Opinion ID: 2352039
Heading Depth: 1
Heading Rank: 6

Heading: Conservation of resources

Text: Conservation of resources should be a goal of our decisionmaking. In Ayers v. Jackson Township, 106 N.J. 557, 608, 525 A. 2d 287 (1987), in deciding whether to allow recovery for medical surveillance damages in cases of increased risk due to pollution, we considered the extent to which our decision would make the most cost-efficient use of the resources available to cope with environmental disease or damage. A related principle of decisionmaking is to provide incentives for parties to engage in responsible conduct that will increase, not decrease, available resources. For example, in Intel, supra, the court reasoned that [i]f consent decree compliance costs did not constitute damages, insureds would be discouraged from entering into consent decrees, and the EPA's task would be more time consuming and more costly. Cleanup would be delayed until the government expended its resources to investigate contamination, and perhaps even to conduct cleanup itself, and finally sought relief from the insured. [ Intel, supra, 952 F. 2d at 1564 (citation omitted).] Although treating RI/FS costs as damages (as when policyholders promptly consent to perform an RI/FS) tends to expedite settlement and disposition of environmental cleanup cases, treatment of such costs as defense costs would increase the amount of resources available for environmental cleanups (because the duty to defend is often exclusive of the policy limits). In short, the factors conflict. To find a single litmus test for decision is difficult. The Spokane rule, which holds that if the expenses are mandatory they are necessarily indemnity, conflicts with the reality expressed in County of Santa Clara v. United States Fidelity and Guaranty Co., No. C-93-20169RPA, 1995 WL 638568 (N.D.Cal. Oct. 23, 1995). The rule would enable insurance companies to kill two birds with one stone. Id. at []4. In Santa Clara, the court reconsidered an earlier decision that all of the County's investigation costs fell within the duty-to-defend component of its insurance policies. In reversing its prior order, the court reflected upon the dual aspects of an RI/FS. [A]n interpretation [that RI/FS costs are exclusively indemnity costs] would mean that in many cases there would not be any investigation costs payable as defense costs. This would be so even though the investigations conducted at the behest of the government agency were integral to a defense and would have been conducted anyway absent a government order. While this would delight insurance companies in that it would reduce defense costs  which at times far exceed indemnity limits in environmental coverage cases  it is not a tenable result. It would make extent of the defense obligation turn upon the mere fortuity of the statutory mechanism chosen by the government to remediate the site. [ Ibid. (citation omitted).] Hence, we believe that the only fair result is a balanced solution that takes multiple factors into account. If it is clear that the expenditure clearly kills two birds with one stone in the sense of fulfilling a defense obligation while also relieving the policyholder of a potential claim for damages, the proper solution appears to be a fair allocation of the RI/FS costs between defense and indemnity provisions of the policy. At the same time, we do not want to encourage needless litigation. The advantage of a black-letter rule is simplicity in administration. We must avoid, at all costs, another war of experts to determine how much of the costs should be allocated to defense and how much to indemnity. We believe that there should be a presumption that mandated costs are indemnity costs to be allocated to the indemnity provisions of the policy. The burden should be on the policyholder to show that the insurance company has derived an unjust benefit from such an allocation to the extent that it has relieved the insurance company of an expense that it would otherwise have incurred under its obligation to defend. As is the case here, these disputes will often arise in the context of a larger controversy about environmental contamination involving the environmental agencies, PRP's and their insurance companies. Such disputes seem ideally suited for mediation or arbitration under court-annexed programs of alternate dispute resolution or on the parties' own initiative. Failing such resolution of the dispute in whole or in part, trial courts (upon recommendation of a master if one is appointed by the court) shall have broad discretion to resolve, based on written submissions without any additional expert testimony, a fair allocation of the costs between the defense and indemnity provisions of the policies. The scope of review of the trial court's allocation shall be limited by the familiar principles of appellate review. Among the factors the tribunal should consider are the following: (1) the relative risk that the PRP bore if it did not produce the RI/FS; for example, how realistic was the threat of treble damages; (2) the extent to which the details of the RI/FS may have been mandated by the environmental agencies; (3) the extent to which the RI/FS studies provide a means by which the insurance company or the policyholder would be relieved of or be able to mitigate potential claims for damages; and (4) the cost of producing the RI/FS in relation to the policy limits provided. Among other evidence, the tribunal in this case should consider the extent to which the DEPE mandated the studies and approved their methodology, as well as the parties' stipulation to policy limits of $100,000. On the other hand, the tribunal should consider that, in its engagement letter, the engineering company hired to perform the RI/FS study told GAIC's attorneys that the company's primary objective is to prepare a technical plan which will form one of the cornerstones of your negotiation with the [DEPE]. In Bahrle v. Exxon Corp., 279 N.J. Super. 5, 652 A. 2d 178 (App.Div.), certif. granted, Bahrle v. Texaco Corp., 140 N.J. 326, 658 A. 2d 726 (1995), now pending before us, detailed engineering studies were able to eliminate one PRP's liability for a spill based upon the nature of the compounds and the undisputed groundwater velocity rate agreed upon by the parties' expert witnesses. Such studies clearly help to mitigate or reduce liability. Ex-Cell-O, supra, 790 F. Supp. at 1338. The issues are legally and scientifically complex. We said on another occasion that courts cannot simplify what is intrinsically complex. We can, however, try to provide procedures to simplify their resolution. Owens-Illinois, supra, 138 N.J. at 480, 650 A. 2d 974. In the exercise of our jurisdiction we must attempt to provide the most cost-efficient method of resolving disputes that are not plainly controlled by policy language. It is quite obvious to us that in most instances, RI/FS studies probably do serve to discharge an obligation of the PRP. There will almost always have been an actual or threatened use of legal process to coerce ... a policyholder to make payment for the RI/FS. Morton, supra, 134 N.J. at 26, 629 A. 2d 831 (citation omitted). At the same time, the RI/FS studies may also discharge an obligation of the insurance company to provide a potential defense to or mitigation of damages. Principles of simple justice suggest that there should be an allocation of the costs between defense and indemnity. Each party to the policy has had an obligation discharged. Because the issues that we confront today were not expected when the policies were drawn, we suspect that the drafters would not resist a simple approach that would allow some latitude in each case for the courts to make an equitable decision on the facts. Owens-Illinois, supra, 138 N.J. at 469, 650 A. 2d 974 (citation and quotation omitted). An allocation that is swift, with perhaps a rough measure of justice, appears to us to be the best procedure to simplify resolution of these issues. The judgment of the Appellate Division allocating all of the costs of the RI/FS to the defense provisions of the policy is reversed. The matter is remanded to the Law Division to make a fair allocation of the RI/FS costs between the defense and indemnity provisions of the policies. For reversal and remandment  Chief Justice WILENTZ and Justices HANDLER, POLLOCK, O'HERN, GARIBALDI, STEIN and COLEMAN  7. Opposed  None.