1996 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

6-20-1996

Chemical Leaman v. Aetna Casualty & Surety

Precedential or Non-Precedential:

Docket 93-5777,93-5794

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Recommended Citation

"Chemical Leaman v. Aetna Casualty & Surety" (1996). 1996 Decisions. Paper 154.

http://digitalcommons.law.villanova.edu/thirdcircuit_1996/154
 UNITED STATES COURT OF APPEALS 

 FOR THE THIRD CIRCUIT 

 _______________ 

 No. 93-5777 & 93-5794 

 _______________ 

 CHEMICAL LEAMAN TANK LINES, INC. 

 

 v. 

 THE AETNA CASUALTY AND SURETY COMPANY;

 and CERTAIN UNDERWRITERS AT LLOYDS, LONDON, 

 subscribing to Insurance Policies Numbers 

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

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

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

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

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

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

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

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

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

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

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

 ROBIN ANTHONY GILDART JACKSON, an Underwriter at Lloyds, 

 London, individually and in his capacity as representative 

 Underwriter at Lloyds, London for certain subscribing 

 Underwriters at Lloyds, London who subscribed to certain 

 liability insurance policies issued to plaintiff Chemical 

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

 WINTERTHUR; ALBA GENERAL INSURANCE COMPANY LTD.; ALLIANZ 

 CORNHILL INTERNATIONAL INSURANCE PLC, FORMERLY KNOWN AS 

 ALLIANZ INTERNATIONAL INSURANCE COMPANY LTD.; ANGLO-FRENCH 

 INSURANCE COMPANY LTD.; ARGONAUT NORTHWEST INSURANCE 

 COMPANY; ASSICURAZIONI GENERALI SPA; BALOISE FIRE INSURANCE 

 COMPANY; BELLEFONTE INSURANCE COMPANY LTD.; BRITISH NATIONAL 

 LIFE INSURANCE SOCIETY LTD.; CNA INTERNATIONAL REINSURANCE 

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

 DELTA LLOYD NON-LIFE INSURANCE COMPANY; DOMINION INSURANCE 

 COMPANY LTD.; DRAKE INSURANCE COMPANY LTD.; EDINBURGH 

 INSURANCE COMPANY; EXCESS INSURANCE COMPANY LTD.; FIDELIDADE 

 INSURANCE COMPANY; FOLKSAM INTERNATIONAL INSURANCE COMPANY 

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

 INDEMNITY MARINE ASSURANCE COMPANY, LTD.; LEXINGTON 

 INSURANCE COMPANY LTD.; LONDON & OVERSEAS INSURANCE COMPANY, 

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

 SCOTTISH ASSURANCE CORPORATION, LTD.; GAN MINSTER INSURANCE 

 COMPANY, FORMERLY KNOWN AS MINSTER INSURANCE COMPANY LTD.; 
 NATIONAL CASUALTY COMPANY; NATIONAL CASUALTY INSURANCE OF 

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

 ATLANTIC INSURANCE COMPANY LTD., FORMERLY KNOWN AS BRITISH 

 NATIONAL INSURANCE CO. LTD.; ORION INSURANCE COMPANY LTD.; 

 PINE TOP INSURANCE COMPANY LTD.; RIVER THAMES INSURANCE 

 COMPANY LTD.; SCOTTISH LION INSURANCE COMPANY; SOVEREIGN 

 MARINE AND GENERAL INSURANCE COMPANY, LTD.; SPHERE INSURANCE 

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

 STRONGHOLD INSURANCE COMPANY LTD.; SWISS UNION GENERAL 

 INSURANCE COMPANY LTD.; TAISHO MARINE & FIRE INSURANCE 

 COMPANY (EUROPE) LTD., FORMERLY KNOWN AS TAISHO MARINE & 

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

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

 LTD.; UNIONAMERICA INSURANCE COMPANY; UNITED STANDARD 

 INSURANCE COMPANY LTD.; WINTERTHUR SWISS INSURANCE COMPANY; 

 WORLD AUXILIARY INSURANCE CORPORATION LTD.; YASUDA INSURANCE 

 COMPANY (U.K.) LTD. (hereinafter collectively referred to as 

 "Jackson & Companies"), 

 Appellants at No. 93-5777 

 AETNA CASUALTY AND SURETY COMPANY ("AETNA"), 

 Appellant at 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 ) 

 ___________________ 

 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 Rehearing 

 December 15, 1995 

 Before: SCIRICA, NYGAARD and McKEE, Circuit Judges 

 (Filed June 20, 1996) 

HENRY LEE, ESQUIRE (ARGUED) 

GARY P. SCHULZ, ESQUIRE 
JOHN 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 Association 
KAREN 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 New Jersey, 

 New Jersey Department of Environmental Protection & Energy 

 __________________ 

 OPINION OF THE COURT 

 __________________ 

SCIRICA, Circuit Judge. 

 Chemical Leaman Tank Lines, Inc. brought this 

declaratory judgment action against Aetna Casualty and Surety 

Company and the London Market Insurers, seeking a declaration 

that defendants' insurance policies covered the cost of 

environmental clean-up at Chemical Leaman's Bridgeport, New 

Jersey facility. After a three week trial, a jury found Chemical 

Leaman was entitled to partial coverage under several policies. 

Thereafter the New Jersey Supreme Court decided Morton Intern., 

Inc. v. General Acc. Ins. Co., 629 A.2d 831 (N.J. 1993), cert. 

denied, 114 S. Ct. 2764 (1994), which interprets several key 

provisions of comprehensive general liability insurance policies 

in the context of environmental pollution. Defendant insurers 

now appeal, contending the district court incorrectly instructed 

the jury on whether Chemical Leaman "expected or intended" to 

cause environmental damage under Morton. We believe Mortonrequires an 

inquiry into the insured's subjective intent to cause 

environmental harm, unless "exceptional circumstances" support a 

presumption of the insured's subjective intent. Therefore we 

conclude the district court's jury instructions were proper. 

 Defendant insurers raise several other issues on 

appeal. They argue the district court mistakenly limited 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 evidence relating 

to environmental contamination at other Chemical Leaman 

facilities. We will affirm the district court's holdings 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 district court. 

 I. Background 

 A. Contamination at the Bridgeport Facility 
 Chemical Leaman Tank Lines, Inc., a tank truck 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 rinsewater 

contaminated with chemical residue during the cleaning process 

into a water treatment system designed by Harry Elston, Chemical 

Leaman's Manager of Real Estate and Engineering, and Harry 

Wagner, a professional sanitary engineer. At its inception in 

1960, the Bridgeport water treatment system consisted 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 from the 

rinsewater, and that natural processes of aerobic and anaerobic 

microbial degradation would break down trace contaminants. An 

overflow pipe drained from the final pond of the water treatment 

system into an adjacent swamp in order to allow water to escape 

in the case of heavy rains. 

 In September 1961, an Inspector with the New 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 ponds. But the 

overflow pipe still drained from the last lagoon into the 

neighboring swamp. 

 Water pollution inspectors with the New Jersey 

Department of Health observed discharge from the overflow pipe 

into the swamp in November 1968. They found the discharge 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 Chemical Leaman 

unsuccessfully attempted to reach agreement. Finally, on January 

28, 1974, Chemical Leaman and the New Jersey Department of 

Environmental Protection entered into a consent decree in which 

Chemical Leaman agreed to construct an approved water treatment 

facility. In 1975, Chemical Leaman arranged for its wastewater 

to be treated by Du Pont and ceased to use the system of ponds 

and lagoons. Subsequently, Chemical Leaman drained the ponds and 

lagoons, dredged them, and filled them with brickbat, sand and 

concrete. 

 In 1980, a routine survey by the New Jersey Department 

of Environmental Protection discovered groundwater contamination 

at and around the Bridgeport site. Subsequent investigations 

established that the ponds and lagoons were the primary source of 

groundwater contamination on the site, and that several private 

wells near the facility were either contaminated or threatened 

with contamination. The federal Environmental Protection Agency 

placed the Bridgeport site on the Superfund National Priorities 

List in 1984, and, in 1985, Chemical Leaman entered into a 

consent order with the EPA. Chemical Leaman admitted liability 

under the Comprehensive Environmental Response, Compensation and 
Liabilities Act ("CERCLA") and agreed to remediate the Bridgeport 

site or to pay for its remediation. 

 Chemical Leaman gave notice of claims to Aetna in April 

1988, and to the London Market insurers ("LMI") in March 1989. 

Aetna and the LMI refused to defend or indemnify Chemical Leaman 

for costs incurred in connection with the clean-up of the 

Bridgeport site. Chemical Leaman then filed this suit. 

 B. The Insurance Policies 

 Chemical Leaman purchased comprehensive general 

liability insurance from Aetna covering successive years from 

April 1, 1959 through April 1, 1985. It purchased excess 

comprehensive general liability policies covering the same period 

from the LMI. The LMI challenge the district court's 

interpretation of several provisions of the policies purchased by 

Chemical Leaman. Because Aetna has withdrawn from this appeal, 

we need not discuss its policies. 

 The LMI policies were standard form "occurrence-based" 

policies, meaning they insured against "occurrences" as defined 

in the policies. The insuring clause in the LMI policies 

typically stated that the LMI agreed: 

 [s]ubject to the limitations, terms and 

 conditions [of the policy] to indemnify the 

 Assured for all sums which the Assured shall 

 be obligated to pay by reason of the 

 liability . . . imposed upon the Assured by 

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

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

 arising out of each occurrence. 

The LMI policies defined "occurrence" as "[a]n accident or a 

happening or event or a continuous or repeated exposure to 

conditions which unexpectedly and unintentionally results 

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

(emphasis added). The combined effect of the insuring clause and 

the definition of "occurrence" is to preclude coverage for 

property damage that is expected or intended by the insured. On 

appeal, the LMI contend the district court incorrectly 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 1985 also 

contained a pollution exclusion clause. The LMI policies in 

effect from April 1, 1971 to April 1, 1974, and from April 1, 

1977 to April 1, 1985 contained the standard form exclusion known 

as NMA 1685. NMA 1685 does not cover personal injury or property 

damage caused by seepage, pollution, or contamination unless 

"such seepage, pollution or contamination is caused by a sudden, 

unintended and unexpected happening during the period of [the] 

insurance." The LMI policies in effect from April 1, 1974 to 

April 1, 1977 contained the standard industry pollution exclusion 

clause, the so-called "ISO" pollution exclusion, which precludes 

coverage for pollution and contamination, unless the "discharge, 

dispersal, release or escape is sudden and accidental." Both the 

ISO pollution exclusion clause and the NMA 1685 pollution 

exclusion clause focus on the insured's intention and expectation 

to discharge pollutants, not on the insured's intention or 
expectation to cause property damage. On appeal, the 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 insured to 

provide written notice "as soon as practicable" following an 

occurrence. The LMI argue that Chemical Leaman's failure to 

comply with this provision bars coverage. 

 II. Procedural History 

 Chemical Leaman filed this declaratory judgment action 

in 1989 after the insurers' refusal to indemnify it for the costs 

of environmental clean-up at the Bridgeport facility. Following 

extensive discovery, the parties filed cross-motions for summary 

judgment on various grounds. The district court granted partial 

summary judgment in favor of Chemical Leaman, holding that New 

Jersey law applied, and that the "owned property exclusion" did 

not bar coverage for the costs of remediation of onsite soil 

contamination designed to correct injury to surrounding 

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 burden of 

proving it did not subjectively expect or intend the damage to 

the soil and groundwater for which it sought coverage. SeeChemical Leaman 

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

Supp. 1136, 1146 (D.N.J. 1993). It also found Chemical Leaman's 

actions were not so "reprehensible" as to objectively 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 Leaman's 

subjective intent. Id. at 1152. 

 The district court also held as a matter of 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, Chemical Leaman 

disposed of 10,000 to 20,000 gallons of rinsewater into the ponds 

each day, but did not find that property damage occurred during 

that period as a matter of law. Id. Rather, it ruled that New 

Jersey follows the "continuous trigger" theory and that factual 

issues remained as to whether Chemical Leaman suffered 

continuous, indivisible property damage from 1961 to 1985. 

 The district court interpreted the pollution exclusion 

clauses in the LMI's post-1971 policies as precluding coverage 

"when the insured has caused the discharge of contaminants or 

pollutants, unless the discharge was neither expected nor 

intended from the standpoint of the insured." Id. at 1157. On 

the basis of the pollution exclusion clauses, the district court 

granted partial summary judgment in favor of defendants as to 

soil damage on the post-1971 policies. It denied summary 

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 to give timely 

notice of its claims did not preclude insurance coverage because 
the delay had not prejudiced the defendant insurers. Id. at 

1157-58. 

 Before trial, Chemical Leaman filed a motion in limineto exclude 

evidence relating to waste disposal sites other than 

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 that Chemical 

Leaman was entitled to coverage for damage to the soil and 

wetlands under the April 1, 1960 to April 1, 1971 policies, 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 Leaman's intent and 

expectation to cause property damage and to discharge pollutants 

during each policy year. After oral argument before this Court, 

Chemical Leaman and Aetna settled all claims arising 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 judgment of 

the district court under 28 U.S.C.  1291. The district court 

held New Jersey law governs, which the parties do not dispute. 

Chemical Leaman Tank Lines, Inc. v. Aetna Cas. & Sur. Co., 788 F. 

Supp. at 851. As a federal court sitting in diversity, 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 is 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-based" 

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 damage." The LMI 

contend that because Chemical Leaman "expected" or "intended" to 

cause property damage at the Bridgeport site, the policies do not 

provide coverage. 

 New Jersey courts have been called upon repeatedly to 

interpret the "expected/intended" clause in occurrence-based 

insurance policies. They have sought to balance the need to 

compensate victims against the public policy of deterring 

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. American 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 expected to cause an 

injury. Voorhees v. Preferred Mut. Ins. Co., 607 A.2d at 1264. 

The court explained: 

 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. 

Id. at 1264. The court emphasized, "[e]ven 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. 

 The court also recognized an "exceptional 

circumstances" exception to the subjective intent inquiry. 

 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 court cited to sexual assault against children 

as an example of an act that is "so inherently injurious" 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 resulting injury 

intentional [and preclude coverage], whether the wrongdoer must 

intend the specific injury that results, or whether there is some 

middle ground between the two approaches." SL Industries, Inc. 

v. American Motorists Ins. Co., 607 A.2d at 1277 (emphasis in 

original). After evaluating alternative theories, the court 

adopted the "middle ground," which it summarized as follows: 

 Assuming the wrongdoer subjectively intends 

 or expects 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 1278. SL Industries involved an allegation of intentional 

fraud that "presupposes a general subjective intent to injure." 

Accordingly the New Jersey Supreme Court remanded the 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 court noted this 

approach "conforms to an insured's objectively-reasonable 

expectations and provides the victim the greatest possibility 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 liability 
policies in the environmental pollution context in Morton 

Intern., Inc. v. General Acc. Ins. Co., 629 A.2d 831 (N.J. 1993), 

cert. denied, 114 S. Ct. 2764 (1994). It attempted to apply the 

principles established in Voorhees and SL Industries, but was 

forced to "acknowledge the impracticality of adherence to the 

general rule that `we will look to the insured's subjective 

intent to determine intent to injure.'" Id. at 879. The court 

then elaborated upon Voorhees' "exceptional circumstances" 

exception, which allows an intent to injure to be presumed 

without inquiry into the actor's subjective intent.

 [W]e hold that in environmental-coverage 

 litigation a case-by-case analysis is 

 required to determine whether, in the context 

 of all the available evidence, "exceptional 

 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 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 the 

 possibility or likelihood of harm. 

Id. at 879-80. The court cautioned, "insureds held responsible 

for remediation of environmental pollution vary significantly in 

their degree of culpability for the harm caused by pollutant 

discharges." Therefore, "[a] general rule in environmentalpollution coverage litigation that would permit intent to injure 

to be presumed simply on the basis of a knowing discharge of 

pollutants would be unjustified." Id. at 879. 

 The New Jersey Supreme Court applied the factors it had 

outlined to determine whether "exceptional circumstances" 

supported the presumption of an intent to cause property damage. 

It noted Morton and predecessors had polluted Berry's Creek to 

such an extent that "[f]or a stretch of several thousand feet, 

the concentration of mercury . . . [was] the highest found in 

fresh water sediments in the world." Id. at 834. This damage 

was caused by the discharge of pollutants from a mercuryprocessing plant over a period of at least eighteen, and perhaps 

as many as forty-five, years. Id. at 882. Moreover, for at 

least eighteen years the discharges had been intentional, even 

though the company knew they would cause environmental harm. 

Despite repeated complaints by regulatory agencies, Morton 

engaged in "a pattern of `stonewalling' . . . characterized by 

promises of compliance that consistently were unfulfilled." Id. 

On the basis of these facts, the court held, it "would have 

ignored reality to conclude that [Morton's] predecessors did not 

know that the mercury and its effluents was [sic] harmful to the 

land over which it coursed and the waters into which it fell." 

Id. at 884. Therefore, it held as a matter of law that the 
property damage was not caused by an "occurrence" within the 

meaning of the applicable insurance policies. 

 Morton's presumption of an insured's subjective intent 

to cause property damage from egregious circumstances does not 

hinge on whether the insured should have expected or intended to 

cause injury. This would be akin to a negligence standard. If 

negligent acts did not fall within the definition of a covered 

occurrence, then there would be no point in purchasing 

comprehensive general liability insurance. Pittston Co. v. 

Allianz Ins. Co., 905 F. Supp. 1279, 1301 (D.N.J. 1995). While 

Morton pragmatically acknowledges courts should not "ignore 

reality" when exceptional circumstances establish the insured's 

subjective intent to injure, the insured's subjective intent to 

cause injury remains the relevant inquiry under the occurrence 

language. 

 In Morton, the New Jersey Supreme Court also addressed 

the applicability of SL Industries' improbability rule in 

environmental pollution coverage litigation. It explained: 

 Turning to the question of whether 

 environmental injury was intended or 

 expected, we first observe that although the 

 magnitude of damage to Berry's Creek and the 

 surrounding areas may exceed any intention or 

 expectation attributable to Morton's 

 predecessors, we do not consider differences 

 in harm relating to severity of environmental 

 damage give rise to a finding of 

 "improbability" of harm that invokes the need 

 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 young 

 teenagers in which one sustained a broken 

 hip, a factual issue was presented because of 

 the inherent improbability 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. 

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 interpreted New Jersey 

law on the "expected/intended" clause before the New Jersey 

Supreme Court's decision in Morton. Nevertheless, it instructed 

the jury to determine whether Chemical Leaman subjectively 

expected or intended to cause property damage at the 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 found that the 

harm to the environment caused by the Bridgeport water treatment 

system was improbable as a matter of law. The district court 

also held 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 

Chemical Leaman was not "throwing toxic waste out into the 

meadow-lands" as Morton and its predecessors had done; rather, it 

had "designed and built the facility to prevent [harm 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 court's jury 

instructions on the expected/intended issue were erroneous 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" objectively 

establish Chemical Leaman's intent to cause property damage. Our 

review of jury instructions is plenary. See Hook v. Ernst & 

Young, 28 F.3d 366, 370 (3d Cir. 1994). A jury charge, taken as 

a whole, must "fairly and adequately" submit the issues in the 

case to the jury. Id. 

 A. Jury Instruction on Expected/Intended 

 The district court instructed the jury that it should 

find for Chemical Leaman if Chemical Leaman did not subjectively 

expect or intend damage to the soil, groundwater, or wetlands at 

the Bridgeport site. Midway through the trial, the court 

instructed the jury: 

 There are three kinds of damage at issue in 

 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 instructed the 

jury: 

 "EXPECTED OR INTENDED" -- FOCUS ON DAMAGE 

 In determining Chemical Leaman's 

 expectations and intentions in the context of 

 basic coverage, you are instructed to focus 

 on whether the specific property damage was 

 expected or intended. You are not to 

 consider whether the acts which caused that 

 property damage were intentional acts. I 

 give you this instruction because it is New 

 Jersey law the unintended results of 

 intentional acts may be covered by 

 defendants' insurance policies. Thus, even 

 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 that 

 Chemical Leaman did not expect or intend the 

 specific property damage that is the subject 

 matter of this litigation, namely the 
 contamination of the soil, groundwater, or

 wetlands. 

 "EXPECTED OR INTENDED" -- SPECIFIC DAMAGE STANDARD 

 I further instruct you that, in deciding 

 whether Chemical Leaman subjectively expected 

 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 the 

 environment generally. Rather, you must 

 determine whether Chemical Leaman expected or 

 intended the actual property damage that it 

 is now required to clean-up. 

In addition, special interrogatories were submitted to the jury 

on Chemical Leaman's expectation and intention to cause 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"--namely 

contamination to the soil, groundwater, or wetlands--"was 

expected or intended." They argue the district should have 

instructed the jury that if Chemical Leaman "expected or 

intended" to cause some injury to the environment generally, then 

coverage was precluded unless the extent of the injury was 

improbable. The LMI rely on SL Industries, in which the New 

Jersey Supreme Court stated: 

 Assuming the wrongdoer subjectively intends 

 or expects 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. 

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 assert Chemical 

Leaman also knew discharges from the overflow pipe would drain 

into the swamp. Therefore, they argue, Chemical Leaman intended 

"some sort of injury" as a matter of law, and coverage was 

precluded unless the extent of injury was improbable. 

 Although the LMI's argument possesses a certain appeal, 

we believe the New Jersey Supreme Court would reject it. An 

insured who intentionally discharges a known pollutant generally 

intends "some sort of harm," however de minimis, and the harm 
that actually results is usually a probable result of the 

discharge. Accordingly, the LMI's reading of SL Industries would 

result in a general rule precluding coverage based on the knowing 

discharge of a pollutant. But in Morton Intern., Inc. v. General 

Acc. Ins. Co., 629 A.2d at 879-80, the New Jersey Supreme Court 

held "a general rule . . . [precluding coverage] simply on the 

basis of a knowing discharge of pollutants would be unjustified." 

The LMI's reading of SL Industries' "some sort of injury" 

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 intentional 

fraud. But intentional tort cases are an imperfect analogy in 

the context of environmental pollution. The insured who commits 

an intentional tort like fraud possesses some knowledge of the 

nature of the harm likely to result and intends to cause such 

harm. Also, most intentional torts are committed in a single, 

discrete, and temporally limited incident. In the context of 

environmental pollution, the insured's knowledge concerning the 

harmful propensities of pollutants and the likelihood of harm to 

the environment may be less complete and may vary significantly 

over time. For example, it is a matter of historical fact that 

many insureds, acting in accordance with standard industry 

practices, intentionally discharged pollutants into unlined 

containment ponds or other inadequate waste treatment systems, 

but were unaware that groundwater damage would eventually result. 

 In Morton, the New Jersey Supreme Court acknowledged 

the unsuitability of prior case law on the expected/intended 

provision in environmental pollution coverage litigation. 

Morton, 629 A.2d at 879 ("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.'"). We believe the New Jersey 

Supreme Court would similarly reject a wooden application of SL 

Industries' "some sort of injury" language, and would instead 

look to the general principles underlying the interpretation of 

insurance-policy provisions involving intentional conduct. 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 by 

 precluding insurance indemnification, and 

 that of providing victims with compensation 

 to the extent that compensation will not 

 interfere with deterring injurious behavior. 

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, the insured's 

appreciation of the magnitude and nature of harm likely to be 

caused by a discharge of pollutants is relevant in determining 
whether insurance coverage should be precluded. 

 When the injury caused significantly exceeds 

 the injury intended or expected . . . then it 

 is hard to characterize the injury as truly 

 "intentional." . . . 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. 

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 property damage that 

results, deterrence is not served by precluding insurance 

coverage. Moreover, where an insured does not intend or expect 

property damage of a particular nature to result from its 

discharge of pollutants, the insured has an "objectively 

reasonable expectation" of coverage should such property damage 

later manifest itself. For these reasons, we cannot 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 insured's intent 

or expectation to cause environmental harm of a particular sort, 

for example, whether the insured intended damage to the soil, 

groundwater, or wetlands. Where the insured intends or expects 

such harm, coverage is precluded, unless, of course, the injury 

was improbable. On the other hand, an insured's intent to cause 

environmental harm of one sort will not preclude coverage for 

other kinds of unintended and unexpected environmental harm. For 

example, an insured's intent to cause soil damage will not 

preclude coverage for unintended and unexpected damage to the 

groundwater or wetlands. 

 The district court's jury instruction fairly and 

adequately asked the jury to consider whether Chemical Leaman 

expected or intended injury to the soil, groundwater, or 

wetlands. The instruction also allowed the jury to consider the 

nature and extent of Chemical Leaman's knowledge regarding the 

likelihood of harm as that knowledge evolved over time. There 

was ample evidence supporting the jury's conclusion that Chemical 

Leaman did not expect or intend to cause property damage. 

Chemical Leaman presented evidence that it believed the system of 

unlined ponds would cleanse contaminated rinsewater. Although 

Chemical Leaman intentionally discharged known pollutants, a 

reasonable jury could find, and the jury here did find, Chemical 

Leaman did not expect or intend damage to the soil, groundwater 

or wetlands. In light of the jury's findings, Chemical Leaman is 

entitled to insurance coverage for the costs of clean-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 Bridgeport site was an 

improbable result of Chemical Leaman's actions. 

 B. The "Exceptional Circumstances" Exception 
 The LMI contend that under Voorhees' "exceptional 

circumstances" exception, Chemical Leaman's intent to cause 

property damage should be presumed as a matter of law. 

 As we have noted, in Morton the New Jersey Supreme 

Court set forth several factors to be considered in evaluating 

whether exceptional circumstances exist. These 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 the possibility or likelihood of 

 harm. 

Morton Intern., Inc. v. General Acc. Ins. Co., 629 A.2d at 879- 

80. We believe the New Jersey Supreme Court designed the 

"exceptional circumstances" exception to apply only to egregious 

conduct. This much is apparent from the court's use 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 discharges," we 

believe "[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." Id. at 879-880. 

 Instead Morton mandates "a case-by-case analysis . . . 

in order to determine whether, in the context of all the 

available evidence, exceptional circumstances exist." Id. 

Morton is instructive in considering the level of culpability 

required to allow intent to injure to be presumed in the 

environmental context. In Morton, the insured intentionally 

discharged mercury-laden compounds directly into streams over a 

lengthy period of time. The Department of Health and state 

engineers made repeated demands for compliance and the insured 

consistently disregarded its own promises to remediate 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 that 

consistently were unfulfilled." Id. 

 We believe a reasonable jury could find Chemical Leaman 

did not engage in a "pattern of stonewalling." On the contrary, 

a jury could conclude that Chemical Leaman's behavior 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. The designers of 

the system believed that the sandy bottom of the unlined ponds 

would purify the contaminated rinsewater by acting as a natural 

filter, and the overflow pipe was intended as a safety valve to 

prevent a rupture in the berms of the containment ponds in the 

event of heavy rain. When an inspector from the Pollution Unit 
of 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 inspectors from the 

New Jersey Department of Health concluded discharges from the 

lagoon were pollutional and, in February 1969, ordered Chemical 

Leaman to submit plans for a system to properly treat the 

effluent. In May 1969, Chemical Leaman submitted a plan for a 

new rinsewater treatment system. The New Jersey Department of 

Health rejected this plan and over the next four years the 

parties attempted to resolve their dispute until January 1974, 

when they entered into a consent judgment. This history can 

hardly be described as "a pattern of `stonewalling' . . . 

characterized by promises of compliance that consistently were 

unfulfilled." Morton, 629 A.2d at 882. Accordingly, 

"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 LMI policies 

contained pollution exclusion clauses barring coverage for 

discharges of pollutants, unless such discharges were "sudden and 

accidental" or "sudden, unintended, and unexpected." The LMI 

argued to the district court that coverage was precluded because 

the discharge of pollutants at the Bridgeport site was not 

"sudden." The district court rejected the LMI's argument, 

relying on a line of New Jersey cases beginning with 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 exclude coverage 

for environmental harm caused by gradual discharges over a 

prolonged period. It concluded, "[t]he pollution exclusion 

precludes coverage when the insured has caused the discharge of 

pollutants, unless the discharge was neither expected nor 

intended from the standpoint of the insured." Chemical Leaman 

Tank Lines, Inc. v. Aetna Cas. & Sur. Co., 817 F. Supp. at 1157. 

The district court then granted partial summary judgment to the 

insurers with respect to soil damage because Chemical Leaman 

intended to discharge contaminants into the soil. At trial, the 

jury found Chemical Leaman expected and intended discharges to 

the swamp, but not to the groundwater. On appeal, the LMI 

contest their liability for groundwater damage. 

 Subsequent to the district court's decision, the New 

Jersey Supreme Court addressed the standard form pollution 

exclusion clause in Morton Intern., Inc. v. General Acc. Ins. 

Co., 629 A.2d at 847-76. The New Jersey Supreme Court expressly 

overruled Broadwell, because it believed that the word "sudden" 

was not ambiguous. It held "`sudden' possesses a temporal 

element, generally connoting an event that begins abruptly or 

without prior notice or warning," and concluded that "the phrase 

`sudden and accidental' in the standard pollution-exclusion 

clause describes only those discharges, dispersals, releases, and 
escapes of pollutants that occur abruptly or unexpectedly 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 regulators 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 the 

 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 expected 

 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 avoid 

 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 discharges 

 of known pollutants. Accordingly, we 

 construe and give effect to the standard 

 pollution-exclusion clause only to the extent 

 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 court 

incorrectly instructed the jury that the pollution exclusion 

clause precludes coverage only if Chemical Leaman intentionally 

discharged known pollutants into the groundwater. First, the LMI 

argue Morton established that the word "sudden" has a temporal 

connotation--meaning "abrupt"--and precludes coverage for gradual 

discharges, dispersals, releases, or escapes. Because Chemical 

Leaman discharged contaminated rinsewater over a prolonged 

period, they argue, coverage should be precluded. The LMI 

acknowledge Morton's regulatory estoppel holding generally 

prevents enforcement of the "sudden" requirement, but assert 

Morton does not apply to the LMI because (1) several of their 

policies contain the non-standard NMA 1685 pollution exclusion, 

and (2), they were not party to the misrepresentations made to 

regulatory authorities. Second, the LMI argue that even if 

Morton's regulatory estoppel holding applies, the pollution 

exclusion clause bars coverage because Chemical Leaman 

intentionally discharged known pollutants. They argue the 

district court erred in requiring proof that Chemical Leaman 

intended discharge into the groundwater, as opposed to into the 

environment generally. 

 A. Regulatory Estoppel 
 1. Non-Standard Pollution Exclusion

 In Morton, the New Jersey Supreme Court applied 

regulatory estoppel to the ISO standard pollution exclusion 

clause and did not address coverage issues relating to nonstandard pollution exclusion clauses. Morton Intern., Inc. v. 

General Acc. Ins. Co., 629 A.2d at 881. The LMI argue that 

Morton's regulatory estoppel holding should not prevent 

enforcement of the term "sudden" in the non-standard NMA 1685 

pollution exclusion clause contained in certain of their 

policies. We believe this argument lacks merit. Both the ISO 

standard pollution exclusion and the non-standard NMA 1685 

pollution exclusion use the term "sudden." The NMA 1685 

exclusion closely tracks the language of the standard pollution 

exclusion, and both pollution exclusion clauses came 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-sudden 

discharges and releases of pollutants. See also Potomac 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 exclusion 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 clause. We do not 

believe the New Jersey Supreme Court would enforce the term 

"sudden" in non-standard pollution exclusion clauses simply 

because other language in those clauses varies slightly 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 pollution exclusion. 

 2. Application of Regulatory Estoppel to the LMI 

 The LMI also argue that Morton's regulatory estoppel 

holding should not be applied to them because they did not 

affirmatively deceive New Jersey regulators in securing approval 

of the standard pollution exclusion. We cannot agree. The LMI's 

policies contained the standard pollution exclusion precluding 

coverage for non-sudden discharges or releases of pollutants. 

They also contained the NMA 1685 pollution exclusion, which 

closely parallels the language of the standard exclusion. 

Approval of the standard pollution exclusion clause was secured 

through misrepresentations to regulatory authorities. Regardless 

of whether the LMI themselves directly misrepresented the effect 

of the term "sudden" in the pollution exclusion clauses, they 

benefitted from the misleading explanation of the effect of the 

standard pollution exclusion submitted to state regulators by 

insurance industry trade groups. The LMI did not independently 

submit information to New Jersey regulators or attempt to explain 

the full impact of the term "sudden" in the pollution exclusion 

clauses they used. Under these circumstances, we believe 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 should not have 
required separate findings with regard to intent to discharge 

into the soil, wetlands, and groundwater. They contend that if 

Chemical Leaman intended any discharge, whether to the soil, 

groundwater, or wetlands, then the pollution exclusion clauses 

preclude coverage for all property damage arising from that 

discharge. Because the district court granted partial 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, including groundwater 

damage. The effect of the LMI's argument would be to require 

judgment in their favor as a matter of law on all policies 

containing a pollution exclusion. The LMI raised this 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. Chemical 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 must 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 by the LMI in 

their brief, and conclude that the LMI did not specify the "law 

and facts" entitling them to judgment in their summary judgment 

motion, their Joint Trial Brief, or their Rule 50(a) motion 

before the district court. The LMI assert they adequately raised 

the argument because they objected to the district court's jury 

instruction on the pollution exclusion clauses, stating: 

 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 not 

 required that there be an intent or an 

 expectation to discharge a particular medium, 

 rather it's the discharge itself and where it 

 goes. This should not be the subject of the 

 deliberation of the jury. 

An objection to a jury charge can serve as a predicate for a 

later Rule 50(b) motion only if the district court explicitly 

treated the objection as a Rule 50(a) motion. Bonjorno v. Kaiser 

Aluminum & Chemical Corp., 752 F.2d 802, 814-15 (3d Cir. 1984) 

("A request for jury instructions may suffice to fulfill the 

requirement that a motion for a directed verdict be made before 

granting a JNOV only if it is clear the district court treated 

the request as a motion for a directed verdict and ruled on it as 

such."), cert. denied, 477 U.S. 908 (1986); Lowenstein v. PepsiCola Bottling Co. of Pennsauken, 536 F.2d 9, 11 (3d Cir.) (same), 

cert. denied, 429 U.S. 966 (1976). The district court did not 

treat the LMI's objection to the jury charge as a Rule 50(a) 

motion. Accordingly, we believe the district court correctly 

declined to hear the LMI's argument on their Rule 50(b) motion. 

 "It is clear under our jurisprudence that this court 
cannot reverse the district court's decision denying [a] Rule 

50(b) motion for j.n.o.v. on the basis of an argument 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, 503 U.S. 985 

(1992); see also Lightning Lube, Inc. v. Witco. Corp., 4 F.3d 

1153, 1172 (3d Cir. 1993) ("In order to preserve an issue for 

judgment pursuant to Rule 50(b), the moving party must timely 

move for judgement as a matter of law at the close of the 

nonmovant's case, pursuant to Rule 50(a), and specify the grounds 

for that motion."). The LMI did not raise their argument in 

their Rule 50(a) motion. Therefore we will not address it on 

appeal. 

 We believe the LMI's objection to the district court's 

jury instruction was also insufficient to preserve their argument 

for appeal under Fed. R. Civ. P. 51. In order to preserve an 

objection to a jury instruction, a party must "object[] thereto 

before the jury retires to consider its verdict, stating 

distinctly the matter objected to and the grounds of the 

objection." Fed. R. Civ. P. 51. The purpose of Rule 51 is to 

"afford the trial judge an opportunity to correct the error in 

her charge before the jury retires to consider its verdict and to 

lessen the burden on appellate courts by diminishing 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 judge notice of 

a possible error in the instruction. Not only was the objection 

difficult to understand because of its convoluted grammar, but 

the objection did not specify the authority upon which it was 

based. Therefore the LMI's objection failed to comply with Rule 

51's requirement that an objection "stat[e] distinctly . . . 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 arguments 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 error, and our 

power to reverse is discretionary." Fashauer v. New 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 United States 

v. Carson, 52 F.3d 1173, 1188 (2d Cir. 1995) ("plain error review 

is only appropriate in the civil context where the error is so 

serious and flagrant that it goes to the very integrity of the 

trial."), cert. denied, 116 S. Ct. 934 (1996). Because we do not 

believe any mistake in the district court's jury instructions on 

the pollution exclusion clause was so fundamental as to amount to 

plain error, we decline to exercise our discretion to reverse. 

 V. Other-Site Evidence 
 Before trial, Chemical Leaman made a motion in limineto exclude 

evidence relating to environmental problems at other 

tank truck cleaning facilities it operated. The district court 

granted this motion under Federal Rule of Evidence 403 because it 

found the probative value of the evidence substantially 

outweighed by the danger of unfair prejudice, jury confusion, and 

undue waste of time. Chemical Leaman Tank Lines, Inc. 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 Leaman knew its 

system of unlined ponds at Bridgeport would cause property 

damage, including harm to the groundwater. They also insist that 

such evidence should have been allowed to impeach the testimony 

of Harry Elston, the designer of all Chemical Leaman's waste 

treatment facilities, even if not allowed in their case-in-chief. 

We review the district court's rulings on the admissibility of 

evidence for an abuse of discretion. See Tait v. Armor 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 relevance 

depended upon an extended chain of reasoning linking it to the 

Bridgeport site: 

 the jury would have to evaluate the various 

 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 rinsewater 

 treatment system in Bridgeport would cause

 damage. These explanations include, among

 others, whether damage actually occurred at 

 the other sites; and whether the geological 

 and other conditions at the other sites were 

 significantly different or substantially the 

 same as at Bridgeport. . . . [T]he probative 

 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. & Sur. Co., No. 

89-1543, slip op. at 4-5 (D.N.J. March 17, 1993). The district 

court believed that for the jury properly to evaluate this 

evidence, a series of mini-trials relating to each site would 

have been required. Such mini-trials, the court concluded, would 

cause undue delay and mislead and confuse the jury as to the 

ultimate factual issue, namely Chemical Leaman's subjective 

intent to cause harm at the Bridgeport site. Id. Moreover, the 

district court held that the other site evidence carried with it 

a significant danger of unfair prejudice. On the basis of such 

evidence, the court noted, the jury might have ignored 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 its prejudicial 

effect and the potential for jury confusion and delay, we cannot 

say the district court abused its discretion in excluding the 

other site evidence. 

 VI. Continuous Trigger 

 The New Jersey Supreme Court adopted the "continuous 

trigger" theory to identify the time of an "occurrence" in OwensIllinois, Inc. v. United Ins. Co., 650 A.2d 974 (N.J. 1994). The 

continuous trigger theory recognizes that "when progressive 

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 as 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 manifestation 

 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 establishes an 

occurrence in several different policy years. It held "[a] fair 

method of allocation appears to be one that is related 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 personal injuries 

resulting from exposure to asbestos, but the New Jersey Supreme 

Court made clear the continuous trigger theory extends to 

property damage claims resulting from long-term environmental 

contamination. It concluded, "[p]roperty-damage cases are 

analogous to the contraction of disease from exposure to toxic 

substances like asbestos. Like a person exposed to toxic 

elements, the environment does not necessarily display the 

harmful effects until long after the initial exposure." 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), certif. denied, 

670 A.2d 1065 (N.J. 1995). 

 Although considering the issue before the New Jersey 

Supreme Court's decision in Owens-Illinois, the district court 

applied the continuous trigger theory, ruling all of 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 policies activated by 

a continuing occurrence are jointly and severally liable to 

policy limits for property damage resulting from the 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 argument is 

meritless. On the other hand, the LMI correctly dispute the 

district court's holding that all policies are jointly and 

severally liable under the continuous trigger theory. Because 

the New Jersey Supreme Court rejected joint and several liability 

in favor of a risk-based allocation of liability among applicable 

insurance policies in Owens-Illinois, we will remand this matter 

to the district court for a reallocation of liability between the 

insurers and among the triggered policies in accordance with 

Owens-Illinois. 

 The LMI also contend that Chemical Leaman failed to 

prove property damage occurred during each policy year from 1960- 

70, and therefore the district court erred in finding 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 injury is not 

required, so long as there is a continuous, indivisible process 

resulting in damage. Owens-Illinois, Inc. v. United Ins. Co., 

650 A.2d at 981 ("injury occurs during each phase of 

environmental contamination--exposure, exposure in residence . . 

. and manifestation of disease"); Morrone v. Harleysville 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 rinsewater into the 

unlined ponds and lagoons in every year from 1960-70. Moreover, 

the district court found as a factual matter that "contaminated 

rinsewater from the three settling ponds started migrating 

through the soil to underlying groundwater almost immediately 

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 exposure 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 damage" in the 

underlying policies. Specifically, they object to the 

instruction that "Chemical Leaman may be entitled to coverage 

under the defendants' insurance policies for property damage that 

occurs during a policy period, but that originally began during 

an earlier policy period." They argue Chemical Leaman was 

required to prove "actual injury" during each policy 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 not 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 district 
court'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, four years after 

it entered into a consent decree with the EPA admitting liability 

under CERCLA, and even longer after the underlying events that 

harmed the environment. The LMI assert this failure 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 occurrence-based policy 

must demonstrate that it has suffered "appreciable prejudice." 

Cooper v. Government Employees Ins. Co., 237 A.2d 870 (N.J. 

1968); Med. Inter Ins. Exchange v. Health Care Ins. Exchange, 651 

A.2d 1029, 1033 (N.J. Super. App. Div.), certif. denied, 658 A.2d 

728 (N.J. 1995). Lower courts in New Jersey have identified two 

relevant factors in determining whether an insurer has suffered 

prejudice justifying a denial of coverage: "whether substantial 

rights have been irretrievably lost by virtue of the failure of 

the insured to notify the carrier in a timely fashion," Morales 

v. National Grange Mut. Ins. Co., 423 A.2d 325, 329 (N.J. Super. 

Law Div. 1980), and whether "the likelihood of success 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 prejudice because 

material evidence had not been irretrievably lost, and no 

meritorious defense existed to Chemical Leaman's underlying 

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 in holding 

Chemical Leaman's contractual obligation to notify it of claims 

arose, at the earliest, in 1984. They argue that obligation 

arose as much as twenty years earlier, when Chemical Leaman 

received complaints of environmental pollution from various 

regulatory bodies. We disagree. Chemical Leaman could not have 

known of the liabilities for which it seeks coverage until the 

EPA placed the Bridgeport site on the Superfund National 

Priorities List in 1984. Prior New Jersey state actions against 

Chemical Leaman had sought only non-monetary injunctive relief. 

Because 1984 was the earliest practicable date by which 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 not disputed 

that "a wealth of relevant documentary evidence remains intact." 

Id. at 1159. Moreover, the LMI had extensive opportunities to 

depose, and later cross-examine, Harry Elston, the designer of 

the Bridgeport site. Accordingly, the district court correctly 

found that the LMI had not irretrievably lost any substantial 

right due to Chemical Leaman's untimely notice. 

 In addition, the LMI assert that Chemical Leaman's 

failure to give timely notice adversely affected their ability to 

defend against the underlying claim. But the district court held 

no prejudice had resulted: 
 Chemical Leaman, as owner and operator of the 

 Bridgeport facility, is strictly liable under 

 CERCLA for damages for injury to, destruction 

 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 liability 

 for these damages is retroactive, joint, and 

 several, and imposed regardless of fault. 

 Defendants do not contend that a meritorious 

 challenge exists to the findings, made in the 

 1985 consent order . . . . Nor do defendants 

 assert there is a meritorious defense to the 

 EPA's allegation that the presence of 

 hazardous substances at the Bridgeport 

 facility and their migration to surrounding 

 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 CERCLA. 

 Defendants also ask this court to find 

 that timely notice would have resulted in a 

 likelihood that the insurance carriers would 

 have reached a more favorable settlement. 

 However, defendants fail to demonstrate what 

 better arrangement the insurance carriers 

 would have been able to obtain if they had

 assumed Chemical Leaman's defense upon timely 

 notice. 

Id. On appeal, the LMI have not advanced any arguments 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 appreciable 

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 willfully 

suppressed the identity of relevant witnesses and failed to 

produce certain documents. After trial, the LMI moved for relief 

from the judgment and a new trial under Federal Rule of Civil 

Procedure 60(b)(3). The district court denied the motion, 

although it believed a "close question" had been presented. 

After reviewing the record and the arguments of the parties, we 

conclude the district court did not abuse its discretion 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 among applicable 
policies. We will remand to the district court for a 

reallocation of damages among applicable policies in accordance 

with the New Jersey Supreme Court's holding in Owens-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 dissenting in part. 

 I must respectfully dissent from part III of the 

majority opinion because I do not agree with the majority's 

interpretation of Morton International, Inc. v. General Accident 

Ins. Co. of America 629 A.2d 831 (N.J. 1993), cert denied, 114 S. 

Ct. 2764 (1994). I believe Morton mandates an objective inquiry 

in disputes such as this. Because the district court'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 injury, and if so, 

whether the extent of the resulting injury was foreseeable. 

 I. The Evolution of The "Intent" Analysis in 

 "Occurrence-Based" Policies 

 Although the majority's analysis has much to commend 

it, I believe that a more thorough discussion of the 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 control our 

analysis. 

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

 School Day Care Center, Inc. 

 Our analysis must begin with, and be guided by a 

discussion of Atlantic Employers, because it used language that 

the court would later cite and which I believe has caused my 

colleagues to take an incorrect analytical turn. In Atlantic 

Employers, parents of children who had been sexually abused sued 

the owners and operators of a day care center where the abuse 

purportedly took place. The company that insured the center then 

brought a declaratory judgment action to determine its obligation 

to defend or indemnify the owners for any recovery the plaintiffs 

might win in their personal injury suits based upon negligence 

and intentional tort. 

 The day care center's insurance policy insured against 

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

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

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

contained an exclusion for violations of penal statutes or 
ordinances. The Appellate Division first noted the general rule 

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

intentional act, but not for damages assessed because of an 

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

court stated: 

 There seems to be no dispute that if . . . 

 Robert Knighton sexually molested the 

 children, then he had the requisite level of 

 intent to be found guilty of sexual 

 molestation, based on the criminal statutes 

 of this State. But appellants insist that 

 this does not necessarily mean that he 

 intended the damages or injuries incurred by 

 the children as a result of such actions. . . 

 . Further, they insist that the existence of 

 such intent cannot automatically be imputed 

 to the other insureds under the policy so as 

 to exclude coverage. . . . We reject this 

 position. 

 

 Id. The court then examined cases from other jurisdictions in 

order to analyze the insureds' argument in context with 

developing law. The court noted that some jurisdictions employed 

a subjective test in determining insurance coverage under these 

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

concluded that public policy mandated an objective approach. 

 As a matter of public policy 

 and logic we conclude that the 

 better rule warrants application of 

 the objective approach. A 

 subjective test suggests that it is 

 possible to molest a child and not 

 cause some kind of injury, an 

 unacceptable conclusion. . . . 

 . . . It is simply against 

 public policy to indemnify a person 

 for a loss incurred as a result of 

 his[/her] own willful wrongdoing. 

Id. at 304. Thus, the court held that policy, as well as logic, 

required an "objective approach" as an exception to the general 

rule. 

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

 Within a year and a half of Atlantic Employers, the 

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

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

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

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

obligated the plaintiff insurer to defend and indemnify the 

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

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

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

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

the fight and threw the first blow and started the fight. As far 
as I am concerned, it is intentional conduct and the coverage 

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

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

extraordinary consequence of the fight." Id. 

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

that we again explore the frequently visited but still unclearly 

charted area of liability coverage for intentional torts which 

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

 Our review of New Jersey 

 authorities satisfies us that . . . 

 it is difficult to ascertain a 

 clear weight of authority on the 

 subject of liability insurance 

 coverage for unintended results of 

 intentional acts. Differing 

 combinations of variables, such as 

 the language of the exclusion 

 clause, the nature of the harm and 

 its relationship to the intentional 

 act, and the availability of relief 

 to the injured party, appear to 

 influence the extent to which our 

 decisions have inquired into the 

 nature of the intent. 

Id. at 921. The court then stated: 

 [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 statements she had 

made at a public meeting where she had questioned the competency 

of her child's teacher. The teacher claimed she had suffered 

emotional distress and mental anguish as a result of the parent's 

conduct. The teacher alleged that the parent had acted 

"willfully, deliberately, recklessly and negligently," in making 

false accusations that had damaged the teacher professionally, 

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

1257. Medical evidence established that the emotional distress 

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

physical complaints,' including 'headaches, stomach pains, 

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

 The parent had a homeowner's policy that provided 

coverage for liability arising from "bodily injury" caused by an 

"occurrence." The policy defined an "occurrence" as an 
"accident," and excluded coverage for bodily injury intentionally 

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

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

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

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

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

for damages resulting from its refusal to provide a defense and 

indemnify her. Both parties moved for summary judgment. 

 The trial court granted the insurer's motion ruling 

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

that would be covered under the policy. A divided panel of the 

Appellate Division reversed. 

 The New Jersey Supreme Court noted that the duty to 

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

insured's statements constituted a potentially coverable 

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

an occurrence is determined by analyzing whether the alleged 

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

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

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

into the actor's subjective intent to cause injury: 

 We adhere to the prevalent New 

 Jersey rule and hold that the 

 accidental nature of an occurrence 

 is determined by analyzing whether 

 the alleged wrongdoer intended or 

 expected to cause an injury. If 

 not, then the resulting injury is 

 "accidental," even if the act that 

 caused the injury was intentional. 

 That interpretation prevents those 

 who intentionally cause harm from 

 unjustly benefitting from insurance 

 coverage while providing injured 

 victims with the greatest chance of 

 compensation consistent with the 

 need to deter wrong-doing. It also 

 accords 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 egregious behavior 

that had justified an objective approach in Atlantic Employers. 

The court held that "[a]bsent exceptional circumstances that 

objectively establish the insured's intent to injure," the 

insured's subjective intent to injure must govern. Id. The 

Voorhees court's reference to "exceptional circumstances" was 

clearly intended to recognize the need for an objective test in 

the specific circumstances it confronted in Atlantic Employers, 

and it foreshadowed the test it would proclaim in Morton. 

 Although the court in Voorhees felt that there was 

little evidence of a subjective intent to injure the teacher, the 

court never had to address this question because the plaintiff 

had also alleged that the insured had acted negligently. The 

allegation of negligence presupposed the absence of a subjective 

intent to injure and stated a claim for a potentially coverable 

occurrence thus triggering the insurer's duty to defend. See Id. 

Accordingly, the court affirmed plaintiff's award of summary 

judgment. 

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

 In SL Industries, an employee had filed suit against 

his employer alleging age discrimination and common law fraud as 

a result of the employer eliminating his position. The employee 

sought recovery for the alleged bodily injury that resulted. The 

employer was insured under a policy in which the insurer agreed 
to defend and indemnify the employer for all sums resulting from 

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

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

. neither expected nor intended from the standpoint of the 

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

 The employer settled the suit and then brought a 

declaratory judgment action against its insurer to establish its 

right to indemnification. The Law Division granted the insurer 

summary judgment, but the Appellate Division reversed, holding 

that although intended harm was not covered under the policy, the 

policy did provide coverage for the unforeseen results of 

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

Division to determine whether the employee's emotional distress 

had been intended or whether it was foreseeable. 

 On appeal, the New Jersey Supreme Court had to 

determine if the general intent to injure that is inherent in a 

claim of fraud necessarily incorporates the intent to cause the 

specific injury (emotional distress), or whether proof of a 

subjective intent to cause the specific injury is required. Id.at 1277-

1279. The court began its analysis of the required

intent by examining the differing approaches taken by earlier 

cases. 

 Our courts have taken 

 different approaches to the 

 question of how specifically the 

 insured must have intended the 

 resulting injury. Employing the 

 "Lyons" test, some courts have 

 held that a subjective intent to 

 injure ends the inquiry and 

 precludes coverage. Under that 

 approach, if there is a subjective 

 intent to injure then any injury 

 that results from the action will 

 be deemed "intentional," even if 

 the injury is different from or 

 greater than that intended. . . . 

 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. In 
 Hanover 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 against 
 indemnifying wrongdoers. 

 We believe the Karlinski test 

 presents the most reasonable 

 approach. . . . Assuming the 

 wrongdoer subjectively intends or 

 expects to cause some sort of 

 injury, that intent will generally 

 preclude coverage. If there is 

 evidence that the extent of the 

 injuries was improbable, however, 

 then the court must inquire as to 

 whether the insured subjectively 

 intended or expected to cause that 

 injury. Lacking that intent, the 

 injury was 'accidental' and 

 coverage will be provided. 

 

Id. at 1277-78 (citations omitted). 

 Accordingly, the court affirmed the Appellate 

Division's judgment remanding the case to the Law Division to 

determine whether the employee's emotional distress had been a 

probable outcome of the insured's general intent to injure, and 

if not, whether the insured had the subjective intent to injure 

the employee. See Id. at 1279. 

 E. Morton International, Inc. v. General Accident Ins. 

Co. 

 Finally, in Morton, the New Jersey Supreme Court had to 

apply the law of "occurrence-based" insurance policies to the 

very different realm of injuries to the environment. There, the 

insured, Morton International, sued primary and excess CGL 

insurers seeking reimbursement for costs incurred in defending a 

suit filed by the Department of Environmental Protection (DEP), 

as well as indemnity for cleanup and remediation expenses 

resulting from the DEP proceeding. Morton, 629 A.2d at 834-835. 

Morton's predecessors, including Ventron Corporation, 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 owners 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 operated for forty 

years by the various defendants. See New Jersey Department of 

Environmental Protection v. Ventron Corp., 468 A.2d 150 (N.J. 

1983). 

 In the underlying suit to establish liability, the New 

Jersey Supreme Court affirmed the Appellate Division'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 against all 

defendants. See Id. at 160. 

 Morton then commenced a declaratory judgment action to 
determine its right to indemnification from the various insurers 

that had provided primary and excess coverage while the mercuryprocessing plant was in operation. The primary issue that the 

court had to determine was whether the pollution resulted from an 

"occurrence" under the applicable policies. To qualify as an 

"occurrence" the environmental damage must not have been 

"expected nor intended from the standpoint of the insured." 

Morton, 629 A.2d at 836. The trial court granted the insurer's 

motion for summary judgment. The Appellate Division reversed 

holding that the trial court had "focused improperly 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 Atlantic 

Employers to conclude that "'[t]he intentional character of the 

act is the basis for the inference that the insured either 

intended or was manifestly indifferent to the prospect of 

injury.'" Id. (citation omitted). In reaching this conclusion, 

the Appellate Division (without the benefit of either Voorhees or 

SL Industries) noted that the "'substantial environmental 

pollution over a long period'" together with the knowledge by 

Morton's predecessors that "'the substance being discharged . . . 

was toxic and harmful'" rendered unacceptable a conclusion 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 Atlantic 

Employers improperly equated the discharge of pollutants with 

child molestation as acts that could be deemed intentionally 

injurious as a matter of law. Morton further argued that "the 

Appellate Division improperly invoked an objective standard for 

determining whether harm had been intended or expected under the 

`occurrence'-based policies, ignoring the long-standing principle 

that coverage exists for the unintended results of intentional 

acts." Id. 

 The court began its analysis by acknowledging the 

unique circumstances that surround issues of insurance 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 unintended 
 and 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 unwarranted presumption 

and thereby extending the "public policy and logic" of Atlantic 

Employers, the court called for an individualized inquiry 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] that 
 objectively establish the insured's 

 intent to injure." 

Id. at 879-80 (citation omitted) (emphasis added). The term 

"exceptional circumstances" had been used in Voorhees. As noted 

above, there, the court stated that, absent exceptional 

circumstances, the subjective intent of the insured controlled 

whether there was an "occurrence" under an occurrence-based 

insurance policy. In Voorhees, the court had stated 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 the actor's 

subjective intent to injure." Id. at 1265. In the context of 

Atlantic Employers, the reprehensible actions of child 

molestation did indeed "'[a]s a matter of public policy and logic 

. . . warrant[] application of the objective approach.'" 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 injure, we 

will look to the insured's subjective intent to determine intent 

to injure." Id. (emphasis added). 

 III. Morton Applied to the Instant Dispute 

 In Morton, the court was careful to distinguish the 

policy considerations in pollution coverage cases from those that 

dictated an objective approach in all cases of child molestation. 

"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." Morton, 629 A.2d at 879. 

This does not mean, as the majority suggests, that the alleged 

polluter's subjective intent controlled. It only means that the 

act of polluting is not so reprehensible that "public policy and 

logic" require a presumption that the resulting harm is intended 

as a matter of law. Rather, the circumstances surrounding the act 

of polluting must be examined in each case to determine if, in 

that particular situation, they objectively establish an intent 

to harm the environment, thereby negating an occurrence. 

 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 the 
 possibility or likelihood of harm. 

Id. at 880. Accordingly, I cannot agree when my colleagues 

state, "[w]e believe the New Jersey Supreme Court designed the 

'exceptional circumstances' exception to apply only to egregious 

conduct." Majority Op. at 27. One can only determine if conduct 

is egregious by examining the "exceptional circumstances" in 

which it occurred. Indeed, an examination of those circumstances 

may well establish that a particular polluter's conduct 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 subjective intent to 

pollute on the part of the insured or its predecessors. Rather, 

it examined the record and determined that the circumstances 

before it objectively established an intent to harm. "In 

determining whether in the context of this record the 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 circumstances"] 

that we previously have identified to be significant." 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 that 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 basis of . . . 

prolonged knowledge of and avoidance of compliance with 

complaints by regulatory officials." Id. at 884. 

 This is consistent with the court's pronouncement that 

the mere fact of polluting, even to the egregious extent present 

in Morton, was not by itself, such reprehensible conduct that it 

required a conclusive presumption of an intent to harm. 

Moreover, the "exceptional circumstances" include "the existence 

of subjective knowledge concerning the possibility or likelihood 

of harm." However, subjective knowledge is not used to 

definitively determine if the insured expected or intended 

environmental damage. Rather, the insured's subjective knowledge 

is but one of those "exceptional circumstances" that determine if 

an "occurrence" has taken place. It is not the start and finish 

of that inquiry as the majority's reasoning suggests. 

 The Morton court concluded that exceptional 

circumstances established as a matter of law that there had been 

no occurrence as Morton's predecessors had to have expected the 

pollution they caused. The objective nature of this 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 been 
 anticipated 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 holding in 

Karlinski) to environmental insurance coverage, the court in 

Morton noted that subjective evidence of the polluter's intent 

did not become relevant merely because the extent of 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 inherent 
 improbability 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 predecessors had 

 done; rather, it had "designed and built the 

 facility to prevent [harm to the 

 environment]." 

 Majority Op. at 20. (emphasis added). The "exceptional 

circumstances" test, however, is not an "exception," but the rule 

that is to be applied in environmental coverage cases. 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 from which a 

reasonable jury could conclude that "exceptional circumstances" 

objectively establish Chemical Leaman's intent to harm the 

environment. 

 The majority holds that after Morton, a court can 

determine that an insured is entitled to indemnification under an 

occurrence-based policy as a matter of law absent "exceptional 

circumstances." My colleagues suggest that "exceptional 

circumstances" merely 

 define when no reasonable jury could find the 

 insured did not intend or expect to cause 

 property damage because objective 

 circumstances--evidence of prolonged, 

 intentional, or flagrant discharges of known 

 pollutants in the face of regulatory 

 disapproval--establish that the insured must 

 have intended property damage. The presence 

 of "exceptional circumstances" requires a 

 court to enter judgment as a matter of law. 

 Their absence, of course, does not prevent a 

 jury from finding an insured "expected" or 

 "intended" to cause property damage. 

 

See Majority Op. at n.7. However, Morton did not quantify the 

factors it identified as objectively establishing intent to 

pollute. Rather, the "case-by-case analysis" was necessary for 

the fact finder to make an individualized determination of 

whether the nature of those factors in a particular case 

justified denying coverage in lieu of the limitations contained 

in the insurance contract. Thus, I agree that the absence of the 
factors detailed at footnote 7 of the majority opinion "doe[] not 

prevent a jury from finding an insured 'expected' or 'intended' 

to cause property damage," but not for the reason stated by the 

majority. Rather, it is because "subjective knowledge concerning 

the possibility or likelihood of harm" is one of the "exceptional 

circumstances" that a jury must also consider. Accordingly, if an 

insured knows that its actions will most likely harm the 

environment, just one, brief, discharge of a known pollutant by 

one who had otherwise complied with regulatory authorities could 

preclude coverage under an occurrence-based insurance policy. 

 The majority argues that Morton cannot be read as 

creating an objective test for intent because an insured who 

"intentional[ly] discharges a known pollutant generally intends 

'some sort of harm,' however de minimis, and the harm that 

actually results is usually a probable result of the discharge." 

Thus, (the majority suggests) an objective test "would result in 

a general rule precluding [all] coverage based on the knowing 

discharge of a pollutant." Majority Op. at 23. That is, 

however, precisely why it is necessary to use "exceptional 

circumstances" to prove intent to harm objectively in pollution 

cases. If the resulting inquiry establishes that the insured did 

objectively "intend" to harm the environment, the inquiry into 

the foreseeability of the actual damage makes perfect sense. 

 The majority expresses a further concern that reading 

Morton to require anything other than subjective intent "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 general 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," however, 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 pollutant 

discharges." Morton, 629 A.2d at 879. 

 IV. The Exceptional Circumstances of The Bridgeport Site. 

 Throughout the time the pond and lagoon system was in 

use there were repeated discharges of waste through the overflow 

pipe to the adjacent swamp. In fact, the very purpose of the 

overflow pipe was to allow for these discharges. An Inspector 

observed the discharge from the last pond during a September 12, 

1961 visit and thereafter observed similar discharges on about 

half of his visits to the Bridgeport site. In November 1968, 

water pollution inspectors from the New Jersey Department of 

Health again observed the discharge from the overflow pipe in the 

last lagoon. Although it was characterized as a sporadic 

"trickle", an engineer employed by Chemical Leaman (Elston), and 

at least one other employee admitted that the overflow pipe did 

discharge into the swamp throughout the time the pond and lagoon 

system was in use. Moreover, there was evidence that by 1974, 

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

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

the swamp. 

 The Morton court concluded that the discharge of 
pollutants 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 nature of the 

discharge is also evident. Chemical Leaman intentionally 

designed its waste treatment system so that the overflow pipe 

would discharge into the swamp. Furthermore, even under the 

subjective framework that the jury was given to review the 

evidence, it concluded that Chemical Leaman's releases were 

intentional. That conclusion is supported by the record and 

Chemical Leaman cannot now successfully argue that the discharges 

were anything but intentional. Indeed, Chemical Leaman's denials 

illustrate the concern expressed in Morton that a polluter may 

admit to the discharge, but would never admit to intentionally 

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 continued evasion of 

the State's demands to stop the discharge. The unacceptable 

condition of the discharge from the overflow pipe into the swamp 

was brought to Chemical Leaman's attention by a governmental 

inspector in September of 1961. Although Chemical Leaman 

installed three more lagoons in an attempt to alleviate this 

situation, the overflow pipe remained a staple of the Bridgeport 

site and in 1968, Chemical Leaman was still discharging wastes 

into the lagoon. 

 State officials regularly informed Chemical Leaman that 

the effluent flowing from the overflow pipe constituted an 

unacceptable discharge into the swamp. In 1961, FGW told 

Chemical Leaman that the discharge was an unacceptable condition 

and that the resulting pollution should be stopped within a year. 

Subsequently, in 1968, the NJDOH told Chemical Leaman that "the 

waste emanating from the lagoon is highly pollutional and [that] 

immediate measures [should] be taken to eliminate this discharge 

or to sufficiently treat the waste prior to discharge" and in 

1969, Chemical Leaman was ordered to find an alternative method 

of waste treatment. 

 Chemical Leaman argues that it was not aware of the 

harmful propensities of its pollutants because it was not 

discharging pure chemicals, but rather "trace amounts" of these 

chemicals in highly diluted rinsewater. The uncontroverted 

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 engaged 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 thought that its 
natural filtration system would reduce the danger of pollution. 

In fact, it was designed to do just that. Nevertheless, the 

record here could clearly support a finding that Chemical Leaman 

was "stonewalling" regulatory authorities. There is a pattern of 

unfulfilled promises of compliance to state agency requests to 

abate the polluting discharge. 

 Even after officials caught Chemical Leaman discharging 

into the swamp in 1968 and ordered it to find a better way to 

treat wastes in 1969, Chemical Leaman did not improve 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 processed using the 

same treatment system. 

 Thus, from 1961, when the State first notified Chemical 

Leaman that the discharge to the swamp was unacceptable, until 

1975, when Chemical Leaman began off-site disposal at the Du Pont 

plant, Chemical Leaman responded to regulatory agencies with 

promises of compliance that went unfulfilled. Chemical Leaman 

was informed that the discharge to the swamp was unacceptable. 

Although the state did not articulate why the discharge was 

improper, it is difficult to imagine what other reason Chemical 

Leaman could have attributed to the state's concern if not the 

impact of the discharge upon the environment. It is clear from 

Chemical Leaman's own argument in this regard that it never 

attempted to ascertain the reason for the State's concern. 

 Nevertheless, assuming arguendo that in 1961 Chemical 

Leaman could not ascertain that its system was damaging the 

environment, there is no dispute that Chemical Leaman learned 

that the discharges to the swamp were likely to cause 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 this discharge 

or to sufficiently treat the waste prior to discharge." 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 Chemical 

Leaman's discharge into the swamp was causing some damage to the 

swamp. Finally, it should be noted that Chemical Leaman never 

obtained the required permits for its waste disposal cite. Thus, 

it took regulatory authorities even longer to discover the 

"highly pollutional" discharge. Once the cite was discovered, 

Chemical Leaman's compliance with regulatory agencies was less 

than exemplary. 

 Chemical Leaman discharged approximately 100 million 

gallons of contaminated waste water into its unlined ponds and 

lagoons for the fifteen years that the Bridgeport site was in 

operation. The bottom of those lagoons was only two and a half 

feet above the groundwater, and the insurers' expert 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 Chemical Leaman 

argues on appeal that their unlined treatment system was the 

state of the art. 

 I cannot say that such a course of conduct does not 
negate the existence of an occurrence under New Jersey law. 

 V. Conclusion 

 Courts that have addressed the issue of the kind of 

intent that would negate insurance coverage under an occurrencebased policy have been guided by certain policy considerations. 

Courts have attempted to maximize the possibility that victims be 

compensated for their injuries while minimizing indemnification 

of the wrongdoer. See Voorhees, 607 A.2d. at 1264. They have 

also been concerned that the law in this area deterred 

wrongdoers. See SL Industries, 607 A.2d at 1278. Looking to 

"exceptional circumstances" to objectively determine intent to 

harm the environment does just that. To the extent that those 

circumstances suggest that the insured did not intend 

environmental harm, and cooperated with regulatory authorities to 

avoid it, the insured will likely be indemnified for the cost of 

remediation under an occurrence policy even where it discharged a 

known pollutant. To the extent that those circumstances 

establish a protracted and/or deliberate discharge, however, a 

disregard for the environment, knowledge of the properties of a 

pollutant, "stonewalling" regulatory agencies and the insured's 

subjective knowledge of the possibility of harm; "public policy 

and logic" require that the insured, and not its insurers, pay 

the cost of environmental cleanup. That allocation of cost deters 

persons from closing their eyes to the environmental impact of 

their activities. 

 Furthermore, this is consistent with the long-standing 

doctrine of enforcing insurance contracts in a manner that is 

consistent with the reasonable expectations of the parties. An 

insured cannot reasonably expect to escape the "occurrence-based" 

limits on its right to indemnification where "exceptional 

circumstances" establish its culpability for pollution. 

Similarly, an insurer should be able reasonably to expect that it 

will not be required to reimburse such a polluter for 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 pollutants in 

relative safety because of the obvious impracticality of 

establishing their subjective intent to harm the environment. 

Since the New Jersey Supreme Court recognized the impracticality 

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 Court established 

a subjective standard in environmental insurance disputes while 

proclaiming such a rule to be so impractical as to be unworkable. 

As a result, our holding places insurers in the impossible 

situation the New Jersey Supreme Court sought to avoid by its 

thoughtful pronouncement of an objective "exceptional 

circumstances" test in disputes over liability for cleaning up 

pollution.