May 15, 1992 PUBLISHED MEMORANDUM
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
__________________
No. 91-1580
No. 91-1734
CPC INTERNATIONAL, INC.,
Plaintiff, Appellant,
v.
NORTHBROOK EXCESS & SURPLUS INSURANCE CO.,
Defendant, Appellee.
___________________
BEFORE
Campbell, Senior Circuit Judge,
____________________
Torruella, Circuit Judge, and
_____________
Pollak,* Senior District Judge.
_____________________
MEMORANDUM
__________
Entered May 13, 1992
On April 15, 1992, an Order was entered on behalf of
this panel denying Northbrook's petition for rehearing. In the
present memorandum, filed subsequent to said Order, the panel
sets forth the reasons behind its denial.
Northbrook's April 7, 1992 petition for rehearing
presents five contentions:
1. Northbrook's first contention is that the panel
opinion ignored "the unrebutted factual record which supports the
decision of the district court;" more particularly, it is argued
that "Northbrook provided a record which showed in exquisite
detail that CPC clearly understood the Northbrook policy to
exclude coverage for gradual discharges of pollutants occurring
as a regular part of CPC's business." The contention was not
addressed by the district court in its opinion granting summary
judgment. It is presumably open to Northbrook to present the
contention to the district court on remand. Compare Diamond
_______ _______
____________________
*Of the Eastern District of Pennsylvania, sitting by
designation.
Shamrock Chemicals v. The Aetna Casualty & Surety, A-694-89T1,
__________________ _____________________________
slip op. at 45-48 (N.J. Super. Ct. App. Div. April 6, 1992).
2. and 4. The second and fourth contentions that
the panel erred in "rejecting persuasive data on how the New
Jersey Supreme Court would apply the pollution exclusion," and
that the panel should have been guided by the Fourth Circuit's
reading of New Jersey law in Liberty Mutual Insurance Co. v.
______________________________
Triangle Indus., No. 91-1685, (4th Cir. Mar. 2, 1992)
________________
undertake to reargue matters addressed in the panel opinion. See
___
also Gilbert Spruance Co. v. Pennsylvania Manufacturers'
____ _______________________ ____________________________
Association Insurance Company, A-1975-90TS, slip op. at 3 (N.J.
______________________________
Super. Ct. App. Div. Feb. 14, 1992); Diamond Shamrock slip op. at
________________
35-45.
3. The third contention that "[e]ven under
Broadwell, [Broadwell Realty Services, Inc. v. Fidelity &
_________ ___________________________________ ___________
Casualty Co., 218 N.J. Super. Ct. 516, 528 A.2d 76 (1987)], the
____________
record establishes that Northbrook was entitled to summary
judgment in its favor," was not addressed in the district
court's opinion and was not argued in Northbrook's brief in this
court.
5. The fifth contention is that "a decision after oral
argument in this case indicates that New Jersey itself might
defer to the law of another state in deciding how the pollution
exclusion is to be applied;" specifically, it is argued that,
pursuant to the choice-of-law discussion in the Appellate
Division's opinion in Gilbert Spruance, supra, slip op. at 10, "a
________________ _____
New Jersey court would look to Rhode Island law to interpret the
pollution exclusion and cases such as Broadwell or, by extension,
_________
New Castle County [New Castle County v. Hartford Accident &
__________________ __________________ ____________________
Indemnity Company, 933 F.2d 1162 (3d Cir. 1991)] would not be
_________________
controlling in any event." An April 9, 1992 letter from counsel
to Northbrook supplements the petition for rehearing, citing the
choice-of-law discussion in the Appellate Division's opinion in
Diamond Shamrock, supra, slip op. pp. 31-33, to the same effect.
________________ _____
It is certainly arguable that Gilbert Spruance and
________________
Diamond Shamrock carry as far as Northbrook contends they do.
________________
But cf., Armotek Industries v. Employers Insurance of Wausau, 952
_______ __________________ _____________________________
F.2d 756, 759 n.4 (3d Cir. 1991). However, the argument is one
that Northbrook cannot press on petition for reargument since
Northbrook did not properly preserve the issue in its brief on
appeal. It will be recalled that the district court, prior to
the ruling on summary judgment, had made a choice-of-law ruling
that a New Jersey court would apply the substantive law of New
Jersey. Northbrook sought, unsuccessfully, to have the choice-
of-law question certified to this court. The subsequent district
court proceedings culminated in the district court's grant of
summary judgment in Northbrook's favor, based on the district
court's reading of New Jersey substantive law. CPC appealed.
Appellee Northbrook in its brief on appeal alluded to the choice-
of-law question in responding to an argument made in the brief of
appellant CPC. But Northbrook did not affirmatively contend that
this court, if not prepared to affirm the district court's grant
of summary judgment, should determine that the district court's
choice-of-law ruling had been erroneous and should not govern
further proceedings in the district court. With matters in that
posture, the panel opinion characterized the district court's
choice-of-law ruling as "law of the case." Whether, on remand,
it would be (a) within the district court's authority, and/or (b)
an appropriate exercise of the district court's discretion, to
reexamine the choice-of-law question are matters about which we
think it would not be appropriate for us to engage in advisory
opining.
Accordingly, the petition for panel rehearing has been
denied.
April 2, 1992
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
_____________________
No. 91-1580
No. 91-1734
CPC INTERNATIONAL, INC.,
Plaintiff, Appellant,
v.
NORTHBROOK EXCESS & SURPLUS INSURANCE CO.,
Defendant, Appellee.
_____________________
ERRATA SHEET
Please make the following correction in the opinion in
the above case released on March 24, 1992:
Page 48, footnote 48, line 7: change "See note 49" to
"See note 50".
March 24, 1992
United States Court of Appeals
for the First Circuit
____________________
No. 91-1580
No. 91-1734
CPC INTERNATIONAL, INC.,
Plaintiff, Appellant,
v.
NORTHBROOK EXCESS & SURPLUS INSURANCE CO.,
Defendant, Appellee.
____________________
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
[Hon. Ronald R. Lagueux, U.S. District Judge]
___________________
____________________
Before
Campbell and Torruella, Circuit Judges,
______________
Pollak,* Senior District Judge.
_____________________
____________________
Jerome P. Facher with whom Neil Jacobs, Michelle D.
_________________ ___________ ___________
Miller, Linda Sandstrom Simard, Hale and Dorr, David L.
______ _______________________ ______________ _________
Harris, Stephen H. Skoller, Lowenstein, Sandler, Kohl,
______ ____________________ ____________________________
Fisher & Boylan, P.C., John F. Bomster, Mark O. Denehy, and
______________________ _______________ ______________
Adler, Pollock, Sheehan, Incorporated were on brief for
_______________________________________
appellant.
John A. MacDonald, Deputy Attorney General, with whom
_________________
Robert J. Del Tufo, Attorney General, John F. Dickinson,
____________________ __________________
Deputy Attorney General, Frank X. Cardiello, Deputy Attorney
__________________
General, and Mary C. Jacobson, Deputy Attorney General, were
________________
on brief for the State of New Jersey, amicus curiae.
_____________________
*Of the Eastern District of Pennsylvania, sitting by
designation.
William H. Allen, Saul B. Goodman, William F. Greaney,
________________ ________________ __________________
J. Gregory Sidak and Covington & Burling on brief for The
_________________ ____________________
American Petroleum Institute, The American Fiber
Manufacturers Association, The Chemical Manufacturers
Association, International Business Machines Corporation,
and Olin Corporation, amici curiae.
Philip J. McGuire with whom Charles L. Philbrick,
___________________ _____________________
Gleason, McGuire and Shreffler, Steven W. Miller, Clark,
________________________________ _________________ ______
Ladner, Fortenbaugh & Young, Kenneth T. Borden, Linda E.
_____________________________ __________________ ________
Buffardi, and Higgins, Cavanagh & Cooney were on brief for
________ __________________________
appellee.
Thomas W. Brunner, Marilyn E. Kerst, Lon A.Berk, and
__________________ _________________ ___________
Wiley, Rein & Fielding on brief for Insurance Environmental
______________________
Litigation Association, amicus curiae.
____________________
____________________
____________________
No. 91-1580
No. 91-1734
CPC INTERNATIONAL, INC.,
Plaintiff, Appellant,
v.
NORTHBROOK EXCESS & SURPLUS INSURANCE CO.,
Defendant, Appellee.
____________________
APPEALS FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF RHODE ISLAND
[Hon. Ronald R. Lagueux, U.S. District Judge]
___________________
____________________
Before
Campbell and Torruella, Circuit Judges,
______________
Pollak,* Senior District Judge.
_____________________
____________________
Jerome P. Facher with whom Neil Jacobs, Michelle D. Miller, Linda
________________ ____________ __________________ _____
Sandstrom Simard, Hale and Dorr, David L. Harris, Stephen H. Skoller,
_________________ _____________ _______________ __________________
Lowenstein, Sandler, Kohl, Fisher & Boylan, P.C., John F. Bomster,
___________________________________________________ ________________
Mark O. Denehy, and Adler, Pollock, Sheehan, Incorporated were on
_______________ _______________________________________
brief for appellant.
John A. MacDonald, Deputy Attorney General, with whom Robert J.
__________________ __________
Del Tufo, Attorney General, John F. Dickinson, Deputy Attorney
_________ ___________________
General, Frank X. Cardiello, Deputy Attorney General, and Mary C.
___________________ _______
Jacobson, Deputy Attorney General, were on brief for the State of New
________
Jersey, amicus curiae.
_____________________
*Of the Eastern District of Pennsylvania, sitting by designation.
William H. Allen, Saul B. Goodman, William F. Greaney, J. Gregory
________________ _______________ __________________ __________
Sidak and Covington & Burling on brief for The American Petroleum
_____ ____________________
Institute, The American Fiber Manufacturers Association, The Chemical
Manufacturers Association, International Business Machines
Corporation, and Olin Corporation, amici curiae.
Philip J. McGuire with whom Charles L. Philbrick, Gleason,
___________________ ______________________ ________
McGuire and Shreffler, Steven W. Miller, Clark, Ladner, Fortenbaugh &
_____________________ ________________ ____________________________
Young, Kenneth T. Borden, Linda E. Buffardi, and Higgins, Cavanagh &
_____ _________________ _________________ ____________________
Cooney were on brief for appellee.
______
Thomas W. Brunner, Marilyn E. Kerst, Lon A.Berk, and Wiley, Rein
_________________ ________________ __________ ____________
& Fielding on brief for Insurance Environmental Litigation
____________
Association, amicus curiae.
____________________
____________________
POLLAK, Senior District Judge. In this diversity case
______________________
an appeal has been taken from the order of the Rhode Island
District Court granting summary judgment in favor of the
defendant-appellee, Northbrook Excess and Surplus Insurance Co.
(Northbrook), an Illinois insurance company, and against the
plaintiff-appellant, CPC International Inc. (CPC).
CPC is a New Jersey-based, Delaware-incorporated, food
and chemicals manufacturer which does business throughout the
United States and in numerous foreign countries. CPC brought
suit in a New Jersey state court for a declaratory judgment of
coverage, under an excess comprehensive general liability (CGL)
policy issued by Northbrook; CPC's object was to be reimbursed
for the expenses incurred in paying compensation for, and
remedying, damage caused by polluting chemicals that evidently
had migrated from the land surrounding the Rhode Island plant of
4
Peterson/Puritan Inc., a CPC subsidiary, to adjacent land,
seriously compromising the local water supply. After removal to
the District Court for New Jersey, the case was transferred to
the District Court for Rhode Island. That court, having
determined that New Jersey law governed the dispute, concluded
that, on the facts before the court, the CGL policy's pollution
exclusion clause insulated Northbrook from liability to CPC. The
clause, which bars coverage for discharges of pollutants except
when such discharges are "sudden and accidental" (an exception
strongly relied on by CPC), has been construed by judges of the
New Jersey Superior Court (New Jersey's first instance court of
general jurisdiction) and by two panels of the Superior Court's
Appellate Division (New Jersey's intermediate appellate court)
but not by the New Jersey Supreme Court. The grant of summary
judgment in Northbrook's favor turned on the Rhode Island
District Court's prediction that the New Jersey Supreme Court,
when it considers the issue, will reject the reading of the
"sudden and accidental" exception to the CGL pollution exception
clause which the Appellate Division has adopted. The correctness
of the district court's divination of New Jersey law is the
dominant question presented on this appeal.
I. The History of the Litigation
_____________________________
A. Events Leading Up to the Litigation
___________________________________
In 1968, CPC acquired the Puritan Aerosol Company -- a
manufacturer of, inter alia, flea spray, hair spray, spot remover
__________
and oven cleaner -- located on seventeen acres fronting on the
Blackstone River in Cumberland, Rhode Island. Under CPC's
5
auspices, Puritan Aerosol acquired a new name -- Peterson/Puritan
-- but continued doing the same business at the same old stand.
(At length, in 1987, CPC was to sell Peterson/Puritan to another
company, Hi-Port Industries, Inc.).
In 1982, Lincoln, a town next door to Cumberland, sued
Peterson/Puritan for contamination of the wells constituting
Lincoln's water supply. The basis of the suit was a
geohydrological study prepared for the Environmental Protection
Agency (EPA) by Goldberg-Zoino & Associates (GZA), an
environmental engineering firm, subsequent to the discovery, in
1979, of pollution in the Lincoln and Cumberland water supply
systems. Lincoln's suit was settled in 1984 for $780,000 -- a
sum paid by Northwestern National Insurance Company (Northwestern
National), the carrier which provided CPC with primary general
liability coverage up to a $1,000,000 ceiling. Meanwhile, acting
pursuant to the Resource Conservation and Recovery Act (RCRA), 42
U.S.C. 6973, et seq., EPA, in 1982, had advised Peterson/Puritan
______
that it would have to clean up its act. This initiated a process
of EPA-Peterson/Puritan investigation and negotiation that
matured in May of 1987 in a consent order, pursuant to the
Comprehensive Environmental Response, Compensation and Liability
Act, (CERCLA), 42 U.S.C. 960l et seq., which (1) identified
_______
Peterson/Puritan as the source of numerous hazardous substances
migrating into the groundwater, and (2) committed
Peterson/Puritan to conduct a Remedial Investigation/Feasibility
Study (RIFS) as a predicate to necessary remediation. Some six
weeks before the execution of the consent order, Northwestern
National, CPC's primary liability carrier, had advised CPC and
6
Northbrook, CPC's excess liability carrier, that the primary
coverage of $1,000,000 was exhausted.
Thereupon, in a "reservation-of-rights" letter dated
April 27, 1987, Northbrook advised CPC that it had no obligation
to provide excess coverage. One of the grounds relied on by
Northbrook was the policy's pollution exclusion clause, which
bars liability for personal injury or property damage "arising
out of the discharge ... of ... toxic chemicals ... or other ...
pollutants into or upon land, the atmosphere or any water course
or body of water; but this exclusion does not apply if such
discharge ... is sudden and accidental."
B. The Litigation
______________
(1) The New Jersey phase:
_____________________
On July 21, 1987, CPC filed its complaint against
Northbrook in the Superior Court for Bergen County, New Jersey.
Alleging that "Peterson/Puritan has incurred and continues to
incur expenses for which CPC has assumed liability with respect
to both the Town of Lincoln and EPA claims," and further alleging
that "Northwestern has stated that its policy limits have been
exhausted," the complaint sought (1) a declaration of
Northbrook's obligation to "pay in full up to its policy limits
[$25,000,000] all of CPC's ultimate net loss as defined by its
policy with respect to the Town of Lincoln and EPA claims," and
(2) damages "incurred to date by CPC or which may be incurred by
CPC in responding to the claims by the Town of Lincoln and EPA up
to Northbrook's policy limits," plus costs, etc. Northbrook,
invoking diversity jurisdiction, promptly removed the suit to the
District Court for New Jersey. Somewhat over a year later, CPC
7
filed a motion for partial summary judgment; Northbrook countered
with a motion to transfer the case to the District Court for
Rhode Island, pursuant to 28 U.S.C. 1404(a). In a bench opinion
dealing with the transfer motion, Judge Bissell addressed the
considerations which, under Gulf Oil v. Gilbert, 330 U.S. 501
___________________
(1947), give some content to the amorphous statutory standard
("for the convenience of parties and witnesses, in the interest
of justice"), and concluded that transfer was appropriate. At
the close of his opinion, Judge Bissell made the following
observations with respect to the law to be applied:
The choice of law considerations at this
point are very much unresolved and
accordingly would not weigh one way or the
other in my view.
As far as the interest in the community,
however, is concerned, in this Court's view,
the primary interest involved here is that of
the State of Rhode Island in terms of the
funding and expeditious consummation of
cleanup and its interest in the pollution of
its waters generally. Indeed, I think it can
well and clearly be said that Rhode Island
has an interest in having insurers promptly
accept responsibility for their obligations,
if any, particularly when those obligations,
if they exist, will promote the assistance to
the environment of the State of Rhode Island.
Those considerations are perhaps a little bit
ethereal and may vary from case to case, but
they are not to be ignored.
To be sure, New Jersey has an interest
as well in having its insured receive the
benefit of its bargain. However, if under
choice of law principles it turns out that
New Jersey law is selected for purposes of
construction of the insurance contract and
the scope of the responsibility of the
Defendant, our sister court in Rhode Island
is just as capable as this Court would be in
analyzing, construing and applying New Jersey
state law on that point.
8
Accordingly, on February 27, 1989, venue shifted from
the District of New Jersey to the District of Rhode Island.
(2) The Rhode Island phase
______________________
(a) Choice of Law
_____________
Following transfer to Rhode Island, CPC filed a
motion for a declaration that New Jersey substantive law governed
the controversy. Northbrook, in response, contended that the law
of Rhode Island, the site of the pollution, or, in the
alternative, the law of Illinois, the state in which the insurer
accepted the risk, should apply. On June 21, 1990, the district
court filed an opinion ruling on the choice-of-law issue.
Citing Van Dusen v. Barrack, 376 U.S. 612, 639 (1964),
_____________________
the district court stated that "[t]his Court must apply the law
of the state which would have been applied had the change of
venue not occurred."** CPC International Inc. v. Northbrook
____________________________________
____________________
** In Van Dusen v. Barrack, the Supreme Court said, at the page cited
____________________
by the district court (376 U.S. at 639 [footnote omitted]):
We conclude, therefore, that in cases such
as the present, where the defendants seek
transfer, the transferee district court must
be obligated to apply the state law that
would have been applied if there had been no
change of venue. A change of venue under
1404(a) generally should be, with respect
to state law, but a change of courtrooms.
In the instant case, the district court, as a preface to carrying
out its Van Dusen v. Barrack inquiry into whether a New Jersey court
____________________
would apply New Jersey law, Rhode Island law, or Illinois law,
ventured the following observations about the relevant substantive
rules of insurance law in the three jurisdictions (739 F. Supp. at
713):
9
____________________
Although the law of Illinois and New
Jersey appears to be the same on the issues
involved here, the absence of any substantial
law in Rhode Island on the issue of
environmental contamination insurance creates
a potential conflict. See id. at 6. Both
___ __
Illinois and New Jersey liberally protect
their insureds by providing that any
ambiguities in insurance policies must be
resolved in favor of the insured. Compare
_______
United States Fidelity and Guar. Co. v.
_______________________________________
Specialty Coatings Co., 180 Ill. App.3d 378,
______________________
129 Ill. Dec. 306, 310, 535 N.E.2d 1071, 1075
(1989) with Kopp v. Newark Ins. Co., 204 N.J.
____ _______________________
Super. 415, 499 A.2d 235, 237 (1985).
Illinois and New Jersey, likewise, interpret
the "sudden and accidental" provision of the
pollution exclusion clause (the clause at
issue in this case) by considering the
intent, expectation, and foresight of the
insured. Compare United States Fidelity,
_______ ______________________
supra, 129 Ill. Dec. at 312, 535 N.E.2d at
_____
1077 and Reliance Ins. Co. of Illinois v.
___ ________________________________
Martin, 126 Ill. App.3d 94, 81 Ill. Dec. 587,
______
589-90, 467 N.E.2d 287, 289-90 (1984) with
____
CPS Chem. Co. v. Continental Ins. Co. 199
_____________________________________
N.J. Super. 558, 489 A.2d 1265, 1268, 1270
(1984), rev'd on other grounds, 203 N.J.
______________________
Super. 15, 495 A.2d 886 (1985) and Jackson
___ _______
Township Mun. Utilities Auth. v. Hartford
_________________________________________
Accident and Indem. Co., 186 N.J. Super. 156,
_______________________
451 A.2d 990, 994 (1982).
Although one appeals court in Illinois
departs from the consensus and interprets
"sudden" as temporal and instantaneous, that
particular case involved active dumping of
toxic chemicals on the insured's property.
International Minerals & Chem. Corp. v.
_______________________________________
Liberty Mut. Ins. Co., 168 Ill. App.3d 361,
_____________________
119 Ill. Dec. 96, 100-01, 106-07, 522 N.E.2d
758, 762-63, 768-69 (1988). A subsequent
court differentiated its case from
International Minerals and applied the
______________________
intentional or expected test to the "sudden
and accidental" phrase. United States
_____________
Fidelity, supra, 129 Ill. Dec. at 312, 535
________ _____
N.E.2d at 1077.
The facts here more closely resemble
United States Fidelity and Reliance which
______________________ ________
interpreted sudden and accidental by
considering the intent to cause the harm
10
Excess & Surplus Insurance Co. 739 F. Supp. 710, 713 (D.R.I.
______________________________
1990). The district court found no compelling reason why Rhode
Island law should be applied: "[T]his case involves Rhode Island
only because the contamination arose here. . . . Using the place
of pollution approach will prove impractical in any case where
the insurance policy in question provides for national or world-
wide coverage." Id. at 713-14. With respect to the choice
__
between Illinois law and New Jersey law, the district court
observed that:
In this kind of a case where the parties
and their agents have ties to three states
[New Jersey; Illinois; and New York, where an
insurance broker was located] and where the
environmental contamination giving rise to
the dispute arose in a fourth state, it would
appear more reasonable to apply the law of
the one state which connects all of the
parties together. . . . Furthermore, the body
of law which has arisen from the
environmental contamination problem addresses
two concerns: 1) rectifying the harm to the
public caused by environmental contamination
and 2) protecting the interest of the
insureds. The contacts with Illinois do not
address either of those considerations. New
Jersey, on the other hand, has a strong
public interest in protecting its resident
insureds. Therefore, this Court concludes
____________________
rather than the time frame in which the harm
occurred. The case at bar does not involve
allegations of actual dumping of hazardous
chemicals on land. The allegations against
Peterson Puritan were that contamination
arose from leaks in its chemical storage
tanks. As between Illinois and New Jersey it
would appear that no conflict in applicable
law exists. Since the absence of Rhode
Island law on the subject creates a potential
conflict, this Court must still determine
which states' [sic] law should apply.
___
11
that a court sitting in New Jersey would
interpret this insurance contract with this
factual backdrop in accordance with New
Jersey law.
Id. at 715.
__
Northbrook sought reconsideration of the district
court's determination that New Jersey law would govern the
controversy. In the alternative, Northbrook asked the district
court to certify the choice-of-law question to this court. CPC
countered by moving for summary judgment. The district court
denied reconsideration and refused certification. Then
Northbrook cross-moved for summary judgment.
(b) Summary Judgment
________________
The district court, on March 15, 1991, denied CPC's
summary judgment motion and granted Northbrook's cross-motion for
summary judgment. CPC International, Inc. v. Northbrook Excess &
______________________________________________
Surplus Insurance Co., 759 F. Supp. 966 (D.R.I. 1991). On April
_____________________
29, 1991, the district court denied CPC's motion to alter or
amend the March 15 judgment. On this appeal, CPC challenges the
grant of Northbrook's summary judgment motion and the denial of
the motion to alter or amend. As a predicate for assessing the
correctness of the grant of summary judgment in favor of
Northbrook, we will examine the district court's March 15 opinion
in some detail.
i. The Opinion Granting Summary Judgment in favor of
_________________________________________________
Northbrook
__________
(A). The factual record and the language of the
___________________________________________
insurance policy
________________
After describing the genesis of the litigation,
the district court outlined the evidence adduced in discovery
that tended to establish the circumstances giving rise to the
12
flow of contaminants from the Peterson-Puritan site into the
Lincoln-Cumberland aquifer:
To the extent that information is
available concerning the source of the
contamination, the facts are essentially
undisputed by the parties. No scientist or
other expert who investigated the
Peterson/Puritan facility was able to state
unequivocally and precisely what caused the
contamination that emanated from the site.
But the two hydrogeologic surveys prepared
following investigations of the area's
aquifer (offered as exhibits by CPC and cited
by Northbrook in its "Statement of Undisputed
Facts") developed similar theories as to the
possible causes of the pollution.
The GZA report, commissioned by the EPA,
was aimed at discovering the party
responsible for the contamination. As to
Peterson/Puritan, that report concluded:
Inasmuch as GZA did not have
complete access to the property
during the current study, the
specific mechanisms of contaminant
entry into the aquifer could not be
thoroughly investigated. However,
a number of possibilities exist,
including direct leakage from floor
drains and/or sewer lines within
the plant through the unsaturated
zone to the water table; runoff of
contaminated fluids from the paved
areas of the property; or direct
discharge of effluent to Brook A
via the aforementioned pipes and
subsequent infiltration into the
aquifer.
It should be noted that
discussion of potential specific
contaminant sources within the
Peterson-Puritan property or
elsewhere in the industrial area
must be based partially on
speculation. In this context,
there is also the possibility of a
past incident (e.g. a spill, leak,
or discharge of contaminated
fluids) representing the source of
the aquifer contamination.
Peterson-Puritan's original plant
13
was destroyed by fire in 1976, thus
no records of any such incident
exist. It has been reported that,
prior to 1974, the plant employed
an on-site disposal system for
sanitary waste and discharged
process wastewaters to the
Blackstone River. Depending on the
nature of the discharge an disposal
systems, the potential for ground
water contamination may have
existed while these systems were in
operation.
GZA report, page 40.
The second report was prepared for CPC
in 1982 and 1983 by environmental engineers,
Malcolm Pirnie, Inc., ("Pirnie report"). In
addition to investigating other potential
responsible parties in the area, the report
was geared to identifying possible sources of
contamination within the plant. The Pirnie
report concluded:
The heavy concentration at the
______________________________
plant, contrasted with the broader
__________________________________
area of contamination (and the
______________________________
variation of VOC [volatile organic
__________________________________
chemicals] concentrations within
________________________________
this area), tend to support the
_______________________________
theory that several distinct events
___________________________________
-- occurring at different times --
__________________________________
and from different sources at the
_________________________________
plant, led to the release of VOCs
_________________________________
to the ground. Indeed, the varying
______________ _______
mix of VOCs found in the monitoring
___
wells indicate that the heavy
contamination at the plant may have
been due to the more recent release
of chemicals separate from the
discharges which may have led to
the contamination in the more
downgradient portions of the
aquifer. The multiple source
aspect is further supported by the
presence of elevated VOC levels at
well GZ-2, perhaps due to past
discharges to the brook running
along the property. The clustering
of sources at the plant, and the
fact that contaminants begin to
migrate once released to the
saturated zone, has made precise
14
identification of responsible
sources difficult.
Pirnie report, page VII-13 (original
emphasis). Possible sources cited by the
report include leakage from the back-yard
septic system, the storm water discharge pipe
which emptied into the nearby brook, floor
drains and associated piping, the vacuum pump
flush water, and the fire and explosion at
the plant in 1976. Pirnie report, pages VII-
7 - VII--12.
Beyond the reliance on these two
reports, CPC offers no further evidence nor
does it advance any other theory as to the
source of the contamination. However,
Northbrook, during the discovery phase of
this suit, deposed several Peterson\Puritan
employees. Their testimony about practices
at the plant supports the hypotheses of the
environmental engineers.***
____________________
***The district court compendiously summarized the deposition
testimony of Peterson/Puritan employees:
The employees described a system of drains on
the plant floor used to flush away the
chemicals that were frequently leaked or
spilled during regular operations. Before
1972 when the plant hooked up to the
Blackstone Valley sewer system, these drains
led to pipes which emptied into a leaching
field behind the plant. Often a remnant or
"heel" (less than a full batch) of chemicals
would be flushed down the floor drains, if it
were a small amount, such as fifty to sixty
gallons. Larger amounts would be poured into
drums, transported to the leaching field and
dumped.
The plant had a storm water system of
culverts and roof drains that discharged into
the brook on the northern end of site.
Around 1975, Frank King, foreman for building
and machine maintenance, discovered that
process wastewater from the production line,
filters and filling machines was being
flushed into the storm water system, carrying
waste chemicals with it. Mr. King terminated
the practice, but estimated that it might
have been going on for as long as five years.
15
759 F. Supp. at 967-68.
The district court completed its factual recital by
setting forth the principal pertinent provisions of the CPC-
Northbrook CGL policy: the description of coverage;**** the
____________________
Between 1965 and 1975, chemicals were
delivered and stored in storage tanks on a
concrete pad outside of the plant. Leaks,
drips and spills from these tanks were
virtually continuous. In 1975 or 1976, over
5,000 gallons of a chemical
(perchloroethylene) spilled when a railroad
car pulled away while still hooked up to the
tank. Chemicals spilled in this manner would
go under the concrete or over the edge of the
pad into the soil. The floor drains, storm
water system and chemical tank farms spills
are only a few of the potential pollution
sources described by the Peterson/Puritan
employees deposed by Northbrook.
Peter Roncetti, manager of regulatory
affairs for CPC who was sent in to oversee
EPA compliance at Peterson/Puritan, stated
when he was deposed, "I believe most likely a
number of sources [were responsible for the
contamination] rather than a single event.
But this is a judgment. There's nothing
definitive in those determinations made by
ourselves or our consultants." Deposition of
Peter Roncetti, page 94. Mr. Roncetti goes
on to say that, with the exception of the
aforementioned 5,000 gallon spill of
perchloroethylene, he has found no indication
of any other major spill at the plant (p.
94), and that while the major explosion in
1976 may have caused some spills, it did not
appear to result in "any major loss of bulk
chemicals from tanks." (p. 96).
759 F. Supp. at 968-69.
****The Company hereby agrees, subject to the limitations, terms and
conditions hereinafter mentioned, to indemnify the Insured for all
sums which the Insured shall be obligated to pay by reason of the
liability
A. imposed upon the Insured by law, or
B. assumed under contract or agreement by the Named
Insured,
for damages on account of
A. Personal Injuries
B. Property Damages
16
definitions of "Property Damage"***** and
"Occurrence,"****** and the pollution exclusion
clause.*******
(B) Determining the New Jersey rule and applying
____________________________________________
the rule
________
The district court's discussion of law began with a
summary of the standards governing summary judgment. Then the
district court listed the "disputed issues":
Many issues, factual and legal, are
disputed between CPC and Northbrook. For
example: Was there an "Occurrence," as
defined by the policy? Did the "Occurrence"
take place during the one-year policy period,
July 1979 through July 1980, when CPC was
insured by Northbrook? Does payment of
response costs pursuant to an EPA order
constitute compensable "damages" under the
policy? Was the contamination intentional?
When was Northbrook notified of CPC's claim
in connection with the EPA order? Is
Northbrook liable for the settlement with the
Town of Lincoln even though the amount paid
____________________
C. Advertising Liability,
caused by or arising out of each Occurrence happening
anywhere in the world.
*****"Property Damage" shall mean loss of or direct damage to or
destruction of tangible property (other than property owned by any
Insured) and which results in an Occurrence during the policy period.
******"Occurrence" means an accident, event or happening including
continuous or repeated exposure to conditions which results, during
the policy period, in Personal Injury, Property Damage or Advertising
Liability neither expected nor intended from the standpoint of the
Insured.
*******This policy shall not apply
I. to Personal Injury or Property Damage arising out of
the discharge, dispersal, release or escape of smoke,
vapors, soot, fumes, acids, alkalis, toxic chemicals,
liquids or gases, waste materials or other irritants,
contaminants or pollutants into or upon land, the
atmosphere or any water course or body of water; but this
exclusion does not apply if such discharge, dispersal,
release or escape is sudden and accidental.
17
was within the coverage limits of CPC's
primary insurer, Northwestern National?
759 F. Supp. at 970.
Thereupon the district court noted that "[t]o be
compensated under the policy for both claims (the Town of Lincoln
claim and the EPA-related claim), all the disputed issues must be
decided in CPC's favor.... Consequently all the threshold issues
posed by the above questions will be resolved in such a way as to
bolster CPC's claim for coverage under the insurance policy."
Id. at 970-71. Thus, through the prism of Northbrook's summary
__
judgment motion, the district court placed in focus the dominant
question of law presented to the district curt and to this court:
on the factual record summarized by the district court, is CPC
barred from recovery as a matter of law by the insurance policy's
exclusion of liability for "the discharge ... of ... toxic
chemicals ... or other ... pollutants," or could a fact-finder
determine that "such discharge" was "sudden and
accidental"?********
Because the question is one of New Jersey law, the
district court commenced the legal inquiry by referring to five
New Jersey opinions construing the pollution exclusion
clause.********* Three of these are trial court --
____________________
********For the full text of the pollution exclusion clause, see note
6, supra.
_____
*********The pollution exclusion clause appears to have been a
standard ingredient of CGL policies since the early 1970s. According
to New Jersey's Appellate Division: "Before 1966, the standard policy
covered only property damage and personal injury 'caused by
accident'.... In the 1966 revision, the insurance industry switched
universally to 'occurrence based coverage'.... The pollution exclusion
clause was added by the 1973 revision." Broadwell Realty Services,
__________________________
Inc. v. Fidelity & Casualty Co. of N.Y., 218 N.J. Super. 516, 528 A.2d
_______________________________________
18
i.e., Superior Court -- opinions handed down between 1975 and
1984.********** Two are intermediate appellate -- i.e.
Appellate Division -- opinions handed down in 1987 and
1988.*********** The soundness vel non of these five
_______
opinions as harbingers of how the New Jersey Supreme Court will
ultimately construe the pollution exclusion clause is of central
importance in assessing the correctness of the district court's
grant of summary judgment in the carrier's favor. Accordingly,
we will consider these five New Jersey opinions with some care
before summarizing the balance of the district court's opinion.
(a) The New Jersey case law referred to by the
__________________________________________
district court
______________
(i) The three Superior court opinions
_________________________________
____________________
76, 84 (N.J. Super. A.D. 1987). According to the Third Circuit, which
has recently canvassed the same ground, insurance industry
representatives were presenting, and explaining, the new pollution
exclusion clause to state insurance officials as early as 1970. New
___
Castle County v. Hartford Acc. and Indem. Co., 933 F.2d 1162, 1197-98
_____________________________________________
(3d Cir. 1991). What these CGL drafting shifts signified is discussed
in text and footnotes infra at notes 31 and 32 and notes 43, 44 and
_____
45.
**********Lansco, Inc. v. Department of Environmental Protection, 138
______________________________________________________
N.J. Super. 275, 350 A.2d 520 (N.J. Super. Ch. Div. 1975), aff'd. 145
_____
N.J. Super. 433, 368 A.2d 363 (N.J. Super. A.D. 1976), certif. denied
______________
73 N.J. 57, 372 A.2d 322 (1977); Jackson Township Municipal Utility
__________________________________
Authority v. Hartford Accident & Indem. Co., 186 N.J. Super. 156, 451
___________________________________________
A.2d 990 (N.J. Super. Law Div. 1982); CPS Chem. Co., Inc. v.
______________________
Continental Ins. Co., 199 N.J. Super. 558, 489 A.2d 1265 (N.J. Super.
____________________
Law Div. 1984), rev'd. on other grounds, 203 N.J. Super. 15, 495 A.2d
______
86 (N. J. Super. A.D. 1985).
***********Broadwell Realty Services, Inc. v. Fidelity & Gas Co. of
________________________________________________________
N.Y., 218 N.J. Super. 516, 528 A.2d 76 (N.J. Super. A.D. 1987); Summit
____ ______
Assoc., Inc. v. Liberty Mut. Fire Ins. Co., 229 N.J. Super. 56, 550
__________________________________________
A.2d 1235 (N.J. Super. A.D. 1988).
19
The three Superior Court cases involving the
pollution exclusion clause arose in similar settings but before
three different judges. The three judges approached the issues
in similar fashion and arrived at similar conclusions:
In the first case, Lansco, Inc. v. Dept. of
________________________
Environmental Protection,************ "a person or
________________________
persons unknown"************* deliberately released
oil from the insured's tanks. Judge Gelman, sitting in chancery,
ruled that (a) the discharge and resultant damage constituted an
"occurrence" within the meaning of the CGL policy and was not
excluded from coverage by the pollution exclusion clause, and (b)
therefore the carrier had to indemnify the insured for clean-up
costs mandated by the state environmental agency:
"Sudden" means happening without previous
notice . . . unforeseen. . . . "Accidental"
is defined as happening unexpectedly . . . .
Further, under the definition of "occurrence"
contained in the policy, whether the
occurrence is accidental must be viewed from
the standpoint of the insured, and since the
oil spill was neither expected nor intended
by Lansco, it follows that the spill was
sudden and accidental under the exclusion
clause even if caused by the deliberate act
of a third party.**************
In the second case, Jackson Township Municipal
__________________________
Utilities Authority v. Hartford Accident & Indemnity
____________________________________________________
____________________
************350 A.2d 520, supra, note 9.
_____
*************Id. at 521.
__
**************Id. at 524.
__
20
Co.*************** the question was whether CGL
___
carriers had a duty to defend the Jackson Township Municipal
Utilities Authority against claims alleging that the Utilities
Authority had deposited toxic wastes in a municipal landfill, to
the detriment of the groundwater of adjacent landowners. Judge
Havey, of the Ocean County Superior Court, noted that ambiguous
policy language is construed against the carrier and that
exclusions from coverage are strictly construed.* Finding
ambiguity in the policy language, Judge Havey ruled:
[T]he [pollution exclusion] clause can be
interpreted as simply a restatement of the
definition of "occurrence" -- that is, that
the policy will cover claims where the injury
was "neither expected nor intended." It is a
reaffirmation of the principle that coverage
will not be provided for intended results of
intentional acts but will be provided for the
unintended results of an intentional act.*
The third case, CPS Chemical Co., Inc. v. Continental
_____________________________________
Insurance Co.,** was substantially a repetition of Jackson
_____________ _______
Township. A chemical company which had contracted with a waste
________
disposal company to have the latter dispose of chemical wastes
sought a declaratory judgment that its CGL carriers were
obligated to defend it against suits arising out of the deposit
of the waste materials in a landfill. In ruling against the
carriers, Judge Landau, of the Essex County Superior Court,
____________________
***************451 A.2d 990, supra, note 9.
_____
*Id. at 992.
__
*Id. at 994.
__
**489 A.2d 1265, supra, note 9.
_____
21
expressly adopted the construction of the pollution exclusion
clause formulated by Judge Havey in Jackson Township -- i.e., "'a
________________
restatement of the definition of "occurrence"'" and "'a
reaffirmation of the principle that coverage will not be provided
for intended results of intentional acts but will be provided for
the unintended results of an intentional act.'"*** Moreover,
Judge Landau pointed out "that ambiguities in insurance policies
are resolved against the carriers which drafted them,"****
and that although the drafters of the pollution exclusion clause
may have "believed that 'sudden and accidental' connoted a sense
of a dramatic catastrophe, limited in duration and immediate in
its consequences . . . it cannot fairly be said that this was
unambiguously expressed."*****
(ii) The two Appellate Division opinions
___________________________________
The first case in which the Appellate Division had
occasion to address the pollution exclusion clause in a reported
opinion****** was Broadwell Realty Services, Inc. v.
__________________________________
Fidelity & Casualty Co.******* The facts in Broadwell
_______________________ _________
were these: Globe Petroleum (Globe) rented from Broadwell Realty
(Broadwell) certain acreage on which Globe operated a gas
station. New Jersey's Department of Environmental Protection
____________________
***Id. at 1270.
__
****Id.
__
*****Id. at 1270-71.
__
******CF. infra, note 48..
__ _____
*******528 A.2d 76 (N.J. Super. A.D. 1987).
22
(DEP) determined that gasoline had leaked from underground tanks
at the gas station and seeped into adjacent properties.
Thereupon DEP directed Broadwell to take steps both to clean up
the contaminated areas and to prevent further seepage. These
mandated procedures -- which included the digging of an
"interceptor trench" and a "recovery/pumping well" on Broadwell's
own land -- cost Broadwell approximately $50,000. Broadwell, as
an additional insured on a CGL policy issued by Fidelity &
Casualty Company of New York (Fidelity) to Globe, then sought
reimbursement from Fidelity. When Fidelity denied coverage,
Broadwell brought suit in the Essex County Superior Court. That
court granted summary judgment in Broadwell's favor.
On appeal to the Appellate Division, Fidelity
principally relied on the pollution exclusion clause and on a
clause denying coverage for "property damages to . . . property
owned . . . by . . . the insured." With respect to the latter
defense, Judge Baine, writing for the court, held that "the costs
of preventive measures taken by Broadwell on its own property in
response to the DEP directive which were designed to abate the
continued flow of contaminants on to adjacent lands are
recoverable under the policy;"******** however, Judge
Baine and his colleagues concluded that remand was required to
determine whether all the mandated on-site procedures were in
fact for abatement rather than for repair of damage done to
Broadwell's own property. With respect to the pollution
____________________
********Id. at 81.
__
23
exclusion clause, the court stated that "[w]here the insured has
taken reasonable precautions against contaminating the
environment and the dispersal of pollutants is both accidental
and unforeseen, we are of the view that the 'sudden and
accidental' exception to the exclusion is applicable and the loss
is thereby covered by the policy."********* Further,
"[w]e thus construe the word 'sudden' as meaning unexpected and
unintended."********** Finding that on the "meager
[summary judgment] record . . . substantial factual questions
exist as to whether the pollution exclusion, as construed, bars
recovery,"*********** the court concluded that remand
was necessary on this issue as well.************
What is important for present purposes is to consider
the way in which the Broadwell court developed its construction
_________
of the pollution exclusion clause. The court's analysis of the
pollution exclusion clause began with its characterization of
Fidelity's position -- "that the word 'sudden' has a temporal
meaning and that the exclusionary clause thereby bars recovery
for losses caused by pollution except where the damage is the
result of an unexpected and instantaneous
____________________
*********Id. at 86.
__
**********Id.
__
***********Id.
__
************The trial court was also instructed to address, on remand,
Fidelity's claim that "the 'occurrence' did not take place during the
policy period." Id.
__
24
catastrophe."************* The court then noted
that this position had been rejected in the Superior Court
opinions canvassed above -- Lansco, Jackson Township, and CPS
______ ________________ ___
Chemical. "In these cases, our courts have construed the word
________
'sudden' in terms of an 'unexpected,' 'unforeseen' or
'fortuitous' event. This definition is consistent with the
common meaning of the word in everyday
parlance."************** The Appellate Division
then cited a number of non-New Jersey cases, observing that while
those cases reflect "some degree of disarray in the decisional
treatment of this issue, the reasoning expressed in [the Superior
Court cases] represents the prevailing view in other
jurisdictions."***************
Next -- examining case law and scholarly commentary --
the Broadwell court explored the evolution of the CGL's
_________
occurrence and pollution exclusion provisions:
Before 1966, the standard policy covered only
property damage and personal injury "caused
by accident. . . ." The courts generally
defined "accident" as "an unexpected
happening without intention or design. . . ."
Under this test, a volitional act by the
insured nevertheless qualified as an
"accident" if the insured did not
specifically "intend to cause the resulting
harm or [was] not substantially certain that
such harm w[ould] occur. . . ."
____________________
*************Id. at 83.
__
**************Id.
__
***************Id. at 83-84.
__
25
In the 1966 revision, the insurance
industry switched universally to "occurrence-
based coverage." . . . This change was "in
response to consumer demands for broader
liability protection and in acquiescence to
the judicial trend toward a more expansive
reading of the term accident. . . ." The
standard occurrence-based policy defined an
"occurrence" as "an accident, including
continuous or repeated exposure to
conditions, which results in bodily injury or
property damage neither expected nor intended
from the standpoint of the insured. . . ."
This definition was designed to "make it
clear that occurrence embraces not only the
usual accident, but also exposure to
conditions which may continue for an
unmeasured period of time."
The pollution exclusion was added by the
1973* revision. Under this exclusion, only
pollution-related losses that arose from
occurrences both "sudden" and "accidental"
were to be covered . . . . Although it has
been argued that the sole object of this
clause was to limit coverage to accidents
distinct in time and place, Note, "The
Pollution Exclusion [Clause] Through the
Looking Glass," supra, 74 Geo. L.J. at 1242,
_____ _________
the more reasonable conclusion is that the
exclusion was designed to "eliminate coverage
for damages arising out of pollution or
contamination, where such damages appear to
be expected or intended on the part of the
insured and hence are excluded by definition
of 'occurrence.'" 3 Long, The Law of
________________
Liability Insurance, supra, App.-58.
___________________ _____
. . .
Against this backdrop, decisional law in
New Jersey and elsewhere has tended to
interpret the pollution exclusion and, more
particularly, the "sudden and accidental"
exception, as "simply a restatement of the
____________________
*As pointed out in note 8, supra, the Third Circuit, in its recent
_____
canvass of the provenance of the pollution exclusion clause in New
___
Castle County v. Hartford Accident & Indemnity Co. traces the
__________________________________________________
insurance industry's unfurling of the pollution exclusion clause back
to 1970.
26
definition of 'occurrence' -- that is, that
the policy will cover claims where the injury
was 'neither expected nor intended.'"
Jackson Tp. Etc. v. Hartford Acc. & Indemn.
___________________________________________
Co., supra, 186 N.J. Super. at 164, 451 A.2d
___ _____ __________
990. . . . It is a reaffirmation that
coverage will not be provided for expected
and hence avoidable results.
We agree with this analysis.*
In the closing paragraphs of Broadwell, the Appellate
_________
Division noted the benefits of the analysis it had adopted.
Coverage would be accorded to the deserving "insured [who] has
taken reasonable precautions against contaminating the
environment and the dispersal of pollutants is both accidental
and unforeseen."** And problems of proof would be eased: "If
the word 'sudden' is defined as 'rapid' or 'instantaneous,' how
is the exclusion to be applied to the abrupt escape of a
pollutant from a fissure in a tank caused by a gradual corrosive
process?"*** Then the court said:
More important, our interpretation of
the exclusionary language best advances the
objectively reasonable expectations of the
insured. As we have pointed out, the
pollution exclusion had its genesis in the
1973 industry-wide revision. Even when
considered within the context of our
litigious society, it can fairly be said that
the exclusion has generated an extraordinary
number of lawsuits. We have alluded
previously to the disarray in the decisional
____________________
*528 A.2d at 84-5. With a view to achieving some compression of these
extended excerpts from Broadwell, the names and citations of many of
_________
the cases and scholarly works quoted from or referred to have been
omitted.
**Id. at 86.
__
***Id.
__
27
treatment of this issue. The question
continues to confound scholars and
commentators. The critical circumstance is
that the ambiguity and confusion was caused
by the language selected by the insurer. We
necessarily considered the fact that
"alternative or more precise" wording, if
used, "would have put the matter beyond
reasonable question." Mazzilli v. Acc. &
__________________
Cas. Ins. Co. of Winterthur, supra, 35 N.J.
___________________________ _____
at 7, 170 A.2d 800. The ambiguity thus
created must be resolved against the insurer.
We thus construe the word "sudden" as
meaning unexpected and unintended.****
In 1988, a year after Broadwell, the pollution
_________
exclusion clause returned to the Appellate Division in Summit
______
Associates, Inc. v. Liberty Mutual Fire Insurance
_________________________________________________
Company.***** Citing Broadwell and the Superior Court's
_______ _________
decision in Jackson Township, supra, the court said:
________________ _____
As for Liberty's claimed insulation from
liability by way of the pollution exclusion,
our courts have consistently interpreted that
exclusion to constitute the equivalent of an
occurrence and to eliminate coverage only
where such damages appear to be expected or
intended on the part of the
insured.******
(b) The district court's prediction of the
______________________________________
rule the New Jersey Supreme Court would adopt
_____________________________________________
The district court, after referring to the three
Superior Court and two Appellate Division cases we have just
____________________
****Id.
__
*****550 A.2d 1235 (N.J. Super. A.D. 1988).
******Id. at 1239. The opinion in Summit Associates was written by
__ _________________
Judge Cory. Neither he nor either of his Summit Associates panel
_________________
colleagues was a member of the Broadwell panel. See note 50 infra.
_________ ___ _____
28
summarized, examined the question of how a federal court sitting
in diversity is meant to carry out the mandate of Erie R. Co. v.
______________
Tompkins, 304 U.S. 64 (1938), to find state law. In particular,
________
the district court discussed the method to be pursued by a
federal court when the highest court of the state has not
addressed the disputed issue of state law. The district court
quoted the following pertinent language from the Supreme Court's
opinion in Commissioner of Internal Revenue v. Estate of
_____________________________________________
Bosch:*******
_____
Moreover, even in diversity cases this Court
has further held that while the decrees of
"lower state courts" should be "attributed
some weight . . . the decision [is] not
controlling . . ." where the highest court of
the State has not spoken on the point. And
____________________
*******387 U.S. 456, 465 (1967).
29
in West v. A.T.& T. Co., 311 U.S. 223, 237
____________________
(1940), this Court further held that "an
intermediate appellate state court . . . is a
datum for ascertaining state law which is not
to be disregarded by a federal court unless
______
it is convinced by other persuasive data that
_____________________________________________
the highest court of the state would decide
___________________________________________
otherwise."
___________
(Emphasis in original).
Next, the district court discussed the New Jersey
Supreme Court's general principles of construction of insurance
contracts. The district court noted that Mazzilli v. Accident &
______________________
Casualty Ins. Co., 35 N.J. 1, 170 A.2d 800 (1961) (a case relied
_________________
on by the Appellate Division in Broadwell) instructs that
_________
ambiguous policy language is to be construed in favor of the
insured. The district court also pointed out that the New Jersey
Supreme Court insists that all portions of an insurance contract
be given meaning. Then the district court quoted a recent case,
Longobardi v. Chubb Insurance Co. of New Jersey, 121 N.J. 530,
_______________________________________________
582 A.2d 1257, 1260 (1990), in which the New Jersey Supreme
Court, in reversing the Appellate Division, had observed that
"the words of an insurance policy should be given their ordinary
meaning, and in the absence of an ambiguity, a court should not
engage in a strained construction to support the imposition of
liability. Although courts should construe policies in favor of
the insured, they 'should not write for the insured a better
policy of insurance than the one purchased.'"
With these postulates in mind, the district court
stated:
It is the conclusion of this Court that
the New Jersey Supreme Court would refuse to
30
pursue the direction indicated by its lower
courts in Jackson Township and Broadwell.
________________ _________
Instead, this writer concludes that the New
Jersey Supreme Court, failing to find
ambiguity susceptible of more than one
interpretation, would follow the plain
meaning of the phrase "sudden and accidental"
and refuse to "engage in a strained
construction to support the imposition of
liability." Thus, the exclusion would allow
coverage only for events which are
"accidental," that is, unexpected and
unintended, and "sudden," that is, which have
___
occurred abruptly, precipitantly, or over a
short period of time. Coverage for gradual
pollution would be barred under this
pollution exclusion clause, as would coverage
for intentional pollution.
This interpretation conforms to the
teaching of Prather [Prather v. American
_______ ___________________
Motorists Ins. Co., 2 N.J. 496, 67 A.2d 135
__________________
(1949)], where the Court indicated that
effect should be given to all provisions of
the policy and no portion should be left
"useless or inexplicable." The lower courts'
determination that "sudden and accidental"
means "occurrence" renders the language of
the exclusion clause superfluous.
759 F. Supp. at 973.
Having stated its conclusion of law, the district court
opined that the conclusion was not only in harmony "with the New
Jersey Supreme Court's rules of construction for insurance
contracts, but . . . finds extensive support from courts across
the country who have interpreted the pollution exclusion clause
as this Court does today, following what appears to be the
emerging nationwide trend."******** Thereupon the
district court adverted to a number of cases reaching analogous
____________________
********Id.
__
31
results under Michigan, New York, Maine,
Massachusetts*********, Ohio, Florida, Kentucky and
Kansas law.
(c) The district court's application of the
_______________________________________
predicted New Jersey rule to the facts of
_________________________________________
record on summary judgment
__________________________
Having determined what it believed to be the applicable
rule of New Jersey law, the district court applied that rule to
the competing motions for summary judgment:
To receive insurance coverage, CPC has
the burden of proving that the contamination
of the aquifer was caused by events that can
be characterized as "sudden and accidental,"
and thus fit into the exception-to-the-
exception that is the pollution exclusion
clause. . . .
In its "Statement of Undisputed Facts,"
CPC has provided no information concerning
the source and causes of the contamination.
CPC relies exclusively on the reports,
submitted as Exhibits A and E, based on two
hydrogeological studies conducted in the
area. . . .
What this evidence indicates is that no
one really knows exactly what events caused
the contamination in the area surrounding the
Peterson/Puritan plant, and, further, that
CPC would be unable to establish at trial
that the contamination was caused by a sudden
and accidental event. In fact, what evidence
____________________
*********With respect to the Massachusetts construction of the
pollution exclusion clause, the district court in the instant case
referred to the Supreme Judicial Court's opinion in Lumbermen's Mutual
__________________
Casualty Co. v. Belleville Industries, Inc., 497 Mass. 675, 555 N.E.2d
___________________________________________
568 (1990), and to Covenant Insurance Co. v. Friday Engineering, Inc.,
__________________________________________________
742 F. Supp. 708 (D. Mass 1990), which applied the ruling of the
Supreme Judicial Court. Subsequent to the opinion of the district
court in the instant case, we have had occasion to apply that ruling
in Lumbermen's Mutual Casualty Co. v. Belleville Industries, Inc., 938
______________________________________________________________
F.2d 1423 (1st Cir. 1991).
32
there is (the conclusions of the
hydrogeological engineers and the deposition
testimony of Peterson/Puritan employees
concerning plant practices) indicates that
the contamination took place over a period of
years and was caused by a combination of
leaks, spills and disposal methods -- in
short, the kind of gradual process that the
pollution exclusion clause was designed to
exclude.
Id. at 975-76.
__
Whereupon, on March 15, 1991, the district court denied
CPC's motion for summary judgment and granted Northbrook's cross-
motion.
ii. The denial of the motion to alter or amend
__________________________________________
the judgment
____________
On April 1, 1991, CPC filed a timely motion to alter or
amend the judgment. On April 29, 1991, the district court held
oral argument on the motion; following the argument, the district
court delivered a bench opinion adhering to its previously stated
views:
Once this kind of case is sent out of New
Jersey, and is heard by a judge who looks at
the big picture throughout this country, it
generally leads to the same result that I
came to. . . . So, my best estimate, my best
prediction is that the New Jersey Supreme
Court when it decides this kind of a case,
with this kind of a factual situation, will
look at the law throughout the country and
will come to the same conclusion I came to.**********
____________________
**********The district court's complete statement was as follows:
I listened intently to the arguments this
morning and, frankly, I'm satisfied with the
decision I made. I gave this case the best
effort that I could give it. I came to the
conclusion in my own mind that I don't think
the New Jersey Supreme Court would follow
33
____________________
those two . . . decisions, which were clearly
unjustifiable. They're just bad decisions.
I just don't think the New Jersey Supreme
Court would adopt that rule in view of the
law that's being developed throughout the
United States.
I'm satisfied that the word, "sudden"
means what I said it means in this decision
and that's what it should mean, and that the
words, "sudden and accidental," mean an
accidental, unintended event which took place
over a very short period of time.
One must bear in mind that what we're
talking about is an exception to an
exception. The basic policy of the insurance
companies in this area, is not to insure
against pollution damage because it's
unpredictable. It could have existed over
years and years and it could be enormously
detrimental to an insurance company to pay
such a loss when they can't determine what
premiums to ask for to cover this kind of
loss. But, they have an exception to the
exception because they can see that it's
reasonable to have coverage in a situation,
for example, where there is an explosion and
there is chemical damage as a result of an
explosion -- a clearly definable event -- or
a fire in a plant with chemical loss that
causes pollution. Those are the kinds of
situations that can be readily identified and
are an adjunct to what's being insured
against in the policy, the basic policy.
So, a lot of semantics, and discussion
about language, and things of that sort,
really don't lead to an intelligent result in
these cases. I'm satisfied that those two
. . . decisions, are really an attempt to
bring about a social result, protection of
New Jersey insureds in the face of clear
exclusionary language.
Once this kind of case is sent out of
New Jersey, and is heard by a judge who looks
at the big picture throughout this country,
it generally leads to the same result that I
came to. It seems to me that New Jersey law
34
II. Discussion
__________
New Jersey law governs the construction of the CPC-
Northbrook CGL insurance policy. The district court's June 21,
1990 choice-of-law ruling to that effect is law of the case. The
ruling is not questioned on this appeal, nor do we perceive any
ready ground for questioning it. Accordingly, the paramount
issue presented on this appeal is whether, in granting summary
judgment in favor of Northbrook, the district court fashioned the
correct rule of substantive New Jersey insurance law.
Concretely, the matter to be decided is whether the district
court was correct in determining that the New Jersey Supreme
Court, if faced with the task of construing the pollution
exclusion clause, would reject the construction arrived at by the
Appellate Division in Broadwell and reaffirmed in Summit
_________ ______
Associates.
__________
____________________
is based on those two . . . decisions, but
it's not 15 unbroken years -- other New
Jersey judges have questioned those
decisions. I think they're just plain wrong,
and the emerging law is certainly to the
contrary. So, my best estimate, my best
prediction is that the New Jersey Supreme
Court when it decides this kind of a case,
with this kind of a factual situation, will
look at the law throughout the country and
will come to the same conclusion I came to.
That's my best prediction, my best estimate.
Once that's been decided, then the
plaintiff's case fails completely in this
situation.
Plaintiff's Record Appendix Vol. V, 4002-04.
35
On this appeal, CPC contends that the district court's
determination of New Jersey law was erroneous. The State of New
Jersey, as amicus curiae, joins in that contention. The issue on
_____________
appeal is one of law with respect to which our review is plenary.
See Lumbermen's Mutual Casualty Co. v. Belleville Industries,
_________________________________________________________
Inc., 938 F.2d 1423, 1427 (3d Cir. 1991). We take as our point
____
of departure, as the district court did, the teaching of West v.
_______
A.T.& T. Co., 311 U.S. 223, 237 (1940), reaffirmed in
____________
Commissioner of Internal Revenue v. Estate of Bosch, 387 U.S.
___________________________________________________
456, 465 (1967), that "[w]here an intermediate appellate court
rests its considered judgment upon the rule of law which it
announces, that is a datum for ascertaining state law which is
not to be disregarded by a federal court unless it is convinced
by other persuasive data that the highest court of the state
would decide otherwise."
The district court concluded that the New Jersey
Supreme Court would not follow Broadwell because, "failing to
_________
find ambiguity," it "would follow the plain meaning of the phrase
'sudden and accidental'" which would "allow coverage only for
events which are 'accidental,' that is, unexpected and
unintended, and, 'sudden,' that is, which have occurred abruptly,
precipitantly, or over a short period of time. Coverage for
gradual pollution would be barred under this pollution exclusion
clause." Referring to several cases arising under the law of
states other than New Jersey, the district court expressed the
view that the construction of the pollution exclusion clause it
36
favored was consonant with "what appears to be the emerging
nationwide trend."
In assessing the sufficiency of the district court's
rationale for disregarding Broadwell, we derive considerable
_________
enlightenment from the Third Circuit's opinion in New Castle
__________
County v. Hartford Accident & Indemnity Company, 933 F.2d 1162
_______________________________________________
(3d Cir. 1991). New Castle, which was decided on April 30, 1991,
__________
one day after the district court in the instant case denied CPC's
motion to alter or amend its grant of summary judgment in
Northbrook's favor, is the most encyclopedic judicial examination
of the CGL policy -- and, in particular, of the pollution
exclusion clause -- that has come to our attention. New Castle
__________
arose under the law of Delaware, a state whose appellate courts
had not had occasion to construe the pollution exclusion clause
or other CGL clauses whose meanings were in dispute. The
arguments of the parties with respect to the pollution exclusion
clause advanced in the Delaware District Court, and that court's
response to those arguments, were described by the Third Circuit
as follows:
CNA argued that the word "sudden"
unambiguously has a temporal component and
means "abrupt" or "brief." It contended,
therefore, that the contamination from
Tybouts Corner, which was due to a long-term
process of discharging leachate into the
groundwater, is not the type of "sudden"
pollution covered by its policies. The
County, on the other hand, insisted that the
word "sudden" is ambiguous. In view of the
general precept of Delaware law that
ambiguous insurance policies are construed in
favor of the insureds, see Steigler, 384 A.2d
________
at 400, the County argued that the pollution
37
exclusion clause must be interpreted to bar
coverage only if the pollution damage was
expected or intended.
The district court was persuaded by the
County's construction of the term. After
consulting numerous sources, the court
concluded . . . that the word "sudden," as
used in the exception to the pollution
exclusion clause, is susceptible of two
reasonable interpretations -- to wit,
unexpected or brief. Resolving this
ambiguity in favor of the insured, the
district court held that "the term 'sudden'
means a discharge, dispersal, release or
escape of pollutants that is unexpected."
933 F.2d at 1192-93. The Third Circuit, on appeal, concurred in
the district court's assessment of how the Delaware Supreme Court
could be expected to construe "sudden and accidental."
In aid of its analysis, the Third Circuit first turned
to the case law construing the pollution exclusion clause. The
court noted that "[e]ach [of the parties] insists that the trend
in other jurisdictions is to construe the 'sudden and accidental'
exception to the pollution exclusion clause consistent with their
arguments here. Although the cases assembled by the parties are
legion, we discern neither a noticeable trend nor a majority
position. Rather, the authority appears to be evenly
divided. . . ." Id. at 1195. And the court then grouped -- in
__
sequential footnotes which are reproduced here -- "half of the
cases holding that the clause bars
coverage,*********** and . . . the other half holding
____________________
***********933 F.2d at 1195 n.60:
38
____________________
See, e.g., Hayes v. Maryland Casualty Co.,
___ ____ ______________________________
688 F. Supp. 1513 (N.D. Fla. 1988);
International Minerals & Chemical Corp. v.
__________________________________________
Liberty Mutual Insurance Co., 168 Ill. App.3d
____________________________
361, 119 Ill. Dec. 96, 522 N.E.2d 758, appeal
______
denied, 122 Ill.2d 576, 125 Ill. Dec. 218,
______
530 N.E.2d 246 (1988); Barmet of Indiana,
__________________
Inc. v. Security Insurance Group, 425 N.E.2d
________________________________
201 (Ind. Ct. App. 1981); American Motorists
__________________
Insurance Co. v. General Host Corp., 667 F.
___________________________________
Supp. 1423 (D. Kan. 1987); United States
_____________
Fidelity & Guaranty Co. v. Morrison Grain
_________________________________________
Co., 734 F. Supp. 437 (D. Kan. 1990); United
___ ______
States Fidelity & Guaranty Co. v. Star Fire
___________________________________________
Coals, Inc., 856 F.2d 31 (6th Cir. 1988)
___________
(Kentucky law); Lumbermens Mutual Casualty
__________________________
Co. v. Belleville Industries, Inc., 407 Mass.
__________________________________
675, 555 N.E.2d 568 (1990); FL Aerospace v.
_______________
Aetna Casualty & Surety Co., 897 F.2d 214
___________________________
(6th Cir.), cert. denied, ___ U.S. ___, 111
____________
S.Ct. 284, 112 L.Ed.2d 238 (1990) (Michigan
law); Fireman's Fund Insurance Cos. v. Ex-
____________________________________
Cell-O Corp., 702 F. Supp. 1317 (E.D. Mich.
____________
1988); Waste Management of Carolinas, Inc. v.
______________________________________
Peerless Insurance Co., 315 N.C. 688, 340
______________________
S.E.2d 374 (1986); Great Lakes Container
_____________________
Corp. v. National Union Fire Insurance Co.,
__________________________________________
727 F.2d 30 (1st Cir. 1984) (New Hampshire
law); Technicon Electronics Corp. v. American
_______________________________________
Home Assurance Co., 74 N.Y.2d 66, 544
__________________
N.Y.S.2d 531, 542 N.E.2d 1048 (1989); Ogden
_____
v. Travelers Indemnity Co., 924 F.2d 39 (2d
__________________________
Cir. 1991); EAD Metallurgical, Inc. v. Aetna
________________________________
Casualty & Surety Co., 701 F. Supp. 399
_____________________
(W.D.N.Y. 1988), aff'd, 905 F.2d 8 (2d Cir.
_____
1990); New York v. Amro Realty Corp., 697 F.
______________________________
Supp. 99 (N.D.N.Y. 1988); Borden, Inc. v.
_______________
Affiliated FM Insurance Co., 682 F. Supp. 927
___________________________
(S.D. Ohio 1987), aff'd, 865 F.2d 1267, cert.
_____ _____
denied, ___ U.S. ___, 110 S.Ct. 68, 107
______
L.Ed.2d 35 (1989); Transamerica Insurance Co.
__________________________
v. Sunnes, 77 Or. App. 136, 711 P.2d 212
_________
(1985); review denied, 301 Or. 76, 717 P.2d
_____________
631 (1986); Centennial Insurance Co. v.
___________________________
Lumbermens Mutual Casualty Co., 677 F. Supp.
______________________________
342 (E.D. Pa. 1987); Fischer & Porter Co. v.
_______________________
Liberty Mutual Insurance Co., 656 F. Supp.
____________________________
132 (E.D. Pa. 1986); American Mutual
_______________
Liability Insurance Co. v. Neville Chemical
___________________________________________
Co., 650 F. Supp. 929 (W.D. Pa. 1987); Lower
___ _____
39
that it does not."************ Id. at 1195. The
__
____________________
Paxton Township v. United States Fidelity &
___________________________________________
Guaranty Co., 383 Pa. Super. 558, 557 A.2d
____________
393 (1989); Techalloy Co. v. Reliance
_________________________
Insurance Co., 338 Pa. Super. 1, 487 A.2d 820
_____________
(1984); CPI International, Inc. v. Northbrook
_____________________________________
Excess & Surplus Insurance Co., 759 F. Supp.
______________________________
966 (D.R.I. 1991) (New Jersey law); United
______
States Fidelity & Guaranty Co. v. Murray Ohio
_____________________________________________
Mfg. Co., 693 F. Supp. 617 (M.D. Tenn. 1988),
________
aff'd, 875 F.2d 868 (6th Cir. 1989).
_____
It is to be noted that the penultimate case cited in the
foregoing list is the decision of the District Court for the District
of Rhode Island which is here under review.
************933 F.2d at 1195-96 n.61:
See, e.g., City of Northglenn v. Chevron
___ ____ _____________________________
U.S.A., Inc., 634 F. Supp. 217 (D. Colo.
____________
1986); Pepper's Steel & Alloys, Inc. v.
________________________________
United States Fidelity & Guaranty Co., 668 F.
_____________________________________
Supp. 1541 (S.D. Fla. 1987); Payne v. United
_______________
States Fidelity & Guaranty Co., 625 F. Supp.
______________________________
1189 (S.D. Fla. 1985); Claussen v. Aetna
_________________
Casualty & Surety Co., 259 Ga. 333, 380
_____________________
S.E.2d 686 (1989); United States Fidelity &
________________________
Guaranty Co. v. Specialty Coatings Co., 180
______________________________________
Ill. App. 3d 378, 129 Ill. Dec. 306, 535
N.E.2d 1071, appeal denied, 127 Ill.2d 643,
_____________
136 Ill. Dec. 609, 545 N.E.2d 133 (1989);
Reliance Insurance Co. v. Martin, 126 Ill.
________________________________
App. 3d 94, 81 Ill. Dec. 587, 467 N.E.2d 287
(1984); Allstate Insurance Co. v. Quinn
_______________________________
Construction Co., 713 F. Supp. 35 (D. Mass.
________________
1989); Travelers Indemnity Co. v. Dingwell,
___________________________________
414 A.2d 220 (Me. 1980); Jonesville Products,
____________________
Inc. v. Transamerica Insurance Group, 156
____________________________________
Mich. App. 508, 402 N.W.2d 46 (1986), appeal
______
denied, 428 Mich. 895 (1987); Polkow v.
______ _________
Citizens Insurance Co., 180 Mich. App. 651,
______________________
447 N.W.2d 853 (1989); Grinnell Mutual
_______________
Reinsurance Co. v. Wasmuth, 432 N.W. 2d 495
__________________________
(Minn. App. 1988); United States v.
________________
Conservation Chemical Co., 653 F. Supp. 152
_________________________
(W.D. Mo. 1986); Du-Wel Products, Inc. v.
________________________
United States Fire Insurance Co., 236 N.J.
________________________________
Super. 349, 565 A.2d 1113 (1989); cert.
_____
denied, 121 N.J. 617, 583 A.2d 316 (1990);
______
Summit Associates, Inc. v. Liberty Mutual
_________________________________________
Fire Insurance Co., 229 N.J. Super. 56, 550
__________________
40
court then noted that:
the County argues that the existence of a
national judicial split is evidence, in-and-
of-itself, that the "sudden and accidental"
language is ambiguous. . . We agree with
this assertion to a certain extent. Although
the presence of conflicting judicial
decisions does not automatically mandate a
finding of ambiguity. . . . we think it has
some relevance. We are confronted here with
two contrasting lines of cases: one holding
that the word "sudden" is ambiguous and thus
means "unexpected," and another holding that
the word "sudden" always has a temporal
quality and thus means "abrupt" or "brief."
While it is our responsibility to ascertain
which of these lines is most likely to be
followed in Delaware, we cannot help but view
such a division as at least suggesting that
____________________
A.2d 1235 (1988); Broadwell Realty Services,
__________________________
Inc. v. Fidelity & Casualty Co., 218 N.J.
_______________________________
Super. 516, 528 A.2d 76 (1987); Jackson
_______
Township v. Hartford Accident & Indemnity
_________________________________________
Co., 186 N.J. Super. 156, 451 A.2d 990
___
(1982); Avondale Industries, Inc. v.
____________________________
Travelers Indemnity Co., 887 F.2d 1200 (2d
_______________________
Cir. 1989), cert. denied, ___ U.S. ___, 110
____________
S.Ct. 2588, 110 L.Ed.2d 269 (1990); National
________
Grange Mutual Insurance Co. v. Continental
__________________________________________
Casualty Insurance Co., 650 F. Supp. 1404
______________________
(S.D.N.Y. 1986); Colonie Motors, Inc. v.
_______________________
Hartford Accident & Indemnity Co., 145 A.D.2d
_________________________________
180, 538 N.Y.S.2d 630 (1989); Allstate
________
Insurance Co. v. Klock Oil Co., 73 A.D.2d
______________________________
486, 426 N.Y.S.2d 603 (1980); Kipin
_____
Industries v. American Universal Insurance
__________________________________________
Co., 41 Ohio App.3d 228, 535 N.E.2d 334
___
(1987); Buckeye Union Insurance Co. v.
______________________________
Liberty Solvents & Chemicals Co., 17 Ohio
________________________________
App.3d 127, 477 N.E.2d 1227 (1984);
Benedictine Sisters of St. Mary's Hospital v.
_____________________________________________
St. Paul Fire & Marine Insurance Co., 815
____________________________________
F.2d 1209 (8th Cir. 1987); United Pacific
______________
Insurance Co. v. Van's Westlake Union, Inc.,
___________________________________________
34 Wash. App. 708, 664 P.2d 1262, review
______
denied, 100 Wash.2d 1018 (1983); Just v. Land
______ ____________
Reclamation, Ltd., 155 Wis.2d 737, 456 N.W.2d
_________________
570 (1990); Compass Insurance Co. v. Cravens,
_________________________________
Dargan & Co., 748 P.2d 724 (Wyo. 1988).
____________
41
the term "sudden" is susceptible of more than
one reasonable definition.
Id. at 1196.
__
The New Castle court also examined the history of the
__________
pollution exclusion clause, just as the Broadwell court did. The
_________
New Castle account of how the CGL policy moved from the pre-1966
__________
"caused by accident" standard, through the 1966 shift to
"occurrence-based" coverage, to the addition of the pollution-
exclusion clause in 1970 or shortly
thereafter,************* is in substantial
conformity with the Broadwell
_________
account.************** One feature of the New
___
____________________
*************As pointed out in note 8, supra, the Broadwell court
_____ _________
stated that the pollution exclusion clause appeared in 1973, whereas
the New Castle court traced the genesis of the clause to 1970.
__________
Nothing appears to turn on this chronological discrepancy, if
discrepancy there be. Actually, it seems a reasonable surmise that
there is no real discrepancy. The history provided in New Castle (see
__________
note 44, infra) appears to establish that insurance industry
representatives were presenting and explaining the proposed clause to
state regulatory officials as early as 1970; but it may have taken a
few years for the clause to be accepted and introduced into policies
nationwide.
**************The New Castle court's account of the history of the
__________
pollution exclusion follows (933 F.2d at 1196-98 (footnotes omitted)):
The district court record reveals that,
prior to 1966, the standard CGL policy
covered bodily injury and property damage
"caused by accident." Although these early
policies did not define the word "accident,"
insurers, hoping to limit coverage to brief
catastrophic events, argued that the term did
not embrace gradual damage. This argument,
however, was roundly rejected by the
judiciary, which instead held that "accident"
policies covered unintended injury or damage
resulting from, among other things, extended
exposure to pollutants. See, e.g., Moffat v.
___ ____ _________
Metropolitan Casualty Insurance Co., 238 F.
___________________________________
42
____________________
Supp. 165, 172-73 (M.D. Pa. 1964).
In acknowledgment of the prevailing case
law, the insurance industry in 1966 increased
premiums and switched to "occurrence-based"
coverage. The standard policy defined an
occurrence as "'an accident, including
continuous or repeated exposure to
conditions, which results, during the policy
period, in bodily injury or property damage
neither expected nor intended from the
standpoint of the insured.'" Note, The
___
Pollution Exclusion Clause Through the
______________________________________
Looking Glass, 74 Geo. L. J. 1237, 1246-47
_____________
(1986). The standard, occurrence-based
policy thus covered property damage resulting
from gradual pollution. So long as the
ultimate loss was neither expected nor
intended, courts generally extended coverage
to all pollution-related damage, even if it
arose from the intentional discharge of
pollutants. Id. at 1250.
__
The parties' respective accounts of the
history begin to diverge at around 1970. At
that time, amid growing public awareness of
the deleterious environmental effects of
pollution, insurers again changed their
insurance policies. In particular, they
tacked the pollution exclusion clause onto
their occurrence-based policies, thereby
disclaiming coverage for damage arising out
of the discharge of pollutants. As we have
emphasized throughout this opinion, however,
this exclusion does not apply if such
discharge is "sudden and accidental."
According to the County, the insurers
appended this exclusion onto their policies
in order to reaffirm existing limits on
pollution coverage, thus distancing
themselves in the public mind from deliberate
polluters. Because coverage for intentional
pollution already was excluded by the
"occurrence" language, the County claims, the
addition of the pollution exclusion clause
was intended merely to clarify (or reinforce)
preexisting limits on coverage. CNA, of
course, advances a different version of
events. It asserts that the pollution
exclusion clause was added in order to
43
____________________
reintroduce the temporal requirement of
suddenness, which had been deleted when
insurers shifted from an accident-based
policy to one that was occurrence-based.
Additionally, as is discussed at length infra
_____
in Part IV.D.2., CNA contends that the
pollution exclusion clause was intended to
recast CGL policies' focus from the loss to
the discharge: that is, pollution damage
henceforth was covered only if the discharge
of pollutants, not the resulting loss, was
"sudden and accidental."
The phrase "sudden and accidental" was not
new to the insurance industry. For many
years, it had been used in the standard
boiler and machinery policy, and the courts
uniformly had construed the phrase to mean
unexpected and unintended. See, e.g.,
___ ____
Anderson & Middleton Lumber Co. v.
__________________________________
Lumbermen's Mutual Casualty Co., 53 Wash.2d
_______________________________
404, 333 P.2d 938 (1959); New England Gas &
_________________
Electric Ass'n v. Ocean Accident & Guarantee
____________________________________________
Corp., 330 Mass. 640, 116 N.E.2d 671 (1953);
_____
see also 10 A.G. Couch, Couch on Insurance 2d
________ _____________________
42:396, at 505 (M. Rhodes rev. 2d ed. 1982)
("When coverage is limited to a sudden
'breaking' of machinery the word 'sudden'
should be given its primary meaning as a
happening without previous notice, or as
something coming or occurring unexpectedly,
as unforeseen or unprepared for. That is,
'sudden' is not to be construed as synonymous
with instantaneous." (footnote omitted)).
We think that it is reasonable to assume that
the insurance industry was aware of this
construction when it chose to use the phrase
"sudden and accidental" in the pollution
exclusion clause. See 2 G. Couch, Couch on
___ ________
Insurance 2d 15:20, at 195-96 (M. Rhodes
____________
rev. 2d ed. 1984) ("The judicial construction
placed upon particular words or phrases made
prior to the issuance of a policy employing
them will be presumed to have been the
construction intended to be adopted by the
parties.").
This history is reinforced by the
representations made by insurance industry
officials to state authorities in an effort
to gain regulatory approval of the pollution
44
Castle account not found in the Broadwell account is a reference
______ _________
to the long-established use of the phrase "sudden and accidental"
in boiler and machinery insurance policies:
The phrase "sudden and accidental" was not
new to the insurance industry. For many
years, it had been used in the standard
boiler and machinery policy, and the courts
uniformly had construed the phrase to mean
unexpected and unintended. . . . We think
that it is reasonable to assume that the
insurance industry was aware of the
construction when it chose to use the phrase
____________________
exclusion clause. Insurance company
executives stated that the language of the
clause was a mere clarification of the
"occurrence" definition, excluding coverage
only for expected or intended pollution. The
standard explanatory memorandum submitted by
the IRB to state insurance commissioners
noted that:
Coverage for pollution or
contamination is not provided in
most cases under present policies
because the damages can be said to
be expected or intended and thus
are excluded by the definition of
occurrence. The above exclusion
clarifies this situation so as to
avoid any question of intent.
Coverage is continued for pollution
or contamination caused by injuries
where the pollution or
contamination results from an
accident. . . .
See, e.g., app. at 3173 (Memorandum to
___ ____
George F. Reed, Pennsylvania Commissioner of
Insurance, dated May 8, 1970). That insurers
publicly marketed the exclusion as a
clarification, rather than a restriction of
coverage, further indicates that "sudden and
accidental" may mean, as the County suggests,
unexpected and unintended. At the very
least, we think that such comments on the
part of the insurers corroborate the County's
claim that the phrase is ambiguous.
45
"sudden and accidental" in the pollution
exclusion clause.
933 F.2d at 1197.
The Third Circuit's conclusions with respect to the
proper construction of the pollution exclusion clause were as
follows:
When first confronted with this issue,
the reader's initial reaction is likely to be
that "sudden" means "abrupt." Upon
considering the foregoing factors, however,
we now are convinced that the County's
alternative interpretation of "sudden" (as
meaning "unexpected") "reflect[s] a
reasonable reading of the contractual
language." [Aetna Casualty and Surety Co.
_____________________________
v.] Kenner, 570 A.2d [1172], 1174 (Del. Sup.
___ ______
1990)]. Our dictionaries, like the district
court's, define "sudden" both with and
without a temporal element, thus lending
considerable weight to the County's assertion
that either interpretation is reasonable. We
also are impressed by the profound judicial
disagreement over the meaning of the phrase
"sudden and accidental." That so many
learned jurists throughout the nation differ
on the construction of this phrase is, in our
view, additional proof that the phrase admits
of two reasonable constructions. Lastly, we
think that the history of the pollution
exclusion clause quells all remaining doubts
that the phrase "sudden and accidental," in
the context of post-1970 CGL policies, can
reasonably be construed to mean "unexpected
and unintended." Not only is that the
meaning that was ascribed to the phrase when
it first appeared in boiler and machinery
policies, but it also is consistent with the
insurance industry's contemporaneous
representations to state insurance
commissioners.
Because the term "sudden" appears
capable of two reasonable interpretations
("abrupt" and "unexpected"), we conclude that
the term is ambiguous under Delaware law.
The dictates of that state's insurance law
therefore require us to resolve this
46
ambiguity in favor of the County by
construing "sudden" to mean "unexpected."
933 F.2d at 1198-99.***************
The principal question addressed in the Third Circuit's
discussion of the pollution exclusion clause in New Castle --
__________
whether, under Delaware law, the clause is ambiguous and hence to
be construed in favor of the insured -- is exactly the question,
under New Jersey law, that was addressed by the Appellate
Division in Broadwell. We are satisfied that the mode of
_________
analysis employed, and the conclusion arrived at, in New Castle
__________
confirm the reasonableness of the approach taken by the Appellate
Division in Broadwell. But New Castle does more than demonstrate
_________ __________
the reasonableness of Broadwell. It establishes that a federal
_________
court that has studied the provenance and judicial construction
of the pollution exclusion clause more closely than any other
court, and that has had no guidance from the intermediate
appellate court of the relevant state aside from adherence to the
pervasive principle that ambiguous insurance policy language is
to be construed favorably to the insured, has found itself driven
to the conclusion that the pollution exclusion clause is
ambiguous. And this signifies to us that, when a federal court
is advised that the intermediate appellate court of the relevant
state has found the pollution exclusion clause to be ambiguous
____________________
***************Shortly after New Castle the Third Circuit, in Northern
__________ ________
Ins. Co. v. Aardvark Associates, Inc., 942 F.2d 189 (3d Cir. 1991),
_____________________________________
held that under Pennsylvania law "sudden," as used in the pollution
exclusion clause, has a temporal component; in so holding the Third
Circuit followed a ruling of the Pennsylvania Superior Court,
Pennsylvania's intermediate appellate court of general jurisdiction.
47
and that there are no reported cases in that state to the
contrary, the federal court has no warrant to reject the teaching
of the intermediate appellate court.
In short, we are of the view that the legal materials
discussed by the district court in its March 15, 1991 opinion
granting Northbrook's summary judgment motion did not contain
"persuasive data," West v. A.T.& T. Co., supra, 311 U.S. at 237,
____________________ _____
warranting disregard of the construction of the CGL pollution
exclusion clause arrived at by the Appellate Division in
Broadwell.* This would end our inquiry, but for the fact that
_________
there are additional legal materials -- namely, a 1989 case and
two 1990 cases -- which appear to us to be pertinent and which
were not discussed by the district court in its March 15, 1991
opinion.* We think it appropriate to consider whether those
____________________
*Another ground offered by the district court for rejecting Broadwell -
_________
- namely, that the Appellate Division had in effect conflated the
definitions of "occurrence" and "sudden and accidental" and thereby
rendered "the language of the exclusion clause superfluous" -- seems
to us unpersuasive. Absent the "sudden and accidental" exception to
the pollution exclusion clause, an "occurrence" -- i.e., "an
accident, event or happening . . . neither expected nor intended from
the standpoint of the insured" -- which arose "out of the discharge .
. . of . . . pollutants" would not be covered by the policy.
We note that the Fourth Circuit, in a diversity case calling for
the application of New Jersey law, has recently concluded that the New
Jersey Supreme Court would not follow Broadwell. See Liberty Mutual
_________ ______________
Insurance Co. v. Triangle Industries, No. 91-1685 (4th Cir. March 2,
____________________________________
1992). We have considered the reasons adduced by that court and, with
respect, we are constrained to disagree.
*We intimate no criticism of the district court for not discussing the
three cases. The first of the three was an unreported state trial
court opinion cited by Northbrook, and it is entirely possible that
the district court felt it inappropriate to discuss an opinion which,
because it was unreported, apparently lacks formal precedential weight
in the New Jersey court system. See note 49, infra. The other two
_____
48
cases, viewed in the light of the legal materials already
canvassed, offer a substantial basis for upholding the district
court's rejection of the legal principles adopted by the
Appellate Division.
The first of the three cases was Diamond Shamrock
________________
Chemicals Co. v. The Aetna Casualty and Surety Co., No. C-3939-84
__________________________________________________
(Morris Co., Ch. Div., April 12, 1989). In Diamond Shamrock,
________________
Judge Stanton, of the Morris County Superior Court, expressed
disagreement with Broadwell and the Superior Court cases leading
_________
up to it. In Judge Stanton's view, his colleagues' opinions
"have . . . flatly misread the plain language of the pollution
exclusion and have fundamentally misunderstood the way in which
the exclusion and its exception are designed to function."
Diamond Shamrock, slip op. at 22. "[S]udden," according to Judge
________________
Stanton, should have been read to mean "instantaneous (or almost
instantaneous)." Id. at 23.** For the double reason that
__
____________________
cases were cited by CPC in its motion to alter or amend the judgment,
V Plaintiff's Record Appendix 3517-56, but it may be that they were
not squarely presented to the district court at an earlier phase.
**While critical of Broadwell, Judge Stanton did not contest its
_________
binding authority. He concluded, however, that Broadwell was not
_________
dispositive of the case before him, because the record established
that "Diamond was a highly knowledgeable purchaser of insurance with a
substantial amount of bargaining power in the insurance markets" and
that Diamond's insurance manager and insurance broker "were clearly of
the view that the pollution exclusion barred recovery for claims
arising out of gradual pollution. . . ." Diamond Shamrock, slip op.
________________
at 24. We would not, of course, presume to assess the facts of record
in Diamond Shamrock, most especially as they bear upon the insured's
________________
particularized understanding of the pollution clause's applicability
to gradual pollution. But we would suggest that Judge Stanton's
reliance on the New Jersey Supreme Court's opinion in Werner
______
Industries, Inc. v. First State Ins. Co., 112 N.J. 30, 548 A.2d 188
________________________________________
(1988) was inapposite. Werner did indeed stress the sophistication of
______
49
Diamond Shamrock (1) is unreported, and (2) is an opinion of a
________________
court subordinate to the Appellate Division in New Jersey's
judicial hierarchy and on which, therefore, Broadwell and Summit
_________ ______
Associates are binding authority to the contrary, we could,
__________
arguably, disregard Diamond Shamrock. However, notwithstanding
________________
that Judge Stanton's opinion, because it is unreported, carries
no formal precedential weight in New Jersey's corpus juris,***
the opinion does seem to us a datum to be taken into account in
determining whether there are "persuasive data" that the New
Jersey Supreme Court would not follow the path charted by the
Appellate Division in Broadwell and followed in Summit
_________ ______
Associates.****
__________
____________________
the insured in the case before the court, but the case was one in
which, so the New Jersey Supreme Court found, the policy language was
"unambiguous." Moreover, in Werner (a case cited by the district
______
court in the instant case and relied on by respondent in its brief on
appeal), the New Jersey Supreme Court remanded the case to the trial
court for inquiry into whether the insured, notwithstanding its
sophistication, had justifiably relied on its claimed understanding of
the unambiguous policy language.
___________
***See Rule 1:36.3 of New Jersey Rules of General Application (1981).
Diamond Shamrock was mentioned by counsel for Northbrook in the course
________________
of oral argument before the district court on CPC's motion to alter or
amend the judgment. V Plaintiff's Record Appendix 3990. And
apparently it had been cited in Northbrook's summary judgment
submission. Id. Very possibly the district court refrained from
__
discussing Diamond Shamrock because it was an unreported case. But
________________
the district court may have had Diamond Shamrock in mind when, in the
________________
bench opinion denying the motion to alter or amend the judgment, the
district court observed that "other New Jersey judges have questioned"
the Broadwell jurisprudence. See note 40, supra. Our research has not
_________ _____
uncovered New Jersey cases other than Diamond Shamrock that have taken
________________
issue with the Broadwell line of cases.
_________
****Conceivably, a comparable datum might be a public -- but
unpublished -- talk by a Rutgers or Seton Hall law professor taking
the Appellate Division to task.
50
On the other side of the ledger are two opinions by New
Jersey federal judges.
In National Starch and Chemical Corp. v. Great American
____________________________________________________
Insurance Companies, 743 F. Supp. 318 (D.N.J. 1990), Judge
___________________
Ackerman was called on to decide whether New York or New Jersey
law controlled the interpretation of the pollution exclusion
clause in the case before him. Judge Ackerman noted that "New
Jersey law is significantly more favorable to the insured than
New York law." Id. at 319 n.l. Citing Broadwell and Jackson
__ _________ _______
Township, Judge Ackerman stated that "New Jersey courts liberally
________
interpret pollution exclusion clauses in favor of the insured, as
well as exclusions for damages on the property of the insured."
Id. Judge Ackerman concluded that New Jersey law applied to the
__
case before him.
In Marotta v. RLI Insurance Co., Civ. No. 87-4430
____________________________
(D.N.J. June 5, 1990),***** Judge Bissell found that
____________________
An unreported opinion cutting against Diamond Shamrock is that of
________________
the Appellate Division in Township of Jackson v. American Home
____________________________________
Insurance Company, A-170-8173, A-502-8173, A-503-8173, and A-1294-8173
_________________
(March 24, 1982). There, in a case that was a companion to the
Jackson Township case discussed in the text, supra, at notes 14 to 16,
________________ _____
the Appellate Division sustained an interlocutory ruling by Judge
Havey that the pollution exclusion clause did not insulate the
defendant insurers from an obligation to assume the defense of claims
made against the Township of Jackson. However, the Appellate
Division's disposition of the issue was summary (see slip opinion at
pages 6, 10 and 11) and thus adds nothing to the analysis later
deployed in Broadwell and reaffirmed in Summit Associates. For
_________ _________________
present purposes, the one notable aspect of Township of Jackson is
___________________
that the panel consisted of three appellate judges different from the
three Broadwell judges and the three Summit Associates judges.
_________ _________________
*****Marotta, like Diamond Shamrock, is not a reported opinion.
_______ ________________
However, there appears to be no rule of practice that makes the
persuasive authority of a federal district court opinion contingent on
its appearance in Federal Supplement.
51
Broadwell's construction of the pollution exclusion clause was
_________
controlling. In reaching his decision, Judge Bissell took note
of Judge Stanton's opinion in Diamond Shamrock but went on to
________________
observe:
This Court predicts that the New Jersey
Supreme Court would adopt the sound reasoning
advanced by Judge Baine, on behalf of Judges
Pressler and Caulkin as well, in Broadwell
_________
Realty and construe the term "sudden" to mean
______
unexpected and unintended.
Marotta, slip op. at 28.
_______
We agree with Judge Bissell. Other than Diamond
_______
Shamrock -- which Judge Bissell found unconvincing -- there are
________
no "persuasive data" that the New Jersey Supreme Court would
disrespect the analysis developed by the Superior Court,
elaborated by the Appellate Division, and adhered to by Judges
Ackerman and Bissell.****** It follows that we disagree
with the district court's "conclusion . . . that the New Jersey
____________________
******In attaching substantial weight to the opinions of Judges
Ackerman and Bissell, we think it not amiss to point out that both
judges were members of the New Jersey judiciary before being appointed
to the federal bench.
This is not intended to suggest that a court of appeals weighing
an appeal from a district judge's determination of state law in the
state in which the judge sits owes special deference to that judge's
determination; to the contrary, the correctness of such a
determination is a question of law with respect to which the court of
appeals exercises de novo review. Salve Regina College v. Russell,
_______ _______________________________
111 S. Ct. 1217 (1991). The point here is a different one. The point
here is that the cited opinions of Judges Ackerman and Bissell are, in
effect, incremental factual data as to New Jersey law which are
properly to be considered, just as the opinions of New Jersey state
courts are properly to be considered, in making an assessment whether
the state's highest court will or will not follow the pronouncements
of the state's intermediate appellate court. In that context, the
fact that a federal judge has had experience on the state bench may
reasonably be thought to enhance the weight to be accorded that
federal judge's view of state law.
52
Supreme Court would refuse to pursue the direction indicated by
its lower courts in Jackson Township and
________________
Broadwell."*******
_________
Conclusion
__________
For the foregoing reasons, we conclude that the grant
of summary judgment in favor of Northbrook was in error.
Accordingly, the judgment of the district court is reversed and
the case is remanded for further proceedings consistent with this
opinion.
Concurrence follows.
CAMPBELL, Circuit Judge (Concurring). I find Judge
_____________
Pollak's careful analysis unanswerable on the only question
that really matters what is the current law of New Jersey?
Since we must follow New Jersey law, I agree with the court's
opinion. Northbrook's argument that the Supreme Court of New
Jersey would not follow the decisions of that state's
intermediate appellate court is seriously undercut by
____________________
*******Since it was Judge Bissell whose 1404(a) order transferred
the instant case from the District of New Jersey to the District of
Rhode Island, it would appear that, had the case not been transferred,
Broadwell would have been found by Judge Bissell to state the
_________
applicable rule of law in the instant case. Had we concluded that
Judge Bissell's allegiance to Broadwell was a misstatement of New
_________
Jersey law, we would have had to confront the intriguing question
whether a 1404(a) transferee court -- which, pursuant to Van Dusen
_________
v. Barrack, supra, note 1, must apply the same principles of state law
__________ _____
that would have been applied by the transferor court -- is under a
duty to follow a state law rule formulated by the transferor court
that the transferee court reasonably believes is an erroneous
statement of the transferor jurisdiction's law. Since we concur in
Judge Bissell's assessment of New Jersey law, that intriguing question
is not presented in this case.
53
Northbrook's actions in this very case. Because it was
Northbrook which removed the case from the New Jersey Superior
Court to the District Court for the District of New Jersey,
Northbrook is hard-pressed to argue that the case would have
been decided in its favor in the state court system. See,
___
e.g., Kassel v. Gannett Co., Inc., 875 F.2d 935, 950 (1st Cir.
____ ______ _________________
1989) (party who "reject[s] state-court forum in favor of a
federal forum . . . is in a perilously poor position to grumble
when we follow existing state precedent"); Porter v. Nutter,
______ ______
913 F.2d 37, 41 (1st Cir. 1990).
This case clearly demonstrates how unfortunate it
is that New Jersey lacks a certification law or rule. It
should be, but alas is not, possible for us to certify this
important question to the state's highest court. If we could
do so, all guesswork would be eliminated. As the United States
Supreme Court has noted, certification "save[s] time, energy,
and resources and helps build a cooperative judicial
federalism." Lehman Brothers v. Schein, 416 U.S. 386, 391
_______________ ______
(1974).
I am particularly distressed about the lack of a
certification procedure in New Jersey because I agree with
Judge Lagueux that the most appropriate construction of the
policy language is the one the district court adopted. But too
many courts have gone the other way for us to apply our own
reading, no matter how enlightened we may think it is, given
-54-
54
the strong indication by New Jersey's lower courts that New
Jersey law is different.
-55-
55