Opinion ID: 3009802
Heading Depth: 2
Heading Rank: 2

Heading: Environmental Coverage Cases and the

Text: Inappositeness of Gilbert Spruance to Product Liability Cases Until fairly recently, New Jersey choice of law principles did not treat environmental coverage actions differently from other insurance coverage disputes. Courts applied the analysis described above in environmental coverage cases as well as other insurance disputes to select a single state's law to 14 apply to all the related claims, irrespective of where the claims arose. As the appellate division explained: [W]hen comprehensive nationwide coverage is purchased, it is surely the expectation of both insured and insurer that what the insured has bought and insurer has sold is a single protection from liability irrespective of the particular state law under which that liability is determined . . . . [T]he notion that the insured's rights under a single policy vary from state to state depending on the state in which the claim invoking the coverage arose contradicts not only the reasonable expectation of the parties but also the common understanding of the commercial community. See Westinghouse Electric Corp. v. Liberty Mutual Insurance Co., 559 A.2d 435, 442 (N.J. App. Div. 1989). In Westinghouse, the plaintiff insured had sought coverage from 144 insurers for thousands of toxic tort claims and numerous site-remediation (environmental) claims arising from eighty-one sites in twenty-three states. Id. at 436. The trial court severed and dismissed all claims for coverage arising outside of New Jersey on forum non conveniens grounds. The Appellate Division reversed, explaining that the plaintiff was entitled to a single, consistent and final resolution of the choice of law question in a single comprehensive action which will bind it and all its insurers. Id. at 442. Although it specifically declined to reach the choice of law issue, the Westinghouse court reasoned that the combined adjudication of these multitudinous claims would be manageable if the law of only one state is required to be restated. Id. at 443. Concerned by the possibility that resolution of coverage issues under one state's laws might deny coverage to 15 claims involving sites in another state whose laws applied to the underlying action -- thus frustrating the vindication of the site state's environmental policies by rendering many of the judgments uncollectible -- the New Jersey Supreme Court developed a specialized analysis for environmental coverage actions. Although Simmons, 417 A.2d 488 (N.J. 1980), remains the definitive case on the proper choice of law analysis for product liability insurance controversies, see Diamond Shamrock Chemicals, 609 A.2d at 465, a different analysis now governs environmental insurance controversies. In Gilbert Spruance, the New Jersey Supreme Court applied the site-specific rule enunciated in Johnson Matthey Inc. v. Pennsylvania Manufacturers Ass'n Insurance Co., 593 A.2d 367 (N.J. App. Div. 1991), for cases involving policies that did not contemplate a New Jersey risk and waste that, while predictably coming to rest in New Jersey, was generated out of state. See Gilbert Spruance Co., 629 A.2d at 892. Gilbert Spruance involved the interpretation of a pollution exclusion clause contained in a comprehensive general liability policy issued by a Pennsylvania carrier to a defendant incorporated in Pennsylvania. The insurance contracts were negotiated and countersigned in Pennsylvania, and the premiums were paid there. Although the waste was generated by the defendant in Philadelphia, the location of the company's paint manufacturing business, the New Jersey Supreme Court was convinced that the parties could reasonably foresee that a New Jersey waste site would receive the insured's waste products, 16 thus rendering the application of New Jersey law equitable. See 629 A.2d at 886. The state's compelling interest in assuring the financing of a clean up of the New Jersey waste site played a very substantial role in the court's conclusion that New Jersey had the dominant significant relationship necessary to overcome the substantial contacts with Pennsylvania. See id. at 894. Gilbert Spruance thus altered the balance of Restatement § 6 factors in environmental coverage cases. See 629 A.2d at 894. While it rejected a categorical approach selecting the state of either generation or disposal in favor of a more extended analysis pursuant to § 6(2), the Gilbert Spruance court explained that when applying the principles enunciated in Restatement section 6 to a case in which out-of state generated waste foreseeably comes to rest in New Jersey, New Jersey has the dominant significant relationship. See 629 A.2d at 894; see also National Starch & Chem. v. Great American Ins. Cos., 743 F. Supp. 318 (D.N.J. 1990) (earlier case finding that the location of the waste sites is of paramount concern, although not irrebuttable). Gilbert Spruance thus establishes that, in environmental cases, the location of the site carries very substantial weight in the significant relationship analysis, typically adequate to overcome the contacts of the place of contracting.0 0 One might argue that Gilbert Spruance establishes the rule that the law of the state where toxic waste comes to rest will apply, if it was reasonably foreseeable that the waste would end up there, obviating the need for the § 6 analysis. At most, the court left the question open. See 629 A.2d at 894 ([W]e express no view on the proposition stated in J. Josephson, Inc, [626 A.3d 17 NL contends that Gilbert Spruance reduces the importance of the place of contracting in all New Jersey choice of law analyses, even outside of environmental claims. Although the appellate division had left open the possibility that the site-specific approach it adopted could apply outside the environmental coverage context it was considering, Johnson Matthey, 593 A.2d at 373, the policies driving the adoption of the site-specific rule are inapposite in product liability coverage actions. In particular, the adoption of the sitespecific approach rested heavily on the compelling (for § 6 purposes) interest that a waste-site state has in determining the availability of funds for the cleanup of hazardous substances located within its boundaries. Leksi Inc. v. Federal Ins. Co., 736 F.Supp. 1331, 1335 (D.N.J. 1990). But the state's interest in determining coverage for product liability actions is more amorphous and therefore less compelling than its interests in environmental cleanup. 81 (N.J. Law Div. 1993),] that when another state is the foreseeable location of the waste-site, the court must engage in a section 6 analysis to determine if that state has the most significant relationship with the parties, the transaction, and the outcome of the controversy . . . .). In passing on the case before it, however, the Gilbert Spruance court incorporated the interests of the waste site state into the customary § 6 analysis. Id. at 894. The court also endorsed the approach of allowing resolution of issues by the courts of the states whose interests are immediately affected during the course of litigation which can be effectively managed.. See Gilbert Spruance, 629 A.2d at 895 (emphasis added). We believe that the New Jersey Supreme Court's inclusion of the manageability caveat further signals its intent to preserve a balancing analysis rather than to discard it in favor of an inflexible rule. 18 There is also less predictability concerning the situs of product liability claims, and a manageability problem in light of the potentially far larger number of product liability claims (relative to environmental sites in any given insurance coverage action.) Thus, because the benefits of the site-specific approach are reduced while the problems associated with its implementation are magnified outside the environmental coverage context, we believe that the New Jersey Supreme Court would not extend the site-specific approach to the product liability coverage area.0 There is precedent for our differential treatment of the choice of law question in the product liability coverage situation relative to the environmental coverage situation. In Diamond Shamrock Chemicals Co. v. Aetna Casualty & Surety Co., 609 A.2d at 465, which preceded but foreshadowed Gilbert Spruance, the Appellate Division addressed a case involving both Agent Orange product liability claims and environmental claims stemming from the defendant's manufacture of dioxin. For the Agent Orange toxic tort claims, the court relied on the fact that 0 In applying the new standard to environmental choice of law questions, the New Jersey courts will have to conduct separate choice of law analyses for environmental coverage claims and for mass tort coverage claims even when they arise in a single case. There is nothing anomalous about this result, since § 145 of the Restatement Conflicts of Laws explains that, even within a single action, the choice of law analysis applies to particular issues, not to the case monolithically. Moreover, in repudiating the uniform contract approach, see Gilbert Spruance, 629 A.2d at 892, the New Jersey Supreme Court has demonstrated a willingness to countenance the application of different state laws even to a single issue of coverage. This may of course be quite difficult and time-consuming, and result in serious management problems for the courts applying this rule. 19 the New York was the place of contracting to apply New York law to all of the Agent Orange coverage actions irrespective of where the claims arose. Diamond Shamrock, incorporated and located in Ohio, had used a New York broker to purchase the policies. The court found that the facts that Agent Orange was manufactured in Newark, New Jersey, that it was sold to the government in New Jersey, that some of the claimants were New Jersey veterans, that some of the underlying suits were filed in New Jersey, and that the coverage action was pending in New Jersey did not establish the dominant relationship necessary to override the preference for New York as the place of contracting. However, in determining which law to apply in the dioxin environmental coverage actions, the Diamond Shamrock court correctly anticipated the New Jersey Supreme Court by using the site-specific analysis enunciated by the Appellate Division's opinion in Gilbert Spruance. The court determined that the law of New Jersey, the state where toxic wastes predictably came to rest (dioxin was manufactured in Newark), should apply to the environmental coverage claims involving New Jersey sites. See 609 A.2d at 455. While this case predated Gilbert Spruance, it presaged the principles announced in that decision, and therefore effectively demonstrates how a court confronting environmental coverage claims and other coverage claims in the same suit must perform distinct choice of law analyses for each. In summary, fundamental choice of law principles require that courts consider different issues separately; a 20 single analysis does not typically resolve the choice of law question for all claims in a suit. After Gilbert Spruance, New Jersey's choice of law rules require not only that environmental coverage claims be considered separately from other claims (such as for product liability), but also that they be considered in the site-specific framework, which is distinct from the customary, modified contacts analysis still applicable in other coverage contexts.