Court Opinion

ID: 9542965
Source: CourtListenerOpinion
Date Created: 2023-08-07 16:40:45.913237+00
Date Added: 2024-06-11T15:09:22.813334
License: Public Domain

The opinion of the Court was delivered by
CLIFFORD, J.
The Appellate Division held that the “owned property” exclusion in the defendant property-owner’s liability insurance policy relieved the third-party-defendant insurance carrier of any obligation to indemnify or defend its insured for its potential liability to the Department of Environmental Protection (DEP) *55for the cost of cleanup of toxic substances resulting from a fire on the insured’s property. State, Dep’t of Envtl. Protection v. Signo Trading Int’l, Inc., 235 N.J.Super. 321, 562 A.2d 251 (1989) (Signo Trading). We granted certification, 118 N.J. 227, 570 A.2d 980 (1989), to review that determination, and now affirm.
I
In April 1983 defendant third-party plaintiff, Morton Springer & Co., owned a warehouse at 140 Thomas Street, Newark. Springer leased space to various tenants, including defendant Signo Trading International, Inc. On April 11th a fire occurred at the warehouse. After the Newark Fire Department had extinguished the fire, Springer hired a contractor to contain wastewater that had accumulated in trenches along the building perimeter. The contractor secured the wastewater in twenty-seven drums, after which DEP ordered Signo to clean up the debris from the floor on which the fire had occurred. By May 3rd the fire-damaged material had been removed from the property pursuant to a hazardous-waste manifest.
Because the fire had revealed the presence of hazardous materials, DEP’s representative surveyed the premises to determine the contents of the warehouse. He discovered, in addition to chemicals and hazardous waste, leaking drums and other containers piled in a precarious manner, a non-operational sprinkler system, exposed wiring, a lack of fire extinguishers, and inadequate building security. DEP therefore directed that the premises be cleaned up and the offending materials removed. However, the pace of compliance was so slow that DEP resorted to the filing of a complaint in the Chancery Division in July 1983 to obtain judicial enforcement of the cleanup.
Because the owner and tenants failed to comply with a court order to decontaminate the property under DEP supervision, the trial court, in July 1984, ordered DEP to take exclusive possession and control of the warehouse and to clean up the *56property with the use of public funds. Acting pursuant to the authority of the Spill Compensation and Control Act, N.J.S.A. 58:10-23.11 to -23.11z (Spill Act), DEP conducted the cleanup, at a cost of about $3.6 million.
During the cleanup process Springer filed a third-party complaint against Federal Insurance Co. seeking defense and indemnification in respect of DEP’s claims. Federal had issued to Springer a primary comprehensive general liability (CGL) policy and an umbrella policy, both of which were in effect on the date of the fire. The CGL policy, which provided coverage for liability of up to $500,000 per occurrence, contained the following pertinent provision:
The company will pay on behalf of the insured all sums which the insured shall become obligated to pay as damages by reason of liability to which this insurance applies, imposed by law or assumed by the insured under any written contract, for bodily injury, property damage or personal injury caused by an occurrence and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury, property damage or personal injury, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient. (Emphases added.)
The policy defined “property damage” as
1. physical injury to or destruction of tangible property which occurs during the policy period, including the loss of use thereof at any time resulting therefrom, or
2. loss of use of tangible property which has not been physically injured or destroyed provided such loss of use is caused by an occurrence during the policy period.
An “occurrence” is defined in the policy as
an event, including continuous or repeated exposure to conditions, which results in * * * property damage * * *.
Excluded from the policy were coverage for “bodily injury or property damage arising out of an event, the result of which was expected or intended from the standpoint of the insured,” and, significantly for this appeal, for property damage to “property owned * * * by the insured.”
The umbrella policy contained similar provisions and exclusions.
*57In June 1985 Springer moved for summary judgment on the carrier’s duty to defend, and Federal cross-moved for summary judgment. The trial court denied Springer’s motion and granted Federal’s, concluding in part as follows:
An occurrence in the policy is defined in such a way that basically it comes down to damage inflicted upon the person or properties of people other than the insured. That’s essentially what it comes down to.
In our present case we simply do not have any damage inflicted upon a third party or the property of third parties.
********
[Although the risk of damage to life and property of third parties was present and was a major concern in ordering this cleanup, there was no occurrence of any such damage to property or injury or death inflicted upon third parties. There simply was not an insured event occurring within the meaning of the policy.
********
[Although there is much to be said for reading insurance policies liberally to give coverage to people who need it and might have some reasonable expectation that coverage exists, there is in the long run not much to be said for simply turning policies inside out and standing them on their heads and making them do jobs that they were not designed to do.
This kind of insurance policy was not designed to pay for preventing environmental damage work in the absence of any actual injury inflicted upon third parties or their property, and to simply take this policy and rework it or recast it because right now we could use this $500,000 would not just be unfair and inappropriate so far as this insurer is concerned, but it really amounts to half-baked social engineering that Í think we shouldn’t engage in. These policies really aren’t designed to cover this kind of a situation, and they should not on a casual ad hoc basis be violently tom asunder in order to serve some make-way social policy. Just doesn’t make sense.
Thereafter, in March 1988, Springer moved to vacate the trial court’s order granting summary judgment to Federal and for summary judgment on Springer’s third-party complaint, relying on two Appellate Division decisions handed down after the trial court’s earlier ruling: Broadwell Realty Services, Inc. v. Fidelity & Casualty Co., 218 N.J.Super. 516, 528 A.2d 76 (1987), and CPS Chemical Co. v. Continental Insurance Co., 222 N.J.Super. 175, 536 A.2d 311 (1988). Federal resisted the motion on the basis that the cited cases were readily distinguishable in that they both involved continuing and ongoing damage to *58property of third persons. The trial court readily grasped the factual distinction:
It has never been proved before me, and indeed I don’t think it’s been alleged, in any way supported by significant evidence, that, in fact, there was migration of the chemical pollutants off the Morton Springer property onto any adjacent properties or actually into any of the waters of the state.
However, the court nevertheless read Broadwell to mandate coverage for avoidance costs, stating:
My view was and is that that is not what these policies are designed to do. But my view also is that the Appellate Division has ruled in this reported case [ {Broadwell) ] that this policy does cover that kind of loss.
I am obliged as a trial judge to follow the legal rulings of the Appellate Division even though I do not agree with them. And it seems to me that if this defendant insurance company and others wish relief, they’ll have to get it either from the Appellate Division or from the Supreme Court.
From the consequent entry of judgment in favor of Springer the carrier appealed to the Appellate Division. That court reversed and entered judgment for Federal.
II
In this, our first excursion into the thicket of environmental-pollution coverage, we are struck by the lack of uniformity in decisions regarding the applicability of the owned-property exclusion to the costs of cleanup. See Kenneth Abraham, Environmental Liability and the Limits of Insurance, 88 Colum.L.Rev. 942, 966-70 (1988). Understandably, the treatment that our Appellate Division has given the complicated question of insurance law in this area may be viewed as somewhat uneven. See, in addition to the Appellate Division decision in this case, the following: Broadwell, supra, 218 N.J.Super. 516, 528 A.2d 76; CPS Chemical, supra, 222 N.J.Super. 175, 536 A.2d 311; Summit Associates Inc. v. Liberty Mutual Fire Insurance Co., 229 N.J.Super. 56, 550 A.2d 1235 (1988); and Diamond Shamrock Chemicals Co. v. Aetna Casualty & Surety Co., 231 N.J.Super. 1, 554 A.2d 1342 (1989).
Broadwell, supra, involved the leakage of a hazardous substance onto adjacent property from underground storage tanks *59on Broadwell’s land. DEP directed Broadwell to clean up the area and prevent future harm. The issue in the case was whether Broadwell’s liability policy, which is almost identical to the policies in this case, covered such cleanup costs. The court held that “the costs of preventive measures taken by Broadwell on its own property in response to the DEP directive which were designed to abate the continued flow of contaminants on to adjacent lands are recoverable under the policy.” 218 N.J.Super. at 525, 528 A.2d 76. Having found “damages,” the court then considered whether the “owned property” exclusion precluded recovery due to the fact that the cleanup costs had been occasioned by work on the insured’s own land. The court rejected that exclusion, stating:
We are satisfied that Fidelity would have been obliged to indemnify Broadwell for the costs of the interceptor trenches and the observation/recovery pumping wells had they been installed on adjacent properties in order to prevent further loss to third parties. It would be folly to argue, under such circumstances, that the insured would be required to delay taking preventive measures, thereby permitting the accumulation of mountainous claims at the expense of the insurance carrier. Stated another way, the policy does not require the parties to calmly await further catastrophe. Abatement measures designed to prevent the continued destruction of adjacent property are plainly compensable under the policy.
[Id. at 526, 528 A.2d 76 (emphases added).]
CPS Chemical, supra, involved a similar factual situation. CPS was found legally obligated under the Spill Act and the Water Pollution Control Act to pay the cost of cleaning up contamination from its plant. The toxins released from the plant had completely contaminated a nearby watershed. As in Broadwell, the Appellate Division held that
monetary amounts awarded to the DEP for the purpose of implementing measures designed to abate the continued migration of hazardous wastes into the Prickett’s Brook and the Runyon well field in order to restore the acreage and the water to their natural condition prior to the unlawful discharge constitute damages subject to the carrier’s obligation of indemnification.
*60[222 N.J.Super. at 182, 536 A.2d 311 (emphasis added).]
In Summit Associates, supra, Summit Associates attempted to seek indemnification from its insurance company for costs associated with a DEP-mandated clean up. Summit Associates argued that Broadwell precluded application of the owned-property exclusion because its clean up had sought to prevent damage to the environment in general. The carrier contended that Broadwell excludes coverage because the facts revealed no third-party property damage. In remanding, the Appellate Division ordered the trial court to determine whether the hazard had damaged or had threatened damage to third-party property. If no such harm or threat existed, the inquiry was to end. On the other hand, if the trial court found harm or threat of harm, it was then to apply the traditional principles of insurance-contract interpretation set out in Broadwell, including whether application or non-application of the owned-property exclusion would best carry out the reasonable expectations of the parties.
Thus, Summit Associates is the first case to hint that a mere threat to third-party property might result in coverage for clean-up costs. The opinion requires that even if such a threat be found, the trial court still must examine the parties’ expectations concerning the policy.
Finally, in Diamond Shamrock, supra, an insured sought indemnification for the costs of a dioxin clean up on its premises. The court’s analysis makes clear that Broadwell and CPS did not provide for coverage in the absence of third-party property damage. The court noted that Summit Associates was the first case to raise the possibility that threatened property damage might fall within the policy’s provisions, but only after a showing that the parties had intended such coverage. The case also raises the possibility that a court might find that the State’s interest in its air and land might qualify as third-party property damage. The Appellate Division declined to decide that last question, stating that such a decision “impli*61cates highly significant policy considerations, and for this reason, [is] best decided on a full record developed at trial.” 231 N.J.Super. at 15, 554 A.2d 1342. As it did in Summit Associates, the court remanded the matter to the trial court for a determination of whether the dioxin contamination had posed an imminent threat, and if so, then to determine, using traditional contract interpretation, whether the parties had intended coverage for threatened harm.
Returning now to this case, the Appellate Division pointed out that in both Broadwell and CPS pollutants had escaped from the insured’s property and had caused injury to the property of third parties. 235 N.J.Super. at 335, 562 A.2d 251. That circumstance, according to the court below, served to distinguish this case, in which no off-site migration of contaminants had been proven. Ibid. The court then turned to Summit, supra, 229 N.J.Super. 56, 550 A.2d 1235, and acknowledged that under that decision,
the “owned property” exclusion of a [CGL] policy does not bar coverage for costs associated with the clean-up of an insured’s property, despite the absence of third-party damage, if “the threatened damage of third-party property was immediate and imminent” and if “non-application of the owned property exclusion would best carry out the reasonable expectations of the parties.”
[235 N.J.Super. at 335, 562 A.2d 251 (quoting Summit, supra, 229 N.J.Super. at 64-66, 550 A.2d 1235).]
Because “the threat of off-site contamination had not been shown to be either ‘immediate’ or ‘imminent,’ ” ibid., “the threatened harm to third parties was, at best, ‘undefined and speculative’ and, consequently, excluded from coverage.” Id. at 335-36, 562 A.2d 251 (quoting Summit, supra, 229 N.J.Super. at 66, 550 A.2d 1235).
The Appellate Division’s treatment of the case, thorough and instructive in so many respects, unfortunately founders on an unwarranted assumption of fact, despite which the court reaches the right result. The finding by that court that the threat of off-site contamination from the Springer fire had not been shown to be either “immediate” or “imminent” was quite simply incorrect. The trial court, after months, even years, of *62exposure to the case, made a specific finding of fact that potential damages to adjacent properties were imminent. There was more than sufficient evidence to support that conclusion, wherefore reviewing courts are bound by it. See Rova Farms Resort v. Investors Ins. Co. of Am., 65 N.J. 474, 484, 323 A.2d 495 (1974) (“Findings by the trial judge are considered binding on appeal when supported by adequate, substantial and credible evidence.”); Borough of Glassboro v. Gloucester County Bd. of Chosen Freeholders, 199 N.J.Super. 91, 95, 488 A.2d 562 (App.Div.), aff'd, 100 N.J. 134, 495 A.2d 49, cert. denied, 474 U.S. 1008, 106 S.Ct. 532, 88 L.Ed.2d 464 (1985).
The trial court’s finding of “imminent danger” of migration of the hazardous substances from the insured’s property is a significant one. If the pollution on the insured’s property did threaten injury to the property of a third party, the trial court, according to Summit, “must then apply the traditional principles of contract interpretation [that the Appellate Division] reaffirmed in Broadwell including whether application or non-application of the owned property exclusion would best carry out the reasonable expectations of the parties.” 229 N.J.Super. at 64, 550 A.2d 1235. As explained in Diamond Shamrock, “[presumably even if there was threatened injury to the property of a third party, the insurer would be liable in Summit only if, applying those principles, the phrase ‘property damage * * * caused by an occurrence’ in the insuring agreement is construed to include ‘threatened damage.’” 231 N.J.Super. at 14, 554 A.2d 1342.
Although Summit suggests that those traditional contract-interpretation principles include “whether application or non-application of the owned property exclusion would best carry out the reasonable expectations of the parties,” 229 N.J.Super. at 64, 550 A.2d 1235, courts should resort to the doctrine of reasonable expectations only when “the phrasing of the policy is so confusing that the average policyholder cannot make out the boundaries of coverage.” Weedo v. Stone-E-*63Brick, Inc., 81 N.J. 233, 246-47, 405 A.2d 788 (1979). “When the terms of an insurance contract are clear, [as in this case,] it is the function of a court to enforce it as written and not to make a better contract for either of the parties.” Kampf v. Franklin Life Ins. Co., 33 N.J. 36, 43, 161 A.2d 717 (1960).
Here, although Springer undoubtedly suffered physical damage to its own property, there is no evidence whatsoever in the record before us that any third party suffered a “physical injury to or destruction of tangible property,” nor is there evidence of a “loss of use” of tangible property owned by an entity other than the insured. Although the trial court did find a threat of harm to the property of a third party, it specifically found “no third party damage within the meaning of this policy or any of its concepts.” 235 N.J.Super. at 327, 562 A.2d 251. The policy’s definition of property damage does not encompass “threatened harm” even if that threat is “imminent” and “immediate.” Thus, under its clear terms, the policy does not cover the costs of cleanup performed by or on behalf of an insured on its own property when those costs are incurred to alleviate damage to the insured’s own property and not to the property of a third party.
 As the court stated in Diamond Shamrock, “There is no novelty to the proposition that in a conventional tort action, once some present injury has been proved, the plaintiff’s damages may include the cost of measures intended to prevent future injury.” 231 N.J.Super. at 12, 554 A.2d 1342. Thus, “[i]n both Broadwell and CPS [the Appellate Division] held that the insured was entitled to be indemnified for, among other things, sums expended on measures to prevent further, imminently impending[ ] injury to property owned by someone other than the insured,” id. 231 N.J.Super. at 11-12, 554 A.2d 1342, despite the fact that the plain language of the policy did not allow for such recovery. However, as the court pointed out in CPS, “the obligation of the insurers is limited to indemnifying [the insured] for the monetary amounts awarded to the DEP *64for the latter’s use in attempting to eradicate the effects of the present or past pollution for which the insured has been adjudged liable.” 222 N.J.Super. at 188, 536 A.2d 311 (emphasis added). The insurer’s obligation does not extend to “prospective monetary damages for some undefined and speculative future loss.” Id. at 187, 536 A.2d 311.
In this case, as in Summit, no present or past injury to the property of a third party was proven. Thus, in both this case and Summit the Appellate Division erred to the extent that it determined that an insured may recover the cost of measures intended to prevent future injury, even in the absence of a present or past injury, if the threat of such injury appears to be “imminent” or “immediate.” See 235 N.J.Super. at 335-36, 562 A.2d 251; Summit, supra, 229 N.J.Super. at 66, 550 A.2d 1235. By the plain language of the CGL policy the cost of future damage is not covered, and this case does not fall within the narrow exception allowing recovery for the cost of measures intended to prevent imminent or immediate future damage when a present injury has already been demonstrated. See Western World Ins. Co. v. Dana, 765 F.Supp. 1011 (E.D.Cal. 1991) (giving effect to owned-property exclusion in circumstances similar to those here).
Our dissenting colleagues’ reliance, post at 80-81, 612 A.2d at 947, on Intel Corporation v. Hartford Accident & Indemnity Company, 952 F.2d 1551 (9th Cir.1991), is misplaced. The Intel court refused to permit the carrier to escape coverage under the “owned property” exclusion for any expenses that had been incurred “to remedy existing damage to third-party property * * * from contaminants introduced by Intel,” 952 F.2d at 1566 (emphasis added), but did give effect to the exclusion for whatever expenses had been incurred' “only to remedy damage to property Intel itself controlled.” Ibid. Under California law, damage to groundwater, such as had occurred in Intel, is viewed not as damage to property of the occupier of the land but rather as damage to third parties. Id. *65at 1565. Therefore, unlike the situation in the case before us, Intel clearly involved damage to property of third persons, wherefore the “owned property” exclusion did not apply to the expenses incurred in remedying that damage.
Springer argues that coverage should be provided even though damage is confined to its property, because that damage constitutes damage to the State’s parens patriae interest in the air, land, and water. The argument finds support in State v. New York Central Mutual Fire Insurance Co., 147 A.D.2d 77, 542 N.Y.S.2d 402 (App.Div.1989) (New York Central Mutual), in which the court held that an oil spill had caused damage to property of a third party because the oil had “entered the groundwater, or at the very least [had] threatened to [do so],” id. 542 N.Y.S.2d at 403, and, under New York law, groundwater is a natural resource protected by the State as trustee for its people.
Whether or not that case was correctly decided, its reasoning is not applicable here. First, the trial court in this case found no evidence that “there was migration of the chemical pollutants off the Morton Springer property * * * into any of the waters of the state.” Signo Trading, supra, 235 N.J.Super. at 328-29, 562 A.2d 251. Second, to the extent that the court in New York Central Mutual invoked coverage because of a “threat” that the oil would enter the groundwater, its reasoning is unpersuasive. As set forth above, supra at 56, 612 A.2d at 934, the CGL policy at issue indemnifies the insured only for damage to the property of a third party and not for the threat of such damage.
Springer and DEP also present several policy arguments supporting a finding of coverage. Foremost among those is the argument that a finding of non-coverage “would create the situation in which an insured would have an incentive to permit hazardous substances that have discharged on [its] property to migrate off-site in order to collect from its insurer for the costs of cleanup.” Signo Trading, supra, 235 N.J.Super. at 330, 562 *66A.2d 251. Federal responds that “such recovery would be barred under several policy provisions that exclude from coverage damages that were ‘expected or intended from the standpoint of the insured.’ ” Ibid. Moreover, even if a discharge of hazardous substances has caused actual damage to property of a third party without contrivance by the insured, the owned-property exclusion would bar coverage of response expenses incurred not to prevent off-site contamination but to cover the cost of cleanup of the insured’s property. Broadwell, 218 N.J.Super. at 528, 528 A.2d 76. To the extent clean-up expenses serve both objectives, apportionment would be required.
Regardless, public policy considerations alone are not sufficient to permit a finding of coverage in an insurance contract when its plain language cannot fairly be read otherwise to provide that coverage. See Signo Trading, supra, 235 N.J.Super. at 332-33, 562 A.2d 251 (“Notwithstanding the ‘highly significant policy considerations’ raised by the issues under review, there exists no legal principle that would permit this court to ignore or circumvent the clear language of the insurance contracts.” (citation and footnote omitted)); Broadwell, supra, 218 N.J.Super. at 523, 528 A.2d 76 (recognizing “competing public policies” but stating that “[o]ur role is merely to interpret the language of the insurance contract”).
Ill
We need not long tarry on the dissent’s informative discussion of whether environmental-response costs are covered damages under a CGL policy. Significantly, no party addressed that question at any stage of these proceedings until after the first oral argument in this Court, and then only in response to an inquiry generated by some members of the Court. At no point in this litigation has Federal sought to avoid coverage on the basis that response costs are not damages within the meaning of the policies. Rather, it argues, and we agree, that the effect of the owned-property exclusion is to make the *67policies’ coverage inapplicable in the absence of property damage to third persons, as defined in the policies. No definition of “damages” can surmount that exclusion nor can it somehow enlarge or expand the policies’ carefully-framed coverage provisions.
We do not mean to suggest that the dissent’s analysis of what constitutes “damages” is incorrect. However, because our interpretation of the owned-property exclusion results in an absence of coverage — that is, the insurance does not apply — we are content to leave for another day a definitive resolution of the “damages” question.
IV
Judgment affirmed.