Source: http://www.njlawjournal.com, September 18, 2017
By: Martha N. Donovan
The twin sister to environmental law is insurance. The two intertwined subject matters are akin to bread and butter; one is not as good without the other. An attorney who can handle one, but not the other, is fighting with one hand tied behind her back. It behooves the environmental practitioner to be fluent in both pursuits since insurance can serve the purpose of paying a client’s cleanup bills.
As Baby Boomer practitioners, many of us have been fortunate to participate in the development of environmental and related insurance coverage law in New Jersey over the last three decades. We have seen a number of dramatic developments in both fields. Moreover, as environmental laws expanded to impose broader liability on the regulated community, the availability of liability policies to pay for those costs also expanded.
On the insurance side we have seen “regulatory estoppel” applied to prevent carriers from applying the “sudden and accidental” pollution exclusion in post-1973 policies; the wholesale rejection of the “owned property” exclusion where third-party property damage is concerned (including groundwater which belongs to the State); the adoption of a “continuous trigger of coverage” to maximize an insured’s available coverage; the rejection of the imposition of the “absolute pollution exclusion” on so-called non-traditional pollution (such as mercury poisoning at a day care facility); and the application of the preponderance of the evidence standard to prove the existence and terms of “lost” insurance policies.
This expansion in liability coverage availability, however, appears to be reaching some outer limits. Developments in insurance coverage law in New Jersey, in 2016 and 2017, have been, in turn, disappointing, surprising and, in one case, encouraging. This article primarily addresses occurrence liability policies for which initial claims can be made decades after the policy terminates. However, this article would be deficient were it not to mention a significant decision, Templo Fuente de Vida Corp. v. National Union Fire Ins. Co., 224 N.J. 189 (2016), albeit in the claims-made context (e.g., the claim must be made within the policy period), which will impact every environmental practitioner.

The import of Templo is that while the insured provided notice of the claim during the policy period (as is required under claims-made policies), the insurer successfully argued that notice was nevertheless untimely because the policy required that notice be given “as soon as practicable.” The insured waited more than six months to provide notice of the claim.
The Supreme Court did not require that the insurer show that it was prejudiced by this late notice as a precondition to denying coverage. It was sufficient that the notice was not given “as soon as practicable,” and the insured provided no reason why this more than six-month delay constituted “as soon as practicable.”
The court attempted to blunt its draconian holding, by noting two things. First, that its decision was not meant to draw a “bright line” test on whether a six-month lag or any lag could or could not satisfy a policy’s notice provision. Second, that it was clear that both this insured and insurer were “sophisticated” parties that should be required to honor the policy to the letter.
Notably, those parties who obtain claims-made pollution liability policies (PLL) are sophisticated too. Therefore, the bottom line is that no insured should wait to put its claims-made carriers (including PLL carriers) on notice of a claim.
While occurrence policies have, heretofore, been treated differently (requiring appreciable prejudice to the insurer to preclude coverage), practitioners would be wise to follow the Templo holding even where occurrence based policies are in issue and place carriers on notice as soon as possible.
In Ward Sand & Materials v. Transamerica Ins. Co., 2016 WL 237781, certif. denied, 227 N.J. 212 (2016), the insured’s optimism that it could (on a continuous trigger theory) essentially transfer its insolvent carrier allocation responsibilities to the solvent carriers based on the rationale of Farmers Mutual Fire Ins. Co. of Salem v. N.J. PLIGA, 215 N.J. 522 (2013), was stopped short. The Ward Sand court drew the line at whether the insurer’s insolvency occurred before or after Dec. 22, 2004, the date when an amendment to the Guaranty Act became effective, resulting in elimination of insolvent carriers from insurance allocation schemes until the remaining solvent carriers limits were exhausted.
For practitioners, the bottom line is if insolvent insurers are on the “continuous trigger timeline” (from disposal to 1986 when the absolute pollution exclusion took effect), an evaluation must be made as to when the insurer became insolvent. If insolvency occurred prior to Dec. 22, 2004, the insured assumes the insolvent insurer’s shortfall. If the insolvency occurred on or after Dec. 22, 2004, the other solvent carriers essentially assume that shortfall. Timing is everything.
As a complement to this insolvency situation, environmental practitioners often face the dilemma of “lost policies” along the continuous trigger allocation. While the preponderance of the evidence standard is helpful in establishing coverage, it does not, by itself, solve the dilemma of establishing the existence, terms, conditions and limits of “lost” insurance policies. A recent case, E.M. Sergeant Pulp & Chemical Co. v. Travelers Indem. Co., Civ. No. 12-1741 (Jan. 18, 2017), established that an expert with knowledge of the industry, the specific carrier’s historical policy prefixes, and that carrier’s standard terms and conditions in the relevant time period can help fill in these gaps and defeat an insurer’s “lost policy” summary judgment motion, thus sending the matter to trial.
On the continuous trigger allocation front, it has long been the law in environmental property damage cases that it runs from the date of dumping until the advent of the absolute pollution exclusion in 1986. However, it has only been within the past year that the Appellate Division determined that this same rationale should be applied in asbestos bodily injury suits, whether or not the insured continued to sell asbestos containing products subsequent to the inclusion of the “asbestos” exclusion on standard liability policies in 1987. Continental Ins. Co. v. Honeywell International, 2016 WL 3909530 (App. Div. July 20, 2016). Relying upon precedent regarding the absolute pollution exclusion, the court ruled that since asbestos coverage was unavailable after 1987, the insured was not required to assume any allocation percentage for the post-1987 time period provided the claimant was exposed prior to 1987.
The New Jersey Supreme Court has granted certification in the Continental case, on both the choice of law issue and the substantive allocation issues. Indeed, the predicate critical issue in the Continental case was the selection of which state’s law applied. If the Supreme Court reverses on the choice of law issue, and applies the law of Michigan, then the coverage available to the insured will be minimized rather than maximized on a time on the risk coverage allocation.
The choice of law analysis and selection can be responsible for whether an insured is or is not provided with coverage under a policy. It is a critical issue which must be considered in any insurance case where different states are involved in the issuance of the policy and/or location of the risk/harm.
Last, but not least, and ending on what may be the most encouraging note for insureds, the New Jersey Supreme Court has held in Givaudan Fragrances Corp. v. Aetna Cas. & Sur. Co., 227 N.J. 322 (2017), that, at least where standard occurrence liability policies are concerned, insureds are free to assign their claims (as opposed to the policies themselves) to third parties. The rationale is that assigning pre-existing claims does not increase an insurer’s exposure, whereas, of course, assigning the policy itself would increase that exposure. The Givaudan decision gives environmental practitioners an avenue to extricate themselves from lawsuits brought by successor property owners who are undertaking remediation at a site and seeking contribution for cleanup costs. Insurance policy claim assignment, in return for a release, should, at long last, be considered a dependable tool in the environmental practitioner’s toolbox to resolve remediation related disputes.
While 2016 and 2017 have presented a mixed bag of results for insureds and insurers alike, the results highlight the fact that creative lawyers and courts are nowhere near resolving “as a matter of law” the complex and complicated overlap between retroactive environmental laws with occurrence based liability insurance policies.•