Coverage Analysis
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 (3d Circuit)


  In general, an "occurrence" will be found to exist under New Jersey law unless the insured's conduct was inherently harmful or manifested some clear intent to cause injury or the same general sort suffered by the claimant.  In Voorhees v. Preferred Mutual Ins. Co., 128 N.J. 165, 607 A.2d 1255 (1992), the New Jersey Supreme Court adopted a "subjective" standard for measuring intent ("absent exceptional circumstances that objectively establish the insured's intent to injury we will look to the insured's subjective intent to determine intent to injure"). In Merrimack Mutual Fire Ins. Co. v. Coppola, 690 A.2d 1059 (N.J. App. 1997), the Appellate Division concluded that even non-physical spousal abuse should not be covered since spousal abuse in any form is so inherently injurious that it can never be an accident.  

  In Morton International v. General Accident Ins. Co., 134 N.J. 1, 629 A.2d 831 (1993), reh'g denied (N.J. January 13, 1994), the court acknowledged the impracticality of applying this standard to pollution claims since insureds were "virtually certain" to deny any intent to cause injury.  As a consequence, the court ruled that intent could be inferred from the insured's failure to take steps to stop pollution after it became aware that prior discharges had caused harm.  Accord Diamond Shamrock v. Aetna Cas. & Sur. Co., 258 N.J. Super. 167, 609 A.2d 167 (1992)(insured's on-going disposal of known toxins on and around its manufacturing facility neither an "accident" nor an "occurrence").  Compare, Carter-Wallace, Inc. v. Admiral Ins. Co., 154 N.J. 312, 712 A.2d 1116 (1998)(insurer had burden of proving that waste generator knew to a substantial certainty that the disposal of its wastes at the Lone Pine Landfill proof must be to a standard of subjective knowledge or intent since "exceptional circumstances of Morton were not present).

  Despite the apparent reach of Morton, New Jersey courts have tended to limit its application to cases in which the insured deliberately "stonewalled" efforts to curb pollution.  Thus, in INA v. Amadei Sand & Gravel,Inc., 742 A.2d 550 (N.J. 1999), the Supreme Court sustained a lower court’s finding that a landfill operator had not expected or intended to cause pollution where there had been evidence at trial that the insured was not sophisticated with respect to issues of hydrology or landfill management, had never concealed the fact that he was disposing of the chemical waste on his property, and had indeed received approval from state and local authorities to dispose of such wastes at the GEMS landfill.  Likewise, in In Re Environmental Insurance Declaratory Judgment Actions, Union No. L 8573-8 (N.J. Super. January 28, 1998), Judge Weiss ruled that, absent such egregious circumstances, even intentional dispersals would be covered unless the insured knew at the time that injury would occur that it "qualitatively comparable" to what actually occurred.  

  In Chemical Leaman Tank Lines, Inc. v. Aetna Cas. & Sur. Co., 68 F.3d 658 (3d Cir. 1995), as reconsidered, 89 F.3d 976 (3d Cir. 1996) the Third Circuit initially ruled in 1995 that the Morton five-part "occurrence" test for pollution claims barred coverage as a matter of law for all policies issued after 1968 in light of the insured's knowing disposal of known pollutants. This ruling was disputed by Judge Scirica, who argued in dissent that the Morton exception to the normal "subjective" standard was limited to egregious "stonewalling" conduct by insureds.  In late 1995, the panel agreed to reconsider its ruling.  On June 20, 1996, the court issued a new decision, this time adopting Judge Scirica's view that the evidence presented by the insurers had not demonstrated any subjective intent to pollute groundwater, nor did it rise to the level of egregious "stonewalling" sufficient to invoke the Morton exception to the general requirement of specific subjective intent.  The court also refused to find that the insured's knowing discharge of a known pollutant precluded any possibility of coverage, holding as "a matter of historical fact" many insureds, acting in accordance with standard industry practices, had intentionally discharged pollutants into unlined containment ponds or other inadequate waste treatment systems without any realization that groundwater contamination would result as a consequence.  Reconciling the conflicting goals of deterring intentional wrongdoing by denying insurance coverage, while making insurance proceeds available to compensate the victims of such wrongdoing, the Third Circuit ruled that there was no deterrent value in denying insurance coverage, even for intentional pollution, when the insured did not understand the causal connection between the discharge of a pollutant and the resulting property damage. 

  Relying on Chemical Leaman, the Appellate Division ruled in late1998 that Morton’s “exceptional circumstances” test  must be applied in the context whether the pollution that the insured was being forced to clean up was qualitatively comparable in terms of severity and type with the damage that the insured had originally expected or intended.  In CPC Int., Inc. v.  Hartford Acc. & Ind.  Co., 316 N.J. Super. 951 (App. Div. 1998), the Appellate Division declared that an intent to cause minor soil contamination would not preclude coverage for the cost of remediating groundwater contamination. 

  Such circumstances were found to exist in Rohm & Haas Company v. AIU Insurance Company, Mercer No. L-4664-95 (N.J. Super. July 24, 2000) based on evidence that the insured was well aware by the 1950's that its toxic waste presented a potential for damage to the environment.  The Master took note of the fact that the insured had shipped more than 4.6 million gallons of waste to the site, knew that its drums were being disposed directly into trenches and ditches and understood that liquids would percolate through permeable soil to underlying groundwater. 

  A specific intent to cause the actual injury claimed is not necessary, so long as the resulting injuries were of the sort that would ordinarily have been expected to result from the insured's conduct. SL Industries, Inc. v. American Motorists  Ins. Co., 128 N.J. 188, 607 A.2d 1266 (1992).  If the injuries are of a wholly different degree or character, however, a further factual inquiry is necessary to assess whether the insured subjectively intended to cause those injuries.

  A criminal conviction on second degree murder charges and assault barred the convicted individual and parties claiming on his behalf from asserting in subsequent coverage litigation that the resulting injuries were not intentionally caused.  New Jersey Manufacturers Insurance Company v.  Brower, 391 A2d 923, 926 (N.J. Super.  1978).  

  New Jersey courts have repeatedly upheld policy exclusions denying coverage to co-insureds where the exclusion was directed towards the intentional acts of “an” insured.  Rena, Inc. v. Brien, 310 N.J. Super. 304, 321-25 (App. Div. 1998).  

  In Property Casualty Company of MCA v. Conway, 147 N.J. 322 (1997), the New Jersey Supreme Court addressed the availability of insurance coverage for the statutorily imposed vicarious liability of parents for their child’s intentional acts.  The policy in question did not contain a definition of “accident.”  Under the circumstances, the New Jersey Supreme Court concluded that the term “occurrence” was ambiguous in the circumstances as the policy “did not state whether the determination that an event is unexpected or unintended should be from the perspective of all those covered under the policy or from that of only the named insured.”  Id. at 325.  While the court therefore held that there was no coverage for the child who had committed the property damage, it found coverage for the parents because from their perspective the incident had been unexpected and unintended.  Id. at 328-30.

  Wrongful termination claims were held not to allege an "accident" in John's Cocktail Lounge v. North River Ins. Co., 563 A.2d 473 (N.J. App. 1989).

  The Appellate Division has declared that allegations that a spouse was negligent in failing to prevent her husband from sexually abusing the plaintiff’s daughter fell outside the scope of coverage under Allstate’s homeowner’s policy for “accidental loss” “which may reasonably be expected to result from the intentional or criminal acts of an insured person.”  In J.C. v. N.B., A-324-99T5 (N.J. App. December 18, 2000), the court ruled that inasmuch as the spouse’s liability could only arise in the event that she had actual knowledge or special reason to know of the likelihood of her spouse engaging in sexually abusive behavior against a particular person, the underlying claims could not involve an “accident” from her perspective.  In any event, the court concluded that the criminal acts exclusion applied as it was explicitly directed to “an” insured person, whether or not the individual seeking coverage.

  The Appellate Division also ruled in Bittner v. Harlesville Mut. Ins. Co., A2864-99T5  (N.J. App. March 29, 2001) that a trial court did not err in ruling that a homeowner’s insurer had no obligation to provide a defense to allegations that its insured assaulted his girlfriend in an incident that resulted in a criminal conviction under the state Prevention of Domestic Violence Act.   The court ruled that “when a claim for monetary damages for bodily injury is made in a Family Part action brought under the PDVA, the claim necessarily alleges an act of domestic violence as the sole basis for recovery, and an award can only be made upon a finding that such an act occurred and directly caused the loss.  N.J.S.A. 2C:25-29b(4). We hold that the public policy of this State, to provide maximum protection to victims of domestic violence and to deter acts of domestic violence, precludes the availability of insurance coverage to provide a defense for such a claim or indemnification for such an award.“

  The Appellate Division has ruled that old "caused by accident" policies are not limited to abrupt events.  Reliance Ins. Co. v. Armstrong World Industries, Inc., 292 N.J. Super. 365, 678 A.2d 1152 (1996). 


  The Supreme Court ruled in SL Industries, Inc. v. American Motorist Ins. Co., 128 N.J. 188, 607 A.2d 1266 (1992) that an insurer could allocate its defense costs between covered and non-covered claims but failed to set forth any clear formula for how allocation should take place.

  The New Jersey Supreme Court ruled in Owens-Illinois, Inc. v. United Ins. Co., 138 N.J. 437, 650 A.2d 974 (1994) that, whereas asbestos claims involved multiple policies under a "continuous trigger," liability should be apportioned among each affected year on the basis of the risk that was shared with an insurer or, to the extent that insurance could have been purchased but was not, in accordance with the amount of risk retained by the insured.  The court ruled that a simple "time on the risk" formula is inappropriate in most cases absent a satisfactory basis for allocation as existed in the Agent Orange cases (Uniroyal).  Accordingly, while remanding the case for resolution by a Special Master, it suggested that years times limits was the appropriate base model for measuring the amount of risk transferred or retained.

  The Owens-Illinois court also rejected the lower court's use of "other insurance" clauses to resolve allocation questions, holding that such clauses only apply where coverages are concurrent not, as here, successive.  650 A.2d at 991.

  Consistent with Owens Illinois, the Third Circuit held in Chemical Leaman Tank Lines, Inc. v. Aetna Cas. & Sur. Co., 68 F.3d 648 (3d Cir. 1995), as reconsidered, 89 F.3d 976 (3d Cir. 1996) that a District Court had erred in ruling that a polluter's insurers shared "joint and several" coverage obligations for the underlying environmental liabilities.

  The Third Circuit has also since ruled in Chemical Leaman Tank Lines, Inc. v. The Aetna Casualty & Surety Company,  177 F.3d 210 (3d Cir. 1999) that insurers have the burden of proving that insurance is “available” under an Owens-Illinois analysis.

  Applying New York law, a federal court in New Jersey has ruled that a policyholder must bear responsibility for defense costs attributable to years before it purchased coverage, as well as years after coverage became unavailable for lead paint claims. N.L. Industries, Inc. v. Commercial Union Ins. Co., 926 F. Supp. 446 (D.N.J. 1996).

  Further, a U.S. District Court has ruled that a liability insurer did not breach its defense obligation by only paying one-half of its insured's total defense costs where four of the eight counts in the underlying complaint were outside the scope of its coverage and the underlying suit both sought types of relief (injunctive remedies, punitive damages) that were outside the scope of the insurer's indemnity obligation, as well as relief against defendants who are not "insureds" under the policy.  In Morgan Lewis and Bockius v. Hanover Ins. Co., 929 F.Supp. 764 (D.N.J. 1996), Magistrate Judge Rosen found that the New Jersey Supreme Court's 1992 ruling in SL Industries permitted allocation in such circumstances and did not require proof to a scientific certainty, even where the covered and non-covered allegations had common bases in fact and law.  

  The Appellate Division has ruled in Tradesoft Technologies, Inc. v. The Franklin Mutual Insurance Company, Inc., A-5704-98T1F (N.J. App. March 13, 2000) that where an insured was covered for the plaintiff’s claims for trademark and copyright infringement but not for certain common law claims or allegations of patent infringement, defense costs must be allocated between the covered and uncovered claims.  On the other hand, the court refused to require an apportionment as to the claims for damages and injunctive relief declaring that inasmuch as injunctive relief was sought in each of the underlying counts, an apportionment of this nature would be “impractical, illogical and unfair.”

  The application of Owens-Illinois to excess policies was addressed by the New Jersey Supreme Court in  Carter-Wallace, Inc. v. Admiral Ins. Co.,  154 N.J. 312, 712 A.2d 1116 (1998).  The court ruled that a continuing loss should be allocated in proportion to the total limits of coverage in each affected year.  The court specifically rejected any suggestion that limits should be allocated by layer.

  In Chemical Leaman Tank Lines, Inc. v. Aetna Casualty & Surety Co., 177 F.3d 210 (3d Cir. 1999), the Third Circuit ruled that excess carriers were entitled to the full benefit of the underlying primary policy limits but declared that Judge Brotman had erred in using the entire amount of the policies’ limits as an offset against the insured’s liabilities, as only the limit for each year should be credited against the insured’s liabilities for that specific year.  The court adopt the analysis of UMC/Stamford, Inc.  v.  Allianz Underwriters Ins.  Co., 276 N.J. Super.  52, 647 A.2d 182, 190 (1994), wherein the Appellate Division ruled that excess insurers were entitled to a credit for the full limits of the underlying insurance, not just the settlement amount that the insured had received from the primary carrier.

  The Appellate Court ruled in F. Stewart Sayre v. INA, 305 N.J. Super. 209 (App. Div. 1997) , review denied (N.J. 1998) that the Guaranty Fund could not avoid its responsibility for Owens-Illinois shares attributable to an insolvent primary insurer by claiming that other insurers were jointly liable for these costs.  The Appellate Court found that the thrust of Owens-Illinois was to devise a fair method of allocating losses among multiple policy years, "not to make insurers guarantors of their predecessors or successors on the risk, nor to require them to pay for periods of non-insurance."  As no other insurance was available for the period of time when the Security policy had been in place, the court held that there was no set off requirement.

  Several different types of allocation issues were addressed by a state trial court in Princeton-Gamma Tech v. Hartford Ins. Group, Middlesex No. L-1289-91 (N.J. Super. September 4, 1996).  (1)  "Underinsurance": the court ruled that an insured's failure to purchase excess insurance ("underinsurance") should be viewed as a "retained risk" under Owens Illinois.  (2)  Insolvencies:  While deferring a ruling due to insufficient facts, the court held that the insured would be responsible if the choice of carriers had been "ill advised."  Absent such evidence, the court indicated that insolvent shares would be divided in equal portions between the policyholder and the remaining solvent insurers.  (3) Missing Policies:  PGT will bear responsibility for any period of time in which it could not establish that policies had been purchased.  If, on the other hand, it could establish the issuance of such policies but failed in its burden of establishing the contents of coverage, the court indicated that there might be a different result. (4) Pollution Exclusions:  In a follow up opinion issued on October 1, 1997, Judge Guterl ruled that PGT was responsible for a 1985-86 policy issued by Integrity, not because it was insolvent, but because it contained an absolute pollution exclusion.

  In Uniroyal, Inc. v. American Reinsurance Company, Middlesex No. L-8172-94 (N.J. Super. February 28, 2000), Judge Messina ordered that Uniroyal’s asbestos-related losses be pro-rated equally among periods during which bodily injury or property damage occurred and asbestos liability insurance was available consistent with the Second Circuit’s analysis in Stonewall.  The court declared that self-insured periods must be included within the period of pro-ration as well as periods of time for which insurance has since become exhausted.

  In Crown Cork & Seal Co. v. Travelers Casualty & Surety Co., Hudson No. 7456-88 (N.J. Super. August 1997), Judge Gallipoli ruled that a polluter was responsible for pollution attributable to the period from 1976 to 1991, notwithstanding the insured's argument that any insurance during this period would have cost more and would not have been available on the same terms as earlier policies.  Further, the court refused to use 1985 as the cutoff for the Owens-Illinois allocation period, noting that EIL insurance is available for such losses and, indeed, was specifically written to provide coverage for damage caused by pollution.  "The clear evidence in the case was to the effect that EIL coverage was available as early as 1975 and presumably, if purchased then and continued in effect, it could/would have provided [the insured] with coverage for the period 1985-1991, the pollution exclusion clauses contained in the standard CGL policy since 1985 notwithstanding."


  New Jersey has both an intermediate appellate court (the Appellate Division) and a state Supreme Court.


  Unfair or deceptive consumer practices are proscribed by N.J. Stat. Ann. § 56:8-1 (West 1989 & Supp. 1993).Unfair claims handling by insurers is regulated under N.J. Stat. Ann. §§ 17B:30-13.1 (life and health insurance), 17.29B-4(9) (other insurance) (West 1963).

  A liability insurer must exercise good faith in handling an insured claim and must consider the insured's interests in deciding whether to settle a claim, even for an amount within the policy limits.  American Home Assur. Co. v. Herman's Warehouse Corp., 563 A.2d 444 (N.J. 1989)(affirming carrier's right to recover deductible for claim that was settled over insured's objection so long as insurer did not act in bad faith in deciding to settle). 

  Every contract (including an insurance policy) contains a covenant of good faith and fair dealing that is implied into the contract as a matter of law. Pickett v. Lloyd’s, 621 A.2d 445,467 (N.J. 1993)(every contract imposes on each party the duty of good faith and fair dealing in its performance and enforcement).  In Pickett, the New Jersey Supreme Court ruled for the first time that an insurer's bad faith refusal to pay first-party benefits to its policyholder could form the basis for an action for damages, including consequential damages, in excess of policy limits.  In such circumstances, an insurer's bad faith refusal to pay a claim "sounds in both tort and contract." 131 N.J. at 470.    The court refused to expressly hold that the claim could only be characterized as a tort claim, noting that “[w]e need not debate which is more appropriate: to consider the bad-faith refusal as a breach of an implied term of the contract or as an independent tort.  The theoretical formulations add not to our understanding.”  621 A.2d at 452.  The New Jersey Supreme Court further noted that breach of the implied covenant “sounds in both tort and contract,” but then also stated that “accordingly, the cause of action is best understood as one that sounds in contract.”  621 A.2d at 452.  See also Robeson Indus. Corp. v. Hartford Accident & Indem. Co., 178 F.3d 160, 167 (3d Cir. 1999)(characterizing the “bad faith” claim as one sounding in tort) 

  A coverage position is “fairly debatable” if the insured could not have made out a claim for coverage through summary judgment.  Picket v. Lloyds, 621 A.2d 445, 453-54 (N.J. 1993).  On the other hand, where an insured sues an insurer for wrongful payment to a third-party, unless the insured is required to pay part of the claim (due to a policy deductible) or has a contractual right requiring its consent to settlement, the insured must prove that the payment was part of a conspiracy to enrich the third-party claimant for reasons other than its assessment of the validity of or exposure to the third-party claim.  In Frankel v. St. Paul Fire & Marine Insurance Company, No. A242-98T3 (N.J. App. October 17, 2000), the court declared in an unpublished opinion that a policyholder must go beyond the “no reasonable basis” standard that the Supreme Court has articulated for claims involving the withholding of a policy benefit and that the St. Paul could not be liable for its decision to settle a malpractice claim that a prominent tort lawyer had brought against the insured dentist.

  A U.S. District Court has extended the "fairly debatable" standard to claims under liability policies.  In Hudson Universal, Ltd. v. Aetna Ins. Co., 1997 WL 769254 (D.N.J. December 12, 1997), Judge Politan held that the availability of a bad faith cause of action against a liability insurer should also extend to situations in which an insurer had denied coverage outright, if the insurer lacked a reasonable basis for believing that coverage did not exist.  Although the existence of coverage is a prerequisite to such an action, the absence of such an action is not determinative of bad faith.  Nevertheless, the insurer may not create a "debatable" point by merely denying on the same basis that it frequently denies.  Rather, the point of dispute must be one well-grounded in the law.  See also Universal-Rundle Corp. v. Commercial Union Ins. Co., 725 A.2d 76, 90 (N.J. Super. Ct. App. Div. 1999)(“bad faith” standard applies to third-party claims).

  Where an insurer is defending and negligently fails to settle within policy limits, it may be held liable for any excess verdict. Rova Farms Resort, Inc. v. Investor's Ins. Co., 65 N.J. 474, 323 A.2d 495 (1974).   The insurer’s liability does not depend on whether the plaintiff actually offered to settle within limits.  However, mere negligence is not a basis for imposing bad faith liability and the insurer will not be deemed liable if its coverage position was "fairly debatable."  

  A third-party tort claimant has no right to assert bad faith claims against the tortfeasor’s liability insurer.   Murray v.  Allstate Insurance Company, 507 A.2d 247 (N.J. Super.  1986). 


  Availability of coverage depends on whether claims for mental distress arise out of or are accompanied by physical injury or symptomatology.  In Voorhees v. Preferred Mutual Ins. Co., 246 128 N.J. 165, 607 A.2d 1255 (1992), the New Jersey Supreme Court found that "'bodily injury' is ambiguous as it relates to emotional distress accompanied by physical manifestations."  However, in SL Industries, Inc. v. American Motorist Ins. Co., 128 N.J. 188, 607 A.2d 1266 (1992), the court ruled that emotional distress without accompanying physical symptoms did not allege a "bodily injury."


  New Jersey Supreme Court held in Cooper v. Government Employees Ins. Co., 51 N.J. 86, 237 A.2d 870 (1968) that insurer must establish that it suffered "appreciable" prejudice as the result of the insured's tardiness.  Insurer held to have burden of proving prejudice in Morales v. National Grange Mut. Ins. Co., 423 A.2d 325 (N.J. Super. Ct., Law Division, 1980). 

  In order to sustain such a defense, an insurer must show both that the insured's delay had "caused it to irretrievably lose substantial rights" and that the delay undermined "the likelihood that it would have had a meritorious defense had it been informed of the accident in a timely fashion."  Sagendorf v. Selective Ins. Co. of America, 293 N.J. Super. 81, 679 A.2d 709 (App. Div. 1996). In that case, the Appellate Division ruled that even though the insured had destroyed all evidence of pollution at a site before giving notice of a claim, the insurer's ability to respond had not been affected because its defenses to coverage were essentially legal and not fact-based.

  Under New Jersey Law, mere conjecture or suspicions may not form the basis for establishing appr eciable prejudice. See Molyneaux v. Molyneaux, 553 A.2d 49, 54 (N.J. App. Div. 1989). Indeed, "the insur er [must] establish more than the mere fact that it cannot employ its normal procedures in investigating and evaluating the claim, 8 [r]ather it must show that substantial rights have been irretrievably lost." Kitchnefsky v. National Rent-A-Fence of America, Inc., 88 F.Supp.2d 360, 368 (D.N.J. 2000) 

  New Jersey courts look to two factors in analyzing whether a party has suffered appreciable pr ejudice: (1) whether substantial rights have been irretrievably lost by virtue of the insured's failure to give timely notice; and (2) whether the likelihood of success of the insurer in defending against the underlying claim has been adversely affected. See Chemical Leaman Tank Lines, Inc. v. Aetna Cas. & Sur. Co., 89 F.3d 976, 996 (3d Cir. 1996), the Third Circuit refused to preclude coverage on the basis of the insured's 4 year delay in providing notice of pollution claims where there was no evidence that material evidence had been irretrievably lost or that the insurer had any meritorious defenses that could have been asserted against these claims.  The court found that the insurers had not demonstrated any likelihood of success from their handling of the claims or that a more favorable settlement could have been obtained through more timely notice.

  In keeping with its ruling in Chemical Leaman, the Third Circuit ruled in Transportes Ferreos de Venezuela II CA v. NKK Corp., No. 99-5697 (3d Cir. February 8, 2001), the court rejected Hartford’s contention that it had suffered prejudice due to the insured’s destruction of the rod-eye assembly that caused the loss, thus preventing it from making an independent inspection, or that the insured’s delay had prevented it from asserting a cross-claim against the manufacturer of the rod-eye. 


  By and large, New Jersey courts have refused to find "personal injury" coverage for pollution claims.  See, J. Josephson, Inc. v. Crum & Forster, 293 N.J. Super. 170, 679 A.2d 1206 (App. Div. 1996) and U.S. Bronze Powders, Inc. v. Commerce & Industry Co., 293 N.J. Super. 12, 679 A.2d 674 (App. Div. 1996).  But see, Harvard Industries v. Aetna Casualty Ins. Co., 273 N.J. Super. 467, 642 A.2d 438 (1993)(private claims for trespass and nuisance not subject to pollution exclusion, as it only applies to claims for bodily injury and property damage).

  The Appellate Division  ruled in Powell v. Quincy Mutual Fire Insurance Company, A-207-99T1 (N.J. App. November 8, 2000) that allegations that the insured realtor discriminated against prospective tenants  failed to allege a covered claim for “personal injury.”  The fact that the underlying claimant was alleging injury to her feelings that might fit within the common and ordinary meaning of a “personal injury” did not create coverage where, as here, the term “personal injury” was subject to a specific definition in the policy and was limited to certain intentional torts.  Further, while taking the view that discrimination claims against prospective tenants do not involve an “invasion of the right of private occupancy,” the court indicated that the earlier case law relied on by the insured plainly had no application to current forms which add the further requirement that the invasion involve “ a room, dwelling, or premises that a person occupies, by or on behalf of its owner, landlord or lessor.”

  Courts have sometimes found a duty to defend, even where the underlying complaint is not expressly based on a covered “offense” so long as the underlying facts were such that a covered claim could have been alleged. See  City of Cape May v. St. Paul Fire & Marine Ins. Co., 524 A.2d 882 (N.J. Super. Ct. App. Div. 1987)(malicious interference claim was covered because it was based on “utterance of disparaging material”).

  Under New Jersey law, in order for there to be advertising injury coverage there must be a causal connection between the advertising and the injury and the injury must fall within one of the specific categories of “offenses” defined in the policy.  Tradesoft Technologies, Inc. v. The Franklin Mutual Insurance Company, Inc., 746 A.2d 1078 (N.J. Super. 2000) and Frog Switch and Manufacturing Company, Inc. v. Travelers Insurance Company, 193 F.3d 742, 751 (3rd Cir. 1999). In  Tradesoft, the Appellate Division that allegations of patent infringement, trademark infringement, breach of contract and tortious interference with contractual relations involving proprietary software for foreign currency transactions were excluded as involving injury arising out of oral or written publication of material whose first publication took place prior to the beginning of the policy.  The Appellate Division also ruled that the trial court had erred in finding ambiguity based upon the absence of any reference to “publication” in those portions of the definition of advertising injury referring to trademark infringement or misappropriation of advertising ideas or the style of doing business.  The Appellate Division further found that, notwithstanding 1996 amendments to federal patent law, an “offer to sell” patent infringement claim is not covered by the policy’s coverage for copyright or trademark infringement.  In light of the explicit references to “copyright, title or slogan,” the court refused to find that omitted offenses, such as patent infringement, were implicitly intended to be covered as involving a misappropriation of the style of doing business.  

  The insured bears the burden of proving a covered loss.  Diamond Shamrock v. Aetna Cas. & Sur. Co., 258 N.J. Super. 167, 609 A.2d 167 (1992).  The insurer then must show that the loss falls outside the scope of coverage.  Burd v. Sussex Mutual Ins. Co., 56 N.J. 383, 399, 267 A.2d 7 (1970).  This burden extends to showing that insured's interpretation of exclusion is unreasonable.  Vantage Development Corp. v. American Environmental Technologies Corp., 251 N.J. Super. 516, 598 A.2d 948 (1991).

  The New Jersey Supreme Court has ruled that insurers have the burden of proving that damage was expected or intended, whether the issue rises in the context of an exclusion or in the context of the “occurrence” language in the insuring agreement. Carter-Wallace, Inc. v. Admiral Ins. Co., 154 N.J. 312, 712 A.2d 1116 (1998).

  New Jersey courts have held that insureds have the burden of proving the existence and terms of missing policies.  However, courts have differed as to the applicable standard.   In general, the Appellate Division has ruled that, absent a claim of fraud, the insured need only meet a “preponderance of the evidence” standard.  See Borough of Sayrville v. Bellefonte Ins. Co., 728 A.2d 225 (N.J. App. 1998);  J. Josephson, Inc. v. Crum & Forster Ins. Co., 293 N.J. Super. 170, 679 A.2d 1206 (App. Div. 1996); Township of Haddon v. Royal Ins. Co. of America, No. 95-701 (D.N.J. September 19, 1996); Pfister Chemical, Inc. v. North River Insurance Company, Bergen No. L-2315-99 (N.J. Super. February 26, 2001) and Princeton-Gamma Tech v. Hartford Ins. Group, Middlesex No. L-1289-91 (N.J. Super. September 4, 1996)("preponderance" sufficient).  But see  Parker-Hannifin Corp. v. American Motorists Ins. Co., No. 88-5031 (D.N.J. July 23, 1990)("clear and convincing" evidence).  See also Wallace v. Continental Ins. Co., No. A-3555-89T5 (N.J. App. November 8, 1990)(certificate of insurance held insufficient to prove existence of missing policy for asbestos claims) and Coloid Chemical, Inc. v. Estate of Carl Burnet, Morris L-387-94 (N.J. Super. June 4, 1996).

  In Borough of Sayreville v. Bellefonte Ins. Co., 320 N.J. Super. 598, 728 A.2d 225 (N.J. App. 1998), the Appellate Division of the Superior Court ruled that the appropriate standard was the “preponderance of the evidence”, not “clear and convincing proof.”  Further, it declared that the insured should be permitted to satisfy this burden by parol or other relevant evidence.   A “preponderance” standard was also adopted in NVF Company v. American Casualty Insurance Company, Gloucester No. L-1594-91 (N.J. Super. May 25, 2000)(Pennsylvania law).

  In Century Indemnity Company v. Asarco, Inc., Middlesex No. L-6164-93 (N.J. Super. February 22, 2000), the Superior Court declared that Century Indemnity had failed to show by clear and convincing evidence that a 1970 INA policy would have contained a pollution exclusion or that such policy should be reformed to include an exclusion.  The court noted that INA did not decide to adopt a “sudden happening” pollution exclusion until February 24, 1970.


  Under New Jersey choice of law principles, when determining which state's substantive law should be applied in liability insurance contract controversies, "the law of the place of the contract ordinarily governs the choice of law because this rule will generally comport with the reasonable expectations of the parties concerning the principal sites of the insured risk during the term of the policy and will furnish needed certainty and consistency in the selection of the applicable law."  State Farm, Ins. Co. v. Simmons' Estate, 84 N.J. 28, 401 A.2d 488, 492 (1980).

  The New Jersey Supreme Court ruled in Gilbert Spruance Co. v. Pennsylvania Manufacturers Association Ins. Co., 134 N.J. 96, 629 A.2d 885 (1993) that New Jersey law should apply to claims involving New Jersey sites, even if the insured is located in another state, so long as it was reasonably foreseeable to the parties that the insured's waste would "come to rest" in New Jersey.  

  On June 11, 1998, the court analyzed the application of Gilbert Spruance to multi-site cases in which pollutants had come to rest at sites outside of New Jersey.  In such cases, the court declined to find that New Jersey had a compelling interest in the disposition of the claims and suggested that the governing law should be either that of the state where the insured was based (or the policies were issued) or the state where the pollution came to rest.  The law of the site controls in the event that it differs from the other state, however.  Pfizer, Inc. v. Employers Ins. of Wausau, 194 N.J. 187 (1998).  The court did not seem concerned that this would result in judges having to apply multiple states' laws in a single case, particularly as most of the cases will not be tried to a jury.   See also N.L. Industries, Inc.  v.  Commercial Union Ins.  Co., 154 F.3d 155 (3rd Cir. 1998)(insured headquartered in New York could not claim benefit of New Jersey law merely because it did business in New Jersey).

  The Supreme Court ruled, however, that New Jersey law would be applied to New Jersey sites, given the states' interest in protecting its policyholders, the regulatory process and cleaning up New Jersey.  Unisys Corp. v. INA,  154 N.J. 217, 712 A.2d 649 (1998)(late notice requirement interpreted in accordance with New Jersey law but not scope of coverage in case where insured moved to New Jersey after policies were issued). Those interests are not diminished by the fact that a site has already been cleaned up.  HM Holdings, Inc. v. Aetna Cas. & Sur. Co., 1998 N.J. LEXIS 574 (N.J. June 11, 1998).

  These cases appear to overrule an earlier decision in which the Third Circuit had ruled that even though New Jersey has no governmental interest in cleaning up pollution in other states, it does have an interest in ensuring the integrity of the regulatory process for policies issued to New Jersey policyholders.  General Ceramics Inc. v. Fireman's Fund Ins. Co., 66 F.3d 647 (3d Cir. 1995).  Even before these latest case, the Appellate Division had ruled that this analysis does not apply where the policies were issued to a corporation that is not based in New Jersey.  Permacel v. American Ins. Co., 299 N.J. Super. 400, 691 S.2d 383 (1997).  In any event, the Third Circuit has now embraced the Pfizer approach in the wake of these rulings of the New Jersey Supreme Court.


  Defense counsel represents both the insurer and the insured.  Gray v. Commercial Union Insurance Company, 468 A.2d 721 (N.J. Super. 1983).    

  A liability insurer must pay for independent defense counsel where a conflict of interest arises due to matters for which it has denied coverage or is reserving its rights.  Battista v. Olson, 594 A.2d 260 (N.J. Super. 1991).
  However, insurers may not agree to defend, even under a reservation of rights, where a substantial coverage dispute exists involving to a factual dispute which would not be decided by the trial of the underlying action. Burd v. Sussex Mutual Insurance Company, 56 N.J. 383 (1970); Hartford Acc. & Ind. Company v. Aetna Life Insurance Company, 98 N.J. 18 (1984);  CPS Chemical Company, Inc. v. Continental Insurance Company, 203 N.J. Super. 15 (App. Div. 1985).  In such circumstances, the insurer need not undertake the defense of such cases in the first instance but may subsequently be required to reimburse its insured for defense costs and that portion of any judgment or settlement that is ultimately determined to be within the scope of its coverage. 

  In certain situations, as where the insured does not have the resources to defend itself and would suffer grave hardship if it had to "front" the costs of defense, the trial court may in its discretion order the insurer to assume this burden subject to a right to secure reimbursement if the factual basis for the underlying claim is found to be outside the scope of its coverage. Cumberland Mut. Fire Ins. Co. v. Diedrich, A-2110-93T1 (N.J. Super. March 13, 1995).  The Appellate Division has also ruled in Sands v. CIGNA Property & Casualty Ins. Co., 289 N.J. Super. 344, 674 A.2d 169 (1995) that Burd did not bar a coverage claim involving an "innocent" commercial landlord, since there was no claim that the insured had intended for pollution to occur, nor were there other factual questions of a sort that would create a conflict to prevent the insurers from providing a defense.  

  Some courts have also required insurers to "defend" cases by paying the insured's defense costs even though the insured controls the defense of the action.  See e.g. Air Products and Chemicals, Inc. v. Hartford Accident & Indemnity Co., Middlesex No. L-17134-89 (N.J. Super. February 8, 1996).  In such circumstances, however, the insurer is entitled to reimbursement of the defense costs that it has fronted if coverage is ultimately found not to apply.  
  Otherwise, Burd remains alive and well, particularly in the Appellate Division. In Rutgers University v. Pennsylvania Manufacturers Association Insurance Co., No. A-3669-93T2F (N.J. App. December 8, 1994), appeal dismissed (N.J. 1995), the Appellate Division ruled that a trial court should not have required Liberty Mutual to defend a pollution case against its insured where Liberty had raised a factual issue as to whether Rutgers had expected or intended to cause the pollution.  The Appellate Division's ruling was accepted for review by the New Jersey Supreme Court but was settled shortly thereafter.   

  Burd was also recently relied on by the Appellate Division in Grandcove II Condominium Association v. Ginsberg, No. A-1316-95T2 (N.J. App. June 11, 1996) in holding that a trial court had erred in ruling that an insurer must pay the entire cost of defending a construction defect case for which numerous unresolved factual questions applied.  More recently, the Appellate Division ruled in Trustees of Princeton University v. Aetna Cas. & Sur. Co., 1996 N.J. Super. LEXIS 335 (App. Div. August 14, 1996) that an insured cannot get around Burd by unilaterally waiving in advance any conflicts that may later arise.  As with Rutgers, the Princeton dispute was settled shortly after being accepted for further review by the New Jersey Supreme Court.


  A divided court declined to address this issue this issue in State of New Jersey v. Signo Trading, 612 A.2d 932 (N.J. 1992).  However, the following year a unanimous court found that clean up costs are "damages" in Morton International v. General Accident Ins. Co., 134 N.J. 1, 629 A.2d 831 (1993). 

  The Appellate Division has since ruled that clean up costs are covered even if a property owner has yet to receive any third party demand.  In Metex Corp. v. Federal Ins. Co., 675 A.2d 220 (N.J. App. 1996), the court ruled that such costs are not voluntarily incurred given the strict liability imposed by the New Jersey Spill Act and that the goals underlying this statute and the public policy of New Jersey would not be served by delaying clean up or the availability of insurance coverage until such time as an actual governmental claim or third-party demand was asserted. See also Crest-Foam Corp. v. Hartford Accident & Indemnity, 320 N.J. Super. 509, 727 A.2d 1330 (App. Div. 1999).

  ECRA site closure costs were also held covered "as damages" in Federal Ins. Co. v. Purex Industries, Inc., 972 F.Supp. 872 (D.N.J. 1997).  The District court refused to find that sums that the insured paid pursuant to the ACL were barred by the "voluntary payment" prohibition in the policies, holding that ECRA costs are not "voluntary payments" under New Jersey law.  The court refused to distinguish these earlier ECRA cases on the basis that Purex was not itself the owner or operator of the site.  The court also rejected the insurers' contention that they should not be liable for the cost of the "pump and treat" system chosen by Purex to clean up the property since there were more cost effective and reasonable alternatives. 

  The costs of investigating a site and complying with clean up directives are generally indemnity but should be fairly apportioned to both defense and indemnity where they serve a dual purpose. General Accident Ins. Co. v. N.B. Fairclough & Sons, Inc., 143 N.J. 462, 672 A.2d 1154 (1996).  Such costs will be presumed to be indemnity, however.  Accordingly, an allocation is only required if the insurer would obtain a windfall by not having to pay costs that would otherwise ordinarily fall within the defense obligation. Chemical Leaman Tank Lines, Inc. v. Aetna Casualty & Surety Co., 978 F.Supp. 589 (D.N.J. 1997). 

  Such costs must be shown to be causally related to discharges that occurred during the insurer's policy period, however. Prolerized Schiabo Neu Co. v. Hartford Acc. & Ind. Co., 1997 U.S. Dist. LEXIS 21019 (D.N.J. December 31, 1997).  In PSN, Judge Orlofsky further refused to find that the insured could recover as "damages" costs that it had incurred in purchasing an adjoining parcel of land where that purchase had resulted in a windfall to the value of the insured's property.


  An insured or third party claimant that prevails in a coverage dispute is entitled to reimbursement for its reasonable costs and attorneys fees pursuant to R.4:42-9(a)(6). Kistler v. N.J. Manuf. Ins. Co., 172 N.J. Super. 324, 329 (App. Div. 1980).  In Hanover Ins. Co. v. McKenney, No. L-04061-89 (N.J. Super. October 24, 1990), the Law Division ruled that an injured plaintiff that prevailed in a direct action claim could also recover its fees.  
  There is no right to a jury trial with respect to insurance coverage claims for future costs.  In INA v. Amadei Sand & Gravel,Inc., 742 A.2d 550 (N.J. 1999), the New Jersey Supreme Court ruled that such actions are purely equitable proceedings, whether commenced by the insured or the insurer.

  Attorneys' fees may be awarded to a successful claimant in a coverage lawsuit under Rule 4:42-9(a)(6).  Whether to award such fees is within the discretion of the trial judge.  Helton v. Prudential Property & Casualty Ins. Co., 205 N.J. Super. 196, 200 (App. Div. 1985).  In deciding whether to award fees, a court may consider the following factors (1) the insurer's good faith in refusing to pay the claim; (2) the excessiveness of the insured's demands; (3) the bona fides; (4) the insurer's justification in litigating the issue; (5) the insured's conduct in contributing substantially to the necessity for the litigation on the policy; (6) the general conduct of the parties; and (7) the totality of the circumstances.  Enright v. Lubow, 215 N.J. Super. 306, 313 (App. Div. 1987), Cert. denied, 108 NJ 193 (1987) and S.N. Golden Estates, Inc. v. Continental Cas. Co., 293 N.J. Super. 395, 680 A.2d 1114 (1996).   

  There is some suggestion, however, that such fees should be allocated in proportion to the insured’s litigation costs relative to that particular insurer.  For instance, in  Universal-Rundle Corp. v. Commercial Union Ins.  Co.,  319 N.J. Super. 223, 725 A.2d 76 (App.  Div. 1999, review denied (N.J. June 9, 1999) that a trial court had erred in permitting an insured to recover all of its DJ fees from a single insurer where it had initially sued many insurers but had settled with all but one prior to trial.  The Appellate Division declared that although the costs of trial could be recovered from Commercial Union, the losing insurer should only be responsible for a proportional amount of fees incurred by the insured during the period of time that other carriers were in the case. 

  The Appellate Division has ruled that expert witness fees may not be recovered as part of a Rule 9(a)(6) award.  Helton v. Prudential Property & Casualty Ins. Co., 205 NJ Super. 196, 202 (App. Div. 1985). 

  Although awards will generally be permitted, courts will not grant fees in the event that the insured has acted in bad faith or has made misrepresentations or has otherwise acted so as to necessitate the coverage litigation.  


   --Claims Manuals

   --Drafting History

  Such discovery has been held to have no probative value in determining the mutual intent of the parties as reflected in the insurance contracts.  Pittston Co. v. Allianz Ins. Co., No. 90-3621 (D.N.J. Oct. 16, 1992); In re Environmental Ins. Dec. Judgment Actions, N.J. Super., No. UNN-L-08573-89, Order at 4-5 (N.J. Super. Aug. 7, 1990)

   --Other Policyholder Claims

  Discovery denied in Schering Corp. v. Evanston Insurance Co., N.J. Super., No. L-97311-88, Tr. at 13, 32 (Aug. 4, 1989), leave to appeal denied, (App. Div. Oct. 23, 1989)(other policyholder information is not material).  See also Leksi, Inc. v. Federal Ins. Co., 129 F.R.D. 99, 106 (D.N.J. 1989)("to compel the production of files of other insureds not only involves enormous inconvenience and difficulties, but also entails a frightening potential for spawning unbearable side litigation which, in any view, defeats the purpose and spirit of the discovery rules themselves").

   --Reinsurance Information

  Courts have denied discovery of reinsurance information on the grounds that it is irrelevant to the issues in a coverage dispute. Schering Corp. v. Evanston Ins. Co., No. L-97311-88 (N.J. Super. Aug. 4, 1989).


  U.S. District Court ruled in Leski, Inc. v. Federal Ins. Co., 129 F.R.D. 99 (D.N.J. 1989) that reserve information is only tenuously related to whether insurance coverage exists and therefore not discoverable.


  An insurer's duty to defend is measured in the first instance by the underlying allegations against its insured.  However, if the pleadings do not clearly indicate whether there is coverage or not, an insurer must consider extrinsic facts that are made known to it by its insured. SL Industries, Inc. v. American Motorist Ins. Co., 128 N.J. 188, 607 A.2d 1266 (1992)(insurer cannot hide behind a “formal fortress” of pleadings where it is aware of  “true but unpleaded facts” requiring coverage). In this latter event, however,  the insurer has no obligation to retroactively pay defense costs before it was put on notice of extrinsic facts establishing the potential for coverage.

  New Jersey courts have ruled that it is against public policy to require insurers to first obtain the assent of their policyholders before settling claims.  American Home Assurance Co. v. Hermann's Warehouse Corp., 521 A.2d 903 (N.J. Super. 1987), affirmed 563 A.2d 444 (N.J. 1989).

  Under New Jersey law, an insured's assignment of its rights to a plaintiff pursuant to a settlement that is entered into without the consent of the insurer must first be approved by a court. Griggs v. Bertram, 88 N.J. 347, 355 (1982); Excelsior Ins. Co. v. Pennsbury Pain Center, 1996 WL 913670 (D.N.J. November 13, 1996).  Further, the reviewing judge must consider the merits of the claim.  It is the insured's burden of proof to convince the court that the settlement was reasonable and the product of good faith.

 In general, it appears that New Jersey courts will treat PRP claims as suits, to the extent that they are the "functional equivalent" of law suits. But see Campbell Soup Co. v. Liberty Mutual Ins. Co, 239 N.J. Super. 403, 571 A.2d 969 (App. Div. 1990)(no duty to defend EEOC "show cause" hearing since it was not a "coercive, adversarial proceeding").  See also Broadwell Realty Services, Inc. v. Fidelity and Cas. Co., 218 N.J. Super. 516, 528 A.2d 76 (App. Div. 1987); Pfizer, Inc. v. Employers Ins. of Wausau, Middlesex No. C-108-92 (N.J. Super. February 29, 1996); Air Products and Chemicals, Inc. v. Hartford Accident & Indemnity Co., Middlesex No. L-17134-89 (N.J. Super. February 8, 1996).  


  Waiver is the intentional relinquishment of a known right.  West Jersey Title v. Industrial Trust Co., 27 N.J. 144, 152 (1958).  A failure to include a specific coverage defense in a denial or reservation of rights letter will generally not give rise to a finding of waiver or estoppel.  Owens-Illinois, Inc. v. United Ins. Co., 624 A.2d 1 (N.J. App. 1993), aff'd as to this issue, 138 N.J. 437, 650 A.2d 974 (1994); Continental Ins. Co. v. Beecham, Inc., 836 F.Supp. 1027 (D.N.J. 1993).  However, in Beecham, Judge Barry ruled that an insurer was estopped to dispute the issue of "known loss", since this defense was related to the "occurrence" defense that had already been raised. 

  Under the doctrine of equitable estoppel, where an insurer "has lulled a plaintiff into a false sense of security by representing that a claim will be amicably settled without the necessity for litigation."  Eagle Fire Protection Corp. v. First Indemnity of America Ins. Co., 655 A.2d 939, 945 (N.J. App. 1995).  

  In such circumstances, an insurer may be estopped to argue that the claims were not covered due to a policy exclusion or some other contractual limitation. Harr v. Allstate Ins. Co., 255 A.2d 208 (N.J. 1969).  Indeed, in Griggs v. Bertram, 88 N.J. 347, 355 (1982) the New Jersey Supreme Court expressly ruled that the doctrine of estoppel can preclude an insurer from arguing that it does not provide coverage for a claim despite a clear contractual provision excluding coverage.   See also Selective Ins. Co. v. Samler Brothers, Inc., A-3891-94T5 (N.J. App. April 30, 1996).  In Samler, the Appellate Division ruled that an insurer had an obligation to pay for the insured's defense where it had defended the underlying case for a year prior to bringing an action for declaratory relief seeking a declaration that it did not owe coverage.  Under such circumstances, prejudice would be presumed unless the insurer had used a valid non-waiver agreement or had otherwise clearly reserved its rights as to the coverage issue.  Indeed, in Samler, the insurer had issued a reservation of rights; however, the Appellate Division found that it had not adequately advised the insured that the Company might withdraw its defense based upon this issue.  

  If an insurer wrongfully refuses to provide coverage, the insured is free to defend himself and take other steps to protect himself.  The insurer is liable for the amount of any judgment obtained against the insured or any settlement entered into so long as the payments are reasonable and made in good faith.  New Jersey Manufacturers Indemnity  Ins.  Co.  v.  U.S. Casualty Co.,  91 N.J. Super.  404, 407, 220 A.2.2d 708 (App.  Div.  1966).  

  In Griggs v. Bertram, the New Jersey Supreme Court held that a plaintiff has the burden of initially presenting a prima facia case to establish the reasonableness of the settlement amount.  Enough information must be available that the court can make an independent evaluation of the reasonableness of the settlement.


  In general, the purpose of umbrella liability insurance is both to provide excess insurance as well as coverage for areas that may not be covered under the insured's primary coverage.  Bryan Construction Co. v. Employers Surplus Lines Ins. Co., 290 A.2d 138, 139 (N.J. 1972).

  The New Jersey Supreme Court ruled in Werner Industries, Inc. v. First State Ins. Co., 112 N.J. 30, 548 A.2d 188 (1988) that an excess policy that defines coverage as excess of "the limits of the underlying insurance, as set forth in the attached Schedule," "the amounts specified" in the primary policy or the insured's "retained limit," will not be required to drop down.     

  Where an excess liability insurer is forced to take over the defense of its policy owner because of the primary insurer’s wrongful refusal to do so, it is entitled to reimbursement from the primary insurer.  American Home Assurance Company v. St. Paul Fire and Marine Insurance Company, 558A 2nd 65 (N.J. App. 1989) and Rooney v. West Orange TP. 200 (N.J. Super. 211), 207 (App. Div. 1985) (excess insurer is not to be “regarded as an volunteer because it has undertaken the defense by reason of its own contractual duty to defend and because the public interest is served by its undertaking of the defense”).
  An excess insurer's right of action against a primary insurer for failing to settle a case within the primary was recognized in Estate of Louis Penn v. Amalgamated General Agency, 148 N.J. Super. 419 (1977).  The Appellate Division of the Superior Court of New Jersey held that a "primary carrier owes to the excess carrier the same positive duty to take the initiative [and] attempt to negotiate a settlement within its policy limit that it owes to its assured."  In so holding, the court noted that an excess carrier has "precisely the same status" as an insured for purposes of asserting an action for wrongful failure to settle.  Id. at 423.   However, a primary insurer owes no fiduciary duty to an excess carrier following the excess carrier’s decision to deny coverage.  Baen v.  Farmers Mutual Fire Ins.  Co.  of Salem County, 318 N.J. Super. 260 ( App. Div. 1999)(no duty to alert excess carrier that it was relying on incorrect facts in denying coverage).  This same duty has been held not to extend to two primary insurers, however.  General Acc. Ins. Co. v. New York Marine Ins. Co., A-4016-97T3 (App. Div. May 4, 1999)(auto insurer that refused to defend had no right to sue GL carrier for its alleged mishandling of claim).

  Under New Jersey law, a following form excess policy has been held to incorporate the terms of the underlying policy unless they are explicitly excepted.  Hatco Corp. v. W.R. Grace and Co., 801 F.Supp. 1334, 1354 (D.N.J. 1992).  


  Where a property owner chain-locked the building’s sprinkler in the “off” position prior to a fire of suspicious origin, coverage precluded due to the “increase of hazard” provision in the fire policy.  In Dynasty, Inc. v. Princeton Ins. Co., No.  A-31-99  (N.J. July 24, 2000), the state Supreme Court ruled that the trial court committed reversible error by failing to instruct the jury that the insurance company could not be found liable for the loss if the fire hazard was increased by any means within the control or knowledge of the insured. 

  Judge Brotman ruled in Assurance Company of America v. Jay-Mar, Inc., 1999 WL 106721 (D.N.J. February 10, 1999), that while it was unclear whether New Jersey would adopt principles of “concurrent causation” that nothing in the public policy of New Jersey barred a property insurer from adding language to its policy excluding claims where the damage results concurrently or sequentially from covered and non-covered causes.  


  In general, equitable fraud requires proof of (1) a material misrepresentation of a presently existing or past fact; (2) the maker's intent that the other party rely on it; and (3) detrimental reliance by the other party. Jewish Center of Sussex Cty., 86 N.J. 619, 624 (1981). Unlike legal fraud, there need not be proof that the statement was made with knowledge that it was false.  In other words, a party seeking rescission based on equitable fraud need not prove "knowledge of the falsity and an intention to obtain an undue advantage therefrom." Bonnco Petol, Inc. v. Epstein, 115 N.J. 599, 609 (1989). "Even an innocent misrepresentation can constitute equitable fraud justifying rescission." Ledley v. William Penn Life Ins. Co., 138 N.J. 627, 635 (1995). 

  However, in applying the doctrine of equitable fraud to an insured's answers to questions posed in insurance applications, answers to subjective questions are treated differently from answers to objective questions. Ledley, 138 N.J. 635-637 (1995). An objective question as one calling "for information within the applicant's knowledge" and a subjective question as one that "'seek[s] to probe the applicant's state of mind.'" Id. at 636 (quoting Formosa v. Equitable Life Assurance Soc'y, 166 N.J. Super. 8, 15 (App. Div.), certif. denied, 81 N.J. 53 (1979)). The court observed that subjective questions are "concerned with more ambiguous issues," and then went on to explain the difference in this manner: 

  The rationale behind the distinction between objective and subjective questions is that the answer to a subjective question will not constitute equitable fraud if "the question is directed toward probing the knowledge of the applicant and determining the state of his mind and . . . the answer is a correct statement of the applicant's knowledge and belief . . . ." Ettelson v. Metropolitan Life Ins. Co., 164 F.2d 660, 665 (3d Cir.1947)


  Several recent New Jersey decisions have adopted an extremely narrow view of the doctrine in Pittston Company v. Allianz Ins. Co., 124 F.3d 508 (3d Cir. 1997), the Third Circuit ruled that  coverage was required until insured's liability is certain; knowledge of contamination or injury alone does not bar coverage.  The court relied exclusively on the holding of the Appellate Division in Astro Pak Corporation v. Firemans Fund Ins. Co., 284 N.J. Super. 491, 665 A.2d 1113 (App. Div. 1995), which had limited the doctrine to situations in which fraud might be a concern.  Although Chemical Leaman had knowledge of the existence of pollution on the property, there was no evidence that it was yet aware that it might be deemed potentially liable.  This narrow view of the “known loss” doctrine was reaffirmed by the Appellate Division in CPC Int., Inc. v.  Hartford Acc. & Ind.  Co., 316 N.J. Super. 951 (App. Div. 1998).

  Earlier cases, particularly from the federal courts, had generally barred coverage under any policy issued after the date that the insured became aware that it was causing pollution. RLI Ins. Co., C.A. No. 87-4438 (D. N.J. Feb. 25, 1988)(no coverage where waste discharges and ensuing litigation against insured began prior to inception of policy);  Township of Gloucester v. Maryland Cas. Co., 668 F.Supp. 394, 402 (D.N.J. 1987) and 702 F.Supp. 1126, 1131 (D. N.J. 1988)(no "occurrence" where insured had actual knowledge of contamination and resulting litigation before policy).  See also CPS Chemical Co., Inc. v. Continental Ins. Co., A-745-89T1F (N.J. App. October 10, 1990)(no insurable "occurrence" where insured knew that pollution was occurring before purchasing policy); Center Realty v. Petroleum and Chemical Technology, Middlesex County Law Division Docket No. W-011751-89, Hearing Transcript (N.J. Super. April 8, 1991)(fact that insured may not have had certain knowledge of the full extent of its liability did not require coverage under policies issued after insured learned of spill since its liability was immediately foreseeable)  W.A. Cleary Chemical Corp. v. Ins. Co. of North America, No. W-048192-88 (N.J. Super. Ct., Law Div., April 28, 1989)(coverage denied on policies issued after insured became aware that its discharges had harmed adjoining properties); Stanley Arky v. Allstate Ins. Co., Middlesex No. W-048199-88 (N J. Super. December 19, 1990)(no coverage under 1977 policy where insured had already been warned that pollution was resulting from a 1973 chemical fire that would continue to cause harm until cleaned up); General Acc. & Ind. Corp. v. N.B. Fairclough & Sons, Inc., No. L-10592-87 (N.J. Super. Ct., Law Div., March 3, 1989); Diamond Shamrock Chemical Co. v. Aetna Cas. & Surety Co., Morris No. C-3939-84 (N.J. Super. February 5, 1988)(no coverage under policies issued after insured had received an executive order putting it on notice that contamination existed at its manufacturing facility; similarly, court holds that Agent Orange personal injury claims are not covered under policies issued after class of plaintiffs was certified) remanded on other grounds, 231 N.J. Super. 1 (App. Div. 1989); Morton-Thiokol, Inc. v. General Accident Ins. Co. of America, Bergen No. C-3956-85 (N.J. Super. August 27, 1987)(no coverage where insureds had knowledge of the consequences of their polluting activities years prior to the issuance of the policies) and Chemical Leaman Tank Lines, Inc. v. Aetna Cas. & Sur. Co., 788 F.Supp. 846 (D.N.J. 1992), aff'd in part, rev'd in part, 89 F.3d 976 (3d Cir. 1996)(no coverage under policies issued after PRP letter).


  New Jersey has adopted the "cause" test.  Thus, in Wilkinson and Son, Inc. v. Providence Washington Ins. Co., 124 N.J. Super. 466, 307 A.2d 639 (1973), the Appellate Division held that damage to several apartments constituted a single "occurrence" since all involved the same cause - a contractor tracking paint on carpets.  In Owens-Illinois, Inc. v. United Ins. Co., 625 A.2d 1 (N.J. App. 1993), reversed on other grounds, 138 N.J. 437, 650 A.2d 974 (N.J. 1994),  the Appellate Division ruled that the insured's manufacture of asbestos products was the one "occurrence" giving rise to its liability.  Similarly, in Doria v. INA, 210 N.J. Super. 67, 509 A.2d 220 (1986), the Appellate Division found that injuries to two boys arose out of one "occurrence" where harm was resulted from same cause and was closely linked in time and space (one boy fell in a swimming pool while trying to rescue the other).  The opinion was authored by Justice Havey, who, while on the trial bench, had issued a contrary ruling on this issue in Jackson Township.  More recently, a federal district court has ruled that the insured's continuous course of disposing waste at a landfill constituted a single "occurrence." O-I Brockway Glass Container, Inc. v. Liberty Mutual Ins. Co., No. 90-2797 (D.N.J. February 10, 1994).  Similarly, Judge Weiss ruled in In Re Environmental Insurance Declaratory Judgment Actions, Union No. L 8573-8 (N.J. Super. January 28, 1998) that all of the pollution at a site was a single "occurrence" even though the disposal activity occurred in 8 discreet locations on the property.  Applying a "cause" test, Judge Weiss found that "all of Ciba's waste was from its continuous manufacturing processes and should be treated as a single occurrence."  the court noted that this analysis was consistent with the application of a continuous trigger as "the exposure to the substance was so continuous that it is impossible to separate each individual instance of contamination."  

  Claims arising out of the insured's sale of asbestos were held to trigger each occurrence limit during INA's eight years of coverage in Ingersoll-Rand v. INA,, Bergen No. L-37910-89 (N.J. Super. November 16, 1995).  However, the court ruled that the insured may pay a full SIR for each policy thus triggered.


  New Jersey courts have ruled that in cases where two insurance contracts covered the same loss, "but each reject[ed] primary responsibility because of the existence of the other contract." Starks v. Hospital Serv. Plan of N.J., Inc., 182 N.J. Super. 342, 352 (App. Div. 1981), aff'd, 91 N.J. 433 (1982). In Starks, the Appellate Divsion pointed out that the New Jersey Supreme Court had rejected the approach taken by many courts of reconciling conflicting "Other Insurance" provisions so "that one, but not both, of such provisions must yield in order to establish one policy as the 'primary' insurance upon which the 'other insurance' provision of the 'secondary' policy might operate. Id. at 352-53 (quoting Cosmopolitan Mut. Ins. Co. v. Continental Cas. Co., 28 N.J. 554, 559 (1959)). Such "mutually repugnant" provisions become inoperative, and the general coverage of each policy applies, such that "each company is obligated to share in the cost of the settlement and expenses." Id. at 353 (quoting Cosmopolitan, supra, 28 N.J. at 562). 

  Where two "Other Insurance" provisions are virtually identical in every respect (aside from the parenthetical), they should be deemed mutually repugnant, such that each insurer "is obligated to share in the cost of the settlement and expenses." Id. at 353 (quoting Cosmopolitan, supra, 28 N.J. at 562).  This was also the result in American Nurses Ass'n v. Passaic Gen. Hosp., 98 N.J. 83, 91 (1984), where the Court reiterated that "the loss should be equally apportioned" in cases involving competing "Other Insurance" provisions contained in excess insurance policies. See Ambrosio v. Affordable Auto Rental, Inc., 307 N.J. Super. 114, 127 (App. Div. 1998) (apportioning coverage among the four insurers involved, each of which purported to provide excess coverage over all other collectible insurance). 


  After years of controversy, the scope of the exclusion was finally defined by the Supreme Court of New Jersey in Morton International v. General Accident Ins. Co., 134 N.J. 1, 629 A.2d 831 (1993), reh'g denied (N.J. January 13, 1994).  While finding that "sudden" has a temporal meaning that would otherwise limit coverage to "big boom" accidents, the court nonetheless ruled that this meaning is in conflict with statements that insurer representatives allegedly made to state regulators when this exclusionary language was first proposed in 1970.  As a result, the court ruled that insurers are estopped to apply the exclusion as drafted.  The court did agree, however, that the exclusion applies even if the insured did not intend to cause injury, so long as the insured or its agent intentionally discharges a "known pollutant."  

  More recently, the Third Circuit has ruled in Chemical Leaman Tank Lines, Inc. v. Aetna Casualty & Surety Co., 89 F.3d 976 (3d Cir. 1996) that the "regulatory estoppel" analysis adopted in Morton had equal application to both the ISO forms and the London NMA 1685 pollution exclusion, even though this later exclusion had not been a part of the IRB/NBCU submission that was the subject of Morton.  Regardless of whether those insurers had themselves misrepresented the meaning of "sudden" the court ruled that they had benefited from the misleading explanation to state regulators by various insurance trade groups.  Having not submitted information to New Jersey regulators disposing a contrary intent, the court ruled that they would be bound by the Morton analysis.  Accord Essex Chemical Corp. v. Hartford Accident Indemnity Co., No. 00-1839 (3rd Cir. March 7, 2001)(unpublished).   Similarly, in Cessna Aircraft Co. v. Hartford Accident & Indemnity Co., Morris No. L-3868-92 (N.J. Super. February 4, 1997), Judge Stanton refused to limit the holding in Morton to members of the IRB or as to carriers that had been in existence or writing coverage in New Jersey at that time.  In view of the "regulatory fraud" identified by the New Jersey Supreme Court, the court ruled that all carriers utilizing pollution exclusions must be bound by the court's holding since all had at least incidentally benefited by the original IRB filings that had gained regulatory approval for this exclusion.  

  Morton reversed several rulings of the Appellate Division which had limited the application of the exclusion to situations in which the insured acted with intent to cause harm.  See Broadwell Realty (N.J. App. 1987); Du-Wel Products (N.J. App. 1989) and Lansco, Inc. (N.J. App. 1975).  Out of state courts had predicted that the New Jersey Supreme Court might take this view following the ruling of the Third Circuit in New Castle County.

  Despite Morton’s seeming distinction between the “accidental” aspect of the exclusion and the “occurrence” requirement that damage not have been expected or intended by the insured, subsequent New Jersey decisions have largely obliterated any analytic distinction.  For instance, in  Universal-Rundle Corp. v. Commercial Union Ins.  Co., 319 N.J. Super. 223, 725 A.2d 76 (App.  Div. 1999), the Appellate Division ruled that the insured’s knowing discharge of waste materials containing small amounts of lead oxide, which the insured knew could be hazarous to health if inhaled, was not the discharge of a “known pollutant” because the insured had no knowledge at the time that discharges into the environment could cause injury (the insured testified that it believed that its waste was good fill because it was “inert”).

  Controversy also remains with respect to the nature of the discharge that must be "accidental."  In Nestle Foods Corp. v. Aetna C&S, 842 F.Supp. 125 (D.N.J. 1993), the District Court ruled that a "discharge" occurs when something moves from a state of confinement to a state of movement, thus concluding that the focus of the exclusion would be on the point in time when pollutants leached out of the landfill in question rather than the intentional placement of wastes into the landfill itself. Similarly, in Astro Pak Corporation v. Firemans Fund Ins. Co., 665 A.2d 1113 (N.J. App. 1995), the Appellate Division interpreted Morton as precluding any finding that a waste generator's shipments to a state licensed landfill were not "accidental." However, the exclusion was held to preclude coverage for the insured's intentional disposal of a known pollutant on its property in United Mobile Homes, Inc. v. Foremost Ins. Co., 292 N.J. Super. 492, 679 A.2d 174 (App. Div. 1996).

  In Pittston Company v. Allianz Ins. Co., 905 F.Supp. 1279 (D.N.J. 1995), reversed on other grounds, 124 F.3d 508 (3d Cir. 1997)), Judge Wolin questioned whether routine releases of pollutants in the course of the insured's operation of a tank farm decades ago could be viewed as a "discharge" where these discharges were of the sort that both the insured and its insurers would have viewed at the time as an unavoidable incident of the sort of business activity that the insurers had agreed to cover.  Judge Wolin also questioned whether groundwater was a "body of water."

  The term "arising out of" has not been construed to date in the pollution context.  In other contexts, New Jersey courts have ruled that this phrase has a broad meaning, such as "originating from the use of" or "growing out of the use of."  Franklin Mutual Ins. Co. v. Security Indemnity Ins. Co., 275 N.J. Super. 335, 340 N.J. App. 1994) and Harrah's Atlantic City v. Harlysville Ins. Co., 288 N.J. Super. 152, 671 A.2d 1122 (App. Div. 1996).

  Absolute exclusion has been upheld repeatedly by state and federal courts.  See e.g. Quincy Mutual Fire Insurance Company v. Borough of Bellmawr, 2001 N.J. Super. LEXIS 107 (N.J. App. March 20, 2001)(exclusion is clear and unambiguous with respect to claim for pollution arising out of insured’s use of munipal landfill);  Crown Cork and Seal  Co.  v.  Aetna Casualty & Surety Co., No.  A-5564-96T3 (N.J. App.  October 8, 1998)(rejecting argument that exclusion is ambiguous or contrary to public policy); Vantage Development Corp., Inc. v. American Environmental Technologies Corp., 251 N.J. Super. 516, 598 A.2d 948 (1991); Kimber Petroleum Corp. v. Travelers Indemnity Co., 1997 WL 109812 (N.J. App. February 26, 1997); A&S Fuel Oil Company, Inc. v. Royal Ind. Co., 279 N.J. Super. 367, 652 A.2d 1236 (App. 1995) and Nunn v. Franklin Mutual Ins. Co., 274 N.J. Super. 543, 644 A.2d 1111 (1994). 

  Efforts by insurers to add a "total" pollution exclusion to their policies were initially frustrated by the New Jersey Insurance Commissioner,  See In the Matter of Disapproval of Commercial Insurance Policy Forms, 624 A.2d 587 (N.J. App. 1993).  

  The Appellate Division ruled in Byrd v. Blumenreich, 317 N.J. Super. 496, 722 A.2d 598 (App. Div. 1999) that the exclusion does not apply to lead paint poisoning claims. the court concluded “that an insured could reasonably have understood the position at issue to exclude coverage for injury caused by certain forms of industrial pollution, but not coverage for injury allegedly caused by the presence of leaded materials in a private residence.”  Further, the court noted that while there were some cases upholding the insurer’s position, the “weight of authority” was against it.  Further, the court concluded that terms such as “discharge, dispersal, release or escape” connote “an active or clearly perceived physical event” and could not reasonably be understood as applying to the imperceptible chipping or flaking of lead paint that was attributable to a process occurring over an extended period of time.   

  The exclusion was held not to apply to a homeowner's suit for property damage resulting from a defective septic system in S.N. Golden Estates, Inc. v. Continental Casualty Co., 293 N.J. Super. 395, 680 A.2d 1114 (1996).  The Appellate Division ruled that the damage claimed by the plaintiff was not based upon the toxic content of the sewer, nor was it a claim to remediate pollution caused by the discharge.  

  In contrast to Byrd and S.N. Golden, a federal district court in Rhode Island interpreting New Jersey law ruled in John Toledo v. Van Waters & Rogers, Inc., 92 F.Supp.2d 44 (D.R.I. 2000) that a total pollution exclusion precluded coverage for severe burns and injuries that a worker suffered when  nitric and sulfuric acid spilled onto him from drums belonging to the insured.  Judge Lagueux declared that the facts here were plainly within the scope of the exclusion as the injuries resulted directly from a discharge of pollutants.  The court further rejected the insured’s contention that the claim should be covered as falling within the scope of the “products-completed operation hazard.”  The court ruled that the exclusion applied without regard to whether the underlying claims were within the scope of completed operations or products hazards.

  For the most part, New Jersey courts have not required a Morton-style regulatory estoppel analysis for this newer exclusion.  In Kimber Petroleum Corp. v. Travelers Indemnity Co.,   298 N.J. Super. 286, 689 A.2d 747 (1997),  the Appellate Division found that Travelers' interpretation of the exclusion was not inconsistent with information supplied to regulators concerning "completed operations" claims.


  An exclusion for criminal acts in a professional liability policy was held not to be against public policy in Princeton Ins. Co. v. Chunmuang, 1997 WL 522851 (N.J. August 8, 1997).   Earlier, the Appellate Division had ruled in the same case that requiring a malpractice carrier to indemnify a physician for claims involving a sexual assault would not be against the public policy of New Jersey, as New Jersey has an interest in making funds available to pay for the injuries of innocent victims of such misconduct.  


  New Jersey has traditionally followed the rule that "public policy does not permit a tortfeasor to shift the burden of punitive damages to his insurer."  Owens-Illinois, Inc. v. United Ins. Co., 625 A.2d 1 (N.J. App. 1993), reversed on other grounds, 138 N.J. 437, 650 A.2d 974 (N.J. 1994).  However, coverage may sometimes be allowed where damages are based upon the vicarious liability of an insured.  In Newark v. Hartford A & I Co., 342 A.2d 513 (N.J. App. 1975), the Appellate Division stated that the public policy of New Jersey did not favor coverage of punitive damages but would not bar indemnification where the injury was not committed with actual malice or was only the "probable" result if the insured's actions.  See also Vargas v. Calabrese, 714 F.Supp. 714 (D.N.J. 1989), aff'd on other grounds, 949 F.2d 665 (3d Cir. 1991). But see Johnson & Johnson v. Aetna Casualty & Surety Co., No. A-0182-94T5 (N.J. App. December 11, 1995)(public policy of New Jersey prohibits coverage for punitive damages awarded in two failure to warn products liability cases).  

  Fines and penalties were held uninsurable in Witco Corp. v. Travelers Ind. Co., (D.N.J. February 1, 1995)(waste site clean up).


  Under New Jersey law, the words of an insurance contract are given their ordinary meaning, unless they are ambiguous.  495 Corp. v. N.J. Ins. Underwriting Ass'n., 430 A.2d 203, 206 (N.J. 1981).  The test for ambiguity is whether the policy's phrasing is "so confusing that the average policyholder cannot make out the boundaries of coverage." Weedo v. Stone-E-Brick, Inc., 405 A.2d 788, 795 (N.J. 1979). 

  New Jersey courts will vigilantly seek to uphold the objectively reasonable coverage expectations of an insured.  Doto v. Russo, 140 N.J. Super. 544, 659 A.2d 1371 (App. Div. 1995).  Towards this end, ambiguous policy language will be construed in favor of the insured.  Sears Mortgage Corp. v. Rose, 134 N.J. 326, 347 (1993).  Even plain and unambiguous language will sometimes be cast aside if it is found to conflict with the insured's reasonable expectations.  Werner Indus. v. First State Ins. Co., 112 N.J. 30, 35-36 (1988) and Sparks v. St. Paul Ins. Co., 100 N.J. 325, 38 (1985).  Earlier cases had suggested that the insured's reasonable expectations could be applied only to "misleading terms" and "general ambiguities" within policy language.  Diorio v. New Jersey Manufacturers Ins. Co., 79 N.J. 257 (1979). 

  The Supreme Court noted in Owens-Illinois, Inc. v. United Ins. Co., 138 N.J. 437, 650 A.2d 974, 991 (1994) that conventional rules of policy interpretation may not apply where the insured is a large, sophisticated corporation.  See also  McNeilab, Inc. v. North River Ins. Co., 645 F.Supp. 525, 546 (D.N.J. 1986), aff'd mem., 831 F.2d 287 (3d Cir. 1987).  Earlier, the Appellate Division had criticized this approach in Diamond Shamrock, supra, stating that the normal rules of policy interpretation should only be relaxed if it could be shown that the policy was actually negotiated or drafted by the insured.  See also  Pittston Company Ultramar American Ltd. v. Allianz Ins. Co., 1224 F.3d 508 (3d. Cir. 1997) and Reliance Ins. Co. v. Armstrong World Industries, Inc., 614 A.2d 642, 651 (N.J. Super. 1992), rev'd on other grounds, 292 N.J. Super. 365, 678 A.2d 1152 (App. Div. 1996).

  Exclusions can only decrease coverage, they cannot increase it. Naimone v. Liberty Mutual Ins. Co., 695 A.2d 341, 344 (N.J. App. 1997).  Accordingly, courts cannot find coverage based on coverage that is allegedly reinstated by a policy exclusion that allegedly is in conflict with the grant of insurance in the insuring agreement.


  New Jersey has taken a relatively conservative approach to date.  In Shackil v. Lederle Laboratories, 116 N.J. 155, 561 A.2d 511 (1989) the Supreme Court of New Jersey reversed the Appellate Division's recognition of a "risk-modified market share" theory for DPT vaccine claims, finding that the strong public policy in favor of developing useful vaccines counteracted the policy arguments in favor of eroding traditional concepts of tort law in this case. Accord, Becket v. Baron Bros., 649 A.2d 613 (N.J. 1994)(asbestos brake shoes). See also Little v. Techbestos, Inc., No. A-4104087T2 (N.J. App. January 8, 1990), cert. denied, 122 N.J. 131, 584 A.2d 206 (1990)("market share" inapplicable in a "bystander exposure" case for asbestos personal injuries).


  New Jersey follows the general rule that coverage is not triggered by damage that first occurs after the expiration of a policy, even if the insured's negligent act occurred during the policy period.  Middle Dept. Inspection Agency v. The Home Ins. Co., 154 N.J. Super. 49, 380 A.2d 1165 (1977); Deodato v. Hartford Ins. Co., 143 N.J. Super. 396 (Law Div. 1976).  See also Wickner v. American Reliance Ins. Co., 661 A.2d 1256 (N.J. 1995)(policy does not cover injuries that occurred after the homeowners sold the property in question and cancelled their policy).

  In general, it appears that New Jersey courts will look to the time that bodily injury or property damage actually occurs. Hartford Acc. & Ind. Co. v. Aetna Life & Cas. Ins. Co., 98 N.J. 18, 483 A.2d 402 (1984).  However, where the injury is of a cumulative and progressive nature occurring over more than one policy, a "continuous trigger" will be applied.  Owens-Illinois, Inc. v. United Ins. Co., 138 N.J. 437, 650 A.2d 974 (1994)(asbestos).   See also Witco Corp. v. Travelers Ind. Co., (D.N.J. February 1, 1995)(waste site clean up); Gottlieb v. Newark Ins. Co., 570 A.2d 443 (N.J. App. 1990)(personal injury claims against pesticide applicator) and Hoffman Laroche v. The Hartford Group, Essex No. W-05519-87 (N.J. Super. October 13, 1989)(hazardous waste claims).  See also Township of Gloucester v. Maryland Cas. Co., 668 F.Supp. 394 (D.N.J. 1987) citing Lac D'Amiante du Quebec, Ltee. v. American Home Assur. Co., 613 F.Supp. 1549 (D.N.J. 1985), reversed on other grounds, 864 F.2d 1033 (3d Cir. 1988) (asbestos).  The insured must prove that damage actually occurred in order to obtain the application of a continuous trigger, however.  First Morris Bank v. Commercial Insurance Company of Newark, New Jersey, A-6875-97T1 (N.J. App. September 15, 1999)(mere fact that gasoline tanks were in use, without evidence of discharges, did not suffice to trigger coverage).
  In Quincy Mutual Fire Insurance Company v. Borough of Bellmawr, 2001 N.J. Super. LEXIS 107 (N.J. App. March 20, 2001), the Appellate Divisioin ruled that Century Indemnity did not owe coverage for environmental liability claims, even though the insured had begun dumping waste into the landfill in the concluding weeks of its policy.  The court ruled that the trigger of coverage was not the date of conduct (the insured’s discharge of wastes into the Kramer Landfill) but rather the date that that conduct resulted in damage.  “No damage of any kind was inflicted on anyone, or on the environment, when municipal waste was dumped into a landfill created specifically for that purpose.  There was damage only when the toxic leachate forming part of that waste seeped out of the landfill and reached nearby groundwater.” In a footnote, the Appellate Division suggested that Century Indemnity’s contribution would in any event have only been de minimus since it would only owe coverage for the one or two months at the end of its policy when discharge activity took place.

  Several courts have refused to limit the trigger of coverage for pollution claims to those policies that were only in effect when actual dumping was occurring.  In Astro Pak Corporation v. Firemans Fund Ins. Co., 665 A.2d 1113 (N.J. App. 1995), the court ruled that coverage should also arise under policies in effect after a site had been closed insofar as environmental contamination was continuing unabated. In Chemical Leaman Tank Lines, Inc. v. Aetna Casualty & Surety Co., 89 F.3d 976 (3d Cir. 1996), the Third Circuit rejected insurer contentions that the continuing presence of pollutants from earlier discharges should not constitute a new "trigger of coverage" in later policy years, holding that the continuous trigger theory of coverage required coverage in each year in which there was a continuous, indivisible process of injury.   

  Morton did not specify the event that cuts off a "continuous trigger."  In Pittston Company v. Allianz Ins. Co., No. 93-3631 (D.N.J. Aug. 25, 1995), Judge Wolin opined that it should be the discovery of pollution, even if the insured's liability is not claimed until later.

  In Butler & Smith v. Lumbermans Mutual Ins. Co., No. 93-4494 (D.N.J. September 27, 1995), a federal district court ruled that a continuous trigger would apply but that the insured's evidence with respect to the dates of shipment was not sufficient evidence in and of itself to determine when property damage had occurred.  Although this evidence suggested a likely inference that the receipt of waste had subsequently resulted in barrels rupturing and pollutants being released into the environment, the court ruled that there was presently insufficient evidence to compel indemnity from Liberty Mutual.

  A state trial court ruled in Pfizer, Inc. v. Employers Ins. of Wausau, Middlesex No. C-108-92 (N.J. Super. February 29, 1996) that there must be some relationship between the insured and the site or the damage during the policy period in order to later give rise to coverage.  The court ruled that the definitions of property damage and occurrence must be read in the context of the liability of the insured and therefore ruled that coverage could not arise under policies issued prior to the date that Pfizer acquired the site or contributed damage to it.  The court noted that "insurance could not become a blank check payable to society at large to cover the debts created by unforeseeable conduct of any and all irresponsible polluters."

  The burden of establishing the fact of injury is on the insured.  In Peschel v. High Point Sanitation Co., A-3147-88T3F (N.J. App. August 16, 1989), the Appellate Division of the Superior Court refused to grant summary judgment on the "trigger" issue where disputed issues of fact existed as to the process of injury at a landfill. A Similarly, in the Diamond Shamrock case, Judge Stanton ruled that the insureds had the burden of establishing proof of some "demonstrable injury" in order to trigger coverage.  

  A federal district court ruled in Prolerized Schiabo Neu Co. v. Hartford Acc. & Ind. Co., 1997 U.S. Dist. LEXIS 21019 (D.N.J. December 31, 1997) that Owens-Illinois reflected the difficulty of defining the specific point in time at which injury occurred.  The court found no such difficulty in a pollution case where injury occurred contemporaneously with the insured's encroachment on the plaintiff's property by disposing of hazardous wastes there.  Accordingly, just because the first of these encroachments occurred during Hartford's policy, the court refused to find that this was a "continuous injury".  Rather, in such circumstances, he ruled that the loss could be allocated based on the amount of encroachment that had occurred as Owens-Illinois is only a fall back providing for allocation based on rules of coverage where the injuries are otherwise indivisible and continuous. 

  A federal district court has ruled that a corporate successor to the original insurer is entitled to claim coverage as a matter of law.  In Federal Ins. Co. v. Purex Industries, Inc., 972 F.Supp. 872 (D.N.J. 1997), Judge Simandle refused to bar Purex from pursuing a claim based on a Liberty Mutual policy issued to a corporate predecessor, notwithstanding a "no assignment" clause in Liberty Mutual's policy.  The court held that such clauses do not preclude the assignment of rights under a policy where such transfers do not increase the risk or hazard insured.  While finding questions of fact with respect to the corporate relationship between the original insured and Purex, the court held that Purex would be entitled as a matter of law to assert rights under the policy if it was the surviving corporation of a merger transaction.  However, the court ruled that Purex was entitled to pursue claims under several earlier policies notwithstanding the fact that it was not listed as an insured until after 1968.  The court ruled that there was at least a question of fact as to whether the insured had any reasonable expectation of coverage under such policies. 

  Coverage may not be triggered under policies that pre-date the insured’s acquisition of the risks giving rise to the claims of liability.   UMC/Stamford, Inc.  v.  Allianz Underwriters Ins.  Co., 276 N.J. Super.  52, 647 A.2d 182, 190 (1994);  Merck & Company, Inc. v. Federal Insurance Company, Middlesex No. CM-340-96 (N.J. Super. May 2000) and Glidden Company v. Aetna Casualty Insurety Company, Bergen L-5587-97 (N.J. Super. July 1, 1999)(no coverage for hazardous waste claim involving site that was purchased by insured after policies expired).

  The Appellate Division adopted a “manifestation” trigger for construction defect claims involving the insured’s first party policy in Winding Hills Condominium Association v. North American Specialty Insurance Company, No. A-4677-98T5 (N.J. App. June 16, 2000).

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