller, Cassidy, Larroca & Lewin 

 2555 M Street, N.W. 

 Washington, D.C. 20037 

 

 Counsel for Appellant

 Aetna Casualty & Surety Company 

 JOHN G. MCANDREWS, ESQ. 

 HENRY LEE, ESQ. (Argued) 

 HANNAH M. O'DRISCOLL, ESQ. 

 GARY P. SCHILZ, ESQ. 

 Mendes & Mount 

 750 Seventh Avenue 

 New York, NY 10019-6829 

 

 WILLIAM J. HANLEY, ESQ. 

 Ronca, McDonald & Hanley 

 5 South Regent Street 

 Livingston, NJ 07039 

 Counsel for Appellant

 Robin Anthony Jackson, An 

 Underwriter at Lloyds, London, 

 and Certain London Market 

 Insurance Companies 

 ("London Market Insurers") 

 KEVIN B. CLARK, ESQ. (Argued) 

 JOHN P. DEAN, ESQ. 

 CARLISLE E. PERKINS, ESQ. 

 CONRAD J. SMUCKER, ESQ. 

 Willkie Farr & Gallagher 

 Three Lafayette Centre 

 1155 21st Street, N.W. 

 Washington, D.C. 20036-3384 

 

 Counsel for Plaintiff-Appellee

 Chemical Leaman Tank Lines, Inc. 

 THOMAS W. BRUNNER 

 JOHN E. BARRY 

 DENNIS A. TOSH 

 Wiley, Rein & Fielding 

 1776 K Street, N.W. 

 Washington, D.C. 20006 
4 

 Counsel for Amicus Curiae

 Insurance Environmental 

 Litigation Association 

 DEBORAH T. PORITZ 

 Attorney General of New Jersey 

 MARY C. JACOBSON 

 Assistant Attorney General 

 KAREN L. JORDAN 

 Deputy Attorney General 

 R.J. Hughes Justice Complex 

 CN 093 

 Trenton, NJ 08625 

 Counsel for Amicus Curiae

 State of New Jersey, Department 

 of Environmental Protection and 

 Energy 

 

 

 

OPINION OF THE COURT 

 

McKEE, Circuit Judge. 

 Chemical Leaman Tank Lines, Inc. brought this declaratory 

judgment action in an effort to determine if various policies of 

insurance issued by defendant insurance companies covered the 

cost of environmental cleanup of a waste disposal site it 

maintained in Bridgeport, New Jersey. Although numerous issues 

are raised on appeal, the primary issue is the appropriate test 

to determine if Chemical Leaman "expected or intended" 

environmental damage. We hold that, under New Jersey law, the 

appropriate inquiry is the insured's objective intent and that 

the district court erred when it instructed the jury that it must 

determine if Chemical Leaman subjectively "expected or intended" 
5 

to damage the environment. Since we determine as a matter of law 

that Chemical Leaman did expect or intend environmental damage as 

of November, 1968, we remand for a new trial to determine 

Chemical Leaman's objective intent during the years remaining in 

question. 

 I. Background

A. The Bridgeport Site

 Chemical Leaman is a tank truck company specializing in the 

transportation of hazardous chemicals including carcinogens. The 

Bridgeport terminal at issue here was one of many terminals that 

Chemical Leaman maintained across the country. These terminals 

included facilities where Chemical Leaman would routinely wash 

the trailers that transported the hazardous chemicals after those 

chemicals had been delivered. The rinse water contaminated with 

residue from the inside of the trailers was disposed of in a 

wastewater treatment system that is at the heart of this law 

suit. 

 The Bridgeport wastewater treatment system consisted of a 

series of unlined ponds dug into the soil to catch and 

purportedly purify the contaminated washwater. Apparently, the 

designers of this system believed that the sandy bottom of the 

unlined ponds would purify the contaminated rinsewater by acting 

as a kind of natural filter that would strain the impurities from 

the contaminated water as it percolated into the soil. The 

facility operated in this manner from 1960 to 1975. It was 

designed and built by Harry Elston, Chemical Leaman's Manager of 

Real Estate and Engineering, in consultation with Edwin Wagner, a 
6 

professional sanitary engineer with experience in the design of 

waste treatment facilities. Elston made virtually all of 

Chemical Leaman's decisions regarding waste management and 

disposal. 

 From 1960-62, the wastewater treatment system consisted of a 

series of three unlined settling and percolation ponds, connected 

by "tee pipes." Elston testified that the depth of the ponds was 

limited to five feet to allow sunlight to enhance the growth of 

aerobic microbes that fed on the trace amounts of chemicals in 

the rinsewater. This natural process was enhanced by anaerobic 

microbes acting in the ponds and lagoons to biodegrade the 

chemical particulates in the rinsewater. Gravity separated 

heavier materials from lighter ones in the first pond, and the 

floating contaminants were then periodically skimmed from the top 

of the ponds, and the settled materials were periodically dredged 

from the bottom of the ponds. The natural processes of aerobic 

and anaerobic microbial biodegradation would break down the trace 

chemical constituents which remained in the rinsewater. 

 A "tee pipe" connected the first and second ponds so as to 

prevent the precipitated and floating materials from passing into 

the second pond. Thus, only "cleaner" water could reach the 

second pond. When this rinsewater reached the second pond, the 

retention, phased gravity separation, percolation and microbial 

biodegradation process was repeated. Only the rinsewater in the 

middle depth of that pond was allowed to flow into the third 

pond. These processes continued in the third pond, which 

received the "cleanest" water as a result of the processes 
7 

occurring in the first two ponds. Elston testified at trial that 

the Bridgeport site was specially selected for its suitability 

for this kind of percolation system. 

 In 1962, Chemical Leaman augmented this system by adding two 

larger aeration lagoons and a final settling lagoon with a 

limestone bed. Each of these lagoons was designed to replicate 

and enhance the treatment afforded by the original three ponds. 

In addition, the fourth and fifth lagoons were equipped with 

spray aeration devices to increase the oxygen level in the 

lagoons and, thereby, increase aerobic microbial biodegradation 

and evaporation. 

 From the very beginning of this system, the final 

impoundment pond contained an overflow pipe at the top end of the 

berms which fed into an adjacent swamp. The pipe was apparently 

intended as a safety valve to prevent a rupture in the berms and 

a resulting massive loss of rinsewater in the event of a heavy 

rain. Between 1960 and 1975, there were repeated discharges of 

treated rinsewater through the overflow pipe to the adjacent 

swamp. Elston described this discharge as a "trickle," and 

another witness testified that the amount coming out of the 

overflow pipe was usually about a fraction of an inch. 

Nevertheless, a 1970 New Jersey Department of Health sample of 

the swamp water that the rinsewater "trickled" into revealed that 

this trickle was "highly pollutional." Moreover, by 1974 the 

path of the "trickle" from the last impoundment could "be easily 

seen by looking for a 75 foot wide lane of dead trees" in the 

swamp. 
8 

B. The Insurance Policies

 Chemical Leaman purchased primary comprehensive general 

liability insurance ("CGL") from the Aetna Casualty & Surety 

Company ("Aetna") covering successive years, from April 1, 1959 

through April 1, 1985.0 During this same period of time, the 

London Market Insurers ("LMI") sold Chemical Leaman excess CGL 

coverage.

0

 Each of the primary and excess policies provided 

coverage (and a duty to defend) only for fortuitous damage, i.e. 

damage that was "neither expected nor intended from the 

standpoint of the insured." Some of these policies insured 

against an "accident," and others insured against an "occurrence" 

but it is clear that each of these policies covered only 

fortuitous damage, i.e. damage that the insured neither expected 

nor intended. 

 The LMI policies typically stated: 

[s]ubject to the limitations, terms and 

conditions [of the policy] to indemnify the 

Assured for all sums which the Assured shall 

be obligated to pay by reason of the 

liability . . . imposed upon the Assured by 

law, . . . for damages . . . on account of: . 

 

0

 During trial, Chemical Leaman dismissed its claims 

against the 1981-1985 policies, and the district court granted 

summary judgment in favor of Aetna on the 1959-1960 policy 

because Chemical Leaman had not presented evidence of damage that 

could have triggered this policy. We need not discuss the 

specific provisions of the Aetna policies since they have 

withdrawn as a party to this appeal. See infra at . 

0

 At oral argument before the district court, Chemical 

Leaman dismissed any claims it had against LMI on the policy 

running from April 1, 1985 to April 1, 1986. Apparently, 

Chemical Leaman dismissed its claims against the 1981-1985 

policies as well. The LMI do not state what happened in their 

brief, as they say they provided excess coverage from 1960-1981 

and cite to a stipulation in the appendix, but the stipulation 

states they provided coverage from 1958-1986. 
9 

. . (ii) Property Damage . . . caused by or 

arising out of each occurrence . . . . 

 These policies defined "occurrence" as "[a]n accident or a 

happening or event or a continuous or repeated exposure to 

conditions which unexpectedly and unintentionally results in . . 

. property damage . . . during the policy period."0 

 The policies required that the insured provide written 

notice in the event of an occurrence or accident "as soon as 

practicable." The policies also provided that the insured shall 

cooperate with the insurer in the defense of a potentially 

coverable claim, suit or proceeding instituted against the 

insured or insurer. 

 Each LMI policy from April 1, 1971 to April 1, 1985, 

contained a pollution exclusion clause. Because we hold that 

those policies do not insure against the damage that occurred 

after November, 1968, we do not reach any of the issues raised 

under the pollution exclusion clauses. 

 C. Contamination of the Bridgeport Site

 At the time the Bridgeport facility was built, New Jersey 

prohibited the construction of industrial waste treatment systems 

 

0

 Some of the LMI's earlier policies insured against an 

"accident," which was circularly defined as "an accident or 

series of accidents arising out of one event or occurrence." On 

summary judgment, the district court reasoned that New Jersey law 

defines the term "accident" in the accident-based policies in 

substantially the same manner as the definition of an 

"occurrence" in the occurrence-based policies -- an event neither 

expected nor intended by the insured. See Chemical Leaman Tank 

Lines, Inc. v. Aetna Casualty & Sur. Co., 817 F. Supp. 1136, 1148 

(D.N.J. 1993). Thus, the court held that Chemical Leaman would 

bear the same standard of proof on the accident policies as it 

would on the occurrence-based policies. This finding is not 

challenged on appeal. 
10 

without the approval of the New Jersey Department of Health 

("NJDOH"), and this prohibition was especially applicable to 

treatment facilities discharging effluent into surface and 

underground waters. See N.J. Rev. Stat. § 58:10-5 (1937) 

(prohibiting pollution of freshwater without Department of Health 

permit) (repealed 1977); N.J. Rev. Stat. §§ 58:11-10, 11-12 

(1937) (requiring Department of Health approval for any change in 

sewage or industrial waste treatment system; owner of such system 

must periodically furnish information required by the department) 

(repealed 1977); N.J. Rev. Stat. §§ 58:12-1, 12-2, 12-3 (1937) 

(prohibiting operation of a plant for the treatment of polluting 

substances from which the effluent is to flow into any waters of 

the states unless approved by Department of Health; "waters of 

the state" include . . . all springs, streams and bodies of 

surface or groundwater) (repealed 1977). 

 Chemical Leaman never obtained the required permits or 

approvals from the State of New Jersey to construct or operate 

the waste water disposal facility at Bridgeport. However, 

despite Chemical Leaman's failure to get official approval, the 

State of New Jersey learned the Bridgeport site was in operation. 

In March 1961, the New Jersey Division of Fish, Game & Wildlife 

("FGW") received a complaint of a number of dead fish in a pond 

that was fed by swamp water flowing from the direction of the 

Bridgeport facility. The complaint suggested that Chemical 

Leaman's facility may be responsible. On September 12, 1961, 

Inspector Walter Robinson of the Pollution Unit of the FGW 

inspected the Bridgeport facility and noticed a discharge into 
11 

the swamp from the overflow pipe in the last pond. Robinson had 

observed this discharge on about half of his visits to the 

Bridgeport site, and had concluded in a report dated September 

12, 1961 that "these conditions are not satisfactory." 

Thereafter, Chemical Leaman was asked to stop the discharge. 

 Chemical Leaman responded by agreeing to attempt to purchase 

property to use as a disposal area and to retain a consultant to 

correct this situation. In return, FGW informed Chemical Leaman 

that FGW expected "all work to be completed and pollution stopped 

by September 1, 1962." Chemical Leaman's response was the 

construction of the second set of unlined earthen aeration 

lagoons and the final settling lagoon discussed earlier. 

 Inspector Robinson revisited the Bridgeport site on July 31, 

1962, to check on the status of the new treatment system. His 

progress report noted that while a new spray disposal system had 

been installed in an adjacent field, the area still "has to be 

diked and a new separator has to be installed in the old settling 

ponds." Although his report noted that the work should be 

completed in six weeks, there is no indication that this work was 

ever completed. Robinson's "Progress Report" did note that 

effluent was seeping into the ground as intended and not into the 

swamp and that this was "a good indication" that the new 

treatment system was working properly. However, at trial, 

Robinson testified that he may have thought the pits were lined, 

since "that's the way things were done." Moreover, Robinson's 

responsibility was limited to preventing discharges to adjacent 

waters that could affect the fish or wildlife in the State of New 
12 

Jersey. Thus, seepage into the ground, whether or not 

potentially harmful to the groundwater, or any aspect of the 

environment other than fish and wildlife, was not his concern.0

 Robinson's initial optimism proved unfounded when, in 

November 1968, water pollution inspectors from the New Jersey 

Department of Health ("NJDOH") again observed a discharge from 

the overflow pipe in the last lagoon. The NJDOH water pollution 

inspectors concluded that "the waste emanating from the lagoon is 

highly pollutional and [that] immediate measures [sic] be taken 

to eliminate this discharge or to sufficiently treat the waste 

prior to discharge." The inspectors also concluded that the 

Bridgeport site was operating in violation of State statutes 

since it was discharging an effluent without appropriate 

Departmental approval. As a result, in February 1969 the NJDOH 

ordered Chemical Leaman to submit plans "concerning the methods 

and operations of a system designed to properly treat the 

effluent of their tank truck washing facility." In May 1969, 

Chemical Leaman submitted a plan for a new rinse water treatment 

system designed by its own engineering department. However, 

State regulators rejected this plan as they found the amount of 

remaining chemical residue in the treated rinsewater that would 

be discharged to a nearby stream to be unacceptable. 

 

0

 Ironically, while assessing Chemical Leaman's proposed 

solution for its pollution problem, Robinson observed one trailer 

being drained directly onto the parking lot. While such conduct 

was apparently a violation of company policy and would subject 

the individual to disciplinary action, this was not the only 

occasion on which he observed this prohibited conduct. 
13 

 In February 1970, the NJDOH sampled the waste water in the 

lagoons and found the discharge to be "objectionable." 

Thereafter, State officials again met with Chemical Leaman in an 

unsuccessful attempt to resolve the polluting discharges at the 

Bridgeport site. Chemical Leaman eventually entered into a 

consent judgment with the New Jersey Department of Environmental 

Protection ("NJDEP") on January 28, 1974, which mandated 

construction of an approved facility by April 1974. Subsequently, 

in 1975, Chemical Leaman fully alleviated its waste water 

disposal problems when Du Pont agreed to take and treat the waste 

water. 

 From November 1968, when water pollution inspectors from 

the NJDOH observed the discharge from the overflow pipe, until 

the summer of 1975, when the contract with Du Pont was entered 

into, some 40 to 50 million gallons of contaminated waste water 

was processed using the same treatment system as modified in 

1962. Throughout the time the Bridgeport site was in operation 

Chemical Leaman discharged approximately 100 million gallons of 

contaminated waste water into the unlined ponds and lagoons, the 

bottoms of which were only two and a half feet above the 

groundwater. 

 In late 1980, a routine NJDEP survey revealed the existence 

of contaminated groundwater at and around the Bridgeport site. A 

subsequent investigation disclosed that groundwater beneath the 

terminal was contaminated and that Chemical Leaman's unlined 

ponds and lagoons were the primary source of contamination. 

Thereafter, Chemical Leaman entered into an Administrative 
14 

Consent Order with the NJDEP to study the scope of the 

groundwater contamination at Bridgeport, and in 1984, the United 

States Environmental Protection Agency ("EPA") placed the 

Bridgeport Site on the Superfund National Priorities List. 42 

U.S.C. §§ 9605, 9607.0 As an owner and operator of the site, 

Chemical Leaman is strictly liable under CERCLA for the cost of 

the environmental cleanup. Id. 

 In July 1985 Chemical Leaman entered into a consent decree 

with the EPA based upon a finding that four neighboring wells 

were contaminated, and that three more were threatened. In that 

decree Chemical Leaman acknowledged liability and agreed to 

undertake a Remedial Investigation and Feasibility Study 

("RI/FS") of environmental contamination at the site. It is this 

CERCLA liability for which Chemical Leaman seeks coverage under 

the policies purchased from the insurers. 

II. Procedural History 

 Chemical Leaman filed a declaratory judgment action in 

district court to determine its right to insurance coverage after 

Aetna and LMI refused to indemnify it for any of the costs of the 

environmental cleanup at the Bridgeport facility. 

 On March 31, 1992, after extensive discovery, the district 

court filed an opinion granting partial summary judgment in favor 

of Chemical Leaman. See Chemical Leaman Tank Lines, Inc. v. 

Aetna Casualty & Sur. Co., 788 F. Supp. 846 (D.N.J. 1992). The 

court held that the "owned property exclusion" contained in the 

 

0

 42 U.S.C. §9607(a)(1). 
15 

policies does not bar coverage for the costs of remedial measures 

designed to benefit the ground or surface waters in the vicinity 

of the Bridgeport site.0 

 Subsequently, the district court ruled that genuine issues 

of material fact remained as to whether Chemical Leaman expected 

or intended to cause soil and groundwater damage. See Chemical 

Leaman Tank Lines, Inc. v. Aetna Casualty & Sur. Co., 817 F. 

Supp. 1136 (D.N.J. 1993). The district court rejected the 

insurers' argument that Chemical Leaman's objective intent to 

injure the soil and groundwater controlled whether there had been 

an "occurrence" under the insurance policies. The court also 

relied on Voorhees v. Preferred Mut. Ins. Co., 607 A.2d 1255 

(N.J. 1992), to conclude that Chemical Leaman's actions at the 

Bridgeport site were not so "reprehensible" as to require a 

presumption that Chemical Leaman expected or intended to cause 

the groundwater and soil damage. Instead, the court concluded 

that Chemical Leaman had the burden of proving that it did not 

subjectively intend to cause soil and groundwater damage, and 

that it was not substantially certain that it was causing such 

damage. 

In ruling upon motions for partial summary judgment, the 

court found that soil and groundwater damage occurred sometime 

during 1960, thus triggering the 1960-61 policies. The court 

also ruled as a matter of law that soil and groundwater damage 

occurred in the policy year April 1, 1960 to April 1, 1961, but 

 

0

 The other issues that the district court decided as a 

matter of law are not raised on this appeal. 
16 

that the continuous trigger doctrine determined whether property 

damage also occurred under the remaining policies.0 Since there 

were disputed issues of fact the court held that the jury would 

have to determine whether injuries occurred during each policy 

period, whether Chemical Leaman subjectively expected or intended 

the injuries, and whether the injuries caused by the use of the 

Bridgeport rinsewater treatment system were of a continuous, 

indivisible nature. Finally, the court held that Chemical 

Leaman's failure to promptly notify its insurers of its liability 

under CERCLA did not bar recovery under the notice provisions of 

the various insurance policies because the insurers had not been 

prejudiced by the delay. 

 Prior to trial, Chemical Leaman filed a motion in limine to 

bar evidence of environmental problems it had encountered at 

sites other than Bridgeport. The court granted that motion 

holding that the probative value of the other-site evidence was 

substantially outweighed by the danger of unfair prejudice, jury 

confusion, and undue waste of time. That ruling is also 

challenged on this appeal. 

III. The Jury's Findings

 After a three week trial, the jury found that Chemical 

Leaman was entitled to coverage under the Aetna and LMI policies 

as follows: the policies in effect from April 1, 1960 to April 1, 

1971 - for costs associated with the remediation of the soil; the 

 

0

 The time of an "occurrence" is the time when the 

complaining party is damaged. See Hartford Accident & Indem. Co. 

v. Aetna Life & Casualty Ins. Co., 483 A.2d 402, 409 (N.J. 1984). 
17 

policies in effect from April 1, 1961 to April 1, 1971 - for the 

remediation of the wetlands; and the policies in effect from 

April 1, 1960 to April 1, 1981 - for groundwater remediation. The 

jury also found that Chemical Leaman was entitled to defense 

costs that were incurred after April 18, 1988. The insurers 

challenge both the court's and jury's findings on appeal. The 

court instructed the jury that it had to find for Chemical Leaman 

unless it concluded that Chemical Leaman subjectively expected or 

intended to cause the pollution at the Bridgeport site. This 

charge is at the center of this appeal as the insurers argue that 

the appropriate inquiry is Chemical Leaman's objective 

expectation and intent. The insurers argue that, viewed 

objectively, the evidence established that the damage at 

Bridgeport was expected and/or intended by Chemical Leaman, and 

that there was therefore no accident or occurrence under the 

various policies. 

 Subsequent to oral argument but prior to our disposition of 

this appeal, Chemical Leaman and Aetna settled all of Chemical 

Leaman's environmental claims against Aetna, including the claims 

involved in this appeal. In accordance with the settlement 

agreement filed with this court, Aetna withdrew as a party to 

this appeal. LMI, however, was not a party to that settlement 

agreement. Therefore, we must still address the issues raised as 

they pertain to LMI.0 

 

0

 Practically speaking, Aetna's withdrawal from this appeal 

has no effect on the issues which we must address since LMI and 

Aetna joined in each other's arguments. 
18 

 Although LMI raises numerous issues, our inquiry focuses 

upon whether there has been an "accident" or "occurrence" as 

defined by the CGL policies.0 Following the court's rulings on 

the post-trial motions, the New Jersey Supreme Court decided 

Morton Int'l, Inc. v. General Accident Ins. Co. of Am., 629 A.2d 

831 (N.J. 1993).0 We are guided by Morton and Voorhees, supra. 

Our review of the district court's interpretation and prediction 

of New Jersey law is plenary.0 See Wiley v. State Farm Fire & 

Casualty Co., 995 F.2d 457, 459 (3d Cir. 1993). 

 The parties agree that New Jersey law governs this dispute. 

It is also clear that we must apply state law as it exists today, 

even if the law may have changed since the judgment of the 

district court. See Vandenbark v. Owens-Illinois Glass Co., 311 

U.S. 538, 543 (1941); Air Products & Chemicals, Inc. v. Hartford 

Accident & Indem. Co., 25 F.3d 177, 181 (3d Cir. 1994); National 

Sur. Corp. v. Midland Bank, 551 F.2d 21, 28 (3d Cir. 1977). Thus, 

"intervening and conflicting state court decisions will 

 

0

 Aetna briefed the "occurrence" issue and LMI joined in and 

incorporated the arguments advanced by Aetna. See LMI brief at 

50; LMI Reply brief at 1-2. 

0

 The insurers also brought a motion for relief from 

judgment on the grounds of newly discovered evidence pursuant to 

rule 60(b)(2) and/or on grounds of misconduct pursuant to Rule 

60(b)(3). We need not reach this issue as the insurers will have 

the benefit of the "after discovered" documents at the new trial. 

0

 The district court's subject matter jurisdiction was 

based on diversity of citizenship pursuant to 28 U.S.C. § 1332. 

The jurisdiction of this court is founded upon 28 U.S.C. § 1291. 

As a Federal Court sitting in diversity we are bound, as was the 

district court, to apply the substantive law of the state whose 

laws govern the action. See Erie R.R. Co. v. Tompkins, 304 U.S. 

64, 78 (1938); Borse v. Pierce Goods Shop, Inc., 963 F.2d 611, 

613 (3d Cir. 1992). 
19 

[necessarily] cause the reversal of judgments which were correct 

when entered." Baker v. Outboard Marine Corp., 595 F.2d 176, 182 

(3d Cir. 1979) (quoting Vandenbark, 311 U.S. at 543). However, a 

brief discussion of the evolution of the law in this area will 

focus our analysis. 

IV. New Jersey Law Before Morton.

A. Atlantic Employers Ins. Co. v. Tots & Toddlers Pre- 

 School Day Care Center, Inc.0

In Atlantic Employers, parents of children who had allegedly 

been sexually abused sued the owners and operators of a day care 

center where the abuse purportedly took place. The company that 

insured the center then brought a declaratory judgment action to 

determine its obligation to defend or indemnify the owners for 

any recovery the plaintiffs might win in their personal injury 

suits based upon negligence and intentional tort. 

 The day care center's insurance policy insured against 

damage resulting from an "occurrence." An "occurrence" included 

injuries or damage that was "neither expected nor intended by the 

insured." Atlantic Employers, 571 A.2d at 303. The policy also 

contained an exclusion for violations of penal statutes or 

ordinances. The Appellate Division first noted the general rule 

that "coverage does exist . . . 'for the unintended results of an 

intentional act, but not for damages assessed because of an 

injury intended to be inflicted.'" Id. (citation omitted). The 

court stated: 

 

0

 571 A.2d 300 (N.J. Super. Ct. App. Div.), cert. denied, 

584 A.2d 218 (N.J. 1990). 
20 

There seems to be no dispute that if, . . . 

Robert Knighton sexually molested the 

children, then he had the requisite level of 

intent to be found guilty of sexual 

molestation, based upon the criminal statutes 

of this State. But appellants insist that 

this does not necessarily mean that he 

intended the damages or injuries incurred by 

the children as a result of such actions. . . 

. Further, they insist that the existence of 

such intent cannot automatically be imputed 

to the other insureds under the policy so as 

to exclude coverage. . . . We reject this 

position. 

Id. The court then examined cases from other jurisdictions in 

order to analyze the insureds' argument in context with 

developing law. The court noted that some jurisdictions employed 

a subjective test in determining insurance coverage under these 

circumstances, and some rely upon an objective test. The court 

concluded that public policy mandated an objective approach. 

As a matter of public policy and logic we 

conclude that the better rule warrants 

application of the objective approach. A 

subjective test suggests that it is possible 

to molest a child and not cause some kind of 

injury, an unacceptable conclusion. . . . It 

is simply against public policy to indemnify 

a person for a loss incurred as a result of 

his[/her] own willful wrongdoing. 

Id. at 304. 

B. Prudential Property & Casualty Ins. Co. v. Karlinski0

 Within a year and a half of Atlantic Employers, the 

Appellate Division decided Karlinski. There, insured's 13 year 

old son (James) had engaged in a prearranged fight with a 14 year 

old (Mark) in which Mark had fallen and suffered a broken hip. 

 

0

 598 A.2d 918 (N.J. Super. Ct. App. Div. 1991). 
21 

The court was asked to determine if a homeowner's policy 

obligated the plaintiff insurer to defend and indemnify the 

defendant. The policy excluded coverage for "'bodily injury . . 

. which is expected or intended by the insured.'" Karlinski, 598 

A.2d at 919. The motion court granted the insurer's motion for 

summary judgment noting, that the son of the insured "'instigated 

the fight and threw the first blow and started the fight. As far 

as I am concerned, it is intentional conduct and the coverage 

doesn't apply.'" Id. The motion judge also concluded that "a 

broken 'leg' [Mark actually suffered a broken hip] was not an 

extraordinary consequence of the fight." Id. 

 On appeal the court aptly noted, "[t]his appeal requires 

that we again explore the frequently visited but still unclearly 

charted area of liability coverage for intentional torts which 

produce unintended results." Id. The court went on to observe: 

 Our review of New Jersey authorities 

satisfies us that, . . . it is difficult to 

ascertain a clear weight of authority on the 

subject of liability insurance coverage for 

unintended results of intentional acts. 

Differing combinations of variables, such as 

the language of the exclusion clause, the 

nature of the harm and its relationship to 

the intentional act, and the availability of 

relief to the injured party, appear to 

influence the extent to which our decisions 

have inquired into the nature of the intent. 

Id. at 921. The court then stated: 

we hold that, when a coverage exclusion is 

expressed in terms of bodily injury expected 

or intended by the insured, and where the 

intentional act does not have an inherent 

probability of causing the degree of injury 

actually inflicted, a factual inquiry into 
22 

the actual intent of the actor to cause that 

injury is necessary. 

Id. 

 Thus, after Karlinski, a fact finder did not have to inquire 

into the actual (i.e. subjective) intent of the insured unless 

the damage that resulted from the insured's actions was not 

inherently probable. Accordingly, absent this improbability of 

harm, the appropriate inquiry was the insured's objective intent. 

 C. Voorhees v. Preferred Mutual Ins. Co.0

 In Voorhees, a parent was sued for statements she had made 

at a public meeting questioning the competency of her child's 

teacher. The teacher claimed she had suffered emotional distress 

and mental anguish as a result of the parent's conduct. The 

teacher alleged that the parent had acted "willfully, 

deliberately, recklessly and negligently," in making false 

accusations that had damaged the teacher professionally, and 

subjected her to public ridicule. Voorhees, 607 A.2d at 1257. 

Medical evidence established that the emotional distress the 

teacher complained of had resulted in "'an undue amount of 

physical complaints,' including 'headaches, stomach pains, 

nausea, . . . [and] body pains.'" Id. at 1258. 

 The parent had a homeowner's policy that provided coverage 

for liability arising from "bodily injury" caused by an 

"occurrence." The policy defined an "occurrence" as an 

"accident," and excluded coverage for bodily injury intentionally 

caused by the insured. The insurer relied upon this language and 

 

0

 607 A.2d 1255 (N.J. 1992).
23 

refused to defend the insured against the teacher's suit, 

asserting that the claims were based on the insured's intentional 

act and that the complaint sought damages for a "personal" rather 

than a "bodily" injury. The parent eventually sued her carrier 

for damages resulting from its refusal to provide a defense and 

indemnify her. Both parties moved for summary judgment. 

 The trial court granted the insurer's motion ruling that the 

complaint did not allege the kind of "bodily injury" that would 

be covered under the policy. A divided panel of the Appellate 

division reversed. 

 The New Jersey Supreme Court noted that the duty to defend 

under the policy was not triggered "absent a potentiallycoverable occurrence." Id. at 1262. In assessing whether the 

insured's statements constituted a potentially coverable 

occurrence, the court first held that "the accidental nature of 

an occurrence is determined by analyzing whether the alleged 

wrongdoer intended or expected to cause an injury." Id. at 1264. 

As to what constitutes an "intent to injure," the court noted 

that the general trend in the law appeared to require an inquiry 

into the actor's subjective intent to cause injury. 

 We adhere to the prevalent New Jersey rule 

and hold that the accidental nature of an 

occurrence is determined by analyzing whether 

the alleged wrongdoer intended or expected to 

cause an injury. If not, then the resulting 

injury is "accidental," even if the act that 

caused the injury was intentional. That 

interpretation prevents those who 

intentionally cause harm from unjustly 

benefitting from insurance coverage while 

providing injured victims with the greatest 

chance of compensation consistent with the 

need to deter wrong-doing. It also accords 
24 

with an insured's objectively-reasonable 

expectation of coverage for 

unintentionally-caused harm. 

 Even if the operative question is the 

intent to injure rather than to act, the 

question of what constitutes an "intent to 

injure" remains. The key issue is whether 

the court must find a subjective intent to 

injure, or whether it can presume an intent 

to injure from the objective circumstances. 

In that regard, our inquiry parallels that 

taken in interpreting policy exclusions for 

intentional acts. Those exclusions preclude 

coverage for injuries expected or intended by 

the insured. Case law interpreting those 

policy exclusions, in addition to that 

interpreting the definition of "occurrence," 

is thus relevant. 

 The general trend appears to require an 

inquiry into the actor's subjective intent to 

cause injury. Even when the actions in 

question seem foolhardy and reckless, the 

courts have mandated an inquiry into the 

actor's subjective intent to cause injury. 

Id. at 1264. 

 However, the court recognized that: 

[w]hen the actions are particularly 

reprehensible, the intent to injure can be 

presumed from the act without an inquiry into 

the actor's subjective intent to injure. That 

objective approach focuses on the likelihood 

that an injury will result from an actor's 

behavior rather than on the wrongdoer's 

subjective state of mind. 

Id. at 1265 (citing Atlantic Employers, supra). The Voorhees

court reasoned that the insured's actions were a far cry from the 

type of egregious behavior that justified an objective approach 

in Atlantic Employers. The court held that "[a]bsent exceptional 

circumstances that objectively establish the insured's intent to 

injure," the insured's subjective intent to injure must govern. 

Id. While the court felt that there was little evidence that the 
25 

insured subjectively intended or expected to injure the teacher, 

the court never had to address this question because the 

plaintiff had also alleged that the insured had acted 

negligently. The allegation of negligence presupposed the 

absence of a subjective intent to injure and stated a claim for a 

potentially coverable occurrence thus triggering the insurer's 

duty to defend. See id. Accordingly, the court affirmed 

plaintiff's award of summary judgment. 

D. SL Industries, Inc. v. American Motorists Ins. Co.0

 In SL Industries, an employee had filed suit against his 

employer alleging age discrimination and common law fraud as a 

result of the employer eliminating his position. The employee 

sought recovery for the alleged bodily injury that resulted. The 

employer was insured under a policy in which the insurer agreed 

to defend and indemnify the employer for all sums resulting from 

a bodily injury caused by an "occurrence." "Occurrence" was 

defined as an "accident . . . which results in bodily injury . . 

. neither expected nor intended from the standpoint of the 

insured." SL Industries, 607 A.2d at 1269-70. 

 The employer settled the suit and then brought a declaratory 

judgment action against its insurer to establish its right to 

indemnification. The Law Division granted the insurer summary 

judgment, but the Appellate Division reversed, holding that 

although intended harm was not covered under the policy, the 

policy did provide coverage for the unforeseen results of 

 

0

 607 A.2d 1266 (N.J. 1992). 
26 

intentional conduct. The court then remanded the case to the Law 

Division to determine whether the employee's emotional distress 

had been intended or whether it was foreseeable. 

 On appeal, the New Jersey Supreme Court had to determine if 

the general intent to injure that is inherent in a claim of fraud 

necessarily incorporates the intent to cause the specific injury 

(emotional distress), or whether proof of a subjective intent to 

cause the specific injury is required. Id. at 1277-1279. The 

court began its analysis of the required intent by examining the 

differing approaches taken by earlier cases. 

 Our courts have taken different approaches 

to the question of how specifically the 

insured must have intended the resulting 

injury. Employing the "Lyons" test some 

courts have held that a subjective intent to 

injure ends the inquiry and precludes 

coverage. Under that approach, if there is a 

subjective intent to injure then any injury 

that results from the action will be deemed 

"intentional," even if the injury is 

different from or greater than that intended. 

. . .

0

 On the other hand, some courts have 

indicated that to preclude coverage if the 

injury that actually occurred was not a 

probable outcome of the wrongful act is 

unfair. [citing Prudential Property & 

Casualty Ins. Co. v. Karlinski] . . . . 

However, in those circumstances in which the 

facts indicate that the acts in which the 

insured engaged were unlikely to result in 

the degree or type of injury that in fact 

occurred, an inquiry into the subjective 

intent to cause the resulting injury is in 

order. 

 A third approach is even more likely to 

lead to coverage. In Hanover Ins. Group v. 

Cameron, the court rejected the insurance 

 

0

 The test derives its name from Lyons v. Hartford Ins. 

Group, 310 A.2d 485, 488-89 (N.J. Super. Ct. App. Div. 1973). 
27 

company's argument that to preclude coverage 

only the intent to harm need be demonstrated. 

The court indicated that "intent" would only 

be found when the actual consequences that 

resulted from the act were intended, or when 

the actor was substantially certain they 

would result. 

 To determine which approach to adopt, we 

refer to the general principles underlying 

the interpretation of insurance-policy 

provisions involving intentional conduct. 

 The Lyons test . . . precludes coverage in 

some cases in which an insured could 

reasonably expect coverage. When the injury 

caused significantly exceeds the injury 

intended or expected and is an improbable 

consequence of the wrongful act that caused 

it, then it is hard to characterize the 

injury as truly "intentional." The injury, 

from the standpoint of the insured, is 

"accidental," and could thus be deemed an 

occurrence. Moreover, if the tortfeasor did 

not intend or expect to cause the resulting 

harm, denying coverage will not deter the 

harmful conduct. In that case, there is no 

policy justification for denying the victim 

the possibility of additional compensation. 

As the Karlinski court noted, precluding 

coverage "even if the actual harm far 

exceed[s] the consequences which might 

reasonably be expected by the insured . . . 

diminishes the injured party's realistic 

possibility of recovery more than it impacts 

upon the insured tortfeasor." 

 On the other hand, an approach allowing 

coverage whenever the adverse consequences 

intended by the tortfeasor did not precisely 

match the actual consequences of their 

wrongful actions undermines the basic policy 

against indemnifying wrongdoers. 

 We believe the Karlinski test presents the 

most reasonable approach. . . . Assuming the 

wrongdoer subjectively intends or expects to 

cause some sort of injury, that intent will 

generally preclude coverage. If there is 

evidence that the extent of the injuries was 

improbable, however, then the court must 

inquire as to whether the insured 

subjectively intended or expected to cause 

that injury. Lacking that intent, the injury 
28 

was "accidental" and coverage will be 

provided. 

 

Id. at 1277-78 (citations omitted). 

 Accordingly, the court affirmed the Appellate Division's 

judgment remanding the case to the Law Division to determine 

whether the employee's emotional distress had been a probable 

outcome of the insured's general intent to injure, and if not, 

whether the insured subjectively had intended to cause the 

employee's actual injuries. See id. at 1279. 

V. Morton Int'l, Inc. v. General Accident Ins. Co.0

 

 In Morton, the New Jersey Supreme Court had to apply the 

evolving law of occurrence based insurance policies to injuries 

to the environment. There, the insured, Morton International, 

sue_" 

 

0

 629 A.2d 831 (N.J. 1993), cert. denied, 114 S.Ct. 2764 

(1994).