Opinion ID: 2062885
Heading Depth: 1
Heading Rank: 4

Heading: Issues of Insurance-Policy Interpretation

Text: The Court is presented with a number of significant insurance-coverage issues. Cross-petitioners argue that we need not determine whether the property damage for which remediation was ordered in the Ventron litigation resulted from an occurrence, because in their view environmental-remediation costs imposed at the instance of governmental-enforcement agencies do not constitute damages as that term is used in standard CGL policies. They also contend that those policies containing the standard pollution-exclusion clause afford no coverage to Morton and its predecessors because the discharges of pollutants from the mercury-processing plant into Berry's Creek and the surrounding area were not sudden and accidental. Morton argues that the record presents an issue of fact about whether the property damage requiring remediation was intended or expected from the standpoint of the insured, asserting that the Chancery Division's grant of summary judgment on that issue was error. We also address the duty-to-defend questions raised by the Appellate Division's reversal of the judgment for Morton against General Accident for a portion of Morton's defense costs and counsel fees.
In their joint cross-petition for certification, several of the insurance company defendants (supported by amicus Insurance Environmental Litigation Association) argue that aside from the question whether the discharges of pollutants by Morton's predecessors constitute covered accidents or occurrences under the various policies, the expenditures compelled by the judgment in the Ventron litigation do not constitute damages for which indemnification is payable under those policies. The Chancery Division, relying on Broadwell Realty Services, Inc. v. Fidelity & Casualty Co., 218 N.J. Super. 516, 525-30, 528 A. 2d 76 (App.Div. 1987), held that the term damages encompassed the remediation expenses mandated in Ventron. The Appellate Division did not address the issue. Although some variation appears in the language of the policies, the typical provision, characterized by the Liberty Mutual CGL policy, supra at 11, 629 A. 2d at 836, states: The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of    property damage to which this policy applies, caused by an occurrence   . [Emphasis added.] The insurers argue that the critical phrase as damages confines their duty of indemnity to judgments for traditional tort-liability money damages, and imposes no obligation to reimburse Morton for equitable remedies such as governmentally-mandated response costs intended to remediate environmental harm. They note and rely on the observation by the trial court that [t]he State sought and received an Order for the cleanup of the land now owned by plaintiff. Money damages were not awarded to anyone by Judge Lester. They also contend that the Spill Act, the primary statutory enactment on which defendants' liability in the Ventron litigation was based, distinguishes between cleanup and removal costs, defined in N.J.S.A. 58:10-23.11b(d), and damages, citing N.J.S.A. 58:10-23.11g(a). The essence of the insurers' argument, however, is that the undefined phrase as damages unambiguously is understood in the context of insurance coverage to have a technical but settled meaning, and refers only to traditional third-party compensatory awards rather than equitable-type relief intended not to compensate claimants but to remediate environmental damage. Morton, supported by amici State of New Jersey and New Jersey State League of Municipalities, argues that the policy term as damages encompasses the remediation costs imposed by the Ventron judgment. Morton preliminarily observes that the joint and several liability of the Ventron defendants was predicated both on the Spill Act and common-law nuisance principles, Ventron, supra, 94 N.J. at 493, 468 A. 2d 150, asserting that at least the relief based on common-law principles is analogous to a traditional tort-law damages award. More generally, Morton argues that the undefined term as damages should not be construed technically but rather should be accorded its plain meaning in order to vindicate the objectively-reasonable expectations of insureds, who would assume that CGL policies would cover environmental-remediation costs as well as third-party liability claims. In resolving those competing contentions, we are not required to write on a blank slate, numerous federal and state courts having preceded us in addressing the issue. Three Circuit Courts of Appeals, applying state law, have concluded that environmental-remediation costs are not covered damages under CGL policies. See Gresham v. Commercial Union Ins. Co., 951 F. 2d 872, 875 (8th Cir.1991) (Arkansas law); Parker Solvents Co. v. Royal Ins. Cos. of America, 950 F. 2d 571 (8th Cir.1991) (Arkansas law); A. Johnson & Co. v. Aetna Casualty & Sur. Co., 933 F. 2d 66, 69 (1st Cir.1991) (Maine law); Cincinnati Ins. Co. v. Milliken & Co., 857 F. 2d 979, 981 (4th Cir.1988) (South Carolina law); Continental Ins. Cos. v. Northeastern Pharmaceutical & Chem. Co., 842 F. 2d 977, 985 (8th Cir.) (en banc) (Missouri law), cert. denied, 488 U.S. 821, 109 S.Ct. 66, 102 L.Ed. 2d 43 (1988) ( NEPACCO); Maryland Casualty Co. v. Armco, Inc., 822 F. 2d 1348, 1352 (4th Cir.1987) (Maryland law), cert. denied, 484 U.S. 1008, 108 S.Ct. 703, 98 L.Ed. 2d 654 (1988). A number of federal district courts have reached the same conclusion. United States Fidelity & Guar. Co. v. Morrison Grain Co., 734 F. Supp. 437, 450 (D.Kan. 1990) (Kansas law); Verlan, Ltd. v. John L. Armitage & Co., 695 F. Supp. 950, 953-55 (N.D.Ill. 1988) (Illinois law); Hayes v. Maryland Casualty Co., 688 F. Supp. 1513, 1515 (N.D.Fla. 1988) (Florida law); Travelers Ins. Co. v. Ross Elec., 685 F. Supp. 742, 744-45 (W.D.Wash. 1988) (Washington law). The Supreme Judicial Court of Maine has reached the same result. See Patrons Oxford Mutual Ins. Co. v. Marois, 573 A. 2d 16, 18-19 (1990). The rationale for the viewpoint that damages does not include equitable relief such as payment of environmental-response costs is expressed plainly by the Eighth Circuit in NEPACCO, supra: Viewed outside the insurance context, the term damages is ambiguous: it is reasonably open to different constructions. Webster's Third New International Dictionary 571 (1971) defines damages as the estimated reparation in money for detriment or injury sustained: compensation or satisfaction imposed by law for wrong or injury caused by a violation of a legal right. The dictionary definition does not distinguish between legal damages and equitable monetary relief. E.g., New Castle County v. Hartford Accident & Indemnity Co. [673 F. Supp. 1359], at 1366 [(D.Del. 1987)]. Thus, from the viewpoint of the lay insured, the term damages could reasonably include all monetary claims, whether such claims are described as damages, expenses, costs, or losses. In the insurance context, however, the term damages is not ambiguous, and the plain meaning of the term damages as used in the insurance context refers to legal damages and does not include equitable monetary relief. See Maryland Casualty Co. v. Armco, Inc., 822 F.2d [1348] at 1352 [(4th Cir. 1987)]. The CGL policies require Continental to pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of ... property damage to which this insurance applies caused by an occurrence. (Emphasis added.) The obligation of the insurer to pay is limited to `damages,' a word which has an accepted technical meaning in law. [ Aetna Casualty & Surety Co. v. ] Hanna, 224 F. 2d [499] at 503 [(5th Cir. 1955)]. Although not defined in the CGL policies, [t]he word `damages' is not ambiguous in the insurance context. Black letter insurance law holds that claims for equitable relief are not claims for `damages' under liability insurance contracts. [842 F. 2d at 985-86 (quoting Maryland Casualty Co. v. Armco, Inc., 643 F. Supp. 430, at 432 (D.Md. 1986)).] The clear weight of authority, however, among both federal and state courts adopts the view that the undefined term damages in CGL policies should be accorded its plain, non-technical meaning, thereby encompassing response costs imposed to remediate environmental damage. Aetna Casualty & Sur. Co. v. Pintlar Corp., 948 F. 2d 1507, 1513 (9th Cir.1991) (applying Idaho law); Gerrish Corp. v. Universal Underwriters Ins. Co., 947 F. 2d 1023, 1030 (2d Cir.1991) (applying Vermont law), cert. denied, ___ U.S. ___, 112 S.Ct. 2939, 119 L.Ed. 2d 564 (1992); Independent Petrochemical Corp. v. Aetna Casualty & Sur. Co., 944 F. 2d 940, 947 (D.C. Cir.1991) (applying Missouri law), cert. denied sub nom. Certain Underwriters at Lloyds, London v. Independent Petrochemical Corp., ___ U.S. ___, 112 S.Ct. 1777, 118 L.Ed. 2d 435 (1992); New Castle County v. Hartford Accident & Indem. Co., 933 F. 2d 1162, 1184-91 (3d Cir.1991) (applying Delaware law), on remand, 778 F. Supp. 812 (D.Del. 1991), rev'd on other grounds, 970 F. 2d 1267 (3d Cir.1992), cert. denied, ___ U.S. ___, 113 S.Ct. 1846, 123 L.Ed. 2d 470 (1993); Avondale Indus., Inc. v. Travelers Indem. Co., 887 F. 2d 1200, 1207 (2d Cir.1989) (applying New York law), cert. denied, 496 U.S. 906, 110 S.Ct. 2588, 110 L.Ed. 2d 269 (1990); Township of Gloucester v. Maryland Casualty Co., 668 F. Supp. 394, 400 (D.N.J. 1987) (applying New Jersey law); AIU Ins. Co. v. Superior Court, 51 Cal. 3d 807, 274 Cal. Rptr. 820, 834-45, 799 P. 2d 1253, 1267-78 (1990); Aerojet-General Corp. v. Superior Court, 211 Cal. App. 3d 216, 257 Cal. Rptr. 621, 628 (1989); A.Y. McDonald Indus. v. Insurance Co. of North America, 475 N.W. 2d 607, 615-22 (Iowa 1991); Hazen Paper Co. v. United States Fidelity & Guar. Co., 407 Mass. 689, 555 N.E. 2d 576, 582-84 (1990); United States Aviex Co. v. Travelers Ins. Co., 125 Mich. App. 579, 336 N.W. 2d 838, 842-43 (1983); Minnesota Mining & Mfg. Co. v. Travelers Indem. Co., 457 N.W. 2d 175, 179-84 (Minn. 1990); C.D. Spangler Constr. Co. v. Industrial Crankshaft & Eng'g Co., 326 N.C. 133, 388 S.E. 2d 557, 565-69 (1990); Boeing Co. v. Aetna Casualty & Sur. Co., 113 Wash. 2d 869, 784 P. 2d 507, 510-15 (1990); Compass Ins. Co. v. Cravens, Dargan & Co., 748 P. 2d 724, 729-30 (Wyo. 1988). In adopting the view that damages includes environmental remediation costs, the Washington Supreme Court observed: These cases have found that cleanup costs are essentially compensatory damages for injury to property, even though these costs may be characterized as seeking equitable relief. Or put another way, coverage does not hinge on the form of action taken or the nature of relief sought, but on an actual or threatened use of legal process to coerce payment or conduct by a policyholder. In United States Fidelity & Guar. Co., the court found that once property damage is found as a result of environmental contamination, cleanup costs should be recoverable as sums that the insured was liable to pay. According to an earlier case, United States Aviex Co. v. Travelers Ins. Co., 125 Mich. App. 579, 589-90, 336 N.W. 2d 838 (1983), the environmental cleanup costs are covered because they are equivalent to damages under state law: If the state were to sue in court to recover in traditional damages, including the state's costs incurred in cleaning up the contamination, for the injury to the ground water, defendant's obligation to defend against the lawsuit and to pay damages would be clear. It is merely fortuitous from the standpoint of either plaintiff or defendant that the state has chosen to have plaintiff remedy the contamination problem, rather than choosing to incur the costs of clean-up itself and then suing plaintiff to recover those costs. The damage to the natural resources is simply measured in the cost to restore the water to its original state. [ Boeing, supra, 784 P. 2d at 511-12 (citations omitted).] The Third Circuit, applying Delaware law, reached the same conclusion: The competing lines of cases relied upon by CNA and the County demonstrate that resolution of this issue turns on whether the word damages should be given its legal, technical meaning or its plain, ordinary meaning. Given the precepts of Delaware law and the absence of a definition limiting the meaning of damages in CNA's policies, we think that to state the question is virtually to answer it. In our view, the ordinary, usual meaning of damages, which we are bound to apply under Delaware law unless the policy clearly directs us to another meaning, does not convey the limitations suggested by CNA. In short, we believe that the Delaware Supreme Court would find the Avondale-Boeing-Spangler line of cases to be the better reasoned. We thus conclude that the term damages, in the context of a standard CGL policy, should be interpreted broadly to encompass response costs and other equitable relief. [ New Castle, supra, 933 F. 2d at 1188.] Although this Court declined to address the issue in New Jersey Department of Environmental Protection v. Signo Trading International, Inc., 130 N.J. 51, 67, 612 A. 2d 932 (1992), Justice O'Hern, dissenting on other grounds, concluded that environmental-response costs are covered damages under a CGL policy. Id. at 74, 612 A. 2d 932. We find his analysis of the issue to be thoroughly persuasive: Damages means money to most people. Money is what DEP wants from Springer. One United States District Court in New Jersey has perhaps stated it best: In assessing what an insured would reasonably expect from a CGL policy, it reasoned that [t]he average person would not engage in a complex comparison of legal and equitable remedies in order to define    `damages', but would conclude based on the plain meaning of words that the cleanup costs imposed on [the insured]    would constitute an obligation to pay damages. American Motorists Ins. Co. v. Levelor Lorentzen, Inc., No. 88-1994, 1988 WL 112142 at 3 (D.N.J. Oct. 14, 1988); see also Avondale Indus., Inc. v. Travelers Indemn. Co., 697 F. Supp. 1314, 1319 (S.D.N.Y. 1988) (The average businessman does not differentiate between `damages' and `restitution;' in either case, money comes from his pocket and goes to third parties.    The average businessman would consider himself covered for cleanup expenditures applicable to others' properties.), aff'd, 887 F. 2d 1200 (2d Cir. 1989). [ Id. at 75-76, 612 A. 2d 932.] We are fully in accord with the views expressed by Justice O'Hern in Signo Trading and adopted by the majority of federal and state courts that have addressed the issue. Accordingly, we hold that the environmental-response costs and remediation expenses imposed on Morton's predecessors in the Ventron litigation constitute sums that Morton will have to pay as damages because of property damage, within the meaning of the CGL policies at issue. Although the owned-property exclusion, which generally bars coverage for property damage to property owned or occupied [by] or rented to the insured, is asserted as a defense by some insurers, we imply no view concerning the effect of that exclusion on the coverage issues before us, that issue not having been raised, briefed, or argued by the parties.
We next address the arguments against coverage based on the so-called pollution-exclusion clause. Several insurers contend that irrespective of our conclusion about whether the property damage requiring remediation was caused by an occurrence, no coverage exists under policies containing the standard pollution-exclusion clause, which, as noted above, supra at 11-12, 629 A. 2d at 836 provides: This insurance does not apply    (f) to bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any water course or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental. Although the record reveals that some of the excess carriers had issued policies with non-standard pollution-exclusion clauses, we confine our analysis to the standard clause, on which the extensive briefs of the parties and amici have also focused. To facilitate our discussion of the issues, we first summarize our holding with respect to the interpretation that we shall apply to the standard pollution-exclusion clause, and then set forth in detail the factual and legal foundation for our conclusion. We overrule the Appellate Division's decision in Broadwell, supra, to the extent that it holds that the standard pollution-exclusion clause should be understood merely to impose the same conditions on coverage as are imposed by the definition of occurrence, which focuses on whether the ultimate damage was expected or intended from the standpoint of the insured. 218 N.J. Super. 516, 534-36, 528 A. 2d 76. As is evident from the text of the standard clause, the phrase sudden and accidental does not characterize or relate to the damage caused by pollution but instead narrowly limits the kind of discharge, dispersal, release or escape of pollutants for which coverage is provided. Although the word sudden is hardly susceptible of precise definition, and is undefined in those CGL policies that include the standard pollution-exclusion clause, we are persuaded that sudden possesses a temporal element, generally connoting an event that begins abruptly or without prior notice or warning, but the duration of the event  whether it lasts an instant, a week, or a month  is not necessarily relevant to whether the inception of the event is sudden. The meaning of the term accidental being generally understood, we discern 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. If applied as written, although interpretative questions undoubtedly would require resolution, the clause sharply and dramatically would restrict the coverage that previously had been provided under CGL policies for property damage caused by accidental pollution, which included coverage for continuous or repeated exposure to conditions, provided that the property damage  not the discharge  was neither expected nor intended from the standpoint of the insured. We are fully satisfied that if given literal effect, the standard clause's widespread inclusion in CGL policies would limit coverage for pollution damage to so great an extent that the industry's representation of the standard clause's effect, in its presentation to New Jersey and other state insurance regulatory agencies, would have been grossly misleading. Proffered to regulators merely as a clarification of existing coverage so as to avoid any question of intent, and as a continuation of coverage for pollution-caused injuries that result[] from an accident, the industry's understatement of the clause's actual effect on coverage for pollution damage is both apparent and unjustifiable. Although the insurers urge that we not consider the regulatory history of the standard clause without a fuller record, we are persuaded that a remand would be redundant, and that this record together with the reported cases that address the regulatory history and the abundant independent commentary on the subject affords an accurate and comprehensive basis for our determination. The industry's presentation and characterization of the standard pollution-exclusion clause to state regulators constituted virtually the only opportunity for arms-length bargaining by interests adverse to the industry, insureds having virtually no choice at all but to purchase the industry-wide standard CGL policy. Accordingly, we deem appropriate construing the pollution-exclusion clause in a manner consistent with the objectively-reasonable expectations of the New Jersey and other state regulatory authorities, because only those regulatory authorities were presented with an opportunity to disapprove the clause. As presented, the regulatory authorities would not readily have understood that the pollution-exclusion clause eliminated all coverage for pollution-related claims except in cases of abrupt and accidental discharges. Rather than clarify the scope of coverage, the clause virtually eliminated pollution-caused property-damage coverage, without any suggestion by the industry that the change in coverage was so sweeping or that rates should be reduced. For those reasons, we decline to enforce the standard pollution-exclusion clause as written. To do so would contravene this State's public policy requiring regulatory approval of standard industry-wide policy forms to assure fairness in rates and in policy content, and would condone the industry's misrepresentation to regulators in New Jersey and other states concerning the effect of the clause. To the extent that an interpretation of the pollution-exclusion clause less sweeping than that required by its literal terms was fairly inferable from the industry's explanatory statements to regulators, we 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.
The background events that led the insurance industry to adopt the standard pollution-exclusion clause are well-documented and relatively uncontroverted. See Nancy Ballard and Peter Manus, Clearing Muddy Waters: Anatomy of the Comprehensive General Liability Pollution Exclusion, 75 Cornell L.Rev. 610, 622-27 (1990); Robert Chesler et al., Patterns of Judicial Interpretation of Insurance Coverage for Hazardous Waste Site Liability, 18 Rutgers L.J. 9, 31-38 (1986); Richard Hunter, The Pollution Exclusion in the Comprehensive General Liability Insurance Policy, 1986 U. of Ill.L.Rev. 897, 903-06; Thomas Reiter et al., The Pollution Exclusion Under Ohio Law: Staying the Course, 59 U.Cin.L.Rev. 1165, 1187-1203 (1991); E. Joshua Rosenkranz, Note, The Pollution Exclusion Through the Looking Glass, 74 Geo.L.J. 1237, 1241-53 (1986). A number of courts have also reviewed the events leading to the adoption of the pollution-exclusion clause. See New Castle County, supra, 933 F. 2d at 1196-98; Broadwell, supra, 218 N.J. Super. at 532-34, 528 A. 2d 76; Just v. Land Reclamation Ltd., 155 Wis. 2d 737, 456 N.W. 2d 570, 573-75 (1990). As both the cases and commentators acknowledge, CGL policies prior to 1966 afforded liability coverage for bodily injury and property damage caused by accident, the term accident being undefined in the standard policy. Courts generally construed the term accident to encompass ongoing events that inflicted injury over an extended period provided that the injury was unexpected and unintended from the insured's standpoint. See, e.g., Anchor Casualty Co. v. McCaleb, 178 F. 2d 322 (5th Cir.1949) (imposing coverage for damage to adjacent properties from oil flow over two-day period); Employers Ins. Co. v. Rives, 264 Ala. 310, 87 So. 2d 653 (1955) (holding property damage from gradual leakage of gasoline into well covered as accident), on remand, 38 Ala.App. 411, 87 So. 2d 646, cert. denied, 264 Ala. 696, 87 So. 2d 658 (1956); McGroarty v. Great Am. Ins. Co., 36 N.Y. 2d 358, 368 N.Y.S. 2d 172, 329 N.E. 2d 172 (1975) (imposing liability for damage caused by excavation and construction on adjacent property over several months); Ballard & Manus, supra, 75 Cornell L.Rev. at 623-24; Reiter et al., supra, 59 U.Cin.L.Rev. at 1187-88; Rosenkranz, supra, 74 Geo.L.J. at 1241-46. In 1966 the insurance industry revised its standard-form CGL policy to afford coverage based on an occurrence, which the policy defined as an accident, including injurious exposure to conditions, which results, during the policy period, in bodily injury or property damage that was neither expected nor intended from the standpoint of the insured. Ballard & Manus, supra, 75 Cornell L.Rev. at 624; Reiter et al., supra, 59 U.Cin.L.Rev. at 1190. (The 1973 version of the standard CGL policy promulgated by the ISO re-defined occurrence as an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured. Robert Tyler, Jr. and Todd Wilcox, Pollution Exclusion Clauses: Problems in Interpretation and Application Under the Comprehensive General Liability Policy, 17 Idaho L.Rev. 497, 499 (1981)). The 1966 revision of the CGL policy was generally understood to cover pollution liability that arose from gradual losses, Rosenkranz, supra, 74 Geo.L.J. at 1247, and was acknowledged as having been intended to broaden coverage    by avoiding an implication that there was no coverage for a continuing condition as distinguished from a sudden event. Robert Keeton, Basic Text on Insurance Law, § 5.4c, at 300 (1971). Those courts that have attempted to trace the events leading to adoption of the pollution-exclusion clause confirm the uniform understanding of the broadened coverage afforded under the 1966 revision of the CGL policy. See, e.g., New Castle County, supra, 933 F. 2d at 1197 (The standard, occurrence-based policy thus covered property damage resulting from gradual pollution. So long as the ultimate loss was neither expected nor intended, courts generally extended coverage to all pollution-related damage, even if it arose from the intentional discharge of pollutants.); United States Fidelity & Guar. Co. v. Specialty Coatings Co., 180 Ill. App. 3d 378, 129 Ill.Dec. 306, 312, 535 N.E. 2d 1071, 1077 (Ct.) (Prior to the insertion of the pollution-exclusion in the 1970s, `occurrence-based' coverage embraced not only the usual accident, but also exposure to conditions which continued for an unmeasured period of time.), appeal denied, 127 Ill. 2d 643, 136 Ill.Dec. 609, 545 N.E. 2d 133 (1989); see also Chesler et al., supra, 18 Rutgers L.J. at 31 ([T]he inclusion of `injurious exposure to conditions' as part of the definition of accident indicated that injury resulting from a continuing process was covered under the policy.); Reiter et al., supra, 59 U.Cin.L.Rev. at 1191 (Indeed, gradual pollution was a paradigm example of what was a covered `occurrence,' a feature of the CGL policy that the insurance industry aggressively marketed and routinely emphasized.). Foreseeing an impending increase in claims for environmentally-related losses, and cognizant of the broadened coverage for pollution damage provided by the occurrence-based, CGL policy, the insurance industry drafting organizations began in 1970 the process of drafting and securing regulatory approval for the standard pollution-exclusion clause. The insurer's primary concern was that the occurrence-based policies, drafted before large scale industrial pollution attracted wide public attention, seemed tailor-made to extend coverage to most pollution situations. Rosenkranz, supra, 74 Geo.L.J. at 1251. Commentators attribute the insurance industry's increased concern about pollution claims to environmental catastrophes that occurred during the 1960s. Pollution claims burst on the insurance scene following the Torrey Canyon disaster and the Santa Barbara off-shore drilling oil spills in 1969. Hourihan, Insurance Coverage for Environmental Damage Claims, 15 Forum 551, 533 (1980). Other commentators observe that the insurance industry, concerned about public reaction to environmental pollution, desired to clarify and publicize its position that CGL policies did not indemnify knowing polluters. Reiter et al., supra, 59 U.Cin.L.Rev. at 1195-56. Consistent with that objective, the President of INA announced his company's intention to adopt the pollution-exclusion endorsement with these comments: INA will continue to cover pollution which results from an accidental discharge of effluents  the sort of thing that can occur when equipment breaks down. We will no longer insure the company which knowingly dumps its wastes. In our opinion, such repeated actions  especially in violation of specific laws  are not insurable exposures. Moreover, we are inclined to think that any attempt to provide such insurance might well be contrary to public policy. We at INA hope that our anti-pollution exclusion may help encourage many companies to take the first, crucial steps toward improving their manufacturing processes  the steps that will lead eventually to a cleaner, healthier and, we hope, happier life for all. [Charles K. Cox, Liability Insurance in the Era of the Consumer, Address Before the Annual Conference of the American Society of Insurance Management (Apr. 9, 1970), quoted in Robert S. Soderstrom, The Role of Insurance in Environmental Litigation, 11 Forum 762, 767 (1976).] Whatever may have been the industry's motivation, the General Liability Governing Committee of the Insurance Rating Board (IRB) (successor to the National Bureau of Casualty Underwriters) authorized its drafting committee to consider the question and determine the propriety of an exclusion, having in mind that pollutant-caused injuries were envisioned to some extent in the adoption of the current occurrence basis of coverage, and some protection is afforded by way of the definition of this term. [Reiter et al., 59 U.Cin.L.Rev. at 1197 (footnote omitted).] The end-product of the IRB's drafting effort was the standard pollution-exclusion clause, supra at 11, 629 A. 2d at 836, which became known as exclusion f of the standard form CGL policy. According to one member of the drafting committee, the pollution-exclusion clause allowed the underwriters to perform their traditional function as insurers of the unexpected event or happening and yet    [did] not allow an insured to seek protection from his liability insurers if he knowingly pollute[d]. Francis X. Bruton, Historical Liability and Insurance Aspects of Pollution Claims, Proceedings of Insurance, Negligence and Compensation Law Section, ABA, 1971, at 311, quoted in Soderstrom, supra, 11 Forum at 768. Other commentators have expressed similar conclusions about the central purpose of the pollution-exclusion clause. See, e.g., Soderstrom, supra, 11 Forum at 767 (By the use of the pollution-exclusion endorsement    [c]overage for willful, intentional or expected violations was to be excluded.); S. Hollis M. Greenlaw, The CGL Policy to the Pollution Exclusion Clause: Using the Drafting History to Raise the Interpretation Out of the Quagmire, 23 Colum.J.L. & Soc.Probs. 233, 246 (1990) (Yet although the language of the pollution-exclusion clause is ambiguous, intra industry statements made contemporaneously with the drafting of the clause and representations made by the industry to various state insurance commissioners    reveal that the industry clearly intended to preclude coverage of the reckless polluter as well as the intentional polluter.). The New York State legislature apparently shared that view of the pollution-exclusion clause's purpose, enacting in 1971 a statute requiring policies issued to commercial or industrial enterprises to include the standard form pollution-exclusion clause, N.Y.Ins.Law § 46(13)-(14) (McKinney 1972), and offering this explanation for its adoption: For example, a polluting corporation might continue to pollute the environment if it could buy protection from potential liability for only the small cost of an annual insurance premium, whereas, it might stop polluting, if it had to risk bearing itself the full penalty for violating the law. [ New York Legis.Ann. 353-54 (1971).] As a New York appellate court explained, The conclusion thus becomes compelling that the pollution exclusion clause, mandated by statute, was intended to apply only to actual polluters. Niagara County v. Utica Mut. Ins. Co., 80 A.D. 2d 415, 439 N.Y.S. 2d 538, 540 (1981). After industry approval, the IRB and the Mutual Insurance Rating Bureau (MIRB) sought state regulatory approval to add the pollution-exclusion clause as an endorsement to standard CGL policies, apparently submitting to most if not all states in which approval was sought a standard explanatory memorandum that read in part as follows: Coverage for pollution or contamination is not provided in most cases under present policies because the damages can be said to be expected or intended and thus are excluded by the definition of occurrence. The above exclusion clarifies this situation so as to avoid any question of intent. Coverage is continued for pollution or contamination caused injuries when the pollution or contamination results from an accident   . [ Reprinted in Ballard and Manus, supra, 75 Cornell L.Rev. at 625-26.] As the record indicates, the identical explanatory memorandum was filed by the IRB with the New Jersey Department of Insurance in May 1970. The Attorney General's amicus brief observes that the industry's submission of the pollution-exclusion clause and its approval by the Department of Insurance were specifically required by New Jersey's statutory provisions regulating rates for insurance coverage, N.J.S.A. 17:29A-1 to -28, although no rate change was sought with respect to the pollution-exclusion clause. We take note of other provisions of the insurance statutes that require approval of commercial-insurance policy provisions in order to prevent the issuance of policy forms that are inequitable or misleading. See N.J.S.A. 17:29AA-11. We assume that most states had in effect comparable regulatory provisions that mandated the submission of the pollution-exclusion clause for state approval. In considering the IRB's explanatory memorandum concerning the effect of the pollution-exclusion clause  which the record suggests was the only explanation offered to New Jersey insurance officials  we accord special significance to the process by which that clause gained approval in New Jersey and other states. Realistically, once the clause gained regulatory approval, it was uniformly adopted as an endorsement to the standard-form CGL policies that were issued to innumerable commercial enterprises and governmental agencies for more than a decade. The abundant case law called to our attention by counsel for all parties may be regarded merely as an illustrative sample of the virtually universal inclusion of the standard clause, or one of its derivatives, in CGL policies issued throughout the United States. Of course, after regulatory approval the specific provisions of the pollution-exclusion clause ordinarily were not negotiable by purchasers of CGL policies. As some commentators observe, the typical commercial insured rarely sees the policy form until after the premium has been paid. Ballard and Manus, supra, 75 Cornell L.Rev. at 621; W. David Slawson, Mass Contracts: Lawful Fraud in California, 48 S.Cal.L.Rev. 1, 12 (1974). Accordingly, to the extent that the pollution-exclusion clause ever was subjected to arms-length evaluation by interests adverse to the insurance industry, that evaluation occurred only when the clause was submitted to and reviewed by state regulatory authorities. In considering the accuracy of the IRB's explanatory memorandum, we note that the insurance companies in this litigation, and in general, assert the position that the pollution-exclusion clause precludes coverage for all pollution damage, whether or not intended, unless the discharge of pollutants was sudden (meaning abrupt) and accidental, or a so-called boom event. That being the industry's understanding of the effect of the pollution-exclusion clause, the first two sentences of the explanatory memorandum to state regulators are, to say the least, paradigms of understatement: Coverage for pollution or contamination is not provided in most cases under present policies because the damages can be said to be expected or intended and thus are excluded by the definition of occurrence. The above exclusion clarifies this situation so as to avoid any question of intent. The first sentence is simply untrue. As discussed, supra at 32-33, 629 A. 2d at 849-850, the 1966 version of the CGL policy covered property damage from gradual pollution and imposed no restriction on the suddenness of the pollutant discharge. We repeat the Third Circuit's observation in New Castle, supra: The standard, occurrence-based policy thus covered property damage resulting from gradual pollution. So long as the ultimate loss was neither expected nor intended, courts generally extended coverage to all pollution-related damage, even if it arose from the intentional discharge of pollutants. [933 F. 2d at 1197.] For that matter, the appendix filed by the Attorney General contains the MIRB's Explanatory Memorandum of Changes submitted to the New Jersey Department of Banking & Insurance in support of the 1966 revision of the CGL policy. That memorandum stated: Coverage has been broadened to an occurrence basis which is defined in the jacket. The definition reinforces the intent that the injury be fortuitous from the insured's standpoint and by the addition of coverage for injurious exposure to conditions eliminates the connotation of suddenness previously intended as respects coverage on an accident basis. [Emphasis added.] In the context of the generally-recognized broad coverage afforded by the pre-existing occurrence policies for property damage caused by pollution, the industry's statement that such coverage is not provided in most cases under present policies is not only astonishing but inaccurate and misleading as well. As is widely acknowledged, even by commentators sympathetic to the insurers' position, the industry's primary concern in 1970 was that the occurrence-based policies seemed tailor made to extend coverage to most pollution situations. Rosenkranz, supra, 74 Geo. L.J. at 1251. See supra at 33-35, 629 A. 2d at 849-850. The second sentence is even more misleading than the first. It states that [t]he above exclusion clarifies this situation so as to avoid any question of intent, undoubtedly referring back to the immediately preceding clause that reads because the damages can be said to be expected or intended and thus are excluded by the definition of occurrence. Undeniably, the pollution-exclusion clause does avoid any question of intent because the clause excludes all coverage for unintentional pollution damage except for that caused by sudden and accidental discharges. But to characterize so monumental a reduction in coverage as one that clarifies this situation simply is indefensible. Stated accurately, the pollution-exclusion clause, as construed today by the industry, eliminates all coverage for unintended pollution-caused damage that the occurrence-based policy had provided, except for the unusual boom-event type case in which the discharge of the pollutants was both sudden  meaning abrupt  and accidental. To describe a reduction in coverage of that magnitude as a clarification not only is misleading, but comes perilously close to deception. Moreover, had the industry acknowledged the true scope of the proposed reduction in coverage, regulators would have been obligated to consider imposing a correlative reduction in rates. The succeeding sentence of the explanatory memorandum continued to camouflage the literal effect of the pollution-exclusion clause: Coverage is continued for pollution or contamination caused injuries when the pollution or contamination results from an accident   . In asserting that coverage for pollution-caused injuries is continued, the statement does not alert regulators to the critical change effected by the clause: under the occurrence-based policy, coverage was afforded if the property damage was accidental; under the pollution-exclusion clause, even if the property damage is accidental, no coverage is afforded unless the discharge of pollutants is both sudden and accidental. The memorandum utterly obscures that distinction, and the conclusion is virtually inescapable that the memorandum's lack of clarity was deliberate. Supplemental explanations submitted by the IRB to state regulatory agencies were similarly lacking in candor. As noted by a Georgia federal court, the IRB informed the Georgia Insurance Department by letter of June 10, 1970, that the impact of the [pollution exclusion clause] on the vast majority of risks would be no change. It is rather a situation of clarification   . Coverage for expected or intended pollution and contamination is not now present as it is excluded by the definition of occurrence. Coverage for accidental mishaps is continued [except for the risks described in the filing]. [ Claussen v. Aetna Casualty & Sur. Co., 676 F. Supp. 1571, 1573 (S.D.Ga. 1987) (quoting letter from R. Stanley Smith, Manager of the Insurance Rating Board, to the Georgia Insurance Department, June 10, 1970), question certified by 865 F. 2d 1217 (11th Cir.), certified question answered by 259 Ga. 333, 380 S.E. 2d 686, answer to certified question conformed to 888 F. 2d 747 (11th Cir.1989), on remand, 754 F. Supp. 1576 (S.D.Ga. 1990).] That letter prompted the Court to observe: The Court does not wish to condone the conduct of the insurance industry that plaintiff has exposed. The statements made by the Insurance Rating Board to the Georgia Insurance Department, if not fraudulent, certainly were not straightforward. The Rating Board down played the substantial effect the pollution exclusion clause would have on existing coverage in an effort to obtain approval for the clause's insertion into insurance policies. [ Ibid. ] Similarly, in the course of regulatory proceedings before the West Virginia Commissioner of Insurance, the MIRB submitted a supplemental memorandum to explain the purpose of the exclusion: This endorsement is actually a clarification of the original intent, in that the definition of occurrence excludes damages that can be said to be expected or intended. George Pendygraft et al., Who Pays for Environmental Damage: Recent Developments in CERCLA Liability and Insurance Coverage Litigation, 21 Ind.L.Rev. 117, 154 (1988). In reliance on the industry's submissions, the West Virginia Insurance Commissioner approved the pollution-exclusion in a written order that stated in part: The said companies and rating organizations have represented to the Insurance Commissioner, orally and in writing, that the proposed exclusions    are merely clarifications of existing coverage as defined and limited in the definitions of the term occurrence, contained in the respective policies to which said exclusions would be attached; (2) To the extent that said exclusions are mere clarifications of existing coverages, the Insurance Commissioner finds that there is no objection to the approval of such exclusions[.] [ Reprinted in Joy Technologies v. Liberty Mut. Ins. Co., [187 W. Va. 742], 421 S.E. 2d 493, 499 (1992).] Insurance departments in at least two other states expressed concern over the industry's submission of the pollution-exclusion clause. In June 1970, the Kansas Commissioner of Insurance addressed several questions to the IRB. One question reflected the Commissioner's assumption that the current definition of occurrence provided coverage for property damage caused by pollution. He wrote: It appears that the General-Automobile Liability policy now provides coverage for contamination and pollution. Please confirm. The IRB's response to the Commissioner's inquiry was inaccurate and misleading. It tracked the language of the explanatory memorandum submitted to state regulators, and did not attempt to explain or to disclose the full intended impact of the pollution-exclusion clause: It is our opinion that coverage for pollution or contamination is not provided under the present General-Automobile Liability policy because the damages can be said to be expected or intended, and thus are excluded by the definition of occurrence. It should be noted that the proposed endorsements will definitely clarify the situation. The Insurance Commissioner of Puerto Rico apparently disapproved the pollution-exclusion clause when it initially was filed, prompting a supplemental letter from the IRB to the Commissioner. The IRB's letter sheds no light whatsoever on the restriction of coverage that the industry intended to achieve through the pollution-exclusion clause: We certainly appreciate that where an insured acts in violation of the law, the policy does not provide coverage for the consequences of such acts. The exclusion is not aimed at taking care of such a situation. Rather, it is designed to clarify the policy as respects other situations where questions of intent might arise. Such questions usually arise when, with respect to a particular situation, the policy does not clearly spell out what is and is not covered in terms clearly understood by the insured or his representative. Relying solely upon the policy definition of occurrence which requires that the act causing damage must not be expected nor intended by the insured, might well cause dispute as to whether in fact the act was unexpected or unintended particularly in a fact situation involving a continuous course of action. This kind of situation is often very costly to both insureds and companies since many of them are brought into court to be resolved. All too often, the courts have been deciding such questions in favor of insureds, while strongly criticizing companies for not clearly spelling out intent in the policy. The courts are insisting that policies should clearly set forth intent. When, in the courts opinion, the policy does not, companies usually end up paying out large sums of money for damages resulting from situations wherein no coverage was ever intended and for which no premium was ever charged. Under such circumstances, we strongly believe that it is both necessary and desirable to clarify as many situations as possible so as to avoid any question of intent. This is precisely what our Contamination or Pollution Exclusion is designed to do. As noted, the response to the Insurance Commissioner of Puerto Rico contains no disclosure about how the specific wording of the pollution-exclusion clause would operate to reduce substantially coverage that previously had been provided for pollution occurring over a sustained period. The conclusion is inescapable that the IRB intentionally avoided any discussion that would illuminate the magnitude of the intended restriction in coverage. Because of the regulatory history leading to approval by the various state regulatory authorities, a number of State Attorneys General, including the New Jersey Attorney General in the amicus brief filed with this Court, have urged that the pollution-exclusion clause be interpreted in a manner consistent with the industry's representations to regulatory authorities in 1970. See, e.g., Brief of Amici Curiae State of Delaware and Commonwealth of Pennsylvania, New Castle County, supra, 933 F. 2d 1162; Brief of Amicus Curiae Insurance Commissioner of West Virginia, Liberty Mut. Ins. Co. v. Triangle Indus., Inc., 182 W. Va. 580, 390 S.E. 2d 562 (1990); Memorandum of Amicus Curiae State of Indiana, in Support of Plaintiff's Motion for Partial Summary Judgment, Ulrich Chem., Inc. v. American States Ins. Co., 1990 WL 484974 (Ind.Cir.Ct. 1990) (No. 73C 01-8901-CP 016). Although the interests of states in insurance-coverage litigation are generally consistent with the interests of insureds, the assertion by several State Attorneys General of estoppel-type arguments, based on a generalized recognition that the industry's presentation of the pollution-exclusion clause to regulators was misleading, strongly suggests that the issue warrants careful and comprehensive consideration. Responding to assertions that the IRB's representations to state regulators concerning the effect of the pollution-exclusion clause were misleading, amicus curiae Aetna Casualty & Surety Co. (Aetna) argues that regulatory history should not be confused with drafting history. Referring to an affidavit submitted in the New Castle litigation by one of the drafters of the pollution-exclusion clause, Aetna contends that the intent of the drafters of the clause was to restrict pollution coverage to the classical accident or boom event, and to exclude coverage for gradual pollution. That argument was addressed directly in deposition testimony by Richard E. Stewart, Superintendent of the New York State Department of Insurance from January 1967 to December 1970 and President of the National Association of Insurance Commissioners, 1970-71 (testifying in J.T. Baker, Inc. v. Aetna Casualty & Surety Co., No. CV-4794-SSB (D.N.J. 1990)): [T]he drafting documents, the internal documents, speak of sudden in its temporal sense, and as accomplishing a serious cutback in coverage. Granted. I am not questioning the accuracy of anything in Mr. Bruton's affidavit as to what was going on. The filings with the states are completely inconsistent with that. And    do not disclose it, do not develop it, and in fact affirmatively maintain that we're just dealing with a clarification of the occurrence definition. Now, to me, and I think to other insurance people, what goes in a state filing is of much greater probative power than what is in an internal and unreleased series of memoranda. And since the  the internal communications, the drafting history documents that use temporal were not communicated outside the company bureau world, either to insureds and brokers, but only the filing documents and something like the Aetna bulletins to the field were communicated, but the filing documents are the ones that really matter, and they to me, in terms of what [a] company should be held to, contain the version of this ambiguous term which the industry should be held to. It's as simple as that, and I think it's a very straightforward answer   . [Deposition Testimony of Richard Stewart, quoted in Robert Sayler, The Emperor's Newest Clothes, Revisionism and Retreat: The Insurer's Last Word on the Pollution Exclusion, 5 Mealey's Litig. Reps., Insurance at 27, 46 (1991).]
The abundance of federal- and state-court decisions addressing the pollution-exclusion clause confirms that an enormous outpouring of judicial energy already has been expended in attempting to fathom how this exclusion should be interpreted. Although categorizing the various judicial approaches may appear superficially to be helpful, caution is essential because the factual circumstances often diminish the significance of a court's ruling. A Florida federal judge made the point colorfully: This court recognizes that there is a plethora of authority from jurisdictions throughout the United States which, depending on the facts presented and the allegations of the underlying complaints, go both ways on the issues presented today. The cases swim the reporters like fish in a lake. The Defendants would have this Court pull up its line with a trout on the hook, and argue that the lake is full of trout only, when in fact the water is full of bass, salmon and sunfish too.