January 1, 1900

by Nielsen V. Lewis

Modern environmental law has opened a floodgate of governmental enforcement and private cost recovery litigation to resolve issues of who bears the environmental risks and who ultimately must pay for cleanup. Given the staggering cleanup costs and damage claims involved, insurers have been dragged into the legal fray. The transactional cost of environmental insurance coverage litigation has been estimated as high as 70 percent of total cleanup costs. The good news is that after 20 years of coverage litigation battles, the New Jersey Appellate Courts have decided most of the major legal issues regarding coverage of environmental claims under standard comprehensive general liability (CGL) policies, reducing, in theory at least, the number of coverage disputes requiring intervention by the courts.

New Jersey insurance law takes unpredictable turns and the latest unexpected turn was the Supreme Court of New Jersey's decision last summer in Quincy Mutual v. Bellmawr concerning insurance coverage for cleanup of a leaking solid waste landfill. The Borough of Bellmawr was one of many potentially responsible parties sued by the United States to recover its cleanup costs at the Helen Kramer Landfill. Following years of litigation, the defendants settled the government's claims for $95 million, including a contribution of $449,036 from Bellmawr. After Bellmawr obtained indemnification for its settlement costs in an action against its CGL insurers, one of them, Quincy Mutual Fire Insurance Company, filed an action for contribution against Bellmawr's other insurers, including Century Indemnity Company.

The Trigger Of Coverage Before Quincy

Under the standard CGL policy, coverage is triggered by environmental property damage occurring during the term of the policy. Before Quincy, there was little question about the trigger of coverage in the case of polluting landfills. A distinction was drawn between the placement of wastes in a licensed landfill and a discharge of hazardous substances from the waste fill into the environment. Guidance was provided by court cases considering liability for pollution under New Jersey's Spill Act, which prohibits the unauthorized "discharge" of hazardous substances "into the air, water or land." Discharges found to create Spill Act liability have included releases of petroleum from tanks into soils and groundwater; discharges of mercury wastes from a chemical processing plant into environmentally sensitive meadow lands and waters of the State; leaking of hazardous wastes from drums and direct pouring of known toxic chemical hazardous wastes onto porous soil; leakage of chemical wastes from buried drums into surrounding soils and potable water supplies; and gasoline and diesel fuel leaking from underground storage tanks.

In contrast, the New Jersey courts have held that the mere placement of wastes at a disposal facility is not a "discharge" of hazardous substances under the Spill Act. They have stressed that a discharge does not occur unless there has been some interaction between hazardous substances and the surrounding environment. Clearly, there is no "discharge" of hazardous substances in a closed container unless it leaks. By analogy, courts have observed that the mere introduction of wastes into a sanitary landfill does not render the owner or operator liable for cleanup. New Jersey's solid waste management laws, which provide a statutory scheme for licensing and regulating solid waste collection and disposal facilities, including sanitary landfills, reinforce this conceptual difference between the deposit of wastes and discharges of pollutants into the environment.

A New Trigger Of Coverage For Landfills

In Quincy, the Appellate Division considered whether coverage for the landfill pollution was triggered under an early policy of Century. The policy was in effect when the Borough was depositing wastes at the landfill, but expired before contaminants discharged from the landfill into the groundwater. Following prior decisional law, the lower courts' analysis of the question was predictable. Because there had been no impact on groundwater while Century's policy was in effect, the trial court found that Century's policy was not triggered. Distinguishing deposits from discharges, it held that environmental property damage triggering coverage did not occur until contaminants in the landfill migrated into the groundwater. Since Century's policy expired before the deposits had an effect on the groundwater, Century had no coverage obligation. The appellate court affirmed the trial court's decision.

On further appeal, to the surprise of many observers, a majority of the Justices of the Supreme Court reversed, holding that Century's policy was triggered by the insured's initial deposit of wastes in the landfill. In an ironic twist, the Court did so relying on the testimony of Century's own expert witness-testimony intended to get Century out of the case. At trial, the expert had testified without contradiction that it was impossible for wastes deposited at the landfill by Bellmawr to have reached the groundwater before Century's policy had expired.

While testifying, however, Century's expert had described a progressive and unalterable process by which the deposit of wastes in the unlined landfill eventually exceeded its capacity to absorb liquids, leading to the groundwater contamination in question. Based on this aspect of the testimony, the State's high court ruled that the original act of depositing Bellmawr's wastes in the landfill triggered coverage under Century's policy because it set in motion a progressive and irreversible process of environmental property damage inevitably causing the groundwater pollution. It returned the case to the lower courts to determine an appropriate allocation of liability between the two insurers with triggered policies.

Looking Ahead

After Quincy, it is fair to say that insurers and insureds alike will view leaking landfill coverage disputes in a new light. The mere act of depositing wastes in a landfill may have important implications for determining the trigger of coverage and deciding disputes over allocation. The outcome of future disputes may, in fact, depend on the specific factual proofs at trial, including expert testimony, as was the case in Quincy.

There should be no shortage of future landfill coverage controversies. According to one study by the Department of Environmental Protection, hundreds of municipal landfills were closed in the 1950's to the 1980's without modern environmental safeguards. Many of these landfills, characterized by some as "ticking time bombs," are believed to be leaking hazardous substances into the environment. The Department has estimated that it may cost $800 million to $1.1 billion to clean up latent pollution caused by all such landfills in the state. They need only to be unearthed.

Nielsen V. Lewis is a partner at Hill Wallack in the Environmental Practice Group. A frequent writer and speaker on environmental law topics, he is Chairman of the Insurance Law Section of the New Jersey State Bar Association and a member of its Environmental Law Section. His practice concentrates on counseling and representing clients in complex environmental matters and litigation.