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P r e c e de n t i al or N on-P r e c e de n t i al :

D ocke t 93-5777,93-5794

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. e du/thir dc ir c uit_1996/154UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

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No. 93-5777 & 93-5794

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CHEMICAL LEAMAN TANK LINES, INC.

v.

THE AETNA CASUALTY AND SURETY COMPANY; and CERTAIN UNDERWRITERS AT LLOYDS, LONDO N, subscribing to Insurance Policies Number s 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, C71-03-03-13 A, C71-03-03-13B, L71-03-03-13A, L71-03-03-1 3B, 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, C83-02-19-0 9, L83-02-19-09A, L83-02-19-09B, L83-02-19- 09C

ROBIN ANTHONY GILDART JACKSON, an Underwr iter at Lloyds, London, individually and in his capacity as representative Underwriter at Lloyds, London for certain subscribing Underwriters at Lloyds, London who subscr ibed to certain liability insurance policies issued to pl aintiff Chemical Leaman Tank Lines, Inc.; ACCIDENT AND CAS UALTY COMPANY OF WINTERTHUR; ALBA GENERAL INSURANCE COMPAN Y LTD.; ALLIANZ CORNHILL INTERNATIONAL INSURANCE PLC, FORMERLY KNOWN AS

ALLIANZ INTERNATIONAL INSURANCE COMPANY L TD.; ANGLO-FRENCH INSURANCE COMPANY LTD.; ARGONAUT NORTHWES T INSURANCE COMPANY; ASSICURAZIONI GENERALI SPA; BALO ISE FIRE INSURANCE COMPANY; BELLEFONTE INSURANCE COMPANY LTD .; BRITISH NATIONAL LIFE INSURANCE SOCIETY LTD.; CNA INTERNAT IONAL REINSURANCE CO. LTD., FORMERLY KNOWN AS CNA REINSURAN CE OF LONDON LTD.; DELTA LLOYD NON-LIFE INSURANCE COMPANY; D OMINION 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 INSU RANCE COMPANY; INDEMNITY MARINE ASSURANCE COMPANY, LTD.; LEXINGTON INSURANCE COMPANY LTD.; LONDON & OVERSEAS INSURANCE COMPANY, LTD.; LONDON & EDINBURGH INSURANCE COMPAN Y, LTD.; LONDON & SCOTTISH ASSURANCE CORPORATION, LTD.; GAN MINSTER INSURANCE COMPANY, FORMERLY KNOWN AS MINSTER INSURANCE COMPANY LTD.;NATIONAL CASUALTY COMPANY; NATIONAL CASUA LTY INSURANCE OF

AMERICA, LTD.; NEW LONDON REINSURANCE COM PANY, LTD.; NORTH ATLANTIC INSURANCE COMPANY LTD., FORMERLY KNOWN AS BRITISH NATIONAL INSURANCE CO. LTD.; ORION INSURANCE COMPANY LTD.; PINE TOP INSURANCE COMPANY LTD.; RIVER TH AMES INSURANCE
COMPANY LTD.; SCOTTISH LION INSURANCE COM PANY; SOVEREIGN MARINE AND GENERAL INSURANCE COMPANY, LTD .; SPHERE INSURANCE COMPANY LTD.; ST. KATHERINE INSURANCE COM PANY LTD.; STRONGHOLD INSURANCE COMPANY LTD.; SWISS UNION GENERAL INSURANCE COMPANY LTD.; TAISHO MARINE & F IRE INSURANCE COMPANY (EUROPE) LTD., FORMERLY KNOWN AS TAISHO MARINE & FIRE INSURANCE COMPANY (U.K.) LTD.; TOKIO MARINE & FIRE INSURANCE COMPANY (U.K.) LTD.; TUREGUM IN SURANCE COMPANY
LTD.; UNIONAMERICA INSURANCE COMPANY; UNI TED STANDARD INSURANCE COMPANY LTD.; WINTERTHUR SWISS INSURANCE COMPANY;

WORLD AUXILIARY INSURANCE CORPORATION LTD .; YASUDA INSURANCE COMPANY (U.K.) LTD. (hereinafter collecti vely referred to as "Jackson & Companies"), Appellants at No. 93-5777

AETNA CASUALTY AND SURETY COMPANY ("AETNA"), Appellant a t No. 93-5794

__________________________________________ _____

On Appeal from the United States District Court for the District of New Jersey (D.C. Civil Action No. 89-cv-1543 )

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Argued September 26, 1994

Decided October 12, 1995

Petition for Panel Rehearing Granted and Opinion and Judgment Vacated December 15, 1995

Submitted on Petition for Panel Reheari ng December 15, 1995

Before: SCIRICA, NYGAARD and McKEE, Circuit Judges

(Filed June 20, 1996)

HENRY LEE, ESQUIRE (ARGUED)
GARY P. SCHULZ, ESQUIREJOHN G. McANDREWS, ESQUIRE

HANNAH M. O'DRISCOLL, ESQUIRE

Mendes & Mount

750 Seventh Avenue New York, New York 10019

WILLIAM J. HANLEY, ESQUIRE Ronca, McDonald & Hanley 5 Regent Street, Suite 517 Livingston, New Jersey 07039

Attorneys for Appellants at No. 93-5777

BRIAN J. COYLE, ESQUIRE (ARGUED)
PETER E. MUELLER, ESQUIRE HARWOOD LLOYD, ESQUIRE

130 Main Street Hackensack, New Jersey 07601

WILLIAM H. JEFFRESS, JR., ESQUIRE Miller, Cassidy, Larroca & Lewin 2555 M Street, N.W., Suite 500 Washington, D.C. 20037

EDWARD M. DUNHAM, JR., ESQUIRE Miller, Dunham & Doering 1515 Market Street, 13th Floor Philadelphia, Pennsylvania 19102

Attorneys for Appellant, Aetna Casualty and Surety Company

KEVIN B. CLARK, ESQUIRE (ARGUED)
JOHN P. DEAN, ESQUIRE CONRAD J. SMUCKER, ESQUIRE Willkie, Farr & Gallagher Three Lafayette Centre, Suite 600 1155 21st Street, N.W. Washington, D.C. 20036

Attorneys for Appellee, Chemical Leaman Tank Lines, Inc.

THOMAS W. BRUNNER, ESQUIRE Wiley, Rein & Fielding 1776 K Street, N.W. Washington, D.C. 20006

Attorney for Amicus Curiae Appellant, Insurance Environmental Litigation AssociationKAREN L. JORDAN, ESQUIRE

Office of Attorney General of New Jersey Department of Law & Public Safety Richard J. Hughes Justice Complex Trenton, New Jersey 08625

Attorney for Amicus Curiae Appellee, State of NewJersey, New Jersey Department of Environmental Protection & Energy

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OPINION OF THE COURT

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SCIRICA, Circuit Judge.

Chemical Leaman Tank Lines, Inc. brought t his declaratory judgment action against Aetna Casualty and Surety Company and the London Market Insurers, seeking a d eclaration that defendants' insurance policies covered the cos t of environmental clean-up at Chemical Leaman's Bridgep ort, New Jersey facility. After a three week trial, a jury found Chemical Leaman was entitled to partial coverage under sever al policies. Thereafter the New Jersey Supreme Court decided Mor ton Intern., Inc. v. General Acc. Ins. Co., 629 A.2d 831 (N.J. 1 993), cert. denied, 114 S. Ct. 2764 (1994), which interprets se veral key provisions of comprehensive general liability insur ance policies in the context of environmental pollution. Defenda nt insurers now appeal, contending the district court incorrect ly instructed the jury on whether Chemical Leaman "expected or in tended" to cause environmental damage under Morton. We believ e Mortonrequires an inquiry into the insured's subjective intent to cau se environmental harm, unless "exceptional circumstanc es" support a presumption of the insured's subjective intent. Th erefore we conclude the district court's jury instructions wer e proper. Defendant insurers raise several other iss ues on appeal. They argue the district court mistakenly l imited the applicability of the policies' pollution exclusion clause, incorrectly adopted the "continuous trigger" theory as New Jersey law, and ignored the prejudicial effect of Chemical Leaman's failure to file its claims for coverage in a timely manner. They also dispute the district court's exclusion of evid ence relating

to environmental contamination at other Chemical Le aman facilities. We will affirm the district court's ho ldings on the pollution exclusion clause, the "continuous trigger " theory, and timely notice. We also conclude that the exclusion of certain

evidence was within the sound discretion of the dis trict court. I. Background A. Contamination at the Bridgeport Faci lityChemical Leaman Tank Lines, Inc., a tank t ruck company

that specializes in the transport of chemicals and other liquids, operates a number of tank truck cleaning facilities around the country, including one in Bridgeport, New Jersey. At the Bridgeport facility, Chemical Leaman disposed of ri nsewater contaminated with chemical residue during the clean ing process into a water treatment system designed by Harry Els ton, Chemical Leaman's Manager of Real Estate and Engineering, an d Harry Wagner, a professional sanitary engineer. At its i nception in 1960, the Bridgeport water treatment system consist ed of three unlined ponds connected by "tee pipes." The ponds were intended to purify rinsewater by filtering out contaminants as the water seeped into the soil. The designers of the system believed that the forces of gravity would separate contaminates f rom the rinsewater, and that natural processes of aerobic a nd anaerobic microbial degradation would break down trace contam inants. An overflow pipe drained from the final pond of the wa ter treatment system into an adjacent swamp in order to allow wat er to escape in the case of heavy rains. In September 1961, an Inspector with the N ew Jersey
Division of Fish Game & Wildlife informed Chemical Leaman that its water treatment system was "not satisfactory." In response,
Chemical Leaman constructed two additional aeration lagoons and a settling lagoon with a limestone bed. The lagoons were designed to function in the same manner as the first three p onds. But the overflow pipe still drained from the last lagoon in to the neighboring swamp. Water pollution inspectors with the New Je rsey Department of Health observed discharge from the ov erflow pipe into the swamp in November 1968. They found the di scharge to be "highly pollutional" and ordered Chemical Leaman to submit a plan to improve its water treatment system. In May 1969 , Chemical Leaman submitted a plan, but state regulators found it to be unsatisfactory. Thereafter state regulators and Ch emical Leaman unsuccessfully attempted to reach agreement. Final ly, on January 28, 1974, Chemical Leaman and the New Jersey Depart ment of

Environmental Protection entered into a consent dec ree in which Chemical Leaman agreed to construct an approved wat er treatment facility. In 1975, Chemical Leaman arranged for it s wastewater to be treated by Du Pont and ceased to use the syst em of ponds and lagoons. Subsequently, Chemical Leaman drained the ponds and lagoons, dredged them, and filled them with brickba t, sand and

concrete. In 1980, a routine survey by the New Jerse y Department of Environmental Protection discovered groundwater contamination at and around the Bridgeport site. Subsequent inve stigations established that the ponds and lagoons were the pri mary source of groundwater contamination on the site, and that sev eral private wells near the facility were either contaminated or threatened

with contamination. The federal Environmental Prot ection Agency placed the Bridgeport site on the Superfund Nationa l Priorities List in 1984, and, in 1985, Chemical Leaman entered into a

consent order with the EPA. Chemical Leaman admitt ed liability under the Comprehensive Environmental Response, Compensation andLiabilities Act ("CERCLA") and agreed to remediate the Bridgeport

site or to pay for its remediation. Chemical Leaman gave notice of claims to A etna in April 1988, and to the London Market insurers ("LMI") in March 1989. Aetna and the LMI refused to defend or indemnify Ch emical Leaman for costs incurred in connection with the clean-up of the Bridgeport site. Chemical Leaman then filed this s uit.

B. The Insurance Policies Chemical Leaman purchased comprehensive ge neral liability insurance from Aetna covering successive years from April 1, 1959 through April 1, 1985. It purchased excess comprehensive general liability policies covering t he same period from the LMI. The LMI challenge the district court' s interpretation of several provisions of the policie s purchased by

Chemical Leaman. Because Aetna has withdrawn from this appeal, we need not discuss its policies. The LMI policies were standard form "occur rence-based" policies, meaning they insured against "occurrences " as defined in the policies. The insuring clause in the LMI po licies typically stated that the LMI agreed: [s]ubject to the limitations, terms and conditions [of the policy] to indemnify th e Assured for all sums which the Assured sha ll be obligated to pay by reason of the liability . . . imposed upon the Assured b y law, . . . for damages . . . on account of : . . . (ii) Property Damage . . . caused by or arising out of each occurrence. The LMI policies defined "occurrence" as "[a]n acci dent or a happening or event or a continuous or repeated expo sure to conditions which unexpectedly and unintentionally r esults in . . . property damage . . . during the policy pe riod" (emphasis added). The combined effect of the insur ing clause and the definition of "occurrence" is to preclude cover age for property damage that is expected or intended by the insured. On appeal, the LMI contend the district court incorrec tly instructed the jury on the legal standard by which to evaluate Chemical Leaman's expectation or intention to cause property damage. Each LMI policy in effect from 1971 to 198 5 also contained a pollution exclusion clause. The LMI po licies in effect from April 1, 1971 to April 1, 1974, and fro m April 1, 1977 to April 1, 1985 contained the standard form e xclusion known as NMA 1685. NMA 1685 does not cover personal inju ry or property damage caused by seepage, pollution, or contaminati on unless "such seepage, pollution or contamination is caused by a sudden, unintended and unexpected happening during the peri od of [the] insurance." The LMI policies in effect from April 1, 1974 to April 1, 1977 contained the standard industry pollu tion exclusion clause, the so-called "ISO" pollution exclusion, wh ich precludes coverage for pollution and contamination, unless th e "discharge, dispersal, release or escape is sudden and accident al." Both the ISO pollution exclusion clause and the NMA 1685 pol lution

exclusion clause focus on the insured's intention a nd expectation to discharge pollutants, not on the insured's inten tion orexpectation to cause property damage. On appeal, t he LMI argue

the pollution exclusion clauses bar coverage under the 1971 to 1985 policies because Chemical Leaman's discharges of pollutants were not sudden, unintended, or unexpected. Finally, the LMI policies require the insu red to provide written notice "as soon as practicable" fol lowing an occurrence. The LMI argue that Chemical Leaman's f ailure to comply with this provision bars coverage. II. Procedural History Chemical Leaman filed this declaratory jud gment action in 1989 after the insurers' refusal to indemnify it for the costs of environmental clean-up at the Bridgeport facilit y. Following extensive discovery, the parties filed cross-motion s for summary judgment on various grounds. The district court gr anted partial summary judgment in favor of Chemical Leaman, holdi ng that New Jersey law applied, and that the "owned property ex clusion" did not bar coverage for the costs of remediation of on site soil contamination designed to correct injury to surroun ding properties. See Chemical Leaman Tank Lines, Inc. v . Aetna Cas. & Sur. Co., 788 F. Supp. 846 (D.N.J. 1992). After subsequent cross-motions for summary judgment,

the district court held Chemical Leaman bore the bu rden of proving it did not subjectively expect or intend th e damage to the soil and groundwater for which it sought covera ge. SeeChemical Leaman Tank Lines, Inc. v. Aetna Cas. & Sur. Co., 817 F. Supp. 1136, 1146 (D.N.J. 1993). It also found Chem ical Leaman's actions were not so "reprehensible" as to objective ly establish that it expected or intended to cause damage. Id. The court then denied the cross-motions for summary judgment because there remained genuine issues of fact about Chemical Leam an's subjective intent. Id. at 1152.

The district court also held as a matter o f law that damage to the soil and groundwater occurred during the April 1, 1960 to April 1, 1961 policy year because Chemical Leaman began depositing rinsewater in the ponds during that time period. The district court noted that from 1960 to 1975, Chemic al Leaman disposed of 10,000 to 20,000 gallons of rinsewater into the ponds each day, but did not find that property damage occ urred during that period as a matter of law. Id. Rather, it ru led that New Jersey follows the "continuous trigger" theory and that factual

issues remained as to whether Chemical Leaman suffe red continuous, indivisible property damage from 1961 t o 1985. The district court interpreted the polluti on exclusion clauses in the LMI's post-1971 policies as precludi ng coverage "when the insured has caused the discharge of conta minants or pollutants, unless the discharge was neither expect ed nor intended from the standpoint of the insured." Id. at 1157. On the basis of the pollution exclusion clauses, the d istrict court granted partial summary judgment in favor of defend ants as to soil damage on the post-1971 policies. It denied s ummary judgment with respect to groundwater contamination, and did not address contamination to the surrounding wetlands. Id. Finally,

the district court held Chemical Leaman's failure t o give timely notice of its claims did not preclude insurance cov erage becausethe delay had not prejudiced the defendant insurers . Id. at

1157-58. Before trial, Chemical Leaman filed a moti on in limineto exclude evidence relating to waste disposal sites other tha n Bridgeport. The district court granted the motion, holding the other-site evidence more prejudicial than probative and unduly time consuming. After a three week trial, the jury found t hat Chemical Leaman was entitled to coverage for damage to the s oil and wetlands under the April 1, 1960 to April 1, 1971 p olicies, and to coverage for damage to the groundwater under the April 1, 1960 to April 1, 1981 policies. In reaching its verdict , the jury answered detailed interrogatories on Chemical Leama n's intent and expectation to cause property damage and to dischar ge pollutants during each policy year. After oral argument befor e this Court,

Chemical Leaman and Aetna settled all claims arisin g from this dispute. The LMI now appeals the district court's legal determinations and the jury's verdict. We have jurisdiction to review the final j udgment of

the district court under 28 U.S.C.  1291. The district court held New Jersey law governs, which the parties do n ot dispute. Chemical Leaman Tank Lines, Inc. v. Aetna Cas. & Su r. Co., 788 F. Supp. at 851. As a federal court sitting in divers ity, we must apply the substantive law of New Jersey. Borse v. Pierce Goods Shop, Inc., 963 F.2d 611, 613 (3d Cir. 1992). Our review of the district court's interpretation of New Jersey law i s plenary. Wiley v. State Farm Fire & Cas. Co., 995 F.2d 457, 459 (3d Cir. 1993).

III. Occurrence-Based Insurance Policies and "Expected or Intended" Chemical Leaman purchased "occurrence-base d" comprehensive general liability insurance from the LMI that provided coverage for "[a]n accident or a happening or event or a continuous or repeated exposure to conditions which unexpectedly and unintentionally results in . . . property damag e." The LMI contend that because Chemical Leaman "expected" or "intended" to cause property damage at the Bridgeport site, the p olicies do not provide coverage. New Jersey courts have been called upon re peatedly to interpret the "expected/intended" clause in occurre nce-based insurance policies. They have sought to balance th e need to compensate victims against the public policy of det erring intentional wrongdoing by denying coverage for its consequences. In companion cases, Voorhees v. Preferred Mut. Ins. Co., 607 A.2d 1255 (N.J. 1992), and SL Industries, Inc. v. Americ an Motorists Ins. Co., 607 A.2d 1266 (N.J. 1992), the New Jersey Supreme Court addressed how the "expected/intended" clause should be interpreted in order to strike the correct balance. In Voorhees, the New Jersey Supreme Court held the accidental nature of an occurrence is determined by analyzing whether the insured subjectively intended or expect ed to cause an injury. Voorhees v. Preferred Mut. Ins. Co., 607 A .2d at 1264. The court explained: That interpretation prevents those whointentionally cause harm from unjustly

benefitting from insurance coverage while providing injured victims with the greates t chance of compensation consistent with the need to deter wrong-doing. It also accord s with an insured's objectively-reasonable expectation of coverage for unintentionall y- caused harm. Id. at 1264. The court emphasized, "[e]ven when th e actions in question seem foolhardy and reckless, the courts ha ve mandated an inquiry into the actor's subjective intent to cause injury." Id. The court also recognized an "exceptional circumstances" exception to the subjective intent i nquiry. When the actions are particularly reprehensible, the intent to injure can be presumed from the act without an inquiry i nto 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. The court cited to sexual assault aga inst children as an example of an act that is "so inherently inju rious" that an intent to injure can be presumed. Id. In SL Industries, the court confronted the question "whether any intent to injure will render the resul ting injury intentional [and preclude coverage], whether the wr ongdoer must intend the specific injury that results, or whether there is some middle ground between the two approaches." SL Indu stries, Inc. v. American Motorists Ins. Co., 607 A.2d at 1277 (e mphasis in original). After evaluating alternative theories, the court adopted the "middle ground," which it summarized as follows: Assuming the wrongdoer subjectively intend s or expects some sort of injury, that inten t will generally preclude coverage. If ther e is evidence that the extent of the injurie s was improbable, however, then the court mu st inquire as to whether the insured subjectively intended or expected to cause that injury. Lacking that intent, the inj ury was "accidental" and coverage will be provided. Id. at 1278. SL Industries involved an allegation of intentional fraud that "presupposes a general subjective intent to injure." Accordingly the New Jersey Supreme Court remanded t he cases for a determination of whether the injury suffered by the victim was improbable, and if so, whether the insured intended or expected the victim's actual injuries. Id. at 1279. The co urt noted this approach "conforms to an insured's objectively-reas onable expectations and provides the victim the greatest p ossibility of additional compensation consistent with the goal of deterring intentional wrongdoing." Id. The New Jersey Supreme Court addressed the expected/intended clause of comprehensive general l iabilitypolicies in the environmental pollution context in Morton

Intern., Inc. v. General Acc. Ins. Co., 629 A.2d 83 1 (N.J. 1993), cert. denied, 114 S. Ct. 2764 (1994). It attempted to apply the principles established in Voorhees and SL Industrie s, but was forced to "acknowledge the impracticality of adhere nce to the general rule that `we will look to the insured's su bjective intent to determine intent to injure.'" Id. at 879 . The court then elaborated upon Voorhees' "exceptional circums tances" exception, which allows an intent to injure to be p resumed without inquiry into the actor's subjective intent. [W]e hold that in environmental-cover age litigation a case-by-case analysis is required to determine whether, in the cont ext of all the available evidence, "exceptiona l circumstances exist that objectively establish the insured's intent to injure." Voorhees, 607 A.2d at 1265. Those

circumstances include the duration of the discharges, whether the discharges occurre d intentionally, negligently, or innocently, the quality of the insured's knowledge concerning the harmful propensities of the pollutants, whether regulatory authorities attempted to discourage or prevent the insured's conduct, and the existence of subjective knowledge concerning the possibility or likelihood of harm. Id. at 879-80. The court cautioned, "insureds held responsible for remediation of environmental pollution vary sig nificantly in their degree of culpability for the harm caused by pollutant discharges." Therefore, "[a] general rule in envir onmentalpollution coverage litigation that would permit int ent to injure to be presumed simply on the basis of a knowing dis charge of pollutants would be unjustified." Id. at 879. The New Jersey Supreme Court applied the f actors it had outlined to determine whether "exceptional circumst ances" supported the presumption of an intent to cause pro perty damage. It noted Morton and predecessors had polluted Berry 's Creek to such an extent that "[f]or a stretch of several tho usand feet, the concentration of mercury . . . [was] the highes t found in

fresh water sediments in the world." Id. at 834. This damage was caused by the discharge of pollutants from a me rcuryprocessing plant over a period of at least eighteen , and perhaps as many as forty-five, years. Id. at 882. Moreove r, for at least eighteen years the discharges had been intent ional, even though the company knew they would cause environmen tal harm. Despite repeated complaints by regulatory agencies, Morton engaged in "a pattern of `stonewalling' . . . chara cterized by promises of compliance that consistently were unful filled." Id. On the basis of these facts, the court held, it "wo uld have ignored reality to conclude that [Morton's] predece ssors did not know that the mercury and its effluents was [sic] h armful to the

land over which it coursed and the waters into whic h it fell." Id. at 884. Therefore, it held as a matter of law that theproperty damage was not caused by an "occurrence" w ithin the

meaning of the applicable insurance policies. Morton's presumption of an insured's subje ctive intent to cause property damage from egregious circumstanc es does not hinge on whether the insured should have expected o r intended to cause injury. This would be akin to a negligence s tandard. If negligent acts did not fall within the definition o f a covered occurrence, then there would be no point in purchas ing comprehensive general liability insurance. Pittsto n Co. v. Allianz Ins. Co., 905 F. Supp. 1279, 1301 (D.N.J. 1 995). While Morton pragmatically acknowledges courts should not "ignore reality" when exceptional circumstances establish t he insured's subjective intent to injure, the insured's subjecti ve intent to cause injury remains the relevant inquiry under the occurrence language. In Morton, the New Jersey Supreme Court al so addressed the applicability of SL Industries' improbability r ule in environmental pollution coverage litigation. It ex plained: Turning to the question of whether environmental injury was intended or expected, we first observe that although t he magnitude of damage to Berry's Creek and t he surrounding areas may exceed any intention or expectation attributable to Morton's predecessors, we do not consider differenc es in harm relating to severity of environmen tal damage give rise to a finding of "improbability" of harm that invokes the n eed for evidence of subjective intent. SL Industries, supra. . . . The holding of SL Industries was based on the Appellate Division's ruling . . . that in a coverage action arising from a fight between two yo ung teenagers in which one sustained a broken hip, a factual issue was presented because of the inherent improbability that the skirmi sh would result in a hip fracture. No such inherent "improbability" can be ascribed t o the environmental damage attributable to Morton's predecessors. Morton Intern., Inc. v. General Acc. Ins. Co., 629 A.2d at 882 (citations omitted). Therefore the court concluded it did not have to inquire into Morton's subjective intent to cause the specific environmental damage at issue. In this case, the district court interpret ed New Jersey law on the "expected/intended" clause before the Ne w Jersey Supreme Court's decision in Morton. Nevertheless, it instructed the jury to determine whether Chemical Leaman subje ctively expected or intended to cause property damage at th e Bridgeport site. At the end of trial, on the LMI's Rule 50(a) motion for judgement as a matter of law, the district court fo und that the harm to the environment caused by the Bridgeport wa ter treatment system was improbable as a matter of law. The dist rict court also held Chemical Leaman's actions were not so rep rehensible asto justify the presumption of an intent to cause pr operty damage

under the "exceptional circumstances" exception. I t concluded Chemical Leaman was not "throwing toxic waste out i nto the meadow-lands" as Morton and its predecessors had do ne; rather, it had "designed and built the facility to prevent [ha rm to the environment]." Chemical Leaman Tank Lines, Inc. v. Aetna Cas. & Sur. Co., 817 F. Supp. at 1146. On appeal, the LMI argue the district cour t's jury instructions on the expected/intended issue were er roneous and inconsistent with New Jersey law. They also assert the harm at the Bridgeport site was not improbable as a matter of law. Finally, they contend "exceptional circumstances" o bjectively establish Chemical Leaman's intent to cause propert y damage. Our review of jury instructions is plenary. See Hook v . Ernst & Young, 28 F.3d 366, 370 (3d Cir. 1994). A jury cha rge, taken as a whole, must "fairly and adequately" submit the is sues in the case to the jury. Id. A. Jury Instruction on Expected/Intend ed The district court instructed the jury tha t it should

find for Chemical Leaman if Chemical Leaman did not subjectively expect or intend damage to the soil, groundwater, o r wetlands at the Bridgeport site. Midway through the trial, the court instructed the jury: There are three kinds of damage at issue i n this case--soil contamination, groundwater contamination, and swamp contamination . .

. You must evaluate Chemical Leaman by what you believe were its actual, subjective expectations or intentions with regard to causing soil, groundwater and swamp damage

.

. . At the end of the trial, the district court again i nstructed the jury:

"EXPECTED OR INTENDED" -- FOCUS ON DAMA GE

In determining Chemical Leaman's expectations and intentions in the context of basic coverage, you are instructed to focu s on whether the specific property damage wa s expected or intended. You are not to

consider whether the acts which caused tha t property damage were intentional acts. I give you this instruction because it is Ne w Jersey law the unintended results of intentional acts may be covered by defendants' insurance policies. Thus, eve n though Chemical Leaman may have knowingly and intentionally committed the acts that ultimately led to the environmental damage at the Bridgeport site, there still may be insurance coverage as long as you find tha t Chemical Leaman did not expect or intend t he specific property damage that is the subje ct matter of this litigation, namely thecontamination of the soil, groundwater, or

wetlands.

"EXPECTED OR INTENDED" -- SPECIFIC DAMAGE S TANDARD

I further instruct you that, in decid ing whether Chemical Leaman subjectively expec ted or intended to cause property damage, you

must consider whether Chemical Leaman subjectively expected or intended the very damage that is the subject matter of this case. Thus, it is not sufficient for you to find that Chemical Leaman expected or intended any injury -- such as injury to t he environment generally. Rather, you must determine whether Chemical Leaman expected or intended the actual property damage that i t is now required to clean-up. In addition, special interrogatories were submitted to the jury on Chemical Leaman's expectation and intention to c ause damage to the soil, groundwater, and wetlands.

The LMI contend the district court's final jury

instruction was erroneous because it instructed the jury "to focus on whether the specific property damage"--nam ely contamination to the soil, groundwater, or wetlands --"was expected or intended." They argue the district sho uld have instructed the jury that if Chemical Leaman "expect ed or intended" to cause some injury to the environment g enerally, then coverage was precluded unless the extent of the inj ury was improbable. The LMI rely on SL Industries, in whic h the New Jersey Supreme Court stated: Assuming the wrongdoer subjectively intend s or expects some sort of injury, that inten t will generally preclude coverage. If ther e is evidence that the extent of the injurie s was improbable, however, then the court mu st inquire as to whether the insured subjectively intended or expected to cause that injury. Lacking that intent, the inj ury was "accidental" and coverage will be provided. SL Industries, Inc. v. American Motorists Ins. Co., 607 A.2d at

1278. The LMI contend Chemical Leaman intended to cause some injury because Chemical Leaman knew the rinsewater contained contaminants, and knew the contaminants would seep into the soil when deposited in the containment ponds. They asse rt Chemical Leaman also knew discharges from the overflow pipe would drain into the swamp. Therefore, they argue, Chemical Le aman intended "some sort of injury" as a matter of law, and cover age was precluded unless the extent of injury was improbabl e. Although the LMI's argument possesses a ce rtain appeal, we believe the New Jersey Supreme Court would rejec t it. An insured who intentionally discharges a known pollut ant generally intends "some sort of harm," however de minimis, an d the harmthat actually results is usually a probable result of the

discharge. Accordingly, the LMI's reading of SL In dustries would result in a general rule precluding coverage based on the knowing discharge of a pollutant. But in Morton Intern., I nc. v. General Acc. Ins. Co., 629 A.2d at 879-80, the New Jersey S upreme Court held "a general rule . . . [precluding coverage] si mply on the basis of a knowing discharge of pollutants would be unjustified." The LMI's reading of SL Industries' "some sort of i njury" language conflicts with Morton. Moreover, in SL Industries, the New Jersey Supreme Court confronted the problem of insurance coverage for injury caused by intentional, tortious conduct, namely int entional fraud. But intentional tort cases are an imperfect analogy in the context of environmental pollution. The insure d who commits an intentional tort like fraud possesses some knowl edge of the nature of the harm likely to result and intends to cause such harm. Also, most intentional torts are committed i n a single, discrete, and temporally limited incident. In the context of environmental pollution, the insured's knowledge co ncerning the harmful propensities of pollutants and the likeliho od of harm to the environment may be less complete and may vary s ignificantly over time. For example, it is a matter of historic al fact that many insureds, acting in accordance with standard i ndustry practices, intentionally discharged pollutants into unlined containment ponds or other inadequate waste treatme nt systems, but were unaware that groundwater damage would even tually result. In Morton, the New Jersey Supreme Court ac knowledged the unsuitability of prior case law on the expected /intended provision in environmental pollution coverage litig ation. Morton, 629 A.2d at 879 ("In applying our holding i n Voorhees to claims seeking coverage for property-damage caused by environmental pollution under occurrence-based CGL policies, we acknowledge the impracticality of adherence to the general rule that `we will look to the insured's subjective inte nt to determine intent to injure.'"). We believe the NewJersey Supreme Court would similarly reject a wooden appli cation of SL Industries' "some sort of injury" language, and wou ld instead look to the general principles underlying the inter pretation of insurance-policy provisions involving intentional c onduct. As stated by the New Jersey Supreme Court: Our goal is to interpret the insurance provisions in light of the insured's objectively reasonable expectations. . . . [W]e must attempt to reconcile two goals: that of deterring intentional wrongdoing b y precluding insurance indemnification, and that of providing victims with compensatio n to the extent that compensation will not interfere with deterring injurious behavio r. SL Industries, Inc. v. American Motorists Ins. Co., 607 A.2d at 1278. We will apply these principles in this case. In the environmental pollution context, th e insured's appreciation of the magnitude and nature of harm li kely to be caused by a discharge of pollutants is relevant in determiningwhether insurance coverage should be precluded.

When the injury caused significantly excee ds the injury intended or expected . . . then it is hard to characterize the injury as trul y "intentional." . . . Moreover, if the tortfeasor did not intend or expect to cau se the resulting harm, denying coverage will not deter the harmful conduct. In that case, there is no policy justification for denyi ng the victim the possibility of additional compensation. SL Industries, Inc. v. American Motorists Ins. Co., 607 A.2d at

1278. If an insured does not understand the causal connection between the discharge of a pollutant and the proper ty damage that results, deterrence is not served by precluding ins urance coverage. Moreover, where an insured does not inte nd or expect property damage of a particular nature to result fr om its discharge of pollutants, the insured has an "object ively reasonable expectation" of coverage should such pro perty damage later manifest itself. For these reasons, we canno t agree with the LMI's contention that some intent to cause any sort of environmental harm will preclude insurance coverage for all environmental harm under New Jersey law. Rather we believe the New Jersey Supreme Court would inquire into the ins ured's intent or expectation to cause environmental harm of a par ticular sort, for example, whether the insured intended damage to the soil, groundwater, or wetlands. Where the insured intend s or expects such harm, coverage is precluded, unless, of course , the injury was improbable. On the other hand, an insured's in tent to cause environmental harm of one sort will not preclude co verage for other kinds of unintended and unexpected environmen tal harm. For example, an insured's intent to cause soil damage w ill not preclude coverage for unintended and unexpected dam age to the groundwater or wetlands. The district court's jury instruction fair ly and adequately asked the jury to consider whether Chemi cal Leaman expected or intended injury to the soil, groundwate r, or wetlands. The instruction also allowed the jury to consider the nature and extent of Chemical Leaman's knowledge re garding the likelihood of harm as that knowledge evolved over t ime. There was ample evidence supporting the jury's conclusion that Chemical Leaman did not expect or intend to cause property d amage. Chemical Leaman presented evidence that it believed the system of unlined ponds would cleanse contaminated rinsewater . Although Chemical Leaman intentionally discharged known poll utants, a reasonable jury could find, and the jury here did f ind, Chemical Leaman did not expect or intend damage to the soil, groundwater or wetlands. In light of the jury's findings, Chem ical Leaman is entitled to insurance coverage for the costs of cle an-up of environmental damage. Because Chemical Leaman did not expect or intend damage to the soil, groundwater, or wetlands , we need not inquire whether the property damage at the Bridgepo rt site was an improbable result of Chemical Leaman's actions. B. The "Exceptional Circumstances" Excep tionThe LMI contend that under Voorhees' "exce ptional

circumstances" exception, Chemical Leaman's intent to cause property damage should be presumed as a matter of l aw. As we have noted, in Morton the New Jers ey Supreme

Court set forth several factors to be considered in evaluating whether exceptional circumstances exist. These inc lude: the duration of the discharges, whether th e discharges occurred intentionally, negligently, or innocently, the quality of the insured's knowledge concerning the harmful propensities of the pollutants, whether regulatory authorities attempted t o discourage or prevent the insured's conduc t, and the existence of subjective knowledge concerning the possibility or likelihood o f

harm. Morton Intern., Inc. v. General Acc. Ins. Co., 629 A.2d at 879- 80. We believe the New Jersey Supreme Court design ed the "exceptional circumstances" exception to apply only to egregious conduct. This much is apparent from the court's us e of child

sexual abuse as an illustration of conduct that is "so inherently injurious" as to warrant a presumption of intent to injure. Id.at 879. Because "insureds held responsible for remediation of environmental pollution vary significantly in their degree of culpability for the harm caused by pollutant discha rges," we believe "[a] general rule in environmental-pollutio n coverage litigation that would permit intent to injure to be presumed simply on the basis of a knowing discharge of pollu tants would be unjustified." Id. at 879-880. Instead Morton mandates "a case-by-case an alysis . . . in order to determine whether, in the context of al l the available evidence, exceptional circumstances exist ." Id. Morton is instructive in considering the level of c ulpability required to allow intent to injure to be presumed i n the environmental context. In Morton, the insured inte ntionally discharged mercury-laden compounds directly into st reams over a lengthy period of time. The Department of Health a nd state engineers made repeated demands for compliance and the insured consistently disregarded its own promises to remedi ate the discharge. Morton, 629 A.2d at 882. "[T]he record fairly reflect[ed] a pattern of `stonewalling' on the part of [the insured], characterized by promises of compliance t hat consistently were unfulfilled." Id. We believe a reasonable jury could find Ch emical Leaman did not engage in a "pattern of stonewalling." On the contrary, a jury could conclude that Chemical Leaman's behavi or suggests a good faith effort at compliance with agency demands . Chemical Leaman initially designed the Bridgeport wastewater treatment system to purify contaminated rinseate in 1960. Th e designers of the system believed that the sandy bottom of the un lined ponds would purify the contaminated rinsewater by acting as a natural filter, and the overflow pipe was intended as a saf ety valve to prevent a rupture in the berms of the containment p onds in the event of heavy rain. When an inspector from the Po llution Unitof the New Jersey Division of Fish, Game & Wildlife advised

Chemical Leaman of an unsatisfactory discharge into a neighboring swamp in September 1961, Chemical Leaman responded by constructing a second set of lagoons and the final settling lagoon. Seven years later, water pollution inspect ors from the New Jersey Department of Health concluded discharge s from the lagoon were pollutional and, in February 1969, orde red Chemical Leaman to submit plans for a system to properly tre at the effluent. In May 1969, Chemical Leaman submitted a plan for a new rinsewater treatment system. The New Jersey De partment of Health rejected this plan and over the next four ye ars the parties attempted to resolve their dispute until Ja nuary 1974, when they entered into a consent judgment. This hi story can hardly be described as "a pattern of `stonewalling'

. . . characterized by promises of compliance that consis tently were unfulfilled." Morton, 629 A.2d at 882. Accordingl y, "exceptional circumstances" do not exist here that would permit a presumption of Chemical Leaman's subjective intent to cause property damage.

IV. Pollution Exclusion Clauses The April 1, 1971 to April 1, 1985 LM I policies contained pollution exclusion clauses barring cover age for discharges of pollutants, unless such discharges we re "sudden and accidental" or "sudden, unintended, and unexpected. " The LMI argued to the district court that coverage was prec luded because the discharge of pollutants at the Bridgeport site was not "sudden." The district court rejected the LMI's ar gument, relying on a line of New Jersey cases beginning wit h Broadwell Realty Serv., Inc. v. Fidelity & Cas. Co., 528 A.2d 76 (N.J. Super. App. Div. 1987). It held the word "sudden" is ambiguous-- sometimes carrying a temporal meaning and sometimes meaning "unexpected"--and should not be interpreted to excl ude coverage for environmental harm caused by gradual discharges over a prolonged period. It concluded, "[t]he pollution e xclusion precludes coverage when the insured has caused the discharge of pollutants, unless the discharge was neither expect ed nor intended from the standpoint of the insured." Chem ical Leaman Tank Lines, Inc. v. Aetna Cas. & Sur. Co., 817 F. S upp. at 1157. The district court then granted partial summary jud gment to the insurers with respect to soil damage because Chemic al Leaman intended to discharge contaminants into the soil. At trial, the jury found Chemical Leaman expected and intended di scharges to the swamp, but not to the groundwater. On appeal, the LMI contest their liability for groundwater damage. Subsequent to the district court's decisio n, the New Jersey Supreme Court addressed the standard form po llution exclusion clause in Morton Intern., Inc. v. General Acc. Ins. Co., 629 A.2d at 847-76. The New Jersey Supreme Co urt expressly overruled Broadwell, because it believed that the w ord "sudden" was not ambiguous. It held "`sudden' possesses a t emporal element, generally connoting an event that begins a bruptly or without prior notice or warning," and concluded tha t "the phrase `sudden and accidental' in the standard pollution-e xclusion clause describes only those discharges, dispersals, releases, andescapes of pollutants that occur abruptly or unexpe ctedly and are

unintended." Id. at 847. Nevertheless, the court refused to enforce the standard pollution exclusion as written because it found the insurance industry had misled state regul ators in securing its approval. Instead, the court held the pollution exclusion clause precludes coverage if the insured intentionally discharges a known pollutant, regardless of whether the insured expected or intended to cause property damage: [W]e perceive that regulators would reasonably have understood the effect of t he clause to have denied coverage for the intentional discharge, dispersal, release, or escape of known pollutants, whether or not the eventual damage was intended or expect ed from the standpoint of the insured. The industry's presentation of the clause to regulators described it as a clarification of the "intended and expected" clause of the

basic "occurrence" definition "so as to av oid any question of intent," and could fairly be understood as an attempt to override the issue whether damage was intended by excluding coverage for intentional dischar ges of known pollutants. Accordingly, we construe and give effect to the standard pollution-exclusion clause only to the ext ent that it shall preclude coverage for pollution-caused property damage caused by an "occurrence" if the insured intentionally discharged, dispersed, released, or caused the escape of a known pollutant. Id. at 848 (emphasis in the original). On appeal, the LMI contend the district co urt incorrectly instructed the jury that the pollution exclusion clause precludes coverage only if Chemical Leaman i ntentionally discharged known pollutants into the groundwater. First, the LMI argue Morton established that the word "sudden" has a temporal connotation--meaning "abrupt"--and precludes covera ge for gradual discharges, dispersals, releases, or escapes. Beca use Chemical Leaman discharged contaminated rinsewater over a pr olonged period, they argue, coverage should be precluded. The LMI acknowledge Morton's regulatory estoppel holding ge nerally prevents enforcement of the "sudden" requirement, b ut assert Morton does not apply to the LMI because (1) severa l of their policies contain the non-standard NMA 1685 pollutio n exclusion, and (2), they were not party to the misrepresentati ons made to regulatory authorities. Second, the LMI argue that even if Morton's regulatory estoppel holding applies, the p ollution exclusion clause bars coverage because Chemical Lea man intentionally discharged known pollutants. They ar gue the district court erred in requiring proof that Chemic al Leaman intended discharge into the groundwater, as opposed to into the environment generally. A. Regulatory Estoppel1. Non-Standard Pollution Exclusion

In Morton, the New Jersey Supreme Court ap plied regulatory estoppel to the ISO standard pollution e xclusion clause and did not address coverage issues relating to nonstandard pollution exclusion clauses. Morton Inter n., Inc. v. General Acc. Ins. Co., 629 A.2d at 881. The LMI ar gue that Morton's regulatory estoppel holding should not pre vent
enforcement of the term "sudden" in the non-standar d NMA 1685 pollution exclusion clause contained in certain of their policies. We believe this argument lacks merit. B oth the ISO standard pollution exclusion and the non-standard N MA 1685 pollution exclusion use the term "sudden." The NMA 1685 exclusion closely tracks the language of the standa rd pollution exclusion, and both pollution exclusion clauses cam e into use at about the same time. Indeed, the LMI argue the NMA 1685

exclusion and the standard exclusion are identical in scope because both exclude coverage for non-abrupt, non-s udden discharges and releases of pollutants. See also Po tomac Elec. Power Co. v. California Union Ins. Co., 777 F. Supp . 968, 978 n.23 (D.D.C. 1991) (defendant insurers admit there is "no material difference" between standard pollution exc lusion and NMA 1685 pollution exclusion). The New Jersey Supreme Court refused

to enforce the term "sudden" in Morton because the insurance industry mislead state regulators as to its effect when obtaining approval for the standard pollution exclusion claus e. We do not believe the New Jersey Supreme Court would enforce the term "sudden" in non-standard pollution exclusion clause s simply because other language in those clauses varies slig htly from that in the standard pollution exclusion. Therefore we conclude that Morton's regulatory estoppel holding applies to the NMA 1685 pollution exclusion as well as the standard polluti on exclusion. 2. Application of Regulatory Estoppel to t he LMI The LMI also argue that Morton's regulator y estoppel holding should not be applied to them because they did not affirmatively deceive New Jersey regulators in secu ring approval of the standard pollution exclusion. We cannot agr ee. The LMI's policies contained the standard pollution exclusion precluding coverage for non-sudden discharges or releases of p ollutants. They also contained the NMA 1685 pollution exclusio n, which closely parallels the language of the standard excl usion. Approval of the standard pollution exclusion clause was secured through misrepresentations to regulatory authoritie s. Regardless of whether the LMI themselves directly misrepresent ed the effect of the term "sudden" in the pollution exclusion cla uses, they benefitted from the misleading explanation of the e ffect of the standard pollution exclusion submitted to state reg ulators by insurance industry trade groups. The LMI did not i ndependently submit information to New Jersey regulators or atte mpt to explain the full impact of the term "sudden" in the polluti on exclusion clauses they used. Under these circumstances, we b elieve the New Jersey Supreme Court would not enforce the term "sudden" in the policies issued by the LMI. B. Intentional Discharge The LMI also argue the district court shou ld not haverequired separate findings with regard to intent to discharge

into the soil, wetlands, and groundwater. They con tend that if Chemical Leaman intended any discharge, whether to the soil, groundwater, or wetlands, then the pollution exclus ion clauses preclude coverage for all property damage arising f rom that discharge. Because the district court granted part ial summary judgment to the insurers with respect to discharges into the soil, the LMI argue, the district court should also have denied coverage for all resulting property damage, includi ng groundwater damage. The effect of the LMI's argument would be to require judgment in their favor as a matter of law on all p olicies containing a pollution exclusion. The LMI raised t his argument before the district court in a Rule 50(b) motion. The district court refused to consider the argument because the LMI had not raised it in their prior Rule 50(a) motion. Chemic al Leaman Tank Lines, Inc. v. Aetna Cas. & Sur. Co., No. 89-1543, slip op. at 4 (D.N.J. November 8, 1993). Motions for judgment as a matter of law mu st be made before submission of the case to the jury and must "specify the judgment sought and the law and facts on which the moving party is entitled to judgment" under Fed. R. Civ. P. 50(a )(2). We have reviewed the portions of the record cited to b y the LMI in their brief, and conclude that the LMI did not spec ify the "law and facts" entitling them to judgment in their summ ary judgment motion, their Joint Trial Brief, or their Rule 50(a ) motion before the district court. The LMI assert they ade quately raised the argument because they objected to the district court's jury instruction on the pollution exclusion clauses, sta ting: There was one other thing with respect to the pollution exclusion. Just to be perfectly clear. It's not my understanding that the law even where it does not recognize a temporal element for the sudden. It is no t required that there be an intent or an expectation to discharge a particular medi um, rather it's the discharge itself and where it goes. This should not be the subject of t he deliberation of the jury.

An objection to a jury charge can serve as a predic ate for a later Rule 50(b) motion only if the district court explicitly treated the objection as a Rule 50(a) motion. Bonj orno v. Kaiser Aluminum & Chemical Corp., 752 F.2d 802, 814-15 (3d Cir. 1984) ("A request for jury instructions may suffice to fu lfill the requirement that a motion for a directed verdict be made before granting a JNOV only if it is clear the district co urt treated the request as a motion for a directed verdict and ruled on it as such."), cert. denied, 477 U.S. 908 (1986); Lowenst ein v. PepsiCola Bottling Co. of Pennsauken, 536 F.2d 9, 11 (3d Cir.) (same), cert. denied, 429 U.S. 966 (1976). The district co urt did not treat the LMI's objection to the jury charge as a R ule 50(a) motion. Accordingly, we believe the district court correctly declined to hear the LMI's argument on their Rule 5 0(b) motion. "It is clear under our jurisprudence that this courtcannot reverse the district court's decision denyin g [a] Rule

50(b) motion for j.n.o.v. on the basis of an argume nt the [a party] failed to raise in support of its predicate Rule 50(a) motion for a directed verdict." Simmons v. City of Philadelphia, 947 F.2d 1042, 1077 (3d Cir. 1991), cert. denied, 5 03 U.S. 985 (1992); see also Lightning Lube, Inc. v. Witco. Cor p., 4 F.3d 1153, 1172 (3d Cir. 1993) ("In order to preserve an issue for judgment pursuant to Rule 50(b), the moving party m ust timely move for judgement as a matter of law at the close of the nonmovant's case, pursuant to Rule 50(a), and speci fy the grounds for that motion."). The LMI did not raise their ar gument in their Rule 50(a) motion. Therefore we will not add ress it on appeal. We believe the LMI's objection to the dist rict court's jury instruction was also insufficient to preserve their argument for appeal under Fed. R. Civ. P. 51. In order to p reserve an objection to a jury instruction, a party must "obje ct[] thereto before the jury retires to consider its verdict, st ating distinctly the matter objected to and the grounds o f the objection." Fed. R. Civ. P. 51. The purpose of Ru le 51 is to "afford the trial judge an opportunity to correct t he error in her charge before the jury retires to consider its verdict and to lessen the burden on appellate courts by diminishin g the number of rulings at the trial which they may be called on to review." Dunn v. HOVIC, 1 F.3d 1371, 1379 (3d Cir.) (in banc ), modified, 13 F.3d 58, and cert. denied, 114 S. Ct. 650 (1993) . We believe the LMI's objection did not identify the issue they now argue on appeal with sufficient clarity to give the trial ju dge notice of a possible error in the instruction. Not only was the objection difficult to understand because of its convoluted g rammar, but the objection did not specify the authority upon wh ich it was based. Therefore the LMI's objection failed to comply with Rule 51's requirement that an objection "stat[e] distinc tly . . . the grounds of the objection" and did not preserve the LMI's argument for appeal. See United States v. Zannino, 895 F.2d 1, 17 (1st Cir), ("Judges are not expected to be mindreaders. Consequently, a litigant has an obligation to spell out its argum ents squarely and distinctly, or else forever hold its peace."), cert. denied, 494 U.S. 1082 (1990). "In the absence of a party's preservation of an assigned error for appeal, we review for plain erro r, and our power to reverse is discretionary." Fashauer v. Ne w Jersey Transit Rail Operations, Inc., 57 F.3d 1269, 1289 ( 3d Cir. 1995). Particularly in the civil context, we exercise our power to reverse for plain error sparingly. Id.; see also U nited States v. Carson, 52 F.3d 1173, 1188 (2d Cir. 1995) ("plai n error review is only appropriate in the civil context where the error is so serious and flagrant that it goes to the very integ rity of the trial."), cert. denied, 116 S. Ct. 934 (1996). Bec ause we do not believe any mistake in the district court's jury in structions on the pollution exclusion clause was so fundamental a s to amount to plain error, we decline to exercise our discretion to reverse.
V. Other-Site EvidenceBefore trial, Chemical Leaman made a motio n in limineto exclude

evidence relating to environmental problems at othe r tank truck cleaning facilities it operated. The di strict court granted this motion under Federal Rule of Evidence 403 because it found the probative value of the evidence substanti ally outweighed by the danger of unfair prejudice, jury confusion, and undue waste of time. Chemical Leaman Tank Lines, I nc. v. Aetna Cas. & Sur. Co., No. 89-1543, slip op. at 4-5 (D.N. J. March 17, 1993). The LMI argue the district court abused it discretion in excluding evidence of environmental pollution at other Chemical Leaman cleaning facilities. They contend the evidence

from other sites tended to establish Chemical Leama n knew its system of unlined ponds at Bridgeport would cause p roperty damage, including harm to the groundwater. They al so insist that such evidence should have been allowed to impeach t he testimony of Harry Elston, the designer of all Chemical Leama n's waste treatment facilities, even if not allowed in their case-in-chief. We review the district court's rulings on the admis sibility of

evidence for an abuse of discretion. See Tait v. A rmor Elevator Co., 958 F.2d 563, 568 (3d Cir. 1992).

The district court noted the evidence the LMI sought to introduce had limited probative value because its r elevance depended upon an extended chain of reasoning linkin g it to the Bridgeport site: the jury would have to evaluate the variou s explanations offered by Chemical Leaman on why its knowledge of alleged problems at

other sites did not translate into an expectation or intention that the rinsewat er treatment system in Bridgeport would cause damage. These explanations include, among others, whether damage actually occurred a t the other sites; and whether the geologica l

and other conditions at the other sites we re significantly different or substantially t he same as at Bridgeport. . . . [T]he probati ve value of the proffered other site evidence is remote because it necessarily depends upon these intermediate findings. Chemical Leaman Tank Lines, Inc. v. Aetna Cas. & Su r. Co., No. 89-1543, slip op. at 4-5 (D.N.J. March 17, 1993). T he district court believed that for the jury properly to evalua te this evidence, a series of mini-trials relating to each site would have been required. Such mini-trials, the court co ncluded, would cause undue delay and mislead and confuse the jury as to the ultimate factual issue, namely Chemical Leaman's su bjective intent to cause harm at the Bridgeport site. Id. Moreover, the

district court held that the other site evidence ca rried with it a significant danger of unfair prejudice. On the b asis of such evidence, the court noted, the jury might have igno red New Jersey law on the insured's subjective intent and applied an objective test assessing whether "Chemical Leaman should have known that its rinsewater treatment system would cause damage. " Id.In light of the district court's balancing of the

probative value of the proffered evidence against i ts prejudicial effect and the potential for jury confusion and del ay, we cannot say the district court abused its discretion in exc luding the

other site evidence. VI. Continuous Trigger The New Jersey Supreme Court adopted the " continuous trigger" theory to identify the time of an "occurre nce" in OwensIllinois, Inc. v. United Ins. Co., 650 A.2d 974 (N. J. 1994). The continuous trigger theory recognizes that "when pro gressive indivisible injury or damage results from exposure to injurious conditions for which civil liability may be imposed , courts may reasonably treat the progressive injury or damage a s an occurrence within each of the years of a CGL policy ." Id. at

995. The conceptual underpinning of the continuous-trigger theory, then, is that injury occurs during each phase of environmental contamination--exposure, exposure in residence (defined as further progression of environmental injury even after exposure has ceased), and manifestat ion

of disease.

Id. at 981. In Owens-Illinois, the New Jersey Supreme Court also addressed the allocation of losses between multiple insurers and the insured when the continuous trigger theory esta blishes an occurrence in several different policy years. It h eld "[a] fair method of allocation appears to be one that is rela ted both to the time on the risk and the risk assumed," id. at 995, "i.e., proration on the basis of policy limits, multiplied by years of coverage," id. at 993. Owens-Illinois involved a suit for persona l injuries resulting from exposure to asbestos, but the New Je rsey Supreme Court made clear the continuous trigger theory exte nds to property damage claims resulting from long-term env ironmental contamination. It concluded, "[p]roperty-damage ca ses are analogous to the contraction of disease from exposu re to toxic substances like asbestos. Like a person exposed to toxic elements, the environment does not necessarily disp lay the harmful effects until long after the initial exposu re." Id. at 983; see also Astro Pak Corp. v. Fireman's Fund Ins . Co., 665 A.2d 1113, 1117 (N.J. Super. App. Div.) (same), cer tif. denied, 670 A.2d 1065 (N.J. 1995). Although considering the issue before the New Jersey Supreme Court's decision in Owens-Illinois, the dis trict court applied the continuous trigger theory, ruling all o f the LMI's policies from 1960 through 1985 had been triggered by the environmental contamination at the Bridgeport site, unless a policy exclusion barred coverage. Chemical Leaman Tank Lines, Inc. v. Aetna Cas. & Sur. Co., 817 F. Supp. at 1153 -54. The district court also held that all insurance policie s activated by a continuing occurrence are jointly and severally l iable to policy limits for property damage resulting from th e occurrence.Id.

On appeal, the LMI contend the New Jersey Supreme Court would not recognize the continuous-trigger theory. In light of the intervening decision in Owens-Illinois, this ar gument is meritless. On the other hand, the LMI correctly di spute the district court's holding that all policies are join tly and severally liable under the continuous trigger theor y. Because the New Jersey Supreme Court rejected joint and sev eral liability in favor of a risk-based allocation of liability am ong applicable insurance policies in Owens-Illinois, we will reman d this matter

to the district court for a reallocation of liabili ty between the insurers and among the triggered policies in accord ance with

Owens-Illinois.

The LMI also contend that Chemical Leaman failed to prove property damage occurred during each policy y ear from 1960- 70, and therefore the district court erred in findi ng as a matter of law that property damage occurred in the 1960-61 policy year, and in denying their summary judgement motion with respect to the 1961-70 policy years. Under the continuous trigger theory, exposure to the harm causing agent is sufficient to trigger potential coverage. Actual manifestation of the in jury is not required, so long as there is a continuous, indivis ible process resulting in damage. Owens-Illinois, Inc. v. Unite d Ins. Co., 650 A.2d at 981 ("injury occurs during each phase o f environmental contamination--exposure, exposure in residence . . . and manifestation of disease"); Morrone v. Harley sville Mut. Ins., 662 A.2d 562, 564 (N.J. Super. App. Div. 1995 ) (exposure to gasoline sufficient to trigger occurrence). It is undisputed that Chemical Leaman discharged contaminated rinsew ater into the unlined ponds and lagoons in every year from 1960-7 0. Moreover,

the district court found as a factual matter that " contaminated rinsewater from the three settling ponds started mi grating through the soil to underlying groundwater almost i mmediately after beginning pond operation in 1960." Chemical Leaman Tank Lines, Inc. v. Aetna Cas. & Sur. Co., 817 F. Supp. at 1148. Accordingly, the district court correctly concluded as a matter of law that property damage occurred upon initial e xposure in 1960, and should have concluded as a matter of law that property damage occurred in each policy period from 1961-70. The LMI, of course, were not prejudiced by the district court's error. Finally, the LMI assert the district court incorrectly instructed the jury on the meaning of "property dam age" in the underlying policies. Specifically, they object to the instruction that "Chemical Leaman may be entitled t o coverage under the defendants' insurance policies for proper ty damage that occurs during a policy period, but that originally began during an earlier policy period." They argue Chemical Lea man was required to prove "actual injury" during each polic y period, and the jury incorrectly equated exposure to pollutants with property damage. Under the continuous trigger theory, proof of actual injury in the sense of manifestation of injury is n ot required. The jury could find property damage occurred during a policy period so long as there is proof that a continuous, indivisible process of injury occurred during that period. The districtcourt's jury charge was not erroneous.

VII. Late Notice Chemical Leaman failed notify its insurers of its claim relating to the Bridgeport facility until 1988, fou r years after

it entered into a consent decree with the EPA admit ting liability under CERCLA, and even longer after the underlying events that

harmed the environment. The LMI assert this failur e violated the notice provisions of the policies and relieves them from any obligation to provide insurance coverage. An insurer that seeks to disclaim coverage based upon untimely notice from its insured under an occurrenc e-based policy must demonstrate that it has suffered "appreciable prejudice." Cooper v. Government Employees Ins. Co., 237 A.2d 8 70 (N.J. 1968); Med. Inter Ins. Exchange v. Health Care Ins. Exchange, 651 A.2d 1029, 1033 (N.J. Super. App. Div.), certif. de nied, 658 A.2d 728 (N.J. 1995). Lower courts in New Jersey have i dentified two relevant factors in determining whether an insurer has suffered prejudice justifying a denial of coverage: "whethe r substantial rights have been irretrievably lost by virtue of th e failure of the insured to notify the carrier in a timely fashi on," Morales v. National Grange Mut. Ins. Co., 423 A.2d 325, 329 (N.J. Super. Law Div. 1980), and whether "the likelihood of succ ess of the insurer in defending against the [underlying claim] " has been adversely affected, id. at 330. Applying this two part test, the district court found the LMI had suffered no prejud ice because material evidence had not been irretrievably lost, and no

meritorious defense existed to Chemical Leaman's un derlying liability under CERCLA. Chemical Leaman Tank Lines , Inc. v. Aetna Cas. & Sur. Co., 817 F. Supp. 1136, 1158-59 ( D.N.J. 1993).

The LMI contend the district court erred i n holding Chemical Leaman's contractual obligation to notify it of claims arose, at the earliest, in 1984. They argue that o bligation arose as much as twenty years earlier, when Chemica l Leaman received complaints of environmental pollution from various regulatory bodies. We disagree. Chemical Leaman c ould not have known of the liabilities for which it seeks coverag e until the EPA placed the Bridgeport site on the Superfund Nat ional Priorities List in 1984. Prior New Jersey state ac tions against Chemical Leaman had sought only non-monetary injunc tive relief. Because 1984 was the earliest practicable date by w hich Chemical Leaman could have given notice to the LMI, the LMI' s assertions that potential valuable evidence was lost prior to 1984 are irrelevant. While the LMI also argue that evidence was lost, and witnesses died, between 1984 and 1988, they have no t disputed that "a wealth of relevant documentary evidence rem ains intact." Id. at 1159. Moreover, the LMI had extensive oppor tunities to depose, and later cross-examine, Harry Elston, the designer of the Bridgeport site. Accordingly, the district cou rt correctly found that the LMI had not irretrievably lost any s ubstantial right due to Chemical Leaman's untimely notice. In addition, the LMI assert that Chemical Leaman's failure to give timely notice adversely affected th eir ability to defend against the underlying claim. But the distr ict court held no prejudice had resulted:Chemical Leaman, as owner and operator of the

Bridgeport facility, is strictly liable un der CERCLA for damages for injury to, destruct ion of, or loss of natural resources, as well as for the reasonable costs of assessing such damage to natural resources, and all costs of removal, remediation, or other necessary response costs. Chemical Leaman's liabili ty for these damages is retroactive, joint, a nd several, and imposed regardless of fault.

Defendants do not contend that a meritorio us challenge exists to the findings, made in the

1985 consent order . . . . Nor do defenda nts

assert there is a meritorious defense to t he EPA's allegation that the presence of hazardous substances at the Bridgeport facility and their migration to surroundin g soils and groundwater constitute a release within the meaning of section 101(22) of CERCLA, 42 U.S.C.  9601(222). Accordingly,

the court finds that defendants have not shown a likelihood of success in defending Chemical Leaman against claims under CERCL A.

Defendants also ask this court to fin d that timely notice would have resulted in a likelihood that the insurance carriers wou ld

have reached a more favorable settlement. However, defendants fail to demonstrate wh at better arrangement the insurance carriers would have been able to obtain if they had assumed Chemical Leaman's defense upon tim ely

notice. Id. On appeal, the LMI have not advanced any argum ents that

cause us to doubt the district court's conclusion. Finally, the LMI question whether the New Jersey Supreme Court would apply the two part Morales test in determining whether an insurer has suffered appreci able prejudice. But the LMI have not directed us to any New Jersey precedent that questions the vitality of Morales. Accordingly,

their contention lacks merit. VIII. Discovery Misconduct

The LMI assert that Chemical Leaman willfu lly suppressed the identity of relevant witnesses and f ailed to produce certain documents. After trial, the LMI mo ved for relief from the judgment and a new trial under Federal Rul e of Civil Procedure 60(b)(3). The district court denied the motion, although it believed a "close question" had been pr esented. After reviewing the record and the arguments of the parties, we

conclude the district court did not abuse its discr etion in denying the LMI's motion.

IX. Conclusion For the foregoing reasons, we will affirm the district court except as to the allocation of liability amon g applicablepolicies. We will remand to the district court for a

reallocation of damages among applicable policies i n accordance with the New Jersey Supreme Court's holding in Owen s-Illinois,

650 A.2d at 993-95.

Chemical Leaman Tank Lines v. Aetna Casualty, et al

. Nos. 93-5777/5794

McKEE, Circuit Judge, concurring in part, and disse nting in part.

I must respectfully dissent from part III of the majority opinion because I do not agree with the ma jority's interpretation of Morton International, Inc. v. Gen eral Accident Ins. Co. of America 629 A.2d 831 (N.J. 1993), cert denied, 114 S. Ct. 2764 (1994). I believe Morton mandates an obje ctive inquiry in disputes such as this. Because the district cou rt's jury instruction improperly focused on Chemical Leaman's subjective intent, I would remand this matter to the district court for retrial to determine if "exceptional circumstances" objectively established Chemical Leaman's intent to cause injur y, and if so, whether the extent of the resulting injury was fore seeable. I. The Evolution of The "Intent" Analysi s in

"Occurrence-Based" Policies

Although the majority's analysis has much to commend it, I believe that a more thorough discussion of th e evolution of New Jersey's law in this area is necessary to fully understand Morton. An appreciation of the development of that law casts a different light upon the portions of Morton that co ntrol our analysis.

A. Atlantic Employers Ins. Co. v. Tots & T oddlers Pre- School Day Care Center, Inc.

Our analysis must begin with, and be guide d by a discussion of Atlantic Employers, because it used l anguage that

the court would later cite and which I believe has caused my colleagues to take an incorrect analytical turn. I n Atlantic Employers, parents of children who had been sexuall y abused sued the owners and operators of a day care center where the abuse purportedly took place. The company that insured t he 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 ins ured against damage resulting from an "occurrence." An "occurre nce" included injury or damage that was "neither expected nor int ended by the insured." Atlantic Employers, 571 A.2d at 303. Th e policy also contained an exclusion for violations of penal stat utes orordinances. 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 becau se of an injury intended to be inflicted.'" Id. (citation o mitted). The

court stated: There seems to be no dispute th at if . . . Robert Knighton sexually molest ed the children, then he had the requi site level of intent to be found guilty of se xual molestation, based on the crimi nal statutes of this State. But appellants insist that this does not necessarily mean that he intended the damages or injurie s incurred by

the children as a result of suc h actions. . . . Further, they insist that th e existence of

such intent cannot automaticall y 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 o ther jurisdictions in order to analyze the insureds' argument in context with developing law. The court noted that some jurisdic tions employed a subjective test in determining insurance coverage under these circumstances, and some relied upon an objective te st. 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. Thus, the court held that policy, as w ell as logic, required an "objective approach" as an exception to the general

rule. B. Prudential Property & Casualty Ins. Co. v. Karli nski Within a year and a half of Atlantic Emplo yers, the Appellate Division decided Karlinski. There, insur ed'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. The court was asked to determine if a homeowner's p olicy obligated the plaintiff insurer to defend and indem nify the defendant. The policy excluded coverage for "'bodi ly 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 faras I am concerned, it is intentional conduct and th e coverage

doesn't apply.'" Id. The motion judge also conclu ded 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]he ap peal requires that we again explore the frequently visited but st ill 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: [W]e 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

the actual intent of the actor to cause that injury is necessary.

Id.

C. Voorhees v. Preferred Mutual Ins. Co. In Voorhees, a parent was sued for stateme nts she had made at a public meeting where she had questioned the competency

of her child's teacher. The teacher claimed she ha d suffered emotional distress and mental anguish as a result o f the parent's conduct. The teacher alleged that the parent had a cted "willfully, deliberately, recklessly and negligentl y," in making false accusations that had damaged the teacher prof essionally, and subjected her to public ridicule. Voorhees, 60 7 A.2d at

1257. Medical evidence established that the emotio nal distress the teacher complained of had resulted in "'an undu e amount of physical complaints,' including 'headaches, stomach pains, nausea, . . . [and] body pains.'" Id. at 1258. The parent had a homeowner's policy that p rovided coverage for liability arising from "bodily injury" caused by an "occurrence." The policy defined an "occurrence" a s an"accident," and excluded coverage for bodily injury intentionally

caused by the insured. The insurer relied upon thi s language and 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 "pe rsonal" 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 judg ment. The trial court granted the insurer's moti on ruling that the complaint did not allege the kind of "bodi ly injury" that would be covered under the policy. A divided panel of the Appellate Division reversed. The New Jersey Supreme Court noted that th e 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 cove rable occurrence, the court first held that "the accident al nature of an occurrence is determined by analyzing whether th e alleged wrongdoer intended or expected to cause an injury." Id. at 1264. As to what constitutes an "intent to injure," the c ourt noted that the general trend in the law appeared to requi re 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 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. The court, however, recognized that:

When 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. The Voorhees court reasoned that the insured's actions there were a far cry from the type of egreg ious behavior that had justified an objective approach in Atlanti c Employers. The court held that "[a]bsent exceptional circumsta nces that objectively establish the insured's intent to injur e," the insured's subjective intent to injure must govern. Id. The Voorhees court's reference to "exceptional circumst ances" was clearly intended to recognize the need for an objec tive test in the specific circumstances it confronted in Atlanti c Employers, and it foreshadowed the test it would proclaim in M orton. Although the court in Voorhees felt that t here was little evidence of a subjective intent to injure th e teacher, the court never had to address this question because th e plaintiff had also alleged that the insured had acted neglige ntly. The allegation of negligence presupposed the absence of a subjective intent to injure and stated a claim for a potential ly coverable occurrence thus triggering the insurer's duty to de fend. See Id. Accordingly, the court affirmed plaintiff's award o f summary judgment. D. SL Industries, Inc. v. American Motoris ts Ins. Co. In SL Industries, an employee had filed su it 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 in surer agreedto defend and indemnify the employer for all sums r esulting from

a bodily injury caused by an "occurrence." "Occurr ence" was

defined as an "'accident . . . which results in bod ily 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 bro ught 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 revers ed, holding that although intended harm was not covered under t he policy, the policy did provide coverage for the unforeseen resu lts of

intentional conduct. The court then remanded the c ase to the Law Division to determine whether the employee's emotio nal distress

had been intended or whether it was foreseeable. On appeal, the New Jersey Supreme Court ha d to determine if the general intent to injure that is i nherent in a claim of fraud necessarily incorporates the intent to cause the specific injury (emotional distress), or whether p roof of a subjective intent to cause the specific injury is r equired. 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. . . . 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 [discussing 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. InHanover Insurance Group v. Cameron,

the court rejected the insurance 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 againstindemnifying 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 was 'accidental' and coverage will be provided.

Id. at 1277-78 (citations omitted). Accordingly, the court affirmed the Appell ate Division's judgment remanding the case to the Law D ivision 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 had the subjective inte nt to injure the employee. See Id. at 1279. E. Morton International, Inc. v. General A ccident Ins.

Co. Finally, in Morton, the New Jersey Supreme Court had to apply the law of "occurrence-based" insurance polic ies to the very different realm of injuries to the environment . There, the insured, Morton International, sued primary and exc ess CGL insurers seeking reimbursement for costs incurred i n defending a suit filed by the Department of Environmental Prote ction (DEP), as well as indemnity for cleanup and remediation ex penses resulting from the DEP proceeding. Morton, 629 A.2 d at 834-835. Morton's predecessors, including Ventron Corporatio n, had polluted a body of water known as Berry's Creek to such an extent that "[f]or a stretch of several thousand feet, the concentration of mercury in Berry's Creek [was] the highest found in fresh

water sediments in the world." Id. at 834. Morton 's claims were derived from Ventron as well as other prior owners of the land. See Id.. The DEP sued Ventron and other prior owne rs to compel them to pay for remediating the pollution of Berry' s Creek and the surrounding area. The environmental damage had been caused by discharges from a mercury-processing plant opera ted for forty years by the various defendants. See New Jersey De partment of Environmental Protection v. Ventron Corp., 468 A.2d 150 (N.J. 1983). In the underlying suit to establish liabil ity, the New Jersey Supreme Court affirmed the Appellate Divisio n's judgment holding the defendants jointly and severally liable . The court reasoned that the discharge of mercury constituted an abnormally dangerous activity, and imposed strict liability ag ainst all

defendants. See Id. at 160. Morton then commenced a declaratory judgme nt action todetermine its right to indemnification from the var ious insurers

that had provided primary and excess coverage while the mercuryprocessing plant was in operation. The primary iss ue that the court had to determine was whether the pollution re sulted from an "occurrence" under the applicable policies. To qua lify as an "occurrence" the environmental damage must not have been "expected nor intended from the standpoint of the i nsured." Morton, 629 A.2d at 836. The trial court granted t he insurer's motion for summary judgment. The Appellate Divisio n reversed holding that the trial court had "focused improperl y on the manner in which the injury had been caused and had erroneously concluded that the policy did not provide coverage for the unexpected result of a deliberate act." Id. at 877 (citation omitted). The Appellate Division also relied upon At lantic Employers to conclude that "'[t]he intentional char acter of the

act is the basis for the inference that the insured either intended or was manifestly indifferent to the prosp ect of injury.'" Id. (citation omitted). In reaching th is conclusion, the Appellate Division (without the benefit of eith er Voorhees or SL Industries) noted that the "'substantial environ mental pollution over a long period'" together with the kn owledge by Morton's predecessors that "'the substance being di scharged . . . was toxic and harmful'" rendered unacceptable a con clusion that no harm had been expected." Id. (citation omitted ). On appeal to the New Jersey Supreme Court, Morton argued that the Appellate Division's reliance on At lantic Employers improperly equated the discharge of pollu tants with

child molestation as acts that could be deemed inte ntionally injurious as a matter of law. Morton further argue d that "the Appellate Division improperly invoked an objective standard for determining whether harm had been intended or expec ted under the `occurrence'-based policies, ignoring the long-stan ding principle that coverage exists for the unintended results of intentional

acts." Id. The court began its analysis by acknowledg ing the unique circumstances that surround issues of insura nce coverage for environmental damage. In applying our holding in Voorhees to claims seeking coverage for property-damage caused by environmental pollution under occurrence-based CGL policies, we acknowledge the impracticality of adherence to the general rule that

"we will look to the insured's subjective intent to determine intent to injure." Although insureds may concede that pollutants -- even known pollutants -- had been intentionally discharged, those insureds are virtually certain to insist that

the resultant harm was unintendedand unexpected. Absent "smoking

gun" testimony from a disgruntled employee, proof of subjective

intent to cause environmental harm will rarely be available in [environmental insurance] coverage litigation.

We noted in Voorhees that an alternative to proof of subjective intent to injure existed in those

cases in which the insured's "actions are particularly reprehensible, [so that] the intent to injure can be presumed from the act without an inquiry into the actor's subjective intent to injure." We cited Atlantic Employers . . . as illustrative of conduct that was so inherently injurious as to warrant the conclusion that intent to injure could be presumed. . . . We are unpersuaded that environmental-pollution litigation should generally be included in that category of cases, typified by Atlantic Employers, in which reprehensible conduct justifies a presumption that injury was

intended.

Id. at 879 (citations omitted) (emphasis added). Instead of relying upon such an unwarrante d presumption and thereby extending the "public policy and logic " of Atlantic Employers, the court called for an individualized i nquiry based upon the facts of each case. [I]nsureds held responsible for

remediation of environmental pollution vary significantly in their degree of culpability for the harm caused by pollutant discharges. A general rule in environmental-pollution coverage litigation that would permit intent to injure to be presumed simply on the basis of a knowing discharge of pollutants would be unjustified. Instead, we hold that in environmental-coverage litigation a case-by-case analysis is required in order to determine whether, in

the context of all the available evidence, "exceptional circumstances [exist] thatobjectively establish the insured's

intent to injure."

Id. at 879-80 (citation omitted) (emphasis added). The term "exceptional circumstances" had been used in Voorhe es. As noted above, there, the court stated that, absent excepti onal circumstances, the subjective intent of the insured controlled

whether there was an "occurrence" under an occurren ce-based insurance policy. In Voorhees, the court had state d that it was adopting the majority view that requires proof of a transgressor's subjective intent. Voorhees at 607 A.2d at 1255. The court, however, had also noted that "[ w]hen the actions are particularly reprehensible, the intent to injure can be presumed from the act without an inquiry into th e actor's subjective intent to injure." Id. at 1265. In the context of Atlantic Employers, the reprehensible actions of ch ild molestation did indeed "'[a]s a matter of public po licy and logic . . . warrant[] application of the objective approa ch.'" Id. Then, the court used the language that separates me from my colleagues. The court added: "[a]bsent exceptional circumstancesthat objectively establish the insured's intent to injur e, we will look to the insured's subjective intent to det ermine intent to injure." Id. (emphasis added). III. Morton Applied to the Instant Disp ute In Morton, the court was careful to distin guish the policy considerations in pollution coverage cases f rom those that dictated an objective approach in all cases of chil d molestation. "We are unpersuaded that environmental-pollution li tigation should generally be included in that category of ca ses, typified by Atlantic Employers, in which reprehensible condu ct justifies a presumption that injury was intended." Morton, 629 A.2d at 879. This does not mean, as the majority suggests, that the alleged polluter's subjective intent controlled. It only me ans that the act of polluting is not so reprehensible that "publ ic policy and logic" require a presumption that the resulting har m is intended as a matter of law. Rather, the circumstances surro unding the act of polluting must be examined in each case to deter mine if, in that particular situation, they objectively establi sh an intent to harm the environment, thereby negating an occurr ence. The court then listed those circumstances that would objectively establish this intent.

Those circumstances include the duration of the discharges, whether the discharges occurred intentionally, negligently, or innocently, the quality of the insured's knowledge concerning the harmful propensities of the pollutants, whether regulatory authorities attempted to discourage or prevent the insured's conduct, and the existence of subjective knowledge concerning thepossibility or likelihood of harm.

Id. at 880. Accordingly, I cannot agree when my co lleagues state, "[w]e believe the New Jersey Supreme Court d esigned the 'exceptional circumstances' exception to apply only to egregious conduct." Majority Op. at 27. One can only determi ne if conduct is egregious by examining the "exceptional circumst ances" in which it occurred. Indeed, an examination of those circumstances may well establish that a particular polluter's con duct was not egregious at all. The majority's error is reflected in what the court in Morton did. It did not require proof of the subjec tive intent to pollute on the part of the insured or its predecess ors. Rather,

it examined the record and determined that the circ umstances before it objectively established an intent to harm . "In determining whether in the context of this record t he trial court properly concluded, as a matter of law, that Morton 's predecessors had intended or expected environmental injury, we focus on those factors [i.e. the "exceptional circu mstances"] that we previously have identified to be significan t." Morton,

629 A.2d at 882. The court then noted the duration of the discharge, the intentional nature of the discharge, the insured's knowledge of the likely environmental harm, and the history of "stonewalling." In conclusion, the court noted tha t its

examination of these circumstances confirmed that " damage qualitatively comparable to that found to exist . . . must have been anticipated by Morton's predecessors on the ba sis of . . . prolonged knowledge of and avoidance of compliance with complaints by regulatory officials." Id. at 884. This is consistent with the court's pronou ncement that the mere fact of polluting, even to the egregious e xtent present in Morton, was not by itself, such reprehensible co nduct that it required a conclusive presumption of an intent to h arm. Moreover, the "exceptional circumstances" include " the existence of subjective knowledge concerning the possibility or likelihood of harm." However, subjective knowledge is not use d to definitively determine if the insured expected or i ntended environmental damage. Rather, the insured's subjec tive knowledge is but one of those "exceptional circumstances" tha t determine if an "occurrence" has taken place. It is not the star t and finish of that inquiry as the majority's reasoning suggest s. The Morton court concluded that exceptiona l

circumstances established as a matter of law that t here had been no occurrence as Morton's predecessors had to have expected the pollution they caused. The objective nature of thi s conclusion is evident because the court clearly stated that is was not deciding whether Morton's predecessors "intended" ( i.e. "subjectively") the damage: Without determining that such damage was intended, we find inescapable the conclusion that damage qualitatively comparable to

that found to exist in the Ventron litigation must have beenanticipated by Morton's

predecessors on the basis of their prolonged knowledge of and avoidance of compliance with complaints by regulatory officials that the company was discharging unacceptable emissions, including mercury compounds, into Berry's Creek. Based on that conclusion,. . . as a matter of law the property damage to Berry's Creek and the surrounding area was not caused by an "occurrence" within the meaning

of the term in the various CGL policies.

Id. at 884 (emphasis added). In adopting prior law (particularly the ho lding in Karlinski) to environmental insurance coverage, the court in Morton noted that subjective evidence of the pollut er's intent did not become relevant merely because the extent o f pollution was greater than anticipated. Turning to the question whether environmental injury was intended or expected, we first observe that although the magnitude of the damage to Berry's Creek and the surrounding areas may exceed any intention or expectation

attributable to Morton's predecessors, we do not consider that differences in harm relating to the severity of environmental damage give rise to a finding of "improbability" of harm that

invokes the need for evidence of subjective intent. Whether Morton's predecessors anticipated that discharges of untreated effluent on the plant site and into Berry's Creek for more than forty years would cause environmental harm of the severity described . . . hardly demonstrates that the extent of the injury was "improbable." The holding in SL

Industries was based on the Appellate Division's ruling in Karlinski, that in a coverage action arising from a fight between two young teenagers in which one sustained a broken hip, a factual issue of subjective intent was presented because of the inherentimprobability that the skirmish

would result in a hip fracture. No such inherent "improbability" can

be ascribed to the environmental damage attributable to Morton's predecessors.

Id. at 882 (citations omitted). The majority notes that the district court held that

Chemical Leaman's actions were not so reprehensible as to justify the presumption of an intent to cause property damage under the "exceptional circumstances" exception. It

concluded that Chemical Leaman was not "throwing toxic waste out into the meadow- lands" as Morton and its predec essors had done; rather, it had "designed and built the facility to prevent [harm to th e environment]." Majority Op. at 20. (emphasis added). Th e "exceptional circumstances" test, however, is not an "exception, " but the rule that is to be applied in environmental coverage cas es. In addition, although Chemical Leaman was not reducing Berry Creek to one of the world's great environmental disasters as was the case in Morton, there is nevertheless testimony fro m which a reasonable jury could conclude that "exceptional ci rcumstances" objectively establish Chemical Leaman's intent to h arm the

environment. The majority holds that after Morton, a co urt can

determine that an insured is entitled to indemnific ation under an occurrence-based policy as a matter of law absent " exceptional circumstances." My colleagues suggest that "excepti onal circumstances" merely define when no reasonable jury could find the insured did not intend or expec t to cause property damage because objecti ve circumstances--evidence of prol onged, intentional, or flagrant discha rges of known pollutants in the face of regul atory disapproval--establish that the insured must have intended property damage. The presence of "exceptional circumstances" requires a court to enter judgment as a ma tter of law. Their absence, of course, does not prevent a jury from finding an insured "e xpected" or "intended" to cause property da mage.

See Majority Op. at n.7. However, Morton did not qu antify the factors it identified as objectively establishing i ntent to pollute. Rather, the "case-by-case analysis" was n ecessary for

the fact finder to make an individualized determina tion of whether the nature of those factors in a particular case justified denying coverage in lieu of the limitatio ns contained in the insurance contract. Thus, I agree that the absence of thefactors detailed at footnote 7 of the majority opin ion "doe[] not

prevent a jury from finding an insured 'expected' o r 'intended' to cause property damage," but not for the reason s tated by the majority. Rather, it is because "subjective knowled ge concerning the possibility or likelihood of harm" is one of th e "exceptional circumstances" that a jury must also consider. Acco rdingly, if an insured knows that its actions will most likely har m the environment, just one, brief, discharge of a known pollutant by one who had otherwise complied with regulatory auth orities could preclude coverage under an occurrence-based insuran ce policy. The majority argues that Morton cannot be read as creating an objective test for intent because an in sured who "intentional[ly] discharges a known pollutant gener ally intends 'some sort of harm,' however de minimis, and the ha rm that actually results is usually a probable result of th e discharge." Thus, (the majority suggests) an objective test "wo uld result in a general rule precluding [all] coverage based on t he knowing discharge of a pollutant." Majority Op. at 23. Th at is, however, precisely why it is necessary to use "exce ptional circumstances" to prove intent to harm objectively in pollution cases. If the resulting inquiry establishes that th e insured did objectively "intend" to harm the environment, the i nquiry into the foreseeability of the actual damage makes perfe ct sense. The majority expresses a further concern t hat reading Morton to require anything other than subjective in tent "would be akin to a negligence standard [,and] [i]f negligent acts did not fall within the definition of a covered occurrence, then there would be no point in purchasing comprehensive gener al liability insurance." Majority Op. at 18 (citing Pittston Co. v. Allianz Ins. Co., 905 F. Supp. 1279, 1301 (D.N.J. 1995)). A properly guided inquiry into "exceptional circumstances," ho wever, does not equate with a negligence standard. It assigns the cost of environmental remediation not based upon negligence , but upon the "degree of culpability for the harm caused by pollu tant discharges." Morton, 629 A.2d at 879. IV. The Exceptional Circumstances of The Bridge port Site. Throughout the time the pond and lagoon sy stem was in use there were repeated discharges of waste through the overflow pipe to the adjacent swamp. In fact, the very purp ose of the overflow pipe was to allow for these discharges. A n Inspector observed the discharge from the last pond during a September 12, 1961 visit and thereafter observed similar discharg es on about half of his visits to the Bridgeport site. In Nove mber 1968, water pollution inspectors from the New Jersey Depa rtment of Health again observed the discharge from the overfl ow pipe in the last lagoon. Although it was characterized as a sp oradic "trickle", an engineer employed by Chemical Leaman (Elston), and at least one other employee admitted that the overf low pipe did discharge into the swamp throughout the time the po nd and lagoon system was in use. Moreover, there was evidence th at by 1974, the path of this "trickle" from the last impoundmen t could "be easily seen by looking for a 75-foot wide lane of d ead trees" in the swamp.

The Morton court concluded that the discha rge ofpollutants there was intentional once the polluters knew it was

unacceptable. Morton, 629 A.2d at 882. There, the repeated demands of the Department of Health that the owner halt the discharges or install adequate treatment facilities were regularly ignored. Id. Here, the intentional natur e of the discharge is also evident. Chemical Leaman intenti onally designed its waste treatment system so that the ove rflow pipe would discharge into the swamp. Furthermore, even under the subjective framework that the jury was given to rev iew the evidence, it concluded that Chemical Leaman's relea ses were intentional. That conclusion is supported by the r ecord and Chemical Leaman cannot now successfully argue that the discharges were anything but intentional. Indeed, Chemical Le aman's denials illustrate the concern expressed in Morton that a p olluter may admit to the discharge, but would never admit to in tentionally polluting the environment. That concern could only be satisfactorily addressed by the objective test that the majority today rejects. Here, as in Morton, the intentional nature of the discharge is confirmed by Chemical Leaman's continu ed evasion of the State's demands to stop the discharge. The una cceptable condition of the discharge from the overflow pipe i nto the swamp was brought to Chemical Leaman's attention by a gov ernmental inspector in September of 1961. Although Chemical Leaman installed three more lagoons in an attempt to allev iate this situation, the overflow pipe remained a staple of t he Bridgeport site and in 1968, Chemical Leaman was still dischar ging wastes into the lagoon. State officials regularly informed Chemica l Leaman that the effluent flowing from the overflow pipe constit uted an unacceptable discharge into the swamp. In 1961, FG W told Chemical Leaman that the discharge was an unaccepta ble condition and that the resulting pollution should be stopped within a year. Subsequently, in 1968, the NJDOH told Chemical Leam an that "the waste emanating from the lagoon is highly pollution al and [that] immediate measures [should] be taken to eliminate t his discharge or to sufficiently treat the waste prior to dischar ge" and in 1969, Chemical Leaman was ordered to find an altern ative method

of waste treatment. Chemical Leaman argues that it was not awa re of the harmful propensities of its pollutants because it w as not discharging pure chemicals, but rather "trace amoun ts" of these chemicals in highly diluted rinsewater. The uncont roverted evidence, however, clearly showed that at least by 1968, Chemical Leaman was alerted that the discharge into the swamp was "highly pollutional" even in its diluted form. Furthermore , as noted above, however diluted the discharge may have been, it was sufficiently potent to sculpt the 75-foot wide path of dead trees into the environmental landscape it touched. It is certainly true that Chemical Leaman is more sympathetic than the polluters in Morton, who engag ed in a deliberate pattern of "stonewalling" characterized by promises of compliance that went unfulfilled. Morton, 629 A.2d at 882. As the majority notes, Chemical Leaman apparently thou ght that itsnatural filtration system would reduce the danger o f pollution.

In fact, it was designed to do just that. Neverthe less, the record here could clearly support a finding that Ch emical Leaman was "stonewalling" regulatory authorities. There i s a pattern of unfulfilled promises of compliance to state agency requests to abate the polluting discharge. Even after officials caught Chemical Leama n discharging into the swamp in 1968 and ordered it to find a bet ter way to treat wastes in 1969, Chemical Leaman did not impro ve the waste treatment system until the summer of 1975, when it entered into a disposal contract with Du Pont. In the interim, 40 to 50 million gallons of contaminated waste water had been proces sed using the
same treatment system. Thus, from 1961, when the State first noti fied Chemical Leaman that the discharge to the swamp was unaccept able, until 1975, when Chemical Leaman began off-site disposal at the Du Pont plant, Chemical Leaman responded to regulatory agen cies with promises of compliance that went unfulfilled. Chem ical Leaman was informed that the discharge to the swamp was un acceptable. Although the state did not articulate why the disch arge was improper, it is difficult to imagine what other rea son Chemical

Leaman could have attributed to the state's concern if not the impact of the discharge upon the environment. It i s clear from Chemical Leaman's own argument in this regard that it never attempted to ascertain the reason for the State's c oncern. Nevertheless, assuming arguendo that in 19 61 Chemical Leaman could not ascertain that its system was dama ging the environment, there is no dispute that Chemical Leam an learned that the discharges to the swamp were likely to cau se harm as of November of 1968, when it was expressly told that " the waste emanating from the lagoon is highly pollutional and [that] immediate measures [should] be taken to eliminate t his discharge or to sufficiently treat the waste prior to dischar ge." Even more telling is Harry Elston's concession at trial that both at the time of FGW's inspections in 1961 and 1962, and at the point when NJDOH issued its order in 1969, he knew that C hemical Leaman's discharge into the swamp was causing some damage to the swamp. Finally, it should be noted that Chemical L eaman never obtained the required permits for its waste disposa l cite. Thus, it took regulatory authorities even longer to disco ver the "highly pollutional" discharge. Once the cite was discovered, Chemical Leaman's compliance with regulatory agenci es was less than exemplary. Chemical Leaman discharged approximately 1 00 million gallons of contaminated waste water into its unline d ponds and lagoons for the fifteen years that the Bridgeport s ite was in operation. The bottom of those lagoons was only tw o and a half feet above the groundwater, and the insurers' exper t testified that the soil, groundwater, and swamp contamination was the probable result of this discharge. That testimony was not refuted by Chemical Leaman's expert even though Che mical Leaman argues on appeal that their unlined treatment syste m was the

state of the art. I cannot say that such a course of conduct does notnegate the existence of an occurrence under New Jer sey law.

V. Conclusion

Courts that have addressed the issue of th e kind of intent that would negate insurance coverage under a n occurrencebased policy have been guided by certain policy con siderations. Courts have attempted to maximize the possibility t hat victims be compensated for their injuries while minimizing ind emnification of the wrongdoer. See Voorhees, 607 A.2d. at 1264. They have

also been concerned that the law in this area deter red wrongdoers. See SL Industries, 607 A.2d at 1278. Lo oking to "exceptional circumstances" to objectively determin e intent to harm the environment does just that. To the extent that those circumstances suggest that the insured did not inte nd environmental harm, and cooperated with regulatory authorities to avoid it, the insured will likely be indemnified fo r the cost of remediation under an occurrence policy even where i t discharged a known pollutant. To the extent that those circumst ances establish a protracted and/or deliberate discharge, however, a disregard for the environment, knowledge of the pro perties of a pollutant, "stonewalling" regulatory agencies and t he insured's subjective knowledge of the possibility of harm; "p ublic policy and logic" require that the insured, and not its in surers, pay the cost of environmental cleanup. That allocation of cost deters persons from closing their eyes to the environmenta l impact of

their activities. Furthermore, this is consistent with the l ong-standing doctrine of enforcing insurance contracts in a mann er that is consistent with the reasonable expectations of the parties. An insured cannot reasonably expect to escape the "occ urrence-based" limits on its right to indemnification where "excep tional circumstances" establish its culpability for pollut ion. Similarly, an insurer should be able reasonably to expect that it will not be required to reimburse such a polluter f or the environmental damage so callously caused. This is the result the New Jersey Supreme Court sought to promote in Morton. Yet, the rule we adopt today will give polluters comfort and allow them to discharge pollu tants in relative safety because of the obvious impracticali ty of establishing their subjective intent to harm the en vironment. Since the New Jersey Supreme Court recognized the i mpracticality of a subjective approach in environmental coverage disputes, I

find it difficult to believe that it intended this result. The majority concludes that the New Jersey Supreme Cour t established a subjective standard in environmental insurance di sputes while proclaiming such a rule to be so impractical as to be unworkable. As a result, our holding places insurers in the imp ossible situation the New Jersey Supreme Court sought to av oid by its thoughtful pronouncement of an objective "exception al circumstances" test in disputes over liability for cleaning up pollution.