National Insurance Law Forum : Insurance Litigation Lawyer & Attorney : National Insurance Law Forum : Insurance Coverage, Bad Faith Litigation

The case in question involved leaks of home heating oil from an underground storage tank at property that was initially owned by John Clark and sold to Peter and Carol Tsairis in 1995. Between 1995 and 1999, Tsairis either did not have insurance or could not document the available coverage. Thereafter, they were insured by Metropolitan (1999-2002) and Franklin Mutual (2002-2005).

After contamination was discovered on the property, Franklin Mutual paid to clean up the pollution and sought pro rata reimbursement from Metropolitan. Franklin Mutual and Metropolitan agreed not to seek contribution from Tsairis for that portion of the pollution that occurred while he was uninsured. However, the insurers could not agree on the method of allocation as between them.
Metropolitan argued that all of the liability insurance from all policies covering the property during the entire period of contamination should be considered, regardless of who owned the property at the time. Franklin Mutual asserted that Metropolitan’s liability should reflect its pro rata allocation of the cleanup costs solely with respect to the period of time that their mutual insured (Tsairis) owned the property and that any insurance issued to Clark was irrelevant to these considerations.

At trial, the Superior Court ruled that Metropolitan had been on the risk for 36 months out of the 116 months between the time that Tsairis purchased the property and the date that contamination was discovered and therefore owed about a third of the overall cost of cleanup. Franklin Mutual was obliged to bear sole responsibility for the rest, including the share allocable to the uninsured period of time between 1995 and 1999.

On appeal, Metropolitan argued that its share should actually be substantially less (15.6%) because the court should have taken into account the insurance issued to the prior property owner (Clark). The Appellate Division disagreed.

Whereas the New Jersey Supreme Court has ruled in cases such as Owens-Illinois and Carter-Wallace that insurance for long-tail losses should be allocated in the proportion that the limits of coverage apply to the overall loss, the Appellate Division drew a distinction between the allocation rules applying to policies and those pertaining to the underlying liability of insured polluters. The latter responsibility is joint and several under the terms of the New Jersey Spill Act (NJSA 58:10-23.11, et seq.) whereas allocation among insurers is pro rata.

As a result, the Appellate Division agreed with the trial court that Metropolitan was obligated to reimburse Franklin Mutual for its pro rata share of the ten year period when its insured owned the property, without reference to the pollution or coverage applicable to the prior Clark period of ownership.

To the author’s knowledge, this is the first case in the United States that has addressed this particular issue. What is perhaps more striking is that Metropolitan chose to appeal a case in which the difference between what it agreed that it owed and what the trial court had ruled that it owed was only approximately $6,000.

Despite the trivial dollar amount at issue in this particular case, the principle at issue is of vital consequence in many large environmental coverage disputes, where much of the contamination may have pre-dated the insured seeking ownership period of coverage.   What the Appellate Division's analysis failed to discuss, however, is the apparent inconsistency between limiting the coverage denominator in such cases to the insured's period of ownership despite the fact that the insured's liability extends to pollution that pre-dates its acquisition of ownership. 

The New Jersey Supreme Court has become the latest court to hold that an exclusion that applies to the intentional acts of "an" insured bars coverage for claims by "any" insured, including the claims of parents whose negligent supervision allegedly failed to prevent their son from sexually assaulting a neighbor's child.  In Villa v. Short, A-7-07 (N.J. June 10, 2008), the court ruled 4-2 that an exclusion for the criminal or intentional acts of an insured "plainly excludes coverage for all insureds when any insured commits an intentional or criminal act."  The court declined to find ambiguity in the policy based on the effect of a severability of interests clause Iwhich requires that each insured's rights be considered separately by the insurer).

Two dissenting justices argued that the insured's interpretation of the exclusion was reasonable, as evidenced by courts in other states that have held such exclusions not to apply to claims against "innocent insureds," and that the language must therefore be deemed ambiguous and should be interpreted in favor of coverage for the insured.