- Insurer Owes $2.55 Million for Metal Pollution Coverage
- August 30, 2017 | Author: Kevin T. Bright
- Law Firm: Marshall Dennehey Warner Coleman & Goggin, P.C. - Cherry Hill Office
On April 1, 2017, the New Jersey Appellate Division affirmed the trial court’s ruling that Greater New York Mutual Insurance Group must cover Mid-Monmouth Realty Associates’ costs to remediate metal contamination at a property located in Tinton Falls, New Jersey. The matter was tried in three phases before a Special Master.
History of Environmental Contamination at the Property
After Center Shore Corporation owned the property through the mid-1986, at which time Mid-Monmouth Industrial Park became the successor by merger to Center Shore, and ownership of the property was transferred to the plaintiff.
The defendant, Metallurgical Industries, Inc., leased the property from 1967 to 1993. Metallurgical was in the business of recycling and remanufacturing specialty metals. Its operations chemically and physically heated and cooled scrap metals in order to separate and extract marketable metals. For use in its operations, Metallurgical maintained both underground and aboveground storage tanks containing various hazardous substances.
There were reports of environmental issues at the property as early as 1968, when the property utilized a septic system. Its operations produced a large amount of industrial wastewater, which Metallurgical was suspected of discharging into the septic system, causing the system to overflow. There were numerous complaints about the property from 1969 through 1977. In 1977, the EPA inspected the property in connection with cooling water discharged to the Wampum Brook. After that inspection, Metallurgical advised the EPA that it would remove a discharge pipe running to a settling pond and either patch or replace the liner as necessary to prevent possible future leaks.
However, in 1981 the New Jersey Department of Environmental Protection began its own investigation of the property. In a May 6, 1981, memorandum, a DEP employee described the location and topography of the property and Metallurgical’s business, stating the company neutralized acids with lime and ammonia and discharged them “into a swamp south of the plant daily at a rate of about 1500 gbt (with) no NPDES permit.” Investigations continued thereafter by both the EPA and DEP.
In 1993, Metallurgical ceased operations and notified DEP pursuant to the Industrial Site Recovery Act (ISRA). DEP required cleanup of the property.
In July 1993, Metallurgical filed a claim for coverage under the CGL policies issued by Greater New York Mutual Insurance Group, which disclaimed coverage on August 30, 1993. Because Metallurgical could not afford the cleanup costs, the plaintiff took over cleanup responsibilities.
Greater New York Mutual’s main coverage defense was that coverage for groundwater contamination was precluded by the policies’ “owned property exclusion.” The Special Master determined that the “owned property exclusion” in the policies did not preclude coverage, as groundwater is not considered property owned by the insured, and the exclusion would not apply where, as here, the DEP found there was groundwater contamination at levels that required remediation.
Greater New York Mutual also disclaimed coverage under the known loss and loss-in-progress doctrines, arguing that Mid-Monmouth was aware of Metallurgical’s improper waste management practices and had known of the potential liability since 1981. The Special Master rejected this argument both on procedural and substantive grounds. The court agreed, finding it was improper for Greater New York Mutual to have raised the issue since it did not raise it in the consent case management order, or during the Phase II proceedings. The court also found that the Special Master properly rejected the doctrines because, given the piecemeal record and how Greater New York Mutual argued so fervently that there was no specific proof about current contamination, let alone during the periods when there had not yet been an all-encompassing review of the history of the situation, the court was hard-pressed to characterize the risk as “definitely known” at the time.
Greater New York Mutual also challenged the Special Master’s finding that property damage occurred during each policy period. The Special Master reviewed the historical record and found that the plaintiff had proven an occurrence of environmental contamination during each of the Greater New York Mutual’s policy periods. The court agreed and adopted the Special Master’s findings. Greater New York Mutual provided coverage to Metallurgical between 1971 and 1986. The Appellate Division noted that the plaintiff presented evidence showing that, from the beginning of its operations in 1967, Metallurgical discharged wastewater and waste materials contaminated with heavy metals and other chemicals onto the property. As early as 1981, the DEP found contaminated groundwater resulting from Metallurgical’s operations. Thereafter, DEP monitored the site and continued to find contaminated groundwater through the period of Greater New York Mutual’s policies that ultimately required remediation.
The Appellate Division therefore held that there was no error in the Special Master’s and the court’s conclusions that the plaintiff had proven an “occurrence” during each of Greater New York Mutual’s policy periods.
Greater New York Mutual also contended on appeal that the Special Master abused his discretion in permitting Stewart to testify as an expert. It was argued that Stewart lacked the requisite expertise and was not a Licensed Site Remediation Professional. Greater New York Mutual argued that Stewart did not render expert opinions but merely acted as an “evidence conduit” by reading certain documents in to the record.
The Appellate Division discerned no abuse of discretion in the Special Master’s evidentiary ruling regarding Stewart. The Appellate Division held that the record confirmed that Stewart’s education and experience qualified him to testify as an expert in the areas of environmental site investigation and remediation, as well as the identification, source and timing of contamination. Rejecting Greater New York Mutual’s argument, the Appellate Division held that Stewart based his opinions regarding the source and timing of the contamination largely on his analysis of the historical, documented record of contamination at the property. Therefore, it was permissible for Stewart to identify the documentary support for his opinions.
In its cross-appeal, the plaintiff argued that the Special Master erred when he concluded there was underinsurance for four months, between November 10, 1967, and March 8, 1968, and for a little over three years between April 15, 1982, and June 24, 1985. The plaintiff maintained that as a matter of law, the concept of underinsurance does not come into play until the policy limits have been exhausted. Therefore, it could not be deemed underinsured during the periods at issue because it had not exhausted its policy limits for those periods. The Appellate Division disagreed.
On appeal, the plaintiff contended that the trial court erred in granting Greater New York Mutual’s motion for summary judgment as to the plaintiff’s bad faith and punitive damages claims. The Appellate Division held that the record did not support this contention. The court noted that Metallurgical notified Greater New York Mutual in July 1993 that the DEP had advised it of “possible environmental contamination” of the property during 1980 and 1981. Metallurgical requested copies of the policies from that period in order to confirm the type of coverage and the limits of liability. On August 30, 1993, Greater New York Mutual denied Metallurgical’s claim for coverage and explained the bases for its denial.
The court found that Greater New York Mutual had promptly responded to Metallurgical’s demand for coverage and had asserted a reasonable basis for the denial of coverage, both with respect to the existence of the policies in the first instance, and the validity of the assignment of the policies to the plaintiff. Moreover, the court found there was no evidence of actual malice or a wanton or willful disregard of persons who foreseeably may be harmed, such that punitive damages would be warranted.Therefore, the Appellate Division affirmed the trial court’s summary judgment dismissing the bad faith claim. Although the Appellate Division affirmed the finding that coverage was due, Greater New York Mutual had a reasonable basis to deny the claim.